Instructions Write a 5-7 page paper (double spaced, 12 point font, standard margins) on one of the following topics. Your title page and bibliography (and any other pages that are not writing) do not

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Instructions

Write a 5-7 page paper (double spaced, 12 point font, standard margins) on one of the following topics. Your title page and bibliography (and any other pages that are not writing) do not count towards the page count. Please cite all your sources, with an accepted citational standard of your choice. For sources, you may only use:

  • Readings assigned in class.
  • Other writing by authors assigned in class.
  • Sources which address the exact same topic as readings assigned in class (e.g. West African deindustrialization; gender roles in Iriquois Confederacy, etc.).

1. Powered hierarchies based on social difference have existed long before industrial capitalism. However, these systems have interacted with industrial capitalism in particular ways – at times entrenching their power and at other times shifting that power. Using examples, as well as theory, from class and from the readings, trace how industrial capitalism has interacted with racism and white supremacy; with patriarchy; and with the division between the Global North and Global South. How has capitalism exacerbated some of the power differentials between groups, and how has it shifted that power over time?

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2. Social Structures of Accumulation (SSA) Theory posits that while capitalism is fundamentally unstable and prone to crisis, the accumulation process can find medium-term stability through the coalescence of sets of institutions – an SSA. Eventually, a crisis occurs which reflects the contradictions of these institutions, and the resolution of that crisis occurs when a new institutional framework can resuscitate the profit rate and accumulation. Looking at both the Global North and Global South begin with institutions of Monopoly Capitalism and trace the history of the Great Depression of the 1930s, Regulated Capitalism, the stagflation crisis of the 1970s, Neoliberal Capitalism, and the financial crisis of 2008 and ensuant Great Recession, showing how each followed from the previous. Use examples to reinforce your points.

Instructions Write a 5-7 page paper (double spaced, 12 point font, standard margins) on one of the following topics. Your title page and bibliography (and any other pages that are not writing) do not
James Fulcher CAP ITALISM A Ve ry S hor t Intr oduction 1 Capitalism: A Very Short Introduction Contents List of illustrations xi 1 What is capitalism? 1 2 Where did capitalism come from? 19 3 How did we get here? 38 4 Is capitalism everywhere the same? 58 5 Has capitalism gone global? 82 6 Crisis? What crisis? 104 References 129 Further reading 132 Index 135 Chapter 1 What is capitalism? Merchant capitalism In April 1601 the English East India Company sent its first expedition to the East Indies. After some 18 months its four ships, Ascension, Dragon, Hector, and Susan, had returned from Sumatra and Java with a cargo mainly of pepper. The success of this venture led to a second expedition by the same ships, which left London in March 1604. On the return journey Hector and Susan set off first, but Susan was lost at sea and Hector was rescued by Ascension and Dragon, which found her drifting off South Africa with most of her crew dead. Ascension, Dragon, and Hector made it back to England in May 1606 with a cargo of pepper, cloves, and nutmegs. The shareholders in these two voyages made a profit of 95% on their investment. Despite the similar success of the third expedition in 1607, the fourth one in 1608, consisting of the ships Ascension and Union, was a complete disaster. The Ascension reached the west coast of India but was there wrecked by its ‘proud and headstrong master’, who drove his ship aground after ignoring local warnings about shoaling waters. The Union called in at a Madagascan port, where the crew was ambushed and the captain killed, but nonetheless the ship made it to Sumatra and loaded a cargo. On her way back, the Union was wrecked off the coast of Brittany. The investors in this expedition lost all their capital. 1 Capitalism is essentially the investment of money in the expectation of making a profit, and huge profits could be made at some considerable risk by long-distance trading ventures of this kind. Profit was quite simply the result of scarcity and distance. It was made from the huge difference between the price paid for, say, pepper in the spice islands and the price it fetched in Europe, a difference that dwarfed the costs of the venture. What mattered was whether the cargo made it back to Europe, though market conditions were also very important, for the sudden return of a large fleet could depress prices. Markets could also become saturated if the high profitability of the trade led too many to enter it. A glut of pepper eventually forced the East India Company to diversify into other spices and other products, such as indigo. A large amount of capital was needed for this trade. An East Indianman, as the ships engaged in this trade were called, had to be built, fitted out, armed with cannon against Dutch and Portuguese rivals, and repaired, if and when it returned. The Company’s shipyards at Blackwall and Deptford, which were major employers of local labour, required financing. Capital was also needed to stock outgoing vessels with bullion and goods to pay for the spices, with munitions, and with food and drink for the large crews they carried. On the Company’s third expedition, Dragon had a crew of 150, Hector 100, and Consent 30 – in all 280 mouths to feed, at least initially. One reason for the large crews was to make sure there were enough sailors to get the ships back after the hazards of the expedition had taken their toll. The East India Company’s capital was obtained largely but not entirely from the rich London merchants who controlled and administered it. Aristocrats and their hangers-on were another source, and one welcomed by the Company because of their influence at Court. The Company’s privileges depended on royal favour. Foreign money was also involved, mainly from Dutch Capitalism 2 merchants excluded by the rival Dutch East Indies Company. They were also a useful source of intelligence about that company’s activities. The first 12 voyages were each financed separately, with capital committed to one voyage only and the profits of the voyage distributed among its shareholders, according to traditional merchant practices. This was, however, a risky way of financing long-distance trade, for it exposed capital to a long period of uncertainty in far-away and unknown places. Risk could be spread by sending out several ships on each expedition, so that not all the eggs were in one basket, but whole expeditions could, nonetheless, be lost, as in 1608. The company shifted to a method of finance that spread risks over a number of voyages and then became a fully fledged joint-stock company, with, after 1657, continuous investment unrelated to specific voyages. In 1688 trading in its stocks began on the London Stock Exchange. 1. East Indiaman, 1829 What is capitalism? 3 Risk was also reduced through monopolistic practices. Like its counterparts abroad, the English East India Company was closely intertwined with the state, which granted it a monopoly for the import of oriental goods and gave it the right to export bullion to pay for them. In exchange the state, always short of money, gained revenue from customs duties on the large and valuable imports made by the company. There was certainly competition but it was international competition, in the Indies between the English, the Dutch, and the Portuguese, and as far as possible eliminated within each country. Outsiders were always trying to break into the trade, and one of the key privileges bestowed on the East India Company by the state was the right to take action against ‘interlopers’. Markets were manipulated by buying up stocks and holding back sales. In the 17th century Amsterdam merchants were particularly skilled in these practices and busily established monopolies not only in spices but in Swedish copper, whale products, Italian silks, sugar, perfume ingredients, and saltpetre (an ingredient of gunpowder). Large warehouses were crucial to this and Fernand Braudel comments that the warehouses of the Dutch merchants were bigger and more expensive than large ships. They could hold sufficient grain to feed the entire country for 10 to 12 years. This was not just a matter of holding goods back to force up prices, for large stocks also enabled the Dutch to destroy foreign competitors by suddenly flooding the whole European market with goods. This was certainly capitalism, for long-distance trade required a heavy investment of capital in the expectation of large profits, but a free market capitalism it clearly was not. The secret of making high profits was to secure monopolies by one means or another, exclude competitors, and control markets in every way possible. Since profit was made from trading in scarce products rather than rationalizing production, the impact of merchant capitalism on society was limited. Most of the European population could get on with their Capitalism 4 daily work without being affected by the activities of these owners of capital. Capitalist production In the 1780s two Scots, James M‘Connel and John Kennedy, travelled south to become apprentices in the Lancashire cotton industry. After gaining experience and making some money in the manufacture of cotton machinery, they set up their own firm in 1795 with an initial capital of £1,770. They soon made good profits from cotton spinning, achieving a return on capital of over 30% in 1799 and 1800. They accumulated capital rapidly and by 1800 their capital had risen to £22,000, by 1810 to £88,000. By 1820 the company had three mills and had established itself as the leading spinner of fine cotton in Manchester, the global metropolis of cotton spinning. This soon became a very competitive industry, however, and profits could not be sustained at the high level of the early 1800s. This was, indeed, largely because high profits had resulted in expansion and attracted new entrants. There were already 344 cotton mills by 1819 but by 1839 there were 1,815. Technical advances enabled huge increases in productivity during the 1830s, and competition drove companies to invest heavily in the new machinery. The bigger mills built at this time contained 40,000 spindles, as compared with the 4,500 or so of their predecessors. The costs of this heavy investment in buildings and machinery, together with the downward pressure of increased productive capacity on yarn prices, depressed the industry’s profitability to low levels in the 1830s. Profit depended ultimately on the workers who turned raw cotton into yarn. M‘Connel and Kennedy’s labour force grew from 312 in 1802 to around 1,500 by the 1830s. Much of this was cheap child labour and at times nearly half those employed were under the age of 16. In 1819 there were 100 children under the age of 10, some as young as 7, who worked from 6.00 in the morning until 7.30 at night. What is capitalism? 5 Apart from the occasional heavy cost of new factories and new machinery, wages were the company’s main cost. Its annual wage bill was over £35,000 by 1811 and over £48,000 by the mid-1830s. Wage costs were minimized not just by holding wage rates down but also by replacing craft workers with less skilled and cheaper labour, as the invention of automatic machinery made this possible. The cyclical instability of the industry resulted in periodic slumps in demand, which forced employers to reduce wages and hours in order to survive. As industrial capitalism developed, conflict over wages became increasingly organized. The spinners defended themselves against wage reductions through their unions, organizing at first locally but then regionally and nationally. In 1810, 1818, and 1830 there were increasingly organized strikes, but these were defeated by the employers, with the assistance of the state, which arrested strikers and imprisoned union leaders. The employers had created their own associations, so that they could ‘black-list’ union militants, 2. Power looms dominate a 19th-century cotton mill Capitalism 6 answer strikes with ‘lock-outs’, and provide mutual financial support. Vigorous action by the spinners’ unions does seem, nonetheless, to have been quite successful, for wages remained stable, in spite of declining profitability and employers’ attempts to reduce them. The exploitation of labour was not just a matter of keeping the wage bill down but also involved the disciplining of the worker. Industrial capitalism required regular and continuous work, if costs were to be minimized. Expensive machinery had to be kept constantly in use. Idleness and drunkenness, even wandering around and conversation, could not be allowed. The cotton mills did indeed have trouble recruiting labour because people simply did not like long, uninterrupted shifts and close supervision. Employers had to find ways of enforcing a discipline that was quite alien to the first generation of industrial workers. They commonly used the crude and negative sanctions of corporal punishment (for children), fines, or the threat of dismissal, but some developed more sophisticated and moralistic ways of controlling their workers. Robert Owen introduced ‘silent monitors’ at his New Lanark mills. Each worker had a piece of wood, with its sides painted black for bad work, blue for indifferent, yellow for good, and white for excellent. The side turned to the front provided a constant reminder, visible to all, of the quality of the previous day’s work. Each department had a ‘book of character’ recording the daily colour for each worker. Discipline was not only a factory matter, for Owen also controlled the community. He sent round street patrols to report drunkenness and fined the drunks next morning. He insisted on cleanliness and established detailed rules for the cleaning of streets and houses. There was even a curfew that required everyone to be indoors after 10.30 p.m. in the winter. As E. P. Thompson has emphasized, disciplined work was regular, timed work. It meant turning up every day, starting on time, and What is capitalism? 7 taking breaks of a specified length at specified times. Employers had a long battle against the well-established tradition of taking off, as additional ‘saint’s days’, ‘St Monday’, and even ‘St Tuesday’, to recover from weekend drinking. Time became a battleground, with some unscrupulous employers putting clocks forward in the morning and back at night. There are stories of watches being taken off workers, so that the employer’s control of time could not be challenged. Significantly, timepiece ownership spread at the same time as the Industrial Revolution and at the end of the 18th century the government tried to tax the ownership of clocks and watches. Industrial capitalism not only created work, it also created ‘leisure’ in the modern sense of the term. This might seem surprising, for the early cotton masters wanted to keep their machinery running as long as possible and forced their employees to work very long hours. However, by requiring continuous work during work hours and ruling out non-work activity, employers had separated out leisure from work. Some did this quite explicitly by creating distinct holiday periods, when factories were shut down, because it was better to do this than have work disrupted by the casual taking of days off. ‘Leisure’ as a distinct non-work time, whether in the form of the holiday, weekend, or evening, was a result of the disciplined and bounded work time created by capitalist production. Workers then wanted more leisure and leisure time was enlarged by union campaigns, which first started in the cotton industry, and eventually new laws were passed that limited the hours of work and gave workers holiday entitlements. Leisure was also the creation of capitalism in another sense, through the commercialization of leisure. This no longer meant participation in traditional sports and pastimes. Workers began to pay for leisure activities organized by capitalist enterprises. The new railway companies provided cheap excursion tickets and Lancashire cotton workers could go to Blackpool for the day. In 1841 Thomas Cook organized his first tour, an excursion by rail from Leicester to Loughborough for a temperance meeting. Mass Capitalism 8 travel to spectator sports, especially football and horse-racing, where people could be charged for entry, was now possible. The importance of this can hardly be exaggerated, for whole new industries were emerging to exploit and develop the leisure market, which was to become a huge source of consumer demand, employment, and profit. Capitalist production had transformed people’s work and leisure lives. The investment of capital in the expectation of profit drove the Industrial Revolution and rapid technical progress increased productivity by leaps and bounds. But machines could not work on their own and it was wage labour that was central to the making of profit. The wage bill was the employer’s main cost and became the focus of the conflict between the owners of capital and, as Karl Marx put it, those who owned only their ‘labour power’, the capacity to make money through physical work. Workers were concentrated in factories and mills, where they had to work in a continuous and disciplined manner under the supervisor’s watchful eye, but also now had an opportunity to organize themselves collectively in unions. Non-work activities were expelled from work time into leisure time and daily life was now sharply divided between work and leisure. Wage labour also meant, however, that workers had money to spend on their leisure life. The commercialization of leisure created new industries that fed back into the expansion of capitalist production. Financial capitalism On Thursday, 23 February 1995, Nick Leeson, the manager of Baring Securities in Singapore, watched the Nikkei, the Japanese stock market index, drop 330 points. In that one day, Barings lost £143 million through the deals that he had made, though he was the only one who knew what was happening. These losses came on top of the earlier ones of some £470 million that Leeson had kept hidden from his bosses. He knew the game was up and bolted, with his wife, to a hideaway on the north coast of Borneo. Meanwhile, What is capitalism? 9 Barings managers, puzzling over the large sums of money that had gone missing in Singapore, tried desperately to find him. By the next morning it was clear that Baring Brothers, the oldest merchant bank in London, had sustained such huge losses that it was effectively bankrupt. Leeson tried to find his way back to England but was arrested in Frankfurt, extradited by Singapore for breaches of its financial regulations, and jailed for six and a half years. Leeson had been trading in ‘derivatives’. These are sophisticated financial instruments that derive their value from the value of something else, such as shares, bonds, currencies, or indeed commodities, such as oil or coffee. Futures, for example, are contracts to buy shares, bonds, currencies, or commodities at their current price at some point in the future. If you think that the price of a share is going to rise, you can buy a three months’ future in it. After the three months have expired, you receive shares at the original price and make a profit by selling them at the higher price now prevailing. You can also buy options, which do not commit you to the future deal but allow you to decide later whether you want to go ahead or not. The buying of futures can perform a very important function, since it enables the reduction of uncertainty and therefore risk. If the price of corn is high but the harvest is some way off, a farmer can lock into the existing price by making a deal with a merchant to sell the corn at this price in three months’ time. Futures can also, however, be bought for purely speculative reasons to make money out of movements in prices. Financial futures of the kind that Leeson was trading in were more or less informed gambles on future price movements. This was what Susan Strange has called ‘casino capitalism’. Money could also be made from ‘arbitrage’, which exploits the small price differences that occur for technical reasons between markets. If you are able to spot these differences, calculate rapidly what they are worth, and move large sums of money very quickly, you can Capitalism 10 (a) Above: Barings’ ‘star trader’ Nick Leeson, after his release from prison in 1999 (b) Left: The 7th Baron Ashburton, Chairman of Barings at the time when Nick Leeson joined the company 3. The old and new faces of British financial capitalism make big profits this way. Leeson found that he could exploit small differences, lasting less than a minute, between futures prices on the Osaka and Singapore stock exchanges. Operations of this kind could be carried out with little risk, since an immediate and calculable profit was taken from an existing, if short-lived, price difference. Why then did things go so wrong for Leeson? He started down a slippery slope when he created a special error account, no. 88888, supposedly to handle innocent dealing and accountancy mistakes. This was the place where he hid his losses and he also found a way of concealing the accumulated end-of-the-month deficits by getting the Singapore ‘back office’ to make temporary but illegal transfers of money between various accounts. This and other manipulations bamboozled the auditors, who should have uncovered what was going on. The existence of 88888 allowed Leeson to gamble with Barings’ money. He could build his reputation by taking risks and trading aggressively on the futures markets, since any losses could be hidden. These could be covered by later trades and at one time he came close to breaking even, but if he had then closed 88888 down this would have ended the operation that made him the star dealer of Barings. Eventually his losses built up again and accumulated to the point at which they could no longer be concealed just by switching money around. At this point he plunged into selling options, which, unlike futures, could immediately raise money to cover the monthly shortfalls in 88888. Leeson was gambling heavily on future price movements and the Tokyo stock market went the wrong way. As his losses increased, he raised the stakes by selling more and riskier options, supposedly on behalf of a mythical client called Philippe. When the Nikkei fell after the Kobe earthquake, his losses became so great that he tried single-handedly to force the market up by buying large numbers of futures. The downward pressures were far too strong 12 Capitalism and the market fell. By now, the losses and liabilities that he had built up were greater than the total capital of Barings. Why did Barings allow all this to happen? They were a merchant bank which in 1984 had ventured into stockbroking by creating Baring Securities. This was a successful move and by 1989 dealings in mainly Japanese stocks and shares were accounting for half Barings’ profits. Baring Securities then moved into the increasingly fashionable activity of derivatives trading. In 1993 Barings merged its capital with that of Barings Securities and in doing so fatally removed the ‘fire-wall’ protecting the bank from possible losses by its securities department. This was a particularly dangerous thing to do, since senior Barings managers had a poor grasp of the new game that they had entered, while no proper management structure had been put in place and financial controls were very weak. Fraud was an ever-present danger in this financially very complex world and Barings broke a golden rule by allowing Leeson to be both a trader and the manager of the Singapore ‘back office’, which checked the trades and balanced the books. Leeson was apparently a very successful dealer who was making large profits for Barings and they backed him to the hilt. Ironically, when Barings crashed his bosses had just decided to reward his 1994 activities with a £450,000 bonus. As Leeson’s operations drained increasing amounts of money from London and sent Barings hunting for loans around the world to cover them, Leeson’s bosses actually thought they were financing profitable deals made by their star trader. It was not only the complexities of the financial markets and the extraordinarily weak financial controls within Barings that enabled Leeson to get away with things for so long, but also the corporate hunger for ever greater profits. What then is capitalism? We have examined three very different examples of capitalism. The various business activities involved are about as different as they 13 What is capitalism? could be, but all involve the investment of money in order to make a profit, the essential feature of capitalism. It is not the nature of the activity itself that matters but the possibility of making profit out of it. Indeed, it is typical of a capitalist society that virtually all economic activities that go on within it are driven by the opportunity to make profit out of capital invested in them. Capital is money that is invested in order to make more money. By extension the term capital is often used to refer to money that is available for investment or, indeed, any asset that can be readily turned into money for it. Thus, a person’s house is often described as their capital, because they can turn it into capital either by selling it or by borrowing on the strength of it. Many small businesses are indeed set up in this way. It is, however, only possible to turn property into capital if its ownership is clearly established, its value can be measured, its title can be transferred, and a market exists for it. A characteristic feature of the development of capitalist societies is the emergence of institutions that enable the conversion of assets of all kinds into capital. Hernando de Soto has argued persuasively that it is the absence of these institutions, above all functioning systems of property law, that frustrates the emergence of local capitalisms in the Third World. He claims that an enormous amount of value that is locked up in property cannot therefore be realized and put by entrepreneurs to productive use. Capitalists existed before capitalism proper. Since the earliest times merchants have made money by investing in goods that they sold at a profit. As we saw with the East India Company, a merchant capitalism of this kind could be highly organized and very profitable, but it was an activity that involved only a small part of the economy. Most people’s livelihoods did not come from economic activities financed by the investment of capital. In capitalism proper the whole economy becomes dependent on the investment of capital and this occurs when it is not just trade that is financed in this way but production as well. 14 Capitalism Capitalist production is based on wage labour. A clear line of division and conflict emerges between the owners of capital, who own what Karl Marx called ‘the means of production’, and those who sell their labour in exchange for wages. The means of production are the workplace, the machinery, and the raw materials, which in pre-capitalist societies were owned not by the owners of capital but by the craftsmen who made the goods. A wage (or salary) is the price paid by the employer for labour sold by the worker. Just as a capitalist will invest money in any activity that brings a profit, a worker can find employment in any activity that pays a wage. In a capitalist society, both capital and labour have an abstract and disembedded quality, since both are separated from specific economic activities and are therefore able in principle to move into any activity that suitably rewards them. In real life this mobility is constrained by the existing skills and experience of both the owners of capital and workers, and by the relationships and attachments that they have formed. The potential mobility of capital and labour is, nonetheless, one of the features of capitalist societies that gives them their characteristic dynamism. Wage labour is both free and unfree. Unlike slaves, who are forced to work by their owners, wage labourers can decide whether they work and for whom. Unlike the serfs in feudal society, who were tied to their lord’s land, they can move freely and seek work wherever they choose. These freedoms are, on the other hand, somewhat illusory, since in a capitalist society it is difficult to survive without paid work and little choice of work or employer may be available. Wage labourers are also subject to tight control by the employer and, as we saw in the cotton mills, capitalist production meant a new kind of disciplined and continuous work. Workers had become, as Marx put it, ‘wage slaves’. The importance of wage labour is not only its role in production but also its role in consumption. Wage labourers cannot themselves 15 What is capitalism? produce what they need or may wish to consume, they have to buy it, thereby providing the demand that activates a whole range of new capitalist enterprises. This applies not only to their food and clothing and personal possessions but to their leisure activities as well. As we saw earlier, capitalist production rapidly led to the creation of whole new industries based on the commercialization of leisure. This double role of wage labour, which enabled the dynamic interaction of production and consumption, explains why capitalist production expanded so very rapidly once it had got going. Markets, like merchants, are nothing new, but they are central to a capitalist society in a quite new and more abstract way. This is because production and consumption are divorced – people do not consume what they produce or produce what they consume – and are linked only through the markets where goods and services are bought and sold. Instead of being a place where you can buy some extra item that you do not produce yourself, markets become the only means by which you can obtain anything. They are no longer located just in market-places but exist wherever buyers and sellers make their exchanges and, nowadays, this commonly means in some electronic space where prices are listed and deals registered. This applies not only to goods and services but also to labour, money, and capital. The wage, that is the price, for labour is established on a labour market, where employers compete for labour and workers compete for jobs. Money itself is bought and sold on currency markets. The ownership of companies is bought and sold in stock exchanges. As we saw with the cotton mills, markets generate intense competition between capitalist enterprises. They compete in many different ways by, for example, exploiting labour more efficiently or using technical innovation to reduce costs or market products more effectively. Competition forces companies into constant change as they seek to beat the competition or at least keep up with it. Some of course fail and go under, throwing their employees out of work. This competitiveness, which contrasts strongly with the 16 Capitalism monopolistic practices of merchant capitalism, makes capitalist production exceptionally dynamic. Capitalist enterprises have, nonetheless, found ways of reducing competition. Those with an edge over their rivals may relish the cut and thrust of competition, but this also creates uncertainty, reduces profits, and causes bankruptcies. Companies thus form trade associations to regulate competition. The market can be rigged by agreeing not to engage in price competition or deciding that all will pay the same wage rates. Competition can also be reduced by mergers and take-overs which concentrate production in fewer hands. There is in capitalism always a tension between competition and concentration, which are equally characteristic of it. Since prices change, any market provides an opportunity to make money through speculation. This occurs when something is bought in the expectation of selling it, without increasing its value by processing it in some way, at a higher price in the future. It can occur in relation to almost any commodity. It may be grain, it may be a currency, it may be a derivative, it may be a slave. Speculation of this kind is often regarded as an unproductive and parasitic activity that is wholly separable from the real economy where goods and services are produced. Unproductive it may often be, but it is not just a means of making money through speculation but also a way of avoiding risk. Since the relationship between supply and demand is always changing, markets are unstable. The building up and storage of stocks is a means of insuring against some adverse price movement that could destroy profit and wipe out a business. Trading in futures, of the kind that Leeson speculated in, is another way of reducing uncertainty and originated long ago as a sophisticated way of protecting producers and traders against unpredictable future movements in prices. The huge growth in the trading of currency during the 1980s and 1990s followed the shift from fixed to floating exchange rates in the 1970s, which created much greater uncertainty about future 17 What is capitalism? currency values. One way of reducing this uncertainty was to ‘hedge’ one’s bets by buying currency futures. So, though the vast bulk of trading in currency futures is undoubtedly speculative, the expansion of this market and the financial innovations associated with it were grounded in real economic needs. The same argument applies to the speculative trading of company shares. The existence of markets for capital is central to capitalism. They are essential to its functioning since they bring together those seeking to finance economic activities and those with money to invest. Since the stock market prices of companies change, as their economic situation and profitability changes, there are inevitably opportunities for speculating on future price movements. Speculation is not something separate from capitalism but an inevitable outgrowth of its essential machinery. So, the answer to our question is that capitalism involves the investment of money to make more money. While merchants have long done this, it is when production is financed in this way that a transformative capitalism comes into being. Capitalist production depends on the exploitation of wage labour, which also fuels the consumption of the goods and services produced by capitalist enterprises. Production and consumption are linked by the markets that come to mediate all economic activities. Markets enable competition between enterprises but also generate tendencies towards concentration in order to reduce uncertainty. Market fluctuations also provide the basis of a speculative form of capitalism, which may not be productive but is, nonetheless, based on mechanisms that are central to the operation of a capitalist economy. 18 Capitalism
Instructions Write a 5-7 page paper (double spaced, 12 point font, standard margins) on one of the following topics. Your title page and bibliography (and any other pages that are not writing) do not
17 THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS SINCE THE END OF THE FIRST WORLD WAR, THREE PERIODS OF DOWNTURN AND INSTABILITY HAVE PUNCTUATED THE ECONOMIC HISTORY OF THE ADVANCED CAPITALIST ECONOMIES, INTERRUPTING LONG PERIODS OF RELATIVELY STEADY GROWTH IN LIVING STANDARDS. ECONOMISTS HAVE LEARNED DIFFERENT LESSONS FROM EACH OF THESE CRISES • There have been three distinctive economic epochs in the hundred years following the first world war—the roaring twenties and the Great Depression; the golden age of capitalism and stagflation; and the great moderation and subsequent financial crisis of 2008 • The end of each of these epochs—the stock market crash of 1929; the decline in profits and investment in the late 1960s and early 1970s culminating in the oil shock of 1973; and the financial crisis of 2008—was a sign that institutions that had governed the economy to that point had failed • The new institutions marking the golden age of capitalism—increased trade union strength and government spending on social insurance—addressed the aggregate demand problems highlighted by the Great Depression and were associated with rapid productivity growth, investment and falling inequality • Nevertheless, the golden age ended with a crisis of profitability, investment and productivity followed by stagflation • The policies adopted in response to the end of the golden age restored high profits and low inflation, but did not restore the investment and productivity growth of the previous epoch—and made economies vulnerable to debt-fuelled financial booms. One of these booms precipitated a global financial crisis in 2008 Beta February 2016 version See www.core-econ.org for the full interactive version of The Economy by The CORE Project. Guide yourself through key concepts with clickable figures, test your understanding with multiple choice questions, look up key terms in the glossary, read full mathematical derivations in the Leibniz supplements, watch economists explain their work in Economists in Action – and much more. 2 Before dawn on Saturday, 7 February 2009, 3,582 firefighters began deploying across the Australian state of Victoria. It would be the day remembered by Australians as Black Saturday: the day that bushfires devastated 400,000 hectares, destroyed 2,029 homes, and took 173 lives. But when the fire brigades suited up that morning, there had not been any reports of fire. What had mobilised every firefighter in Victoria was the McArthur Forest Fire Danger Index (FFDI), which the previous day exceeded what, until then, was its calibrated maximum of 100—a level that had been reached only during the bushfires of January 1939. When the FFDI exceeds 50, it indicates “extreme” danger. A value above 100 is “catastrophic” danger. On 6 February 2009 it had hit 160. Later there would be accusations, trials and even a Royal Commission to determine who or what had caused Australia’s worst natural disaster. There were many possible causes: lightning strikes, sparks from farm machinery, faulty power lines, even arson. A single spark or a lightning strike did not cause Black Saturday. Every day sparks ignite small bush fires, and on that day alone the Royal Commission reported 316 separate grass, scrub or forest fires. This was not a calamity because of any one of these local fires, but because conditions transformed routine, easily contained bushfires into an unprecedented disaster. Small causes are sometimes magnified into large effects. Avalanches are another natural example. In electricity grids a failure of one link in the network overloads other links, leading to a cascade of failures and a blackout. This small-causes-with-big-consequences process is found in economics too, for example in the Great Depression of the 1930s and the global financial crisis of 2008. Although recessions are characteristic of capitalist economies, as we have seen, they rarely turn into episodes of persistent contraction. This is because of a combination of the economy’s self-correcting properties and successful intervention by policymakers. Specifically: • Households take preventative measures that dampen rather than amplify shocks (Unit 12) • Governments create automatic stabilisers (Unit 13) • Governments and central banks take actions to produce negative rather than positive feedbacks when shocks occur (Units 13, 14) But, like Black Saturday, occasionally a major economic calamity occurs. These calamities raise three sets of questions about how economic crises mirror these natural disasters: • In economics, what is the counterpart to the dry undergrowth, the small spark, and the positive feedback processes that caused the fire to spread? What creates the raw material for an economic “Black Saturday”? coreecon | Curriculum Open-access Resources in Economics 3 • Do we wait for the fire burn out, or can we put it out? If so, how? • How can the lessons of an economic crisis be used to reduce the chance it will happen again? Can a long period without a disaster lead to complacency? In this unit we look at three crises that have punctuated the last century of unprecedented growth in living standards in the rich countries of the world—the Great Depression of the 1930s, the end of the golden age of capitalism in the 1970s, and the global financial crisis of 2008. The global financial crisis in 2008 took households, firms and governments around the world by surprise. An apparently small problem in an obscure part of the housing market in the US caused house prices to plummet, leading to a cascade of unpaid debts around the world, and a collapse in global industrial production and world trade. To economists and historians, the events of 2008 looked scarily like what had happened at the beginning of the Great Depression in 1929. For the first time they found themselves fretting about the level of the little-known Baltic Dry Index ( you can track its current level here ), a measure of shipping prices for commodities like iron, coal and grain. When world trade is booming, demand for these commodities is high. But the supply of freight capacity is inelastic, so shipping prices rise and the Index goes up. In May 2008 the Baltic Dry Index reached its highest level since it was first published in 1985. But the reverse is also true: by December many more people were checking the Index, because it had fallen 94%. The fall told them that, thousands of miles from the boarded-up houses of bankrupt former homeowners in Arizona and California where the crisis had begun, giant $100m freighters were stuck in port because there was no trade for them to carry. In 2008 economists remembered the lessons of the Great Depression. They encouraged policymakers globally to adopt a coordinated set of actions to halt the collapse in aggregate demand, and to keep the banking system functioning. But economists also share some of the responsibility for the policies that made this crisis more likely. For 30 years unregulated financial and other markets had been stable. Some economists incorrectly assumed that they were immune to instability. So the events of 2008 also show how a failure to learn from history helps to create the next crisis. How did a small problem in the US housing market send the global economy to the brink of a catastrophe? • The dry undergrowth: In Unit 16, Figure 16.9 charted the growth in the globalisation of international capital markets by looking at the amount of foreign assets owned by domestic residents. At the same time, the globalisation of banking was occurring. Some of the unregulated expansion of lending by global banks ended up financing mortgage loans to so-called subprime borrowers in the US. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 4 • The spark: Falling real estate prices meant that banks with very high leverage, and therefore with thin cushions of net worth (equity), in the US, France, Germany, the UK and elsewhere quickly because insolvent. • The positive feedback mechanism: Fear was transmitted around the world and customers cancelled orders. Aggregate demand fell sharply. The high degree of interconnection among global banks and the possibility of massive transactions in a matter of seconds made excessive leverage an increasingly dangerous source of instability. • The complacent policymakers: With few exceptions most policymakers, and the economists whose advice they sought, still believed that the financial sector was able to regulate itself. The international central bank for central banks—the Bank for International Settlements in Basel—allowed banks great scope to choose their level of leverage. Banks could use their own models to calculate the riskiness of their assets. They could meet the international regulatory standards for leverage by understating the riskiness of their assets, and by parking these risky assets in what are called shadow banks, which they owned but which were outside the scope of banking regulations. All of this was entirely legal. Many economists continued to believe that economic instability was a thing of the past, right up to the onset of the crisis itself. It is as if Australian firefighters had watched the Forest Fire Danger Index hit 160, but did nothing because they didn’t believe a fire was possible. Some of those involved admitted afterwards that their belief in the stability of the economy had been wrong. For example, Alan Greenspan, who had been in charge of the US central bank between 1987 and 2006, admitted this error to a US government committee hearing. As the financial crisis unfolded in the summer and autumn of 2008, econo mists in government, central banks and universities diagnosed a crisis of aggregate demand and bank failure. Many of the key policymakers in this crisis were economists who had studied the Great Depression. The lessons they had learned from the Great Depression in the US—cut interest rates, provide liquidity to banks and run fiscal deficits—were applied. In November 2008, ahead of the G20 summit in Washington, British Prime Minister Gordon Brown told reporters: “We need to agree on the importance of coordination of fiscal and monetary policies. There is a need for urgency. By acting now we can stimulate growth in all our economies. The cost of inaction will be far greater than the cost of any action.” coreecon | Curriculum Open-access Resources in Economics 5 HOW ECONOMISTS LEARN FROM FACTS “I MADE A MISTAKE” On 23 October 2008, a few weeks after the collapse of the US investment bank Lehman Brothers, former US Federal Reserve chairman Alan Greenspan admitted that the accelerating financial crisis had shown him “a flaw” in his belief that free, competitive markets would ensure financial stability. In a hearing of the US House of Representatives Committee on Oversight and Government Reform, Greenspan was questioned by chair of the House Committee, Rep. Henry Waxman: Waxman Well, where did you make a mistake then? Greenspan I made a mistake in presuming that the self-interest of organisations, specifically banks and others, was best capable of protecting [the banks’] own shareholders and their equity in the firms… So the problem here is that something which looked to be a very solid edifice, and, indeed, a critical pillar to market competition and free markets, did break down. And I think that, as I said, shocked me. I still do not fully understand why it happened and, obviously, to the extent that I figure out where it happened and why, I will change my views. If the facts change, I will change. Waxman You had a belief that [quoting Greenspan] “free, competitive markets are by far the unrivalled way to organise economies. We have tried regulation, none meaningfully worked.’’ You have the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. [Did you] make decisions that you wish you had not made? Greenspan Yes, I found a flaw… Waxman You found a flaw? Greenspan I found a flaw in the model… that defines how the world works, so to speak. Waxman In other words, you found that your view of the world was not right, it was not working. Greenspan Precisely. That’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 6 A direct comparison between the first 10 months of the Great Depression and the 2008 financial crisis shows that the collapse of industrial production in the world economy was similar (compare January 1930 and January 2009 in Figure 17.1a). But lessons had been learned: in 2008, monetary and fiscal policy responses were much larger and more decisive than in 1930, as shown in Figures 17.1b and 17.1c. 05101520253035404550 60 65 70 75 80 85 90 95 100 105 110 Months into crisis Index of world industrial production April 2008 = 100 June 1929 = 100 Jan 1931 Jan 1932 Jan 1933 Jan 2009 Jan 2011 Jan 2012 Jan 2010 Jan 1930 Figure 17.1a The second Great Depression that did not happen: Comparing industrial production in the Great Depression and the global financial crisis. Source: Almunia, Miguel, Agustín Bénétrix, Barry Eichengreen, Kevin H. O’Rourke, and Gisela Rua. 2010. ‘From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons.’ Economic Policy 25 (62): 219–65. Updated using CPB Netherlands Bureau for Economic Policy Analysis. 2015. ‘World Trade Monitor.’ Months into crisis 05 1015202530354045500 1 2 3 4 5 6 Central bank policy interest ra tes, % (7 c ountry aver age) Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 1930 Jan 1931 Jan 1932 Jan 1933 From April 2008 Fr om June 1929 Figure 17.1b The Great Depression and the global financial crisis: Monetary policy. Source: As in Figure 17.1a updated using national central bank data. coreecon | Curriculum Open-access Resources in Economics 7 Years from st art of period 012345678-8 -7 -6 -5 -4 -3 -2 -10 1 Government bud get balanc e (as a % of GDP) 1925 1926 1927 19281929 1930 1931 19321933 2004 2005 2006 2007 2008 2009 2010 2011 2012Fr om 1925: GDP -weighted aver age for 21 c ountries Fr om 2004: world Figure 17.1c The Great Depression and the global financial crisis: Fiscal policy. Source: As in Figure 17.1a updated using International Monetary Fund. 2009. World Economic Outlook: January 2009; International Monetary Fund. 2013. ‘IMF Fiscal Monitor April 2013: Fiscal Adjustment in an Uncertain World, April 2013.’ April 16. 17.1 THREE ECONOMIC EPOCHS In the past 100 years the economies we often refer to as advanced (meaning, basically, “rich”), including the US, Western Europe, Australia, Canada and New Zealand, have seen average living standards measured by output per capita grow six-fold. Over the same period hours of work have fallen. This is a remarkable economic success, but it has not been a smooth ride. The story of how rapid growth began was told in Units 1 and 2. In Figure 12.2 we contrasted the steady long-run growth rate from 1921 to 2011 with the fluctuations of the business cycle, which go from peak to peak every three to five years. In this unit we will study three distinctive epochs. Each begins with a period of good years (the light shading in Figure 17.2 below), followed by a period of bad years (the dark shading). • 1921 to 1941: The crisis of the Great Depression is the defining feature of the first epoch, and opened the way for Keynes’ concept of aggregate demand to become standard in economics teaching and policymaking. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 8 • 1948 to 1979: The golden age epoch stretched from the end of the second world war to 1979, and is named for the economic success of the 1950s and 1960s. The golden age was brought to an end in the 1970s by a crisis of profitability and productivity, and saw the emphasis in economics teaching and policymaking shift away from the role of aggregate demand toward supply-side problems such as productivity and decisions by firms to enter and exit markets. • 1979 to 2013: In the most recent epoch, the world was caught by surprise by the global financial crisis. The potential of a debt-fuelled boom to cause havoc was neglected during the preceding years of stable growth and seemingly successful macroeconomic management, which had been called the great moderation. 0 5 10 15 20 25 30 1914 192219301938194619541962197019781986199420022010 -1 -2 0 1 2 3 4 5 6 5 10 15 20 Great Depression epoch: 1921-29; 1929-41 Dashed lines show period aver ages of the series Golden ag e epoch: 1948-73; 1973-79 Fr om st agflation to financial crisis epoch: 1979-2008; 2008-13 Unemployment rate, % Inc ome share of top 1% Annual productivity growth, % Productivity growth (right axis) Unemployment ra te (lef axis) Figure 17.2 Unemployment, productivity growth and inequality in the United States (1914- 2013). Source: United States Bureau of the Census. 2003. Historical Statistics of the United States: Colonial Times to 1970, Part 1. United States: United States Govt Printing Office; Alvaredo, Facundo, Anthony B Atkinson, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. 2016. ‘The World Wealth and Income Database (WID).’ ; US Bureau of Labor Statistics; US Bureau of Economic Analysis. The term crisis is routinely applied to the first and the last of these episodes because they represented an unusual but recurrent cataclysmic divergence from the normal ups-and-downs of the economy. In the second epoch the end of the golden age, too, marked a sharp deviation from what had become normal. The three unhappy coreecon | Curriculum Open-access Resources in Economics 9 surprises that ended the epochs are different in many respects, but they share a common feature: positive feedbacks magnified the effects of routine shocks that under other circumstances would have been dampened. What does Figure 17.2 show? • Productivity growth: A broad measure of economic performance is the growth of hourly productivity in the business sector. Productivity growth hit low points in the Great Depression, at the end of the golden age epoch in 1979 and in the wake of the financial crisis. The golden age got its name due to the extraordinary productivity growth until late in that epoch. The dashed blue lines show the average growth of productivity for each sub-period. • Unemployment: High unemployment, shown in red, dominated the first epoch. The success of the golden age was marked by low unemployment as well as high productivity growth. The end of the golden age produced spikes in unemployment in the mid 1970s and early 1980s. In the third epoch, unemployment was lower at each successive business cycle trough until the financial crisis, when high and persistent unemployment re-emerged. • Inequality: Figure 17.2 also presents data on inequality for the US: the income share of the top 1%. The richest 1% had nearly one-fifth of income in the late 1920s just before the Great Depression. Their share then steadily declined until a U-turn at the end of the golden age restored the income share of the very rich to 1920s levels. We saw in earlier units that continuous technological progress has characterised capitalist economies, driven by the incentives to introduce new technology. Based on their expected profits after tax, entrepreneurs make investment decisions to get a step ahead of their competitors. Productivity growth reflects their collective decisions to invest in new machinery and equipment embodying improvements in technology. Figure 17.3 shows the growth rate of the capital stock and the rate of profit of firms in the non-financial corporate sector of the US economy before and after the payment of taxes on profits. The data in Figure 17.3 illustrates that capital stock growth and firm profitability tend to rise and fall together. As we saw in Unit 13, investment is a function of expected post-tax profits and expectations will be influenced by what has happened to profitability in the recent past. Once a decision to invest is taken, there is a lag before the new capital stock is ordered and installed. As profitability was restored following the collapse of the stock market in 1929 and the banking crises of 1929-31, investment recovered and the capital stock began to grow again. During the golden age, profitability and investment were both buoyant. A closer look at Figure 17.3 is revealing: investment depends on post-tax profitability and we can see that the gap between the pre-tax (red) and post-tax (green) rate of profit declined during the golden age. The lower panel shows the effective tax rate on corporate profits explicitly. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 10 192719371947195719671977 1987 19972007 -50 5 10 15 20 0 2 4 6 8 10 12 14 Annual perc entage r eturn on ne t capital stock/ annual growth r ate of net capital stock , % Ebective t ax rate on c orporate profits f or US non-financialh c orpor ations, % Great Depression downswing: 1929f41 Golden ag e epocb: 1948f73; 1973f79 From st agflation to financial crisis epo2cb: 1979f2008; 2008f13 E ective t ax ra te on profits St art of WWII: 1939 St art of Korean W ar: 1950 St art of Vie tnam W ar: 1961 Pre-t ax profit rate Po st-tax profit rate Growth of capit al stock Figure 17.3 Capital stock growth, profit rates and effective tax rate on profits for US non- financial corporations (1927-2013). Source: US Bureau of Economic Analysis. Wars have to be financed and the tax on businesses increased during the second world war and the Korean war, and more slowly over the course of the Vietnam war. The effective tax rate on profits fell from 8% to 2% over the 30 years from the early 1950s. This helped to stabilise the post-tax rate of profit. In the late 1970s and early 1980s, taxes on profits were cut sharply; thereafter the pre-tax profit rate fluctuated without a trend. But in spite of the stabilisation of profitability in the third epoch, the growth rate of the capital stock fell. On the eve of the financial crisis, Figures 17.2 and 17.3 show that the richest Americans were doing very well. But this did not stimulate investment, with the capital stock growing more slowly than at any time since the second world war. The onset of the financial crisis also coincided with a peak in debt (shown in Figure 17.4). Debt in financial firms and in households was at postwar highs (relative to the size of GDP). The swelling in the amount of debt was clearest for financial firms—but households also increased their debt ratio steadily through the 2000s. coreecon | Curriculum Open-access Resources in Economics 11 0 50 100 150 200 250 300 3501945 1950195519601965197019751980198519901995200020052010 Debt as a % of GDP Golden ag e epoch: 1948-73; 1973-79 Per c ent of GDP for e ach categ ory Financial firms Households Non-financial firms Government Fr om st agflation to financial crisis epoch: 1979-2008; 2008-13 109 94 75 70 Figure 17.4 Debt as a percentage of GDP in the United States: Households, non-financial firms, financial firms and the government (1945-2013). Source: US Federal Reserve. 2015. ‘Financial Accounts of the United States, Historical.’ December 10; US Bureau of Economic Analysis. The three epochs of modern capitalism are very different, as Figures 17.5a and 17.5b show. We need to use the full range of tools of analysis we have developed in previous units to understand their dynamics, and how one epoch is related to another. By 1921, the US had been the world productivity leader for a decade, and the world’s largest economy for 50 years. The three epochs are more clearly defined in the US than in other countries, even other rich countries, although they had a profound influence on the economic history of the rest of the world. Its global leadership in technology and its global firms help explain rapid catch-up growth in Europe and Japan in the golden age. On either side of the golden age, the crises tha t began in the US in 1929 and 2008 became global crises too. So why, apart from its productivity leadership, were these epochs centred on the US? Figure 17.5b summarises important differences between the US and other rich countries. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 12 NAME OF PERIODDA TES IMPORTANT FEA TURES OF THE US EC ONOMY 1920s GREA T DEPRES SION GOLDEN AG E ST AGFLA TION 1980s & THE GREA T MODERA TION FINANCIAL CRISIS 2008-2013 1979-2008 1973-1979 1948-1973 1929-1941 1921-1929 High unemfloymenb Low inflabion Rising inequalibym L ow unemfloymenb and infmlabion F alling growbh r abe of business cafimb al sbock Sharfly rising inmequaliby Rising indebbednesms of households and bm anks High unemfloymenb amnd inflabion L ow froducbiviby growbh L ower frofibs L ow unemfloymenb Unusually high frmoducbiviby growbh Unusually high grmowbh r abe of cafibal sbock F alling e ecbive b ax rabe on c orforabe frofibs F alling inequaliby High unemfloymenb F alling fric es Unusually low growmbh r abe of business cafimbal sbock F alling inequaliby L ow unemfloymenb High froducbiviby grmowbh Rising inequalibym Figure 17.5a The performance of the US economy over a century. GREA T DEPRES SION GOLDEN AG E FINANCIAL CRISIS US : Large , sustained downturn in fwDP st arting frob 1929 UK : Av oided a b anking crisis, expewrienc ed a bodest fall in fDP US : T echnology le ader Outside US : Di w usion of technologyw cr eates catch-up growth,w ibproving producwtivity US : Housing bubwble cr eates banking crisi s ferbany , Nordic countries, Jap an, Canada, Austr alia : Did not w experienc e bubble, larg ely avoided financiwal crisis INTERNATIONAL OPENNES S (ALL THREE PERIODS) More ibport ant in bost c ountries than in twhe US Figure 17.5b The Great Depression, the golden age, and the financial crisis in cross-national comparison: Distinctive features of the United States. coreecon | Curriculum Open-access Resources in Economics 13 17.2 THE GREAT DEPRESSION, POSITIVE FEEDBACKS, AND AGGREGATE DEMAND Capitalism is a dynamic economic system and, as we saw in Unit 12, booms and recessions are a recurrent feature even when weather-driven fluctuations in agricultural output are of limited importance in the economy. But not all recessions are equal. In Unit 13, we saw that in 1929 a downturn in the US business cycle similar to others in the preceding decade transformed into a large-scale economic disaster— the Great Depression. The story of how the Great Depression happened is dramatic to us, and must have been terrifying to those who experienced it. Small causes led to ever-larger effects in a downward spiral, like the cascading failures of an electricity grid during a blackout. Three simultaneous positive feedback mechanisms brought the American economy down in the 1930s: • Pessimism about the future: The impact of a decline in investment on unemployment and of the stock market crash of 1929 on future prospects spread fear among households. They prepared for the worst by attempting to save more, bringing about a further decline in consumption demand. • Failure of the banking system: The resulting decline in income meant that loans could not be repaid. By 1933, almost half of the banks in the US had failed, and access to credit shrank. The banks that did not fail raised interest rates as a hedge against risk, further discouraging firms from investing and curbing household spending on automobiles, refrigerators and other durable goods. • Deflation: Prices fell as unsold goods piled up on store shelves. Deflation affects aggregate demand through several routes. The most important channel operated through the effect of deflation on those with high debts. This positive feedback channel was new because in earlier episodes of deflation levels of debt had been much lower. Households stopped buying cars and houses, and many debtors become insolvent, creating problems for both borrowers and the banks. A survey showed that one-fifth of those in owner-occupied and rented accommodation was in default. Farmers were among those with high levels of debt: prices of their produce were falling, pulling down their incomes directly and pushing up the THE GREAT DEPRESSION The period during the 1930s in which there was a sharp fall in output and employment, experienced in many countries. • Countries that left the gold standard earlier in the 1930s recovered earlier. • In the US, Roosevelt’s New Deal policies accelerated recovery from the Great Depression, partly by causing a change in expectations. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 14 burden of their debt. They responded to this by increasing production, which made the situation worse. When prices are falling, people also postpone the purchase of durables, which further reduces aggregate demand. DISCUSS 17.1: FARMERS IN THE GREAT DEPRESSION The response of farmers may have made sense from an individual point of view, but collectively it made the situation worse. Use diagrams, for example the model of a firm in a price-taking market for an individual farm and diagrams for supply and demand for the industry (for example wheat), to show why. Few understood these positive feedback mechanisms at the time, and the government’s initial attempts to reverse the downward spiral failed. This was partly because the government’s actions were based on mistaken economic ideas. It was also because, even if they had pursued ideal policies, the government share of the economy was too small to counter the powerful destabilising trends in the private sector. Figure 17.6 shows the fall in industrial production that started in 1929. In 1932 it was less than 60% of the 1929 level. This was followed by a recovery, until it fell again by 20% in 1937. Unemployment did not fall below 10% until 1941, the year the US entered the second world war. Consumer prices fell with GDP from 1929 to 1933 and remained stable until the early 1940s. 1928 1929193019311932193319341935193619371938193919401941 40 60 80 100 120 140 160 0 5 10 15 20 25 30 Index (1929=100) Unemployment ra te (%) Stock mark et cr ash: 1929 Roosevelt elected President : 1932 Unemployment rate (right axis) US entered WWII: 1941 Real GDP (lef axis) Industfial pfoduction (lef axis)t bonsumef pfices (lef axis) Figure 17.6 The effect of the Great Depression on the US economy (1928-1941). Source: United States Bureau of the Census. 2003. Historical Statistics of the United States: Colonial Times to 1970, Part 1. United States: United States Govt Printing Office; Federal Reserve Bank of St Louis (FRED). coreecon | Curriculum Open-access Resources in Economics 15 17.3 POLICYMAKERS IN THE GREAT DEPRESSION Australia experienced a Black Saturday. The origin of the Great Depression can be dated to a day now known as Black Thursday. On Thursday 24 October 1929 the US Dow Jones Industrial Average plunged by 11% during the day, starting three years of decline for the US stock market. Figure 17.7 shows the business cycle upswings and downswings from 1924 to 1941. -25 -20 -15 -10 -50 5 10 15 Annualised chang e over period (re al 1972 $bn) Recession Consumption of nondur able goods and ser vices Government purchases Net exports Household and business investment Recession Recession Q3 1924 – Q3 1926 Q3 1926 – Q4 1927 Q4 1927 – Q3 1929 Q3 1929 – Q1 1933 Q1 1933 – Q2 1937 Q2 1937 – Q2 1938 Q2 1938 – Q4 1941 Figure 17.7 Changes in the components of aggregate demand during upswings and downswings (Q3 1924 to Q4 1941). Source: Appendix B in Gordon, Robert J. 1986. The American Business Cycle: Continuity and Change. Chicago, Il: University of Chicago Press. The long downswing from the third quarter of 1929 until the first quarter of 1933 was driven by big falls in household and business investment (the red bar) and in consumption of non-durables (the green bar). Recall that in Figure 13.6 we used the multiplier model to describe how this shock created a fall in aggregate demand, and in Figure 13.8 we described a model of how households had cut consumption to restore their target wealth, to understand the observed behaviour of households and firms in the Great Depression. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 16 In Unit 13, we showed how government policy could both amplify and dampen fluctuations. In the opening years of the Great Depression, government policy both amplified and prolonged the shock. Initially, government purchases and net exports hardly changed. As late as April 1932 President Herbert Hoover told Congress that “far-reaching reduction of governmental expenditures” were necessary, and advocated a balanced budget. Hoover was replaced by Franklin Delano Roosevelt in 1932, at which point government policy changed. Fiscal policy in the Great Depression Fiscal policy made little contribution to recovery until the early 1940s. Estimates suggest that output was 20% below the full employment level in 1931, for example, which means that the small budget surplus in that year would have implied a large cyclically adjusted surplus, given the decline in tax revenues in the depressed economy. Under Roosevelt, from 1932 to 1936 the government ran deficits. When the economy went into recession in 1938-39, the deficit shrank from its peak of 5.3% in 1936 to 3% in 1938. This was another mistake that reinforced the downturn. The big increase in military spending from early 1940 (well before the US entered the second world war in late 1941) contributed to the recovery. Monetary policy in the Great Depression 19211923192519271929193119331935193719391941-15 -10-50 5 10 15 20 25 30 Unemployment rate (%) Consumer pric e inflation (%) Short -term nominal interest rate (%) Short -term re al interest rate (%) F eder al government budget b alanc e (as a % of GNP) UK lef Gold Standard: 1931 (Seftember) US lef Gold St andard: 1933 (bfril) President Roosevel(t’ s New Deal Policies: 1933 onwards P olicy v ariables Rec essions Background dat a Figure 17.8 Policy choices in the Great Depression: United States (1921-1941). Source: Friedman, Milton, and Anna Jacobson J. Schwartz. 1982. Monetary Trends in the United States and the United Kingdom, Their Relation to Income, Prices, and Interest Rates, 1867-1975. Chicago, Il: University of Chicago Press; United States Bureau of the Census. 2003. Historical Statistics of the United States: Colonial Times to 1970, Part 1. United States: United States Govt Printing Office; Federal Reserve Bank of St Louis (FRED). coreecon | Curriculum Open-access Resources in Economics 17 Monetary policy prolonged the Great Depression. The real interest rate data in Figure 17.8 suggest that monetary policy was contractionary in the US economy from 1925 onwards: the real interest rate increased, reaching a peak of 13% in 1932. Once the downturn began in 1929, this policy stance reinforced, rather than offset, the decline of aggregate demand. But note that the nominal interest rate was falling after its peak in 1929; the real interest rate went up because prices were falling too. Interest- sensitive spending on buildings and consumer durables decreased sharply. The gold standard The US was still on what was known as the gold standard. This meant that the US authorities promised to exchange dollars for a specific quantity of gold (the promise was to pay an ounce of gold for $20.67). Under the gold standard, the authorities had to continue to pay out at the fixed rate and, if there was a fall in demand for US dollars, gold would flow out of the country. To prevent this, either the country’s tradable goods must become more competitive (boosting gold inflows through higher net exports) or gold must be attracted through capital inflows by putting up the nominal interest rate, or keeping it high relative to the interest rate in other countries. As a result, policymakers were reluctant to push the interest rate down to the zero lower bound to avoid contributing to the gold outflow. Unless wages decline rapidly to raise international competitiveness and boost the inflow of gold through higher exports and lower imports, sticking to the gold standard in a recession is destabilising: it will amplify the downturn. There was a very large outflow of gold from the US after the UK left the gold standard in September 1931. One reason for speculation against the US dollar—that is, investors selling dollars for gold—was that there were expectations that the US would also abandon the gold standard and devalue the dollar. If it did, those holding dollars would lose. Countries that left the gold standard earlier in the 1930s recovered earlier. A change in expectations In 1933 Roosevelt began a programme of changes to economic policy: • The New Deal committed federal government spending to a range of programmes to increase aggregate demand. • The US left the gold standard in April 1933, which meant the US dollar was devalued to $35 per ounce of gold, and the nominal interest rate was reduced to close to the zero lower bound (see Figure 17.8). • Roosevelt also introduced reforms to the banking system following the bank runs of 1932 and early 1933. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 18 The change in people’s beliefs about the future was just as important as these policy changes. On 4 March 1933, in his inaugural address as president, Roosevelt had told Americans that: “the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror”. We have seen that the terrors of consumers and investors in 1929 had been justified. But a combination of Roosevelt’s New Deal policies and the beginnings of recovery in the economy that were already underway before he became president, households and firms began to think that prices would stop falling and that employment would expand. Debt Home equity Financial wealth Expected future e arnings from employment Ta rget wealth Net worth Incre ase in savings to restore target wealth Reduction in savings to restore target wealth To tal wealth To tal wealth To tal wealth Early 1929 Late 1929-31 Late 1933 A BC Figure 17.9 The Great Depression: Households cut consumption to restore target wealth. Figure 17.9 adds a third column to the model that we first encountered in Figure 13.8. Column C shows the household’s perspective from late 1933. By that time output and employment were growing. With much of the uncertainty about the future resolved, households re-evaluated their expected wealth (including their expected earnings from employment). They reversed the cutbacks in consumption because they saw no need to make additional savings. To the extent that they now expected their income prospects and asset prices to return to pre-crisis levels, consumption would be restored. Any increase in wealth above target due to the increased savings during the Depression years (shown by wealth above target in column C) would create an additional boost to consumption. The slow path to recovery had begun. But the US economy would not return to pre- Depression levels of employment until Roosevelt was in his third term as president and the second world war had begun. coreecon | Curriculum Open-access Resources in Economics 19 17.4 THE GOLDEN AGE OF HIGH GROWTH AND LOW UNEMPLOYMENT The years from 1948 until 1973 were remarkable in the history of capitalism. In the US, we saw in Figure 17.2 that productivity growth was more rapid and unemployment was lower than in the other periods. But this 25-year golden age was not confined to the US. Countries across western Europe, Japan, Australia, Canada and New Zealand experienced a golden age as well. Unemployment rates were historically low (see Figure 15.1). Figure 17.10 shows data from 1820 to 1913 for 13 advanced countries, and for 16 countries from 1950. 0 1 2 3 4 5 6 A ver ag e annual growth (%) 1820-70 1870-1913 1913-501950-73 Real GDP per capita Capital stock 1.0 1.4 1.2 3.8 2.9 1.7 5.5 Figure 17.10 The golden age of capitalism in historical perspective. Source: Table 2.1 in Glyn, Andrew, Alan Hughes, Alain Lipietz, and Ajit Singh. 1989. ‘The Rise and Fall of the Golden Age.’ In The Golden Age of Capitalism: Reinterpreting the Postwar Experience, edited by Stephen A. Marglin and Juliet Schor. New York, NY: Oxford University Press. The growth rate of GDP per capita was more than two-and-a-half times as high during the golden age than in any other period. Instead of doubling every 50 years, living standards were doubling every 20 years. The importance of saving and investment is highlighted in the right panel, where we can see that the capital stock grew almost twice as fast during the golden age as it did between 1870 and 1913. The story of how the large western European countries and Japan (almost) caught up to the US is told in Figure 17.11. In the figure, the level of GDP per hour worked in the US is set at the level of 100 throughout, and so the figure tells us nothing about the performance of the US itself (we have to use Figure 17.2 for that). However, it is a striking way to represent the starting point of these economies relative to the US immediately after the second world war and their trajectories in the years that followed. This was known as catch-up growth. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 20 1950195519601965197019751980198519901995200020052010 0 20 40 60 80 100 120 GDP per hour relative to the US (US=100) Fr anc e United St ates Germany United King dom Sp ain It aly Jap an Figure 17.11 Catch-up to the US during the golden age and beyond (1950-2013). Source: The Conference Board. 2014. ‘Total Economy Database.’ The three large defeated countries (Germany, Italy and Japan) were furthest behind in 1950. Japan’s GDP per hour worked was less than one-fifth the level of the US. Clearly, growth of all of these economies was faster than the US during the golden age: all moved much closer to the level of US productivity. What was the secret of golden age performance in the productivity leader— the US—and in the follower countries? • Changes in economic policymaking and regulation: These resolved the problems of instability that characterised the Great Depression • New institutional arrangements between employers and workers: These created conditions in which it was profitable for firms to innovate. In the US, the technology leader, this meant new technologies, while the follower countries often adopted improved technology and management already in use in the US. Because workers’ trade unions and political parties were now in a stronger position to bargain for a share of the productivity gains, most supported innovation—even when it meant temporary job destruction. THE GOLDEN AGE OF CAPITALISM The period of high productivity growth, high employment and stable inflation extending from the end of the second world war to the early 1970s. • The gold standard was replaced by the more flexible Bretton Woods System. • Employers and employees shared the benefits of technological progress thanks to the postwar accord . • The golden age ended with a period of stagflation in the 1970s. coreecon | Curriculum Open-access Resources in Economics 21 After the second world war governments had learned the lessons of the Great Depression. This affected national and international policymaking. Just as Roosevelt’s New Deal signalled a new policy regime and raised expectations in the private sector, postwar governments provided reassurance that policy would be used to support aggregate demand if necessary. Government was now larger in all of these countries after the second world war, and the size of government grew throughout the 1950s and 1960s. Figure 13.1 showed the decline in output fluctuations after 1950, and the much larger size of government in the US. In Unit 13, we saw how a larger government provides more automatic stabilisation for the economy. The modern welfare state was built in the 1950s, and unemployment benefits were introduced. This also formed part of the automatic stabilisation. Given the cost of adherence to the gold standard during the Great Depression, it was clear that a new policy regime for international economic relations had to be put in place. The new regime was called the Bretton Woods System after the ski resort in New Hampshire where representatives of the major economies, including Keynes, created a system of rules that was more flexible than the gold standard. Exchange rates were tied to the US dollar rather than gold and, if countries became very uncompetitive—if they faced a “fundamental disequilibrium” in external accounts, in the words of the agreement—devaluations of the exchange rate were permitted. When a currency like the British pound was devalued (as occurred in November 1967) it became cheaper to buy pounds. This boosted the demand for British exports and reduced the demand of British residents for goods produced abroad. The Bretton Woods System worked fairly well for most of the golden age. 17.5 WORKERS AND EMPLOYERS IN THE GOLDEN AGE High investment, rapid productivity growth, rising wages and low unemployment defined the golden age. This seems too good to be true. We saw a model of the wage and profit curve in Unit 15 which highlighted the conflict of interest between workers and employers: at low unemployment, workers must get high wages so that they will work effectively. This depresses profits and reduces investment. The golden age does not seem to follow this model: we saw low unemployment, high profits and high investment at the same time. How did this virtuous circle work? UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 22 • Profits after taxes in the US economy remained high: This persisted from the end of the second world war through the 1960s (look again at Figure 17.3) and the situation was similar in other advanced economies. • Profits led to investment: The widespread expectation that high profits would continue in the future provided the conditions for sustained high levels of investment (refer back to the model of investment spending in section 13.4). • High investment and continued technological progress created more jobs: Unemployment stayed low. • The power of workers: Trade unions and political movements allied with employees had high bargaining power, which allowed a sustained increase in wages. As the last bullet suggests, trade unions were important in this process, as well as governments. Between 1920 and 1933 trade unions lost two-fifths of their members, most of the losses occurring immediately after the first world war. During the 1930s changes in the laws affecting trade unions, as well as the hardship of the Great Depression, reversed this decline. High demand for labour during the second world war strengthened labour’s bargaining power: trade union membership as a fraction of total employment peaked in the early 1950s. There was a subsequent steady decline during the next 50 years. 1913 19231933 19431953 196319731983 19932003 20130 5 0 15 20 25 30 35 Union membership as a % of employed / Government re venue as a % of GNP Great Depression epoch: 1921-29; 1929-41 Golden ag e epoch: 1948-73; 1973-79 Government size Union membership Fr om st agflation to financial crisis epoch: 1979-2008; 2008-13 Figure 17.12 Trade union membership and the size of government in the United States (1913-2013). Source: Wallis, John Joseph. 2000. ‘American Government Finance in the Long Run: 1790 to 1990.’ Journal of Economic Perspectives 14 (1): 61–82; Mayer, Gerald. 2004. Union Membership Trends in the United States. Washington, DC: Congressional Research Service; US Bureau of Economic Analysis. Figure 17.12 shows both the growth of the government and the historically high level of trade union membership in the US. As we have seen, larger government partly reflected the new unemployment insurance entitlement. From the wage and profit coreecon | Curriculum Open-access Resources in Economics 23 curve model, we know that higher unemployment benefits and stronger trade unions shift the wage curve upwards, allowing employees to bargain for a share of increasing productivity. In the golden age employees had sufficient bargaining power to claim a share in the gains that technological progress made possible. Both employers and employees realised that there was more to be gained in cooperating to increase the size of the pie than in wasting resources in futile efforts to claim most of the pie for themselves. Policies, business practices and trade union strategies during this period reflected this insight. When translated into the labour market model (in Figure 17.13) the four bullets explaining of the golden age can be translated into shifts in the profit curve and the wage curve: • The profit curve shifted up: This happened because productivity increased rapidly • The wage curve shifted up: Low unemployment, strong unions and favourable government policies increased labour’s bargaining power, but the resulting upward shift in the wage curve was modest, allowing for high profits, high investment (the basis of continuing productivity growth) and low unemployment. Upward shif of profit cur ve due to technofogicaf changeProfit cur ve, late 1950s/60s Profit cur ve, early 1950s Wa ge cur ve, post -war acco rd, late 1950s-mid 60s Wage cur ve, e arly 1950s Labour forc e U=5b A B U=4b Real wage Employment rate (%) Lower unemployment ra te (%) Figure 17.13 The golden age: Using the wage and profit curves. Recall from Unit 15 that the profit curve shows the real wage consistent with employers maintaining investment at a level to keep employment constant. This means that a real wage above the profit curve will drive firms to leave (relocate to some other economy) or cut back on their investment, and employment falls. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 24 The profit curve will shift up when worker productivity rises, or when taxation on profits is reduced, or when investors and owners have optimistic expectations about future profits. It will shift down when employers have to pay higher prices for imported raw materials, such as oil. In the US, technological progress was rapid in the golden age as the innovations developed during the Great Depression and the second world war were embodied in new capital equipment. The new technologies and new management techniques already in use in the US could also be used in the catch-up economies if the innovators expected high enough profits. In many of these countries golden age growth was even faster than at the technology frontier as defined by the US in Figure 17.11. Taking the example of the US, we can represent the economy as at point A at the beginning of the golden age, with unemployment of 5%. Technological progress shifts the profit curve up (to the one labelled “late 1950s/60s”). Unless wages adjust upwards or the economy expands, the result initially is a wage much below the profit curve. This stimulates high investment, consistent with the data for the growth of the capital stock in the US shown in Figure 17.3. But wages eventually did rise and at the same time the economy expanded, moving towards point B in the figure. The strength of unions in wage setting and the improvement in unemployment insurance during the 1950s and 60s are illustrated as an upward shift of the wage curve in Figure 17.13. To get the outcome observed, with wages growing in line with productivity at low unemployment such as point B , unions and employers need to agree about the scope for wage increases. This would be the case if the wage curve shifted to the one labelled “Wage curve, postwar accord, late 1950s-mid 60s”. Unions would refrain from using the full extent of their bargaining power (for example, in firms or plants where they had a very strong position) and cooperate in an economy-wide bargain designed to keep wage growth consistent with the constraint imposed by the profit curve. In return, employers would maintain investment at a level sufficient to keep unemployment low. This unwritten but widely observed pattern of sharing the gains to technological progress between employees and employers is termed the postwar accord. In Unit 15, we also referred to this process as fair-shares bargaining. Different countries had different postwar accord relationships among employers, unions and governments to create high productivity growth, high real wage growth and low unemployment. In Scandinavia, Austria, Belgium, Netherlands, Switzerland and West Germany, wage setting was either centralised in a single union, or coordinated among unions or employers’ associations, resulting in wage restraint. In coreecon | Curriculum Open-access Resources in Economics 25 technologically advanced sectors in France and Italy, governments intervened to set wages in dominant state-owned firms, creating wage guidance across the economy. The outcome was similar to the result in the countries with centralised wage setting. Where there was little cooperation between employers and unions, a country’s performance in the golden age was worse. In Figure 17.11, the UK’s relatively poor golden age performance shows up clearly: it started with higher productivity than the other large countries shown (that is, its productivity level in 1950 was the closest to that of the US) but was overtaken by France, Italy and Germany in the 1960s. Compared to Sweden, Norway and many continental European nations, where the postwar accord underwrote rapid growth in productivity, the British industrial relations system made an accord difficult. It combined very strong union power at the factory level with fragmented unions, which were unable to cooperate in the economy as a whole. The strength of local union shop stewards (representatives), in a system of multiple unions per plant, led unions to attempt to outdo each other when negotiating wage deals, and created opposition to the introduction of new technology and new ways of organising work. The problems of British firms were compounded because markets in former British colonies were protected from competition. Competition is important in the Schumpeterian creative destruction process because it creates incentives for firms to get a step ahead of the competition, and reduces the number of low-productivity firms. When competition is weak, existing firms and jobs are protected. The employers and workers in these firms share the monopoly rents, but the overall size of the pie is reduced because technological progress is slower. Postwar accords succeeded in the US and the successful catch-up countries in creating the conditions for a high profit and high investment equilibrium. It delivered rapid productivity and real wage growth at low unemployment, but the British experience during the 1950s and 1960s (Figure 17.11) emphasises that there is nothing automatic about achieving this outcome. 17.6 THE END OF THE GOLDEN AGE The virtuous circle of the golden age began to break down in the late 1960s, as a result of its own successes. The postwar accord and its rationale of enlarging the pie gave way to a return to contest over the size of the slice that each group could get. This set the stage for the period of combined inflation and stagnation called stagflation that would follow. Employers eventually won the contest, but at a substantial cost to the economy. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 26 Australia can go many years without a major bush fire. But fewer small fires means there will be more flammable undergrowth, which increases the chance of a major fire. Years of low unemployment (fewer small fires) convinced workers that they had little fear of losing their jobs. Their demands for improvements in working conditions and higher wages drove down the profit rate. They also demanded policies to redistribute income to the less well off and to provide more adequate social services, making it difficult for governments to run a budget surplus. In the US, additional military spending to fund the Vietnam war added to aggregate demand, keeping the economy at unsustainably high levels of employment. 19501955196019651970197519801985199019952000 0 1 2 3 4 5 0 100 200 300 400 500 Days on strik e per 1,000 industrial work ers A ver age wag es relative to share pric es Averag e wag es relative to share pric es (right axis) Days on strik e (lef axis) Figure 17.14 The end of the golden age: Strikes and wages relative to share prices in advanced economies (1950-2002). Source: Glyn, Andrew. 2006. Capitalism Unleashed: Finance, Globalization, and Welfare. Oxford: Oxford University Press. Greater industrial strife in the late 1960s signalled the breakdown of the golden age accords. Figure 17.14 plots the days on strike per 1,000 industrial workers in advanced economies from 1950 to 2002. As strike activity peaked, wages measured relative to share prices increased rapidly. The postwar accords that helped create the golden age collapsed. The process is represented in Figure 17.15 by an upward shift in the wage curve (to the one labelled “late 60s/early 70s”). At the same time, economy-wide productivity growth slowed (see Figure 17.2 for the US data). In the catch-up countries in western Europe, it was becoming more difficult to get easy gains from technology transfer, because the gap between US technology and the technology used by followers narrowed (see Figure 17.11). In 1973, the first oil price shock occurred. In the Figure 17.15, this pushes the profit curve down (see the profit curve labelled “1973-79”). coreecon | Curriculum Open-access Resources in Economics 27 Downward shif of perofit curve due to productivitfe slowdown and oil shock , partiallf obse t bf reduction in t ax rate Barg aining g ap: inconsistent claims of work ers and emplofers on output per work er in late 60s/ e arlf 70s at unemplofmeent of 4% Profit cur ve, late 1950s-mid 60s Profit cur ve, late 60s/ e arly 70s Wa ge cur ve, post -war acco rd, late 1950s-mid 60s Wage cur ve, late 60s/ early 70s Labour forc e U=7% D BC U= 4% Real wage Employment rate (%) Lower unemployment ra te (%) The combination of a downward shift in the profit curve and an upward shift in the wage curve meant that the sustainable long-term unemployment rate increased to 7%, shown at point D. The double-headed arrow at low unemployment shows the situation in the early 1970s. Figure 17.15 The end of the golden age: Using the wage and profit curves. In the early 1970s the claims of employers given their bargaining power compared to consumers (the profit curve) and the claims of workers given their bargaining power compared to their employers were no longer consistent. Something had to give. The golden age was over. What happened? Wages did not rise to the level of point C. Under the impact of the upward pressure on wages and the oil price shock, the economy contracted and unemployment began to rise. But even a significant reduction in the employment rate (short of increasing the unemployment rate to 7%) did not eliminate the bargaining gap shown in the figure. A result was an increase in the rate of inflation, as is shown in Figure 17.16. Because of the strong bargaining position of workers in the early 1970s in most of the high-income economies, the oil price shock primarily hit employers, redistributing income from profits to wages (Figure 17.15). The era of fair-shares bargaining was coming to a close. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 28 In the US, where trade unions were less powerful, workers nevertheless managed to defend their share of the pie even after the oil price increase. In countries with inclusive and powerful trade unions (as described in Unit 15), the accord survived. In Sweden, for example, the powerful centralised labour movement restrained its wage claims to preserve profitability, investment and high levels of employment. But in virtually all countries including the US, wages remained above the new profit curve, so investment fell and the rate of productivity growth slowed. As predicted by the model in Figure 17.15, the outcome was rising inflation (Figure 17.16) falling profits (Figure 17.3), weak investment (Figure 17.3), and high unemployment (Figure 17.16). 196019651970197519801985199019952000200520100 2 4 6 8 10 12 14 16 18 Unemployment ra te (%) Consumer pric e inflation (%) St agflation: 1970s Figure 17.16 After the golden age: Unemployment and inflation in advanced economies (1960-2013). Source: OECD. 2015. ‘OECD Statistics.’ The end of the golden age set off a new economic crisis—one that was very different from the Great Depression. The economic downturn of the 1930s had been propelled by problems of aggregate demand and for this reason it has been called a demand-side crisis. The end of the golden age has been called a supply-side crisis, because those problems on the supply side of the economy depressed the profit rate, the rate of investment and the rate of productivity growth. The period that ensued came to be called stagflation because it combined high unemployment and high inflation. If the golden age was an unusual time during which everything went right at once, stagflation was the unusual time when everything went wrong. According to the Phillips curve model of Unit 14, inflation goes up when unemployment goes down; this is a movement along the Phillips curve. Figure 17.16 summarises the unemployment and inflation data for the advanced economies from 1960-2013. coreecon | Curriculum Open-access Resources in Economics 29 Just as the Phillips curve predicts, for most of the period, inflation and unemployment were negatively correlated: as unemployment rose, inflation fell and vice versa. But the entire Phillips curve shifted upward during this period period, as a bargaining gap opened and expected inflation increased. Look at the shaded part of Figure 17.16: inflation and unemployment rose together, giving this period its name. 17.7 AFTER STAGFLATION: THE FRUITS OF A NEW POLICY REGIME The third major epoch during the last 100 years of capitalism began in 1979. Across the advanced economies, policymakers focused on restoring the conditions for investment and job creation. Expanding aggregate demand would not help: what would have been part of the solution during the Great Depression had now become part of the problem. Arrangements based on accords between workers and employers continued in northern European and Scandinavian countries. Elsewhere, employers abandoned the accord, and policymakers turned to different institutional arrangements as the basis for restoring the incentives for firms to invest. The new policies were called supply-side reforms, aimed to address the causes of the supply-side crisis of the 1970s. The policies were centred on the need to shift the balance of power between employer and worker in the labour market, and in the firm. Government policy at this time achieved this goal in two main ways: • Restrictive monetary and fiscal policy: Governments showed that they were prepared to allow unemployment to rise to unprecedented levels, weakening the position of workers and restoring the consistency of claims on output as the basis of modest and stable inflation. • Shifting the wage curve down: As we saw in Unit 15, these policies included cuts in unemployment benefits and the introduction of legislation to reduce trade union power. Figure 17.16 illustrates the new policy environment. Unemployment increased rapidly from 5% to 8% in the early 1980s. This was the price of restoring conditions for profit and investment, and for reducing inflation from greater than 10% to 4%. Policymakers were prepared to depress aggregate demand and tolerate high unemployment until inflation fell. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS 30 DISCUSS 17.2: WORKERS’ BARGAINING POWER After the Great Depression most advanced economies adopted policies that strengthened the bargaining power of employees and labour unions. After the golden age, by contrast, the policies weakened workers’ bargaining power. 1. Explain the reasons for these contrasting approaches. 2. With hindsight, do you think the economic logic behind each set of policies makes sense? The increased unemployment beginning with the first oil price shock in 1973 had two effects: • It reduced the bargaining gap in Figure 17.15, bringing down inflation (shown in Figure 17.16). • It put labour unions and workers on the defensive as the cost of job loss rose and employees’ bargaining power eroded. Figure 17.17 shows the development of productivity (output per hour) and real wages in manufacturing in the US from the beginning of the golden age. Index numbers are used for each series to highlight the growth of real wages relative to that of output per hour worked. Real wage growth in line with output per hour is not inevitable: in Unit 1, when looking at the growth of real wages in England since the 13th century, we saw that institutions (social movements, changes in the voting franchise and in laws) played a vital role in translating productivity growth into real wage growth. The figure shows two dramatically different periods: • Before 1973: Fair-shares bargaining meant that wages and productivity grew together. • After 1973: Productivity growth was not shared with workers. For production workers in manufacturing, real wages barely changed in the 40 years after 1973. By the mid-1990s, the effects of the new supply-side policy regime were becoming clear. The period from this time until the global financial crisis of 2008 was called the great moderation because inflation was low and stable, and unemployment was falling. Although wage growth fell well below productivity growth, policymakers no longer thought of this as a bug; it was a feature of the new regime. The third oil shock that occurred in the 2000s was a good test of the regime. As we saw in Unit 14, it created none of disruption of the two oil shocks in the 1970s. coreecon | Curriculum Open-access Resources in Economics 31 1949195719651973198119891997200520130 100 200 300 400 500 600 700 Index (1949=100) Golden ag e epoch: 1949-73; 1973-79 From st agflation to financial crisis epoch: 1979-2008; 2008-13 Productivity Real wages Figure 17.17 The Golden Age and its Aftermath: Real wages and output per production worker in manufacturing in the United States (1949-2013). Source: US Bureau of Labor Statistics. Note: “production workers” exclude supervisory employees such as foremen and managers. In virtually all of the advanced economies the new supply-side policies redistributed income from wages to profits. In the US (Figure 17.3) the after-tax profit rate gradually increased between the 1970s and 2008. But investment responded only weakly to the profit incentives, so that the rate of growth of the capital stock declined. The economy had settled at some point below the profit curve in Figure 17.15, with more than sufficient profits to motivate an expansion to the higher employment equilibrium, but with investment not fully responding. Supply-side policy advisors could not recreate the improbable package of high employment, high investment and growing wages of the golden age. The growth of profits unmatched by investment in new equipment would also help to cause the next crisis. UNIT 17 | THE GREAT DEPRESSION, THE GOLDEN AGE OF CAPITALISM AND THE GLOBAL FINANCIAL CRISIS
Instructions Write a 5-7 page paper (double spaced, 12 point font, standard margins) on one of the following topics. Your title page and bibliography (and any other pages that are not writing) do not
This content downloaded from 129.78.139.29 on Thu, 10 May 2018 19:19:13 UTC All use subject to http://about.jstor.org/terms Social Reproduction Theory This content downloaded from 129.78.139.29 on Thu, 10 May 2018 19:19:13 UTC All use subject to http://about.jstor.org/terms This content downloaded from 129.78.139.29 on Thu, 10 May 2018 19:19:13 UTC All use subject to http://about.jstor.org/terms Social Reproduction Theory Remapping Class, Recentering Oppression Edited by Tithi Bhattacharya Foreword by Lise Vogel This content downloaded from 129.78.139.29 on Thu, 10 May 2018 19:19:13 UTC All use subject to http://about.jstor.org/terms First published 2017 by Pluto Press 345 Archway Road, London N6 5AA www.plutobooks.com Copyright © Tithi Bhattacharya 2017 Foreword © Lise Vogel 2017 Front cover image: Alone we are powerless, together we are strong (1976) © See Red Women’s Workshop. The Posters by See Red Womens Workshop are licensed under a Creative Commons Attribution-NonCommercial-ShareALike 3.0. Unported License. The right of the individual contributors to be identified as the authors of this work has been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 978 0 7453 9989 8 Hardback ISBN 978 0 7453 9988 1 Paperback ISBN 978 1 7868 0157 9 PDF eBook ISBN 978 1 7868 0159 3 Kindle eBook ISBN 978 1 7868 0158 6 EPUB eBook This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental standards of the country of origin. Typeset by Stanford DTP Services, Northampton, England Simultaneously printed in the United Kingdom and United States of America This content downloaded from 129.78.139.29 on Thu, 10 May 2018 19:19:13 UTC All use subject to http://about.jstor.org/terms For Shayari and Bill. And for every woman who has been patronised while trying to change the world. This content downloaded from 129.78.139.29 on Thu, 10 May 2018 19:19:13 UTC All use subject to http://about.jstor.org/terms This content downloaded from 129.78.139.29 on Thu, 10 May 2018 19:19:13 UTC All use subject to http://about.jstor.org/terms Contents Acknowledgements viii Foreword by Lise Vogel x 1. Introduction: Mapping Social Reproduction Theory 1 Tithi Bhattacharya 2. Crisis of Care? On the Social-Reproductive Contradictions of Contemporary Capitalism 21 Nancy Fraser 3. Without Reserves 37 Salar Mohandesi and Emma Teitelman 4. How Not to Skip Class: Social Reproduction of Labor and the Global Working Class 68 Tithi Bhattacharya 5. Intersections and Dialectics: Critical Reconstructions in Social Reproduction Theory 94 David McNally 6. Children, Childhood and Capitalism: A Social Reproduction Perspective 112 Susan Ferguson 7. Mostly Work, Little Play: Social Reproduction, Migration, and Paid Domestic Work in Montreal 131 Carmen Teeple Hopkins 8. Pensions and Social Reproduction 148 Serap Saritas Oran 9. Body Politics: The Social Reproduction of Sexualities 171 Alan Sears 10. From Social Reproduction Feminism to the Women’s Strike 192 Cinzia Arruzza Notes 197 Index 241 This content downloaded from 134.84.192.102 on Sat, 12 May 2018 18:08:51 UTC All use subject to http://about.jstor.org/terms Acknowledgements This volume came together through ongoing conversations, explorations and engagements among the contributors. It is such collaborations that made this volume possible. I am grateful for a grant from the College of Liberal Arts at Purdue University and generous contributions from the Founders College at York University that allowed us to host a workshop on social reproduction theory in May 2016. Kole Kilibarda ensured the success of that workshop with his unstinting hard work and thoughtful comments at sessions. David Shulman at Pluto Press is not only one of the best but also perhaps the most patient of editors I have worked with. Sarah Grey’s wonderful work proved that it makes a great difference when even the copyeditor for a book is a Social Reproduction feminist! Thanks are due to the Historical Materialism conference, which has, over the years, allowed many of us to explore Marxist ideas without fear of heresy hunting. Many of the ideas and essays in this volume were presented and/or seeded at the conference. The editors at Viewpoint magazine helped me clarify my own thoughts regarding class formation. I am thankful to them for letting me reproduce my essay for this volume. Thanks are also due to New Left Review (100: July–August 2016), where Nancy Fraser’s essay in this volume was first published. Several friends have read drafts of these essays and/or patiently answered my questions regarding several aspects of social reproduction theory. Colin Barker and Charlie Post have always been there to read and comment, whenever asked, usually at unreasonably short notice. Hester Eisenstein is someone I continue to learn from; her friendship and support have sustained both the volume and its editor. Nancy Holmstrom, Cindi Katz, Sara Farris, and Kevin Floyd are friends and comrades to whom I owe much. Their work provides much of the analytical scaffolding on which this volume stands. Mike McCarthy was very generous with his time and insights. I have been talking to Gareth Dale for over two decades, sometimes about social reproduction theory and sometimes not, both to my benefit. This content downloaded from 134.84.192.102 on Sun, 13 May 2018 16:54:17 UTC All use subject to http://about.jstor.org/terms acknowlfdgfmfnbs . ix Also, 2017 marks 150 years from the first publication of Volume 1 of Capital , the one text to which this volume perhaps owes the greatest debt. Chris Harman helped me understand parts of that text in my twenties. I still miss being able to pick up the phone to ask Chris how to make sense of a difficult passage. I could not write this book without Bill and I would not write it without Shayari. Every day they re-enchant the world for me. And because of them, every day, I recapitulate to hopes about its future. This content downloaded from 134.84.192.102 on Sun, 13 May 2018 16:54:17 UTC All use subject to http://about.jstor.org/terms Foreword Lise Vogel What a pleasure it is for me to welcome this important and timely collection of essays. Social Reproduction Theory is probably the first book to draw on the past decade’s resurgent interest in developing a coherent Marxist-feminist understanding of everyday life under capitalism. And who better to edit it than Tithi Bhattacharya, herself operating on the cutting edge of recent work on social reproduction theory. The ten essays in Social Reproduction Theory address a range of questions. But one way or another, each contributor tackles the thorny problem of explaining just what social reproduction theory is. Not surprisingly, they do not always agree. Having myself had a go at this demanding task 35 years ago—in Marxism and the Oppression of Women, originally published in 1983 1—I’m sympathetic with their difficulties. At the same time, I have to recognize that the context in which this work is being developed has markedly changed, and in ways I find very exciting. First, people interested in these questions today benefit from a more developed understanding of Marxism and of history than what was available to us decades ago. And second, they appear to be connected to one another and to the nascent social movements of the twenty-first century, again in contrast to the relative isolation many of us felt in the late 1970s and after. As proponents of social reproduction theory, the authors are wrestling with both new and old challenges. One of the oldest debates among women’s liberationists concerned dualism, or dual-systems theory. By the early 1980s, the verdict was in, at least among Marxist feminists, who shared a desire to replace the dualism of earlier analyses with what they called a “unitary” account. To put it another way, instead of conceptual- izing social reproduction as having two component aspects (for example, production of commodities and reproduction of labor power), they sought to develop an approach that would enclose both production and reproduction within a unitary framework. This is still easier said than done, as several of the essays in Social Reproduction Theory show. The This content downloaded from 134.84.192.102 on Sun, 13 May 2018 16:53:08 UTC All use subject to http://about.jstor.org/terms forfword . xi pull of dual-systems thinking remains powerful, something that requires constant vigilance. Several contributors explicitly link social reproduction theory to their understanding of “intersectionality.” Like social reproduction theory, intersectionality is one of several theoretical frameworks deployed over the past eighty-plus years to represent social heterogeneity as consisting of the interaction of multiple “categories of social difference,” for example, race, class, gender, etc. 2 To some extent the two theoretical stances have been taken as antagonistic—as a confrontation between Marxist (social reproduction theory) and non-Marxist (intersectionality) approaches. In contrast, these authors argue that it is possible to embrace social reproduction theory without discarding the strengths of intersection- ality thinking, especially its ability to develop nuanced descriptive and historical accounts of various “categories of social difference.” This strikes me as a promising direction in which to go. In the long run, however, I think we must jettison two dearly-held assumptions. First, the assumption that the various dimensions of difference—for example, race, class, and gender—are comparable. Second, the implication that the various categories are equal in causal weight. Willy-nilly, these two assumptions lead to an interest in identifying parallels and similarities among the categories of difference, and a downplaying of their particularities. With these assumptions gone, we can break out of the tight little circle of supposedly similar categories. Our theoretical task would then be to focus on the specificities of each dimension and to develop an understanding of how it all fits—or does not fit—together. Out of this process could come a lens, or perhaps several lenses, with which to analyze empirical data. 3 Some of the most interesting essays in Social Reproduction Theory explore the strategic or policy implications of social reproduction theorizing. Among the topics considered are: childhood; sexuality; pensions; migration; paid domestic service; and the International Women’s Strike on March 8, 2017. Here we see the power of the social reproduction framework to shape our understanding of practical concerns. Or, as Bhattacharya puts it in the introduction to this book (page 19): [Social reproduction theory] reveals the essence-category of capitalism, its animating force, to be human labor and not commodities. In doing so, it exposes to critical scrutiny the superficiality of what we This content downloaded from 134.84.192.102 on Sun, 13 May 2018 16:53:08 UTC All use subject to http://about.jstor.org/terms xii . social rfproducbion bhfory commonly understand to be “economic” processes and restores to the economic process its messy, sensuous, gendered, raced, and unruly component: living human beings, capable of following orders as well as of flouting them. Readers new to the issues covered in Social Reproduction Theory will have much to learn from this collection. And those who lived through the frustrations of the various early women’s liberation debates will find novel answers to old questions. Tithi Bhattacharya and Pluto Press are to be congratulated for bringing this thought-provoking collection to us. nobfs 1. Lise Vogel, Marxism and the Oppression of Women: Toward a Unitary Theory (New Brunswick, NJ: Rutgers University Press, 1983). Although the book’s official publication date was 1983, I view it as in fact a product of the hopes, discussions, and activism of the 1970s and before. 2. For this analysis of intersectionality, see Lise Vogel, “Beyond Intersectionality,” Science & Society, in press. 3. For the metaphor of theory as a lens, see Lise Vogel, “Domestic Labor Revisited,” Science & Society, 64, no. 2 (2000): 151–70; reprinted in Vogel, Marxism and the Oppression of Women (Chicago: Haymarket Books, 2013 [1983]), 183–98. For the view of theory as necessarily abstract, and disjunct from empirical investigation, see ibid ., esp. 184–95. This content downloaded from 134.84.192.102 on Sun, 13 May 2018 16:53:08 UTC All use subject to http://about.jstor.org/terms 1 Introduction: Mapping Social Reproduction Theory Tithi Bhattacharya Life itself appears only as a means to life. —Karl Marx, Economic and Philosophical Manuscripts of 1844 A working woman comes home from work after an eight hour day, eats dinner in 8 to 10 minutes, and once again faces a load of physical work: washing linens, cleaning up, etc. There are no limits to housework . . . [a woman is] charwoman, cook, dressmaker, launderer, nurse, caring mother, and attentive wife. And how much time it takes to go to the store and drag home dinner! —testimonies of factory women in Moscow, 1926 This [unpaid care work] is the type of work where we do not earn money but do not have free time either. Our work is not seen but we are not free as well. —woman in Patharkot, Nepal, 2013 If our kitchens are outside of capital, our struggle to destroy them will never succeed in causing capital to fall. —Silvia Federici, Revolution at Point Zero: Housework, Reproduction and Feminist Struggle Let us slightly modify the question “who teaches the teacher?” and ask this of Marxism: If workers’ labor produces all the wealth in society, who then produces the worker? Put another way: What kinds of processes enable the worker to arrive at the doors of her place of work every day so that she can produce the wealth of society? What role did breakfast play in her work-readiness? What about a good night’s sleep? We get into even murkier waters if we extend the questions to include processes lying outside this worker’s household. Does the education she received This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms 2 . social rfproducbion bhfory at school also not “produce” her, in that it makes her employable? What about the public transportation system that helped bring her to work, or the public parks and libraries that provide recreation so that she can be regenerated, again, to be able to come to work? The goal of social reproduction theory (SRT) is to explore and provide answers to questions such as these. In doing so, SRT displays an analytical irreverence to “visible facts” and privileges “process” instead. It is an approach that is not content to accept what seems like a visible, finished entity—in this case, our worker at the gates of her workplace— but interrogates the complex network of social processes and human relations that produces the conditions of existence for that entity. As in much of critical theory, here too we “build from Marx,” for both this approach and the critical interrogation mirror the method by which Marx studies the commodity. The fundamental insight of SRT is, simply put, that human labor is at the heart of creating or reproducing society as a whole. The notion of labor is conceived here in the original sense in which Karl Marx meant it, as “the first premise of all human history”—one that, ironically, he himself failed to develop fully. Capitalism, however, acknowledges productive labor for the market as the sole form of legitimate “work,” while the tremendous amount of familial as well as communitarian work that goes on to sustain and reproduce the worker, or more specifically her labor power, is naturalized into nonexistence. Against this, social reproduction theorists perceive the relation between labor dispensed to produce commodities and labor dispensed to produce people as part of the systemic totality of capitalism. The framework thus seeks to make visible labor and work that are analytically hidden by classical economists and politically denied by policy makers. SRT develops upon the traditional understanding of both Marxism and capitalism in two transformative ways. First, it proposes a commodious but more specific reading of the “economy.” SRT, as Susan Ferguson has recently pointed out, insists that our understanding of capitalism is incomplete if we treat it as simply an economic system involving workers and owners, and fail to examine the ways in which wider social reproduction of the system—that is the daily and generational reproductive labor that occurs in households, schools, hospitals, prisons, and so on—sustains the drive for accumulation. 1 This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms inbroducbion . 3 Marx clearly marks for us the pivotal role played by labor power, for it is that which in effect sets the capitalist production process in motion. He also indicates how, unlike all other commodities under capitalism, the “unique” commodity labor power is singular in the sense that it is not produced capitalistically. The implications of this insight are, however, underdeveloped in Marx. Social reproduction theorists begin with these silences in Marxism and show how the “production of goods and services and the production of life are part of one integrated process,” as Meg Luxton has put it. 2 If the formal economy is the production site for goods and services, the people who produce such things are themselves produced outside the ambit of the formal economy, in a “kin-based” site called the family. Second, and following from above, SRT treats questions of oppression (gender, race, sexuality) in distinctly nonfunctionalist ways precisely because oppression is theorized as structurally relational to, and hence shaped by, capitalist production rather than on the margins of analysis or as add-ons to a deeper and more vital economic process. The essays in this volume thus explore questions of who constitutes the global working class today in all its chaotic, multiethnic, multi gendered, differently abled subjectivity: what it means to bind class struggle the- oretically to the point of production alone, without considering the myriad social relations extending between workplaces, homes, schools, hospitals—a wider social whole, sustained and coproduced by human labor in contradictory yet constitutive ways. Most importantly, they address the relationship between exploitation (normally tethered to class) and oppression (normally understood through gender, race, etc.) and reflect on whether this division adequately expresses the compli- cations of an abstract level of analysis where we forge our conceptual equipment, and a concrete level of analysis, i.e., the historical reality where we apply those tools. rfnfwing social rfproducbion bhfory in bhf shadow of nfolibfralism Since the financial crisis of 2008 and 2009 and exacerbated by the government bailouts of those who perpetrated the crisis, there has emerged a renewed interest in Marx and Marxism. Major news sources of the Global North, from the New York Times to the Guardian and even This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms 4 . social rfproducbion bhfory to the conservative Foreign Policy have declared that Marx, without a doubt, “is back.” 3 Within this generalized interest, there has been a revival of more specific attention to Marx’s Capital . Even aside from Thomas Piketty’s 700-page Capital in the Twenty-First Century becoming a runaway bestseller, the period following 2008 has seen an unprecedented rise in scholarly publications on Marx’s seminal text. 4 While this is an unqualifiedly welcome development, there remains room—indeed, an urgency—to redraw the contours of some of these con- versations about Capital in particular and its object of study, capitalism, in general. This book is an attempt to begin that process by highlighting the critical contribution of SRT to an understanding of capitalist social relations. There is a limited but rich literature by Marxists and feminists across disciplinary boundaries which has, since the 1980s, developed the insights of the social reproduction framework in very productive directions. 5 The republication in 2014 of Lise Vogel’s classic work Marxism and the Oppression of Women: Toward a Unitary Theory has given a new lease of life to this growing body of scholarship. While this literature embodies instantiations of SRT in a range of critical areas, there remains a need for a text that can act as a map and guide to this vivid and resonant body of work. Indeed, it is precisely because social reproduction scholars have so effectively applied and extended its theoretical insights to a diverse set of concerns in such creative ways that it is useful to compile and outline its key theoretical components along with its most significant historical applications. That said, this volume stands in a very specific relationship to the recent literature on oppression. We see our work as furthering the theoretical conversation with this existing body of scholarship in two kinds of ways: (a) as a conversation between Marxism and the study of specific oppressions such as gender and race, and (b) as developing a richer way of understanding how Marxism, as a body of thought, can address the relationship between theory and empirical studies of oppression. Let me elaborate. We make two central proposals in this volume about SRT: first, that it is a methodology to explore labor and labor power under capitalism and is best suited to offer a rich and variegated map of capital as a social relation; further, that this is a methodology that privileges process, or, to use Lukács’s words, we believe that the “developing This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms inbroducbion . 5 tendencies of history constitute a higher reality than the empirical ‘facts.’” 6 Many recent studies similarly grapple with elaborating on these. Cinzia Arruzza, in her book Dangerous Liaisons (2013), offers a summary of the historic relationship between Marxism and feminism and tries to plot precisely where the tributaries of analysis about the system as a whole (capitalism) meet or diverge from analyses of categories produced by the system (gender and/or race). Arruzza’s work refuses the reduction of this complex dynamic to a simple question of “whether class comes before gender or gender before class,” but points the way toward thinking about how “gender and class intertwine in capitalist production.” 7 Similarly, Shahrzad Mojab, in her recently edited volume Marxism and Feminism (2015), alerts us to the actual dangers of theoretically severing the integrated relationship between class and gender. Contributors to Mojab’s volume show how decoupling feminism from capitalism carries the twin perils of emptying out the revolutionary content of feminism which “reduces gender to questions of culture” and of “reduc[ing] gender to class relations.” 8 A slightly older edited volume by Nancy Holmstrom (2002) likewise takes a integrative approach to the relationship between the oppression and the source of oppressions: capitalism. Holmstrom clarifies that although Marxism’s “basic theory” does not require “significant revision,” it does need to be “supplemented.” The volume thus seeks to champion a specific deployment of historical materialism that “gives a fuller picture of production and reproduction than Marx’s political economic theory does, that extends questions of democracy not only to the economy but to personal relations.” 9 Kate Benzanson and Meg Luxton’s edited collection Social Reproduction (2006) is perhaps the closest theoretical kin to our project. This is not solely because Benzanson and Luxton deal explicitly with SRT, but because they restore to it a “thick” description of the “economy” and “political process.” The volume is premised upon the understanding that “in capitalist societies the majority of people subsist by combining paid employment and unpaid domestic labor to maintain themselves . . . [hence] this version of social reproduction analyzes the ways in which both labors are part of the same socio-economic process.” 10 While Benzanson and Luxton problematize the concept of labor and the role it plays in the constitution and disruption of capitalism, Kathi Weeks (2011) has usefully drawn our attention to the most common This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms 6 . social rfproducbion bhfory articulation of labor under capitalism, namely, work. Weeks’s approach coincides with our own in that it is dissatisfied with efforts to align “work” with “a more equitable distribution of its rewards”—in other words, to think about how our working lives might be improved. Instead, Weeks points to the fundamental incommensurability of capitalism with any productive or creative sense of work. Hence her volume urges us to think about how the right to work and the right of refusal to work can be reimagined under the sign of an anticapitalist political theory. This brings us to how this volume, while in conversation with the above scholarship, is nonetheless about developing a set of theoretical concerns that are related but different. The contributing essays of the volume can be said, broadly, to do three kinds of work: determining the definitional contours of SRT, using SRT to develop and deepen Marxist theory, and exploring the strategic implications of applying SRT to our current conjuncture. It is to an elaboration of those themes that we now turn. mapping social rfproducbion bhfory: bhf work of dffinibions All the essays in this volume are in some way engaged in the task of sketching out the contours of what exactly social reproduction theory is and what kinds of questions it seeks to answer. In Marx’s own writing, the term social reproduction is most often deployed to refer to the reproduction of the capitalist system as a whole. Johanna Brenner and Barbara Laslett therefore suggest a useful distinction between societal and social reproduction, with the former retaining the original meaning as Marx has used it, and the latter referring to the activities and attitudes, behaviors and emotions, and responsi- bilities and relationships directly involved in maintaining life, on a daily basis and intergenerationally. It involves various kinds of socially necessary work—mental, physical, and emotional—aimed at providing the historically and socially, as well as biologically, defined means for maintaining and reproducing population. Among other things, social reproduction includes how food, clothing, and shelter are made available for immediate consumption, how the maintenance This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms inbroducbion . 7 and socialization of children is accomplished, how care of the elderly and infirm is provided, and how sexuality is socially constructed. 11 The primary problematic of what is meant by the social reproduction of labor power is, however, only a preliminary start to this definitional project. Simply put, while labor puts the system of capitalist production in motion, SRT points out that labor power itself is the sole commodity— the “unique commodity,” as Marx calls it—that is produced outside of the circuit of commodity production. But this status of labor power as a commodity that is simultaneously produced outside the “normal” productive cycle of other commodities raises more questions than it answers. For instance, Marx is very clear that every commodity under capitalism has two manifestations: one as use value, the other as exchange value. Indeed, when the commodity appears in its social form we only encounter it in its second manifestation because the capitalist circulation process, through an act of “necromancy,” turns use value into its direct opposite. But labor power becomes a “commodity” (that is, it becomes something that is not simply endowed with use value) without going through the same process of “necromancy” as other commodities, which raises a question about the very ontology of labor power beyond the simple questions of its “production” and “reproduction.” If the totality of the capitalist system is shot through with this “commodity” that is not produced in the manner of other commodities, what then are the points of determination and/or contradictions that must necessarily be constitutive of the system, yet must be overcome within it? One way of resolving this problem is through a spatial understanding: that there are two separate but conjoined spaces—spaces of production of value (points of production) and spaces for reproduction of labor power. But then, as we gestured above, labor power is not simply replenished at home, nor is it always reproduced generationally. The family may form the site of individual renewal of labor power, but that alone does not explain “the conditions under which, and . . . the habits and degree of comfort in which” the working class of any particular society has been produced. 12 Public education and health care systems, leisure facilities in the community, and pensions and benefits for the elderly all compose together those historically determined “habits.” Similarly, generational replacement through childbirth in the kin-based family unit, although predominant, is not the only way a labor force may be replaced. Slavery This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms 8 . social rfproducbion bhfory and immigration are two of the most common ways capital has replaced labor in a bounded society. The complex concatenation of social relations making up the reproduction of labor power has led some theorists to define social reproduction to include “the processes necessary for the reproduction of the workforce, both biologically and as compliant wage workers.” 13 How can labor be made “compliant”? Relatedly, if labor power is a “unique” commodity in the sense of being produced noncapitalistically, then does that countervailing fact work against the manufacture of compliance? Susan Ferguson’s essay in this volume seeks to explore the dynamic, often contested relationship between capital and childhood. Ferguson takes us beyond the trope of consumerism under which capitalist childhoods are most often studied. Instead, she asks a more difficult question: “What exactly are capitalist productive relations? And how are children implicated in them?” (Emphasis mine.) While she argues that “capitalist productive relations determine the terrain upon which children and childhoods are produced and reproduced,” Ferguson avoids any functionalist correlation between capital’s vision of/need for children as pre-workers and the actual historical delineation of childhood. Instead, the essay illuminates the “deeply contradictory relationship between the social reproduction of children and childhoods, on the one hand, and the continued thriving and expansion of capital, on the other.” Like Walter Benjamin in his Berlin Childhood , Ferguson urges us to reconsider the child as a liminal, ambiguous figure, one capable of both compliance with capital and collusion with chthonic revolutionary energies. If under capitalism the child will always be a figuration of what could be, then the retired worker is perhaps, in capitalist terms, the termination of all possibilities. But a social reproduction framework that extends analysis beyond both wage labor and spaces of production suggests a more robust understanding of human labor. Serap Saritas Oran’s essay in this volume hence theorizes pensions as “not simply deferred wages or individual savings” but “from a political economy perspective.” Oran’s essay reframes the question of what constitutes labor power: is it composed of a set of use values represented by the labor time necessary for its production, or can we determine its value through its exchange value, or wage? She locates a lacuna in both approaches, for they fail to adequately theorize those goods and services that have “use value but not exchange value, such as reproductive household activities or state services” such as pensions. Since pensions are not necessarily This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms inbroducbion . 9 commodities, nor do they correspond neatly with labor time; they cannot be considered the direct equivalent of an individual worker’s labor power during the worker’s work life. Oran thus urges us to look at pensions as “a component of the broader understanding of the value of labor power as a standard of living for the working class that consists of the payments and benefits necessary for generational social reproduction.” Theorizing pensions is one way to reveal the superficial nature of the neat spatial divisions between production (public) and reproduction (private), for the two separate spaces—spaces of production of value (point of production) and spaces for reproduction of labor power—while they may be separate in a strictly spatial sense are actually united in both the theoretical and operational senses. They are particular historical forms of appearance in which capitalism as a process posits itself. The question of separate spheres and why they are historical forms of appearance is an important one, and we will reflect upon it at length in this volume. One understanding of social reproduction is that it is about two separate spaces and two separate processes of production: the economic and the social—often understood as the workplace and home. In this understanding, the worker produces surplus value at work and hence is part of the production of the total wealth of society. At the end of the workday, because the worker is “free” under capitalism, capital must relinquish control over the process of regeneration of the worker and hence the reproduction of the workforce. The corpus of social relations involving regeneration—birth, death, social communication, and so on—is most commonly referred to in scholarly as well as policy literature as care or social care . If, as we propose, the spatial separation between production (public) and reproduction (private) is a historical form of appearance, then the labor that is dispensed in both spheres must also be theorized integratively. The classical Marxist example that outlines the relationship between the two forms of labor is Marx’s discussion of the working day. The reduction of the working day (time of production), for Marx, is the first step toward humanity developing any rudimentary notion of freedom or its own potential. In the third volume of Capital he argues that “the realm of freedom really begins only where labor determined by necessity and external expediency ends… . . . the reduction of the working day is the basic prerequisite.” 14 Thus Marx famously describes the effects of This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms 10 . social rfproducbion bhfory alienation in the productive sphere, as “the worker . . . only feels himself outside his work, and in his work feels outside himself. He is at home when he is not working, and when he is working he is not at home.” Some scholars have gone as far as to claim that concrete labor, as opposed to abstract labor, is nonalienated labor, as it is not producing for profit or exchange. 15 This sort of interpretation conflates the relationship between “work” and “leisure” in commonsensical terms with abstract and concrete labor in Marxist terms. For example, I may garden in my own yard during the weekend (concrete labor) and work at Starbucks during the week (abstract labor). Is this gardening then nonalienated? A strong reading of Marx may suggest otherwise. In my reading, along with the useful distinction between concrete and abstract labor, Marx is also proposing that our performance of concrete labor, too, is saturated/overdetermined by alienated social relations within whose overall matrix such labor must exist. Hence even my concrete labor (gardening) is not performed during and for a time of my own choosing or in forms that I can determine, but has to “fit in” with the temporal and objective necessities of other social relations. Indeed, if we go back to the epigraphs with which this essay begins, then it seems that the time after work (time of reproduction) is equally tedious. Lenin, usually not one to mince words, refers to the woman worker as a “domestic slave” precisely because “petty housework crushes, strangles, stultifies, and degrades her, chains her to the kitchen and the nursery, and she wastes her labor on barbarously unproductive, petty, nerve-wracking, stultifying and crushing drudgery.” 16 Was Marx then wrong, or simply sexist, to indicate this sphere as a point of departure for freedom? It is certainly true that Marx reserves both his developed theorization and his rage against the form that labor assumes in the sphere of production. 17 But since under capitalism the wage-labor relation “suffuses the spaces of nonwaged everyday life,” the time of reproduction must necessarily respond to the structuring impulses of the time of production. Structuring impulse, however, is not simple correspond- ence, and it is important to highlight this point—for, while capitalism limits our horizon of possibilities in both spheres, it simultaneously does have to relinquish absolute control over the time of reproduction. Marx recognizes this weak link of capitalism but, like many analytical categories of social reproduction, leaves it undertheorized. Consider his This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms inbroducbion . 11 oft quoted statement about the bestiality of capitalist social relations. The worker, says Marx, no longer feels himself to be freely active in any but his animal functions—eating, drinking, procreating, or at most in his dwelling and in dressing-up, etc.; and in his human functions he no longer feels himself to be anything but an animal. 18 Certainly, Marx recognizes that “eating, drinking, procreating, etc., are also genuine human functions.” But “in the abstraction which separates them from the sphere of all other human activity” these activities are turned into their “sole and ultimate ends”: that is, they come to seem purely biological and, in that, they can be likened to animal functions. That abstraction is the conditioning impulse of wage labor. But there is more to this passage, for note how Marx states that the worker does feel “freely active” in her time away from production. From this Bertell Ollman correctly summarizes:Eating, drinking and procreating are occasions when all man’s powers may be fulfilled together; yet, in capitalism, they only serve their direct and most obvious functions as do their equivalents in the animal kingdom. Despite their depraved state, however, the individual exercises more choice in these activities than he does in those others, work in particular, which distinguish him as a human being. As unsat- isfactory as eating and drinking are from a human point of view, the worker feels at least he is doing something he wants to do. The same cannot be said of his productive activity. 19 [Emphasis mine] Capitalism, then, generates a set of two distinct relations that are nevertheless unified: the particular relations that adhere to production and to reproduction. Ollman’s description of Marx’s method is of use to us in addressing this contradictory unity. Marx’s practice, says Ollman, “of seeing the whole in the part links all particular relations together as aspects in the full unfolding of any one of them.” 20 Much more theoretical attention needs to be paid to the relationship between the physical body in all its acts (such as “eating, drinking and procreating”) and the social relationships of capital that such a body finds itself in. Insights from queer theory are useful in this regard to draw out how far the social implicates the physical and vice versa. Alan Sears’s This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms 12 . social rfproducbion bhfory essay in this volume grapples with a particular aspect of the physical- social question. Sears perceptively imbricates the horizons of sexual freedom with freedom from capitalism, thus making one the condition of possibility for the other. The essay shows why sexuality under capitalism is always-already organized as a “paradoxical double freedom, in which control over one’s own body is always combined with forms of compulsion.” Contradictory impulses of the capital-labor relation shape and mirror body-consciousness expressions, such as sexuality. Sears roots the paradoxes of capitalist sexuality, the constant shadow dance between freedom and repression in a systemic contradiction: Members of the working class are free in that they own their own bodies, yet are subjected to systemic compulsion because they must sell their capacity to work in order to gain access to the basic requirement for subsistence. The combination of consent and compulsion that underlies basic labor relations under capitalism also shapes the realities of sexual freedom within the bounds of that system. Nancy Fraser’s essay similarly theorizes this constitutive and contra- dictory impulse that is indicative of capitalism as a system. While the neoliberal moment is marked by a crisis of social provisioning, Fraser challenges the notion that this is simply a “crisis of care” or a crisis of “the capacities available for birthing and raising children, caring for friends and family members, maintaining households and broader communities, and sustaining connections more generally.” Instead Fraser offers a much darker thesis that this is a generalized crisis of the system’s ability to reproduce itself, brought on by the depletion and decimation of social reproductive functions. The crises evidenced in care work, then, is “not accidental but have deep systemic roots in the structure of our social order.” They have been generated and accelerated by “unlimited accumulation” that “tends to destabilize the very processes of social reproduction on which it relies.” Fraser, like many other contributors to the volume, offers us a deeply gendered vision of capital, one in which the resolution to the crisis of care can only proceed by way of a resolution of the inherent injustice of the system as a whole and “requires reinventing the production/reproduction distinction and reimagining the gender order.” This line of theorization about the nature of waged and unwaged labor also touches upon critical branches of feminist thought and activism, the This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms inbroducbion . 13 most prominent of course being the wages-for-housework movement. Carmen Teeple Hopkins’s essay discusses the important contributions of scholar-activists such as Mariarosa Dalla Costa, Selma James, and Silvia Federici and addresses the theoretical challenge that autonomist feminists posed to the Marxist schema of social reproduction. 21 Teeple Hopkins’s study of immigrant domestic workers in Montreal adds another layer of theoretical questions to the complex issue of domestic labor. She argues that while we owe the autonomist feminists “a debt of gratitude” for their serious consideration of housework, we need to have a renewed conversation about the very category of “care” in an age where care is increasingly becoming commodified and sold on the market for a price. Here, Teeple Hopkins denaturalizes paid care work in two important ways. The first is by reminding us that such work takes very specific forms under the current conjuncture, in that it is mostly performed by “working-class women of color and migrant workers,” a fact that rightly locates “race and citizenship status” as central determinants of both societal and social reproduction. Second, her essay places the racialization process in its historical context of “unpaid labor of enslaved African American women during US slavery” and the “paid domestic labor that many African American women performed in the post-slavery period,” thereby putting the “recognized social reproduction canon” in a productive dialogue with Black feminist writing. One challenge to defining SRT is a more literal one. The content of this volume deals with issues (such as domestic labor and the informal economy) that have been addressed under theoretical rubrics other than social reproduction, such as anthropology, labor studies, and certain his- toriographic traditions, such as subaltern history. Should we continue to think of this tradition specifically as a social reproduction framework or should we think more broadly? This raises an important question that goes to the heart of what this theoretical tradition stands for as well as its scope. Social reproduction theorists, who by no means represent a unified political or theoretical tradition, are generally concerned with one particular aspect of the reproduction of the capitalist production cycle as a whole. Marx famously concentrates on the cycle of production of commodities to show how surplus value is produced through this process of production (M – C (M p, L p) – P – C’ – M’). 22 He leaves undeveloped or undertheorized the production and reproduction of labor power. It is this part of the total reproduction of the system that is of concern to This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms 14 . social rfproducbion bhfory social reproduction theorists. In this sense, it is perhaps more accurate to think of this theoretical tradition as a series of reflections on the political economy of labor power, a recasting of the labor theory of value from the point of view of wage labor (as opposed to from the side of capital). Nevertheless, I believe, social reproduction theory , as a term, still carries an important analytical charge to which we should be attentive. First, it is not simply an attempt to explore the relationship between social relations established through the market and extramarket social relations. It represents an effort to develop Marx’s labor theory of value in a specific direction. SRT is primarily concerned with understanding how categories of oppression (such as gender, race, and ableism) are coproduced in simultaneity with the production of surplus value. In this aspect, it seeks to overcome reductionist or deterministic representations of Marxism while at the same time creatively exposing the organic totality of capitalism as a system. It is important thus to retain the term social reproduction theory , as it declares its heritage to be within the Marxist tradition. Second, several new terms have been in circulation among social theorists to describe the sphere of extramarket relations. Moral economy , shadow economy , the social factory , and the unwaged work sector are among some of the terms employed. 23 SRT is unique in the sense that it theorizes the relationship between the market and extramarket relations rather than simply gesturing toward their distinction. mapping social rfproducbion bhfory: dfffnding a bhfory of bobaliby Following from above, a basic element that troubles the relationship between market and nonmarket categories is surely the thorny problem of reality itself. For instance, the reality I can see tells me that the worker and her boss are fundamentally and juridically equal, and the difference in their wages or life situations are the consequence of personal choices. Similarly, a slightly darker version of the same reality tells me that, because white workers in the Global North typically earn more than workers of color, there can never be common grounds of struggle uniting them, as the very real, material, empirically documented difference between them will always fuel white racism. The same can be said about the real material differences between men and women. What is interesting about these very real situations is that to try to challenge them within the context set by capitalism —or capitalist reality—would have two consequences: This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms inbroducbion . 15 either failure (for example, as in the numerous historical instances where sexism and/or racism overwhelm or choke the workers’ movement) or a political strategy that seeks to overcome such differences of race/gender between workers by moral appeals, asking people to “do the right thing” even if it is not in their immediate interest to do so: Even though the male worker earns more than his female counterpart, he ought to join in a struggle on her behalf because it is the right thing to do, even if it does not further his own interests. In contrast to this vision of the world and politics, Marx argues that to try to act upon our world on the basis of an empirical or factual knowledge of reality, as it is perceived, involves a category mistake. Instead, he presents us with a more disconcerting idea: that the reality we perceive is only the partial truth, and that it appears to us in a particular, historically specific form. Capital concerns itself with demonstrating this “difference between everyday experience of the surface phenomena determined by the prevailing mode of production and a scientific analysis of which goes beneath this surface to grasp an essence.” 24 We thus need “science” to fully grasp the phenomena that remain hidden behind this appearance of the real. But as Ben Fine and Laurence Harris have reminded us, the hidden phenomena are not “simply there waiting to be found.” Indeed, it is the task of science to forge tools so as to produce “concepts appropriate to these hidden phenomena” and knowledge that explains how such phenomena give rise to and determine the specific appearance of reality. 25 To develop this further: What is the logic of the relationship between us (subjects) and empirically apprehended facts (objects)? Empirical appearances, then, do not simply shroud some unspoiled “truth” or essence. There is, rather, a relationship between hidden phenomena and empirical appearance. “The question then becomes,” as Lukács puts it, are the empirical facts—(it is immaterial whether they are purely “sensuous” or whether their sensuousness is only the ultimate material substratum of their “factual” essence)—to be taken as “given” or can this “givenness” be dissolved further into rational forms, i.e. can it be conceived as the product of “our” reason? As far as SRT is concerned, we can draw two important conclusions from this discussion: first, that the way reality appears in all its racialized and gendered form is neither accidental nor complete; and second, that This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms 16 . social rfproducbion bhfory our tools to understand that reality can neither consist of a rejection of said empirical facts nor a simple aggregation of them. Instead, following Marx, we ought to think of reality or the “concrete” as “concrete because it is the concentration of many determinations, hence unity of the diverse.” David McNally’s essay approaches intersectionality theory from this understanding of a concrete totality to explore whether intersectional- ity is an adequate tool, or the science we need, to expose the hidden phenomena that shape our apprehension of reality and whether such a theory can explain the relationship between the diverse “real” elements that form a unified “concentration of many determinations.” While McNally acknowledges at the outset the “deep theoretical flaws” of inter – sectionality theory, his essay is particularly notable for its rejection of dualist (often pugilist) approaches to the problem. While many recent debates around the efficacy of intersectionality as a theoretical tool pit it against Marxism or SRT, this essay situates it analytically as a body of critical thought. For instance, to take just one example out of many, a left that ignores Patricia Hill Collins’s detailed study of postwar racism in the United States does so at the risk of its own impoverishment; Hill Collins draws a masterful picture of “globalization, transnationalism, and the growth of hegemonic ideologies within mass media [that] provide the context for a new racism that has catalyzed changes within African, Black American, and African-Diasporic societies.” 26 McNally thus begins by acknowledging the rich empirical work done by scholars of intersection- ality that arose in response to inadequate scholarly attention to race as a central dynamic of capitalism. But how should we situate these empirical data in our understanding of reality? Martha Gimenez points out that Marx, in one of his rare method- ological propositions, argues that if we started our investigations from aspects of social reality that seem to us the most concrete and real, like say, the family, then we would in fact be beginning with “a very vague notion of a complex whole.” Instead, Marx suggests that we produce knowledge about reality when we advance from such “imaginary concrete concepts” (the family, childcare, etc.) to “increasingly simple concepts” or abstractions (such as, for example, domestic labor). Such abstractions then have to be investigated at an empirical level, keeping in mind their historic conditions of production and thereby their limits. But then a reverse theoretical movement must take place. We must return to the phenomena we started out with, but now they can be understood as “a This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms inbroducbion . 17 totality comprising many determinations and relations.” The concept is now a “real concrete” because it is “a synthesis of many definitions, thus representing the unity of diverse aspects.” 27 Intersectionality theory, however, shows us a world where race, gender, and other oppressions “intersect,” thereby producing a reality that is latticed—a sum total of different parts. At first glance this “whole,” as an aggregate of different parts, may appear to be the same as the Hegelian-Marxist concept of totality. An elementary question about the nature of intersections, however, reveals the distinction between the two concepts. If, as intersectionality theory tells us, race and gender intersect like two streets, then surely they are two separate streets, each with its own specificities? What, then, is the logic of their intersection? I suggest that the insights or conclusions of intersectional theorists actually contradict their methodology. Instead of race and gender being separate systems of oppression or even separate oppressions with only externally related trajectories, the findings of Black feminist scholars show how race and gender are actually co-constitutive. Intersectionality theory’s methodology belies its own findings, for its theoretical model, as McNally shows, is a social Newtonian one—of discrete parts colliding, intersecting, or interlocking to produce a combined, an externally related whole. In contrast, McNally’s essay is a powerful discussion of how SRT offers us a way to “retain and reposition” the insights of intersectionality, yet reject its theoretical premise of an aggregative reality. The understanding of totality as an organic whole rather than an aggregate of parts is important precisely because it has real material implications for how we must choose to act upon that world. Are struggles against racism and sexism internally or externally related? Does the white worker have a material, not moral, interest in challenging racism? The next section is about how and why, in a praxis-predicated philosophy such as Marxism, what we theoretically determine has strategic import in the lived experience of our world. mapping social rfproducbion bhfory: sbrabfgy as a hfurisbic principlf How can our theoretical understanding about whether production and reproduction belong to separate processes impinge upon our ways of grasping the nature of labor as well as its organizational impulses? This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms 18 . social rfproducbion bhfory The materials necessary to produce the worker in the image of her own needs and goals—be they food, housing, “time for education, for intellectual development” or the “free play of his [or her] own physical and mental powers”—cannot be realized within the capitalist production process, for the process as a whole exists for the valorization of capital and not the social development of labor. 28 Thus the worker, due to the very nature of the process, is always-already reproduced as lacking in what she needs. Hence the struggle for higher wages (or, to call it by its more agentive name, class struggle ) is built into the fabric of wage labor as a form. Here we arrive at the strategic implications of SRT, or how an integrative sense of capitalism is central to our actual battles against capital. In this volume we approach the question of class struggle from this standpoint in order to address the conceptual and strategic totality of workplace struggle, along with struggle that erupts away from the point of production. My own essay theoretically explores the analytical category and historical processes of “class formation.” While it is easy to state that workers have an existence outside of the circuit of commodity production or point of production, the challenge the essay takes up is to clarify “the relationship between this existence and that of their productive lives under the direct domination” of capital, for that relation between spheres has the potential to chart the path of class struggle. Similarly, Salar Mohandesi and Emma Teitelman’s essay is based on a longue durée approach to class struggle upon what they call the “terrain of social reproduction” in the United States. Tracing a counterintuitive history of labor struggles in the early twentieth century, Mohandesi and Teitelman show how the work of life-production—“household budgeting, food shopping, managing household needs”—acquired a new political charge in this period in response to earnings from wage labor emerging as the dominant component of total household income. Whereas, in previous decades, keeping animals in the backyard or growing vegetables in family plots had always supplemented wage earnings for families, the expansion and consolidation of the social relations of capital undermined or even outlawed such practices, eventually forcing households to become primarily dependent on wage labor. As the activities to reproduce life (unwaged) and the activities to produce commodities (waged) grew to be strictly separated and the latter began to determine the former, “rent, food, and cost of living” developed as “key points of contestation that inspired a variety of actions, This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms inbroducbion . 19 such as boycotts, rent strikes, and the organization of cooperatives.” Mohandesi and Teitelman’s rich account of the past allows us to review our current political conjuncture through the framework of SRT, for the present moment is a map of political protest that is united in its extreme unevenness, where militant workplace strikes (China and India) are combined with political struggles against various forms of disposses- sion (water rights in Ireland, land rights in Latin America) and forms of oppression (the Black Lives Matter movement in the United States). Cinzia Arruzza’s contribution to the volume is a vibrant instantiation of SRT in practice. As one of the national organizers of International Women’s Strike on March 8, 2017, Arruzza brings to the volume a productive urgency. Her essay, on the one hand, outlines the theoretical framework that informed the national mobilization for the strike; on the other, it boldly rejects what Engels once called “specific tactics of hushing up the class struggle.” Indeed, the political methods of the Women’s Strike, Arruzza shows, could be one of our lineaments of hope. SRT, then, offers us an opportunity to reflect upon the manifold ways that the neoliberal moment has forced us to reassess the potency and efficacy of certain previously uncontested terms in the Marxist tradition. Conceptual categories such as “class,” the “economy,” or even the “working class” can no longer be filled with the historical data of the nineteenth century that were available to Marx. This does not invalidate them as categories. Instead, our own historical moment demands that we engage rigorously with these categories and make them represent our own politico-historic totality. SRT is especially useful in this regard because it reveals the essence- category of capitalism, its animating force, to be human labor and not commodities. In doing so, it exposes to critical scrutiny the superficiality of what we commonly understand to be “economic” processes and restores to the economic process its messy, sensuous, gendered, raced, and unruly component: living human beings, capable of following orders as well as of flouting them. Like all worthwhile Marxist projects, it is important to state that this project to develop SRT is both ongoing and collective. It is ongoing in the sense that our understanding of Marxism ought to be paradigmatic rather than prescriptive, where we see Marxism as a framework or tool to understand social relations and thereby change them. This means, necessarily, that such a tool will sometimes need to be sharpened and honed to fit new, emerging social realities. The revolutionary Marxist This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms 20 . social rfproducbion bhfory tradition has always used Marxism in this manner, which has allowed it to rejuvenate and add to itself in new moments of crises. Lenin’s theory of imperialism, Luxemburg’s understanding of the mass strike, and Trotsky’s thesis on the permanent revolution are all examples of this constant revivification of Marxism in different epochs because these thinkers employed the Marxist method to understand the social reality of their own time. The present volume is similarly animated by this sense of the historical materialist approach as, essentially, a method of analysis that applies itself to concrete historical situations. As the global neoliberal economy continues to foreclose real living alternatives for the vast majority and centers of resistance start developing from within its matrix, we hope SRT will continue to develop Marxism as a real tool for understanding our world in order to change it. Such a project must also, of necessity, be collaborative. So we see this as the start of a conversation about SRT, one that will contribute to and continue that tradition of practicing critical thinking in open and exploratory ways to combat the challenges of our sly and dangerous times. While this book is very much about excavating and recuperating the revolutionary Marxist tradition from the past, like Ernst Bloch, we reserve our greatest excitement for the “not yet.” This content downloaded from 134.84.192.102 on Sun, 13 May 2018 17:04:43 UTC All use subject to http://about.jstor.org/terms
Instructions Write a 5-7 page paper (double spaced, 12 point font, standard margins) on one of the following topics. Your title page and bibliography (and any other pages that are not writing) do not
A B rie f H is to ry o f CO M MER CIA L CA PIT A LIS M JA IR US B AN AJI Hay m ark et B ooks Chic a g o, I llin ois C O N TE N TS 1 . Rein sta tin g C om merc ia l C ap it a lis m 2 . The I n fr a str u ctu re o f C om merc ia l C ap it a lis m 3 . The C om petit io n o f C ap it a ls : Str u ggle s f o r C om merc ia l D om in an ce f r o m t h e T welf th t o Eig hte en th C en tu rie s 4 . Brit is h M erc a n tile C ap it a lis m a n d t h e C osm opo lit a n is m o f t h e N in ete en th C en tu ry 5 . Com merc ia l P ra ctic e s : Puttin g-O ut o r t h e C ap it a lis t D om estic I n dustr ie s 6 . The C ir c u la tio n o f C om merc ia l C ap it a ls : C om petit io n, V elo cit y , V ertic a lit y A PPEN D IX : I SL A M AN D C APIT ALIS M A CKN O W LED GM EN TS N O TES S ELEC T B IB LIO GRA PH Y For H en ry , J a ved , M . J ., a nd S ughosh 3 TH E C O M PETIT IO N O F C A P IT A LS S tru ggle s f o r C om merc ia l D om in an ce f ro m t h e T w elf t h t o E ig h te en th C en tu rie s B YZA N TIU M : T H E S U BOR DIN ATIO N O F G R EEK C A P IT A L I n C onsta n tin ople th e e arly m odern w orld in herit e d a n “ u rb an m onste r,” 1 b u t o ne w hose tr a je cto ry h ad i n volv ed sh arp f lu ctu atio n s o v er t h e c e n tu rie s , w it h a h is to ry g oin g b ack , o f c o urse , t o la te a n tiq u it y ( u nlik e m eg acit ie s lik e C air o a n d B ag hdad ). O n t h e e v e o f it s c o nqu est b y t h e O tto m an s in 1 453, t h e c it y ’s p o pu la tio n h ad s ta b iliz e d a ro und s e v en ty t h ousa n d, 2 b u t a t it s e arly -B yza n tin e p eak in th e s ix th c e n tu ry it h ad b een p ro bab ly w ell o ver h alf a m illio n, a n d a t t h e e n d o f t h e t w elf th c e n tu ry w as a g ain s o m ew here in th e r e g io n o f h alf a m illio n, s a y , f o ur h undre d th ousa n d. 3 B etw een th ose p eak s c a m e a d ow ntu rn r e ach in g a l o w p o in t, f o rty t h ousa n d t o s e v en ty t h ousa n d, i n t h e e ig hth c e n tu ry ( fo llo w in g a p la g ue in 7 47– 8), 4 a n d t h en a s u sta in ed r e n ew al o r e x p an sio n f r o m t h e n in th c e n tu ry d ow n t o t h e e n d o f th e tw elf th . A s th e p o lit ic a l b ase o f a n e m pir e , h ow ev er, th e m assiv e e x p an sio n o f th e in te rn al m ark et t h at o ccu rre d f r o m t h e n in th t o t w elf th c e n tu rie s w as t r u e n ot j u st o f t h e m etr o po lis b u t t o s o m e d eg re e o f t h e w hole e m pir e i n clu din g i t s v ario us s e co ndary u rb an c e n te rs a s w ell a s t h e i s la n ds. 5 W hat w as in p la y h ere w as a h uge co m mon m ark et , th e b ig gest in th e w orld in th e tw elf th c e n tu ry (if w e e x ce p t C hin a, o f c o urse ), a n d i t w as b o und t o e x ert c o nsid era b le f o rc e a s a c o m merc ia l m ag net. C onsta n tin ople is s a n dw ic h ed b etw een t h e G old en H orn t o it s n orth a n d t h e S ea o f M arm ara t o t h e s o uth . I n t h e s ix th c e n tu ry , a s o ne s c h ola r h as a rg ued c o nvin cin gly , t h e p la g ue o f 5 42 t r ig gere d a m ajo r r e lo ca tio n o f b u sin ess an d re sid en ce to th e so uth ern (M arm ara ) co ast, b eca u se b o die s w ere b ein g d um ped in th e se a a n d a n y d um ped in th e G old en H orn w ould n ot h av e b een w ash ed a w ay . 6 T he G old en H orn h ad b een a b an doned w ell b efo re t h e l a te s e v en th c e n tu ry 7 a n d i t w as t h e s o uth c o ast t h at w as m ore a ctiv ely u se d in th e se v en th to te n th c e n tu rie s. 8 T he su sta in ed e x p an sio n o f th e n in th to t w elf th c e n tu rie s, h ow ev er, s a w a s u cce ssio n o f I ta lia n c it y -sta te s s ta rtin g t o t r a d e w it h t h e e m pir e i n a b ig w ay , a n d it w as e sse n tia lly t h eir p re se n ce in C onsta n tin ople t h at r e v it a liz e d t h e G old en H orn in to t h e m ajo r c o m merc ia l h ub t h at i t b eca m e f r o m t h e e le v en th c e n tu ry d ow n t o e arly O tto m an t im es 9 a n d t h en a g ain , w it h th e r e n ew ed c o lo niz a tio n o f P era ( G ala ta , o n th e E uro pean s id e o f I sta n bu l) , in th e m ain p art o f t h e n in ete en th c e n tu ry . A ll t h e m ajo r I ta lia n c o lo nie s ( A m alf i, P is a , G en oa, V en ic e ) w ere c lu ste re d in th e lo w er G old en H orn , w it h je ttie s o r la n din g-sta tio ns ( sk ala i ) w here s e ag oin g v esse ls c o uld lo ad a n d u nlo ad . T he c it y c e n te r a n d th e s e ash ore s w ere “ h eav ily b u ilt u p w it h th re e- o r e v en f iv e-sto ry h ouse s.” 10 I n t h e t w elf th c e n tu ry C onsta n tin ople w as a d en se ly p o pu la te d c o sm opo lit a n c it y , s h arp ly d iv id ed in s o cia l te rm s, a n d p ro ne to v io le n t, u nco ntr o lla b le fir e s. 11 J o hn T ze tz e s b o aste d h e c o uld s p eak to lo ca l r e sid en ts in n o fe w er th an s e v en la n guag es, in clu din g P ersia n , A ra b ic , R ussia n , a n d H eb re w . 12 E usta th io s o f T hessa lo nik i c o unte d six ty th ousa n d “ L atin s” in th e c it y , 13 a n d a k een obse rv er, t h e J e w is h t r a v ele r B en ja m in o f T udela t e lls u s, “ T hey s a y t h at t h e t r ib u te o f t h e c it y a lo ne am ounts e v ery d ay to tw en ty th ousa n d f lo rin s, a ris in g f r o m r e n ts o f h oste lr ie s a n d b aza ars, a n d f r o m th e d utie s p aid b y m erc h an ts w ho a rriv e b y s e a a n d b y l a n d.” 14 I t w as t h e g re ate st c o m merc ia l c e n te r o f th e e aste rn M ed it e rra n ean , 15 w it h a p o pu la tio n b y t h en n ot f a r s h ort o f h alf a m illio n. 16 F in ally , e v en a s la te a s 1 192 th e n ativ e, G re ek , m erc h an ts o f C onsta n tin ople w ere a “ la rg e, in flu en tia l, r ic h ” g ro up. 17 Oik onom id ès c it e s th e e x am ple o f K alo m odio s, a b an ker w ho a ccu m ula te d a v ast fo rtu ne th ro ugh su cce ssfu l o pera tio ns i n l a rg e-sc a le t r a d e, f in an cin g c o m merc ia l t r ip s u nderta k en b y o th ers. 18 Yet th e m ost e x tr a o rd in ary f a ct a b o ut B yza n tin e c o m merc e f r o m th e e n d o f th e e le v en th c e n tu ry to th e t h ir te en th c e n tu ry a n d la te r w as t h e s e v ere d is c rim in atio n G re ek m erc h an ts w ere s u bje cte d t o v is – à-v is fo re ig n c o m petit o rs by th eir o w n s ta te . B y th e te rm s o f th e tr e aty o f 1 082, “ V en etia n m erc h an ts co uld b u y a n d s e ll i n e v ery p art o f t h e E m pir e , f r e e o f d uty o r c u sto m s e x am in atio n.” M an y p o rts w ere open ed a n d “ v ast te rrit o rie s m ad e a cce ssib le to th em f o r f r e e tr a d e.” 19 “ T hese p riv ile g es, r e n ew ed b y th e e m pero rs o f t h e t w elf th c e n tu ry . . . r e n dere d t h e V en etia n s v ir tu al m aste rs o f t h e c o m merc ia l lif e of t h e e m pir e .” 20 B y t h e t h ir te en th c e n tu ry , w hen t h e G en oese c a m e in to B yza n tin e e co nom ic lif e in a big w ay a n d s im il a r w id e-ra n gin g c o nce ssio ns w ere g ra n te d , “ Ita lia n m erc h an ts , w heth er G en oese o r Ven etia n s, b eca m e s o e n tr e n ch ed in C onsta n tin ople th at th ey c o ntr o lle d th e e co nom y o f th at c it y .” 21 And b y th e e n d o f th e th ir te en th c e n tu ry , th e is la n ds o f th e A eg ean (th e A rc h ip ela g o) w ere b ein g div id ed b etw een G en oese an d V en etia n co ntr o l, 22 th e A eg ean ’s east co ast b eco m in g th e h eart o f Gen oa’s m arit im e d om ain . G re ek m erc h an ts , m ean w hile , c o ntin ued to p ay a d uty o f 1 0 p erc e n t a n d Byza n tin e a cce ss to m ark ets in th e w est re m ain ed se v ere ly lim it e d . G re ek m erc h an ts ra re ly g ain ed acce ss t o I ta lia n m ark ets . 23 T he I ta lia n s d is c o ura g ed B yza n tin e e x p an sio n w est o f t h e P elo po nnese , 24 s o th at G re ek c a p it a l w as e ffe ctiv ely s h ut o ut o f t h e l o ng-d is ta n ce t r a d e. 25 A m ajo r u psh ot o f e n tr e n ch ed I ta lia n e co nom ic d om in an ce w as th e e n dem ic h ostilit y th at g re w u p betw een th e Ita lia n s a n d la rg e se cto rs o f th e lo ca l p o pu la tio n. 26 T he v io le n t c ru sa d er o ccu patio n o f Consta n tin ople i n 1 204 a n d t h e l o ng-sta n din g d iv is io n b etw een t h e c h urc h es d id n oth in g t o a b ate t h at, of c o urse . E very a tte m pt to b rin g th e tw o c h urc h es to geth er w as se en a s a “ n atio nal b etr a y al” a n d sp ark ed rio ts . 27 G re ek s liv in g in te rrit o rie s under L atin co ntr o l w ere lo oked dow n upo n as a “co nqu ere d p eo ple ” a n d s u ffe re d th e e co nom ic a n d s o cia l c o nse q u en ce s o f th at e v en to th e p o in t o f bein g d en ie d th e rig ht to h av e th eir o w n b is h ops. 28 “ T hey tr e ate d c it iz e n s lik e sla v es,” w ro te o ne tw elf th -c e n tu ry c h ro nic le r. “ T heir b o ld ness a n d im pu den ce in cre ase d w it h t h eir w ealt h u ntil t h ey n ot only d ete ste d t h e R om an s [ G re ek -sp eak in g B yza n tin es] b u t e v en d efie d t h e t h re ats a n d c o m man ds o f th e E m pero r.” 29 O n t h e o th er h an d, a s t h e le ft- w in g h is to ria n N ic o la s O ik onom id ès e m ph asiz e d , n one of t h is p re v en te d G re ek b u sin ess c ir c le s f r o m e n te rin g i n to p artn ersh ip s w it h I ta lia n c a p it a l. T here w as ex te n siv e c o lla b o ra tio n, a n d G re ek m erc h an ts e v en s o ught G en oese o r V en etia n n atio nalit y to e n jo y th e s a m e b en efit s . The e m erg en ce o f a B yza n tin e c o m merc ia l “ m id dle c la ss” w as a r e m ark ab le f e atu re o f t h e e le v en th – ce n tu ry b o om in th e e co nom ic a n d c u lt u ra l lif e o f th e e m pir e , a n d it s m ost s tr ik in g p o lit ic a l o utc o m e was th e th re e d eca d es in th e m id dle o f th e c e n tu ry w hen a s tr ic tly a ris to cra tic m odel o f g overn m en t sp lit w id e o pen to a llo w th e p o pu la r c la sse s a n d c o m merc ia lly a ctiv e str a ta (lit e ra lly , “ th ose o f th e mark et p la ce ” ) acce ss, fo r th e fir st tim e ev er, to th e se n ate an d h ig her ad m in is tr a tio n. 30 N o le ss in te re stin gly , t h e s a m e r u le rs w ho b ro ught a b o ut t h is r e v olu tio nary c h an ge r e sp o nded t o t h e eco n om ic need s o f th e m id dle c la ss ( meso i ) b y a llo w in g fo r a c o ntr o lle d d ev alu atio n o f th e g old c o in ag e— a measu re not o f c ris is b u t o f t h e e co nom ic b o om r e fle cte d b y a g ro w in g d em an d f o r m ean s o f c ir c u la tio n an d p ay m en t as B yza n tiu m ’s m ark ets w ere b eco m in g m ore d eep ly in te g ra te d in to th e ex p an sio n occu rrin g in t h e w est. 31 W hat e m erg ed b rie fly in t h e e le v en th c e n tu ry w as a f a sc in atin g a llia n ce o f t h e ab so lu tis t p o w er w it h a m id dle c la ss h ostile to th e a ris to cra cy . It w as th is “ ca p it a lis t” d re am o f th e ele v en th c e n tu ry th at w as sh atte re d in 1 081/ 2 in th e v io le n t re actio n o f a str o ngly p ro -a ris to cra tic dynasty (th e K om nen oi) th at se t ab o ut cu rb in g th e g ro w in g afflu en ce an d p o w er o f th e G re ek merc a n tile c la ss b y a b o lis h in g “ all th e p riv ile g es th e b u sin essm en h ad ju st a cq u ir e d ” 32 a n d (ju st a s im po rta n t!) gra n tin g ex te n siv e co nce ssio ns to V en etia n ca p it a l, effe ctiv ely allo w in g a w hole sa le ta k eo ver o f B yza n tin e m ark ets b y I ta lia n m erc h an t c a p it a lis ts , w it h th e m ajo r e x ce p tio n o f th e B la ck Sea w hic h in a n y c a se fa ile d to a ttr a ct m uch a tte n tio n till th e la te r th ir te en th c e n tu ry . T he F re n ch Byza n tin is t L em erle d esc rib ed A le x io s I K om nen os’s ch ry so b u ll o f 1082 as a “m assiv e eco nom ic ca p it u la tio n,” th e p o in t b ein g th at th ough a B yza n tin e m erc h an t c la ss s u rv iv ed a n d c o ntin ued to b e activ e d ow n to th e e n d o f th e tw elf th c e n tu ry , it h ad lo st c o ntr o l o f th e e m pir e ’s m ark ets . 33 G oin g b y la te r e x p erie n ce , it is p o ssib le th at th e v ast m ajo rit y o f lo ca l m erc h an ts w ork ed a s b ro kers fo r th e Ita lia n f ir m s. 34 The la st tw o a n d a h alf c e n tu rie s o f th e B yza n tin e e m pir e (1 204– 1453) w ere c h ara cte riz e d b y th e ca ta str o ph e o f th e V en etia n o ccu patio n o f C onsta n tin ople , w hic h perm an en tly d is m em bere d th e em pir e a n d le ft t h e c it y it s e lf d ep le te d a n d im po veris h ed ; 35 b y f e ro cio us s tr u ggle s b etw een V en ic e a n d Gen oa f o r c o ntr o l o f t h e le ad in g t r a d e s e cto rs, o nce B yza n tin e r u le w as r e sto re d ( in 1 261) a n d G en oa esta b lis h ed a m ajo r p re se n ce th ro ugh it s allia n ce w it h M ic h ael V III P ala io lo gos (th ose str u ggle s eru pte d i n t h e l a st q u arte r o f t h e t h ir te en th c e n tu ry a n d b eg an w it h t h e B la ck S ea); b y t h e c iv il w ars o f th e 1 340s w hic h s a w th e a ris to cra cy c o nte n din g w it h r e b ellio ns b ase d o n a lo ose c o alit io n o f u rb an cla sse s th at in clu ded sa ilo rs an d lo ngsh ore m en ; b y th e aris to cra cy ’s d ecis iv e tu rn to co m merc ia l in vestm en t a s la n ded a sse ts w ere p ro gre ssiv ely lo st to th e O tto m an a d van ce fr o m th e m id dle o f th e fo urte en th c e n tu ry ; a n d f in ally , b y t h e o verw helm in g g rip t h at G en oa e v en m ore t h an V en ic e h ad n ow esta b lis h ed o ver m uch o f t h e t r u nca te d e m pir e ’s t r a d e. I n deed , t h e G en oese h ad c lo se r e la tio ns w it h t h e Turk s t h ro ughout t h e f o urte en th c e n tu ry , a n d a v ery s u bsta n tia l p art o f t h eir b u sin ess w as d one i n t h e Otto m an t e rrit o rie s. 36 The id ea th at a n cie n t a n d m ed ie v al w rit e rs w ere o bliv io us to th e p la y o f e co nom ic fo rc e s in th e his to ry o f th eir re sp ectiv e so cie tie s an d civ iliz a tio ns d oes n ot sta n d u p to sc ru tin y. T o B yza n tin e writ e rs lik e G eo rg e P ach ym ere s an d N ik ep h oro s G re g ora s it w as fa ir ly obv io us th at G en oa’s ex p lo it a tio n o f B yza n tin e m ark ets w as th e b asis o f h er p ro sp erit y . 37 P ach ym ere s h im se lf h as so m e re m ark ab le p assa g es o n t h e k in d o f d om in an ce t h e G en oese h ad e sta b lis h ed o ver t h e e m pir e a n d a b o ut th e fie rc e s tr u ggle s b etw een th em a n d th e V en etia n s fo r th e d om in atio n o f G re ek m ark ets . I n o ne o f th ese h e w rit e s, “ th e V en etia n s a n d th eir c o m munit y ( in C onsta n tin ople ) fo rm erly g re atly s u rp asse d th e G en oese i n w ealt h . . . b eca u se t h ey m ad e g re ate r u se o f t h e [ n arro w ] w ate rs ( th e A eg ean ) t h an d id th e G en oese a n d b eca u se th ey s a ile d a cro ss th e h ig h s e a ( th e M ed it e rra n ean m ore w id ely ) w it h lo ng sh ip s ( g alle y s), a n d th ey s u cce ed ed in g ain in g m ore p ro fit th an d id th e G en oese in tr a n sp o rtin g a n d ca rry in g w are s. B ut o nce th e G en oese b eca m e m aste rs o f th e B la ck S ea b y g ra n t o f th e e m pero r (M ic h ael III) a n d w it h a ll lib erty a n d fr a n ch is e , th ey b ra v ed th at [s e a], a n d sa ilin g in th e m id st o f win te r i n s h ip s o f r e d uce d l e n gth . . . t h ey n ot o nly b arre d t h e R om an s ( B yza n tin es) f r o m t h e l a n es a n d ware s o f t h e s e a bu t a ls o e clip se d t h e V en etia ns i n w ea lt h a nd m ate ria l [ g ood s] . B eca u se o f t h is t h ey c a m e to lo ok d ow n n ot o nly u po n th ose o f th eir o w n k in (o th er Ita lia n s) b u t als o u po n th e R om an s th em se lv es.” 38 H ere P ach ym ere s d esc rib es t w o b ro ad p erio ds in t h e c o m merc ia l h is to ry o f t h e e m pir e , in th e f ir st o f w hic h , a cco rd in g to h im , th e V en etia n s e sta b lis h ed th eir p rim acy th ro ugh a s tr a te g y o f ca b o ta g e o r c o asta l tr a d in g in th e p u re ly G re ek p arts o f th e e m pir e ( a B yza n tin e v ersio n o f w hat in In dia th e B rit is h w ould la te r c a ll th e “ co untr y tr a d e” ). T he G en oese la te r s u rp asse d th em b y m ak in g th e B la ck S ea th e re n ew ed fo cu s o f th eir c o m merc ia l o pera tio ns. T his str ik es m e a s a re m ark ab ly co here n t s u m mary o f o ver t w o c e n tu rie s o f B yza n tin e c o m merc ia l h is to ry . In b o th c it ie s, V en ic e a s w ell a s G en oa, th e a ris to cra cy it s e lf w as v ery s u bsta n tia lly in volv ed in th e tr a d e w it h “ R om an ia .” 39 T he in vestm en ts a t s ta k e w ere th ose o f th e le ad in g fa m ilie s in b o th c e n te rs. But c o m merc ia l c a p it a l w as s till w id ely d is p erse d a m ong th e alb erg hi . O n th e G en oese sid e, th e six le ad in g fa m ilie s acco unte d fo r 29 perc e n t of all in vestm en t, a deg re e of co nce n tr a tio n sc a rc e ly co m para b le w it h t h e m uch h ig her l e v els c h ara cte ris tic o f l a te r c e n tu rie s. 40 I n ca . 1170 t h e V en etia n s h ad vastly m ore c a p it a l tie d u p in B yza n tiu m th an a n y o f th eir c o m petit o rs. T hey h ad a s tr o nger h old o n th e i s la n ds, a n d t h is w as e x te n siv e b y t h e s e co nd q u arte r o f t h e t w elf th c e n tu ry . 41 When th e G en oese fir st so ught to e sta b lis h th em se lv es in C onsta n tin ople , th eir n ew ly e sta b lis h ed qu arte rs w ere re p eate d ly atta ck ed an d ev en d em olis h ed — in 1 162 b y a m ob co nsis tin g m ain ly o f Pis a n s, th en a g ain in 1 170 b y th e V en etia n s th em se lv es, a n d a th ir d tim e, in A pril 1 182, in a d re ad fu l lo ca l p o gro m a g ain st a ll Ita lia n s (e x ce p t th at th e V en etia n q u arte r la y v aca n t a t th is tim e). 42 O n a ll th ese v ario us o cca sio ns, c la im s fo r c o m pen sa tio n w ere s u bm it te d b y th e m ain a g grie v ed p artie s, a n d fr o m th ese o ne g ets a t le ast a c ru de im pre ssio n o f th e s c a le o f th eir r e sp ectiv e in vestm en ts . G en oese estim ate s o f t h e l o sse s t h ey s u sta in ed i n 1 162 a n d 1 182 r e sp ectiv ely s u ggest t h at i n t h e p re v io us d eca d e or s o th ere h ad b een v ery r a p id e n ric h m en t o f G en oese m erc h an ts tr a d in g to B yza n tin e m ark ets . 43 I t se em s e n tir e ly lik ely th at th e d is ru ptio n o f V en etia n b u sin ess fo llo w in g th e r e p ris a ls a g ain st th em in 1171 w ork ed s tr o ngly i n G en oa’s f a v or. That t h e L atin c o nqu est o f C onsta n tin ople w as l a rg ely a f u nctio n o f t h e e n dem ic r iv alr y b etw een t h e tw o m ain co m merc ia l po w ers is sh ow n by th e fa ct th at G en oa w as not offic ia lly re p re se n te d in Con sta ntin op le d urin g t h e o ccu patio n. 44 V en ic e ’s t e rrit o ry in t h e c it y e x p an ded s u bsta n tia lly s o on a fte r th e c o nqu est. 45 T he re sto ra tio n o f B yza n tin e ru le in 1 261 tu rn ed th e ta b le s d ra m atic a lly a s G en oa beca m e t h e d om in an t e co nom ic p o w er i n C onsta n tin ople a n d s e cu re d a cce ss t o t h e B la ck S ea, w here a co lo ny w as e sta b lis h ed a t C affa t h at w as t h riv in g b y t h e 1 280s. 46 T he w hole p erio d f r o m 1 270 t o 1 3 40 sa w s u bsta n tia l G en oese i n vestm en t. I n 1 348, a cco rd in g t o t h e c h ro nic le r G re g ora s, r e v en ues f r o m t h e cu sto m s c o lle cte d a t G en oa’s c o lo ny a t P era w ere a lm ost se v en tim es b ig ger th an th e c o lle ctio ns a t Consta n tin ople . 47 T hese f e ll s h arp ly in th e la te r f o urte en th c e n tu ry , w hic h s a w a p ro lo nged r e ce ssio n th at o nly lif te d in th e e arly p art o f th e fif te en th c e n tu ry . C om petit io n w as s h arp er th an e v er in th ese deca d es, s in ce t h ere w ere n o f e w er t h an t h re e “ co lo nia l w ars” b etw een V en ic e a n d G en oa f o r c o ntr o l of t h e A eg ean , t h e u psh ot o f w hic h w as a d iv is io n, a “ d e f a cto c a rv e-u p,” o f t h e s e a b etw een t h em . 48 Thus th e “ co lo niz a tio n” o f th e B yza n tin e e m pir e p ro bab ly c o unts a s th e m ost s tr ik in g e x am ple o f a “co lo nia l- sty le ” eco nom y befo re co lo nia lis m . The para lle l has been dra w n re p eate d ly , an d Oik onom id ès h im se lf w ould s p eak o f t h e “ eco nom ic im peria lis m o f w este rn m erc h an ts .” 49 A n a tte m pt in th e m id dle o f th e fo urte en th c e n tu ry to r e esta b lis h g re ate r p arit y in th e d utie s p aid b y G re ek a n d Ita lia n m erc h an ts le d to a v io le n t re actio n w hic h fo rc e d th e em pero r Jo hn V I K an ta k ouze n os to re v erse h is d ecis io n. 50 ( T he G en oese r e acte d b y b u rn in g B yza n tin e m erc h an t s h ip s a n d w are h ouse s!) The t r e aty o f 1 352 i n clu ded a c la u se “ se v ere ly l im it in g t h e a cce ss o f B yza n tin e m erc h an ts t o T an a a n d th e S ea o f A zo v.” 51 T he meso i w ho w ere a ctiv e in t h e r e b ellio ns o f t h e 1 340s in clu ded a la y er o f G re ek ca p it a l t h at b o th r e se n te d i t s s u bo rd in atio n t o m ore p o w erfu l c o m petit o rs and d ep en ded o n t h em f o r i t s ow n s u rv iv al. I n T hessa lo nik i, th e m ost r a d ic a l fa ctio n, th ose k now n a s th e Z ealo ts , e v en c o ntr o lle d th e c it y ’s g overn m en t f o r s o m e s e v en o r e ig ht y ears a n d w ere le d , in p art a t le ast, b y t h e c it y ’s h arb o r work ers. 52 A ngelik i L aio u a rg ued th at th e c iv il w ar w as “ an a b o rtiv e e ffo rt to c re ate a sta te q u it e dif fe re n t f r o m w hat h ad e x is te d in B yza n tiu m , o ne w here t h e i n te re sts o f t h e c o m merc ia l e le m en t w ou ld b e pa ra m ou nt .” 53 In a n y c a se , b y th e la tte r h alf o f th e c e n tu ry a m ore su bsta n tia l k in d o f in volv em en t em erg ed a s m em bers o f th e G re ek a ris to cra cy c o m pen sa te d fo r fa llin g in co m es fr o m th eir e sta te s b y tu rn in g t o l a rg e-sc a le t r a d e a n d b an kin g. A s O ik onom id ès s h ow ed , t h e h ig hest l e v els o f t h e a ris to cra cy were in volv ed in th is , 54 w it h th e n um ber o f a ris to cra ts in volv ed in tr a d e g ro w in g d ra m atic a lly . “ T he urb an u pper c la ss o f B yza n tiu m w as a t la st u nit e d in p u re ly c a p it a lis t a sp ir a tio ns,” h e w ro te , 55 a n d t h e pre v io us d is tin ctio n b etw een t h e meso i a n d t h e a ris to cra cy e v en tu ally d is a p peare d . A f in al w ord . N one o f t h e le ad in g I ta lia n t r a d e c e n te rs t h at t r a d ed w it h B yza n tiu m s im ply r e p lic a te d th e p atte rn o f th eir c o m petit o rs. I n th e e le v en th c e n tu ry , A m alf i ( w here , a g ain , th e a ris to cra cy w ere key d riv ers o f e x te rn al in vestm en t, u nlik e th e o th er so uth ern n obili t ie s) 56 h ad sp ecia liz e d in lu xu ry im po rts f r o m C onsta n tin ople f o r m ark ets in R om e a n d N ap le s, in te g ra tin g it s t r a d e w it h t h e s o uth ern Med it e rra n ean b y u sin g th e g old fr o m th e S ah ara a cq u ir e d in th e M ag hre b p o rts a n d in E gypt (in ex ch an ge fo r g ra in , tim ber, lin en clo th , an d so o n) to fin an ce p u rc h ase s fr o m th e B yza n tin es. In Consta n tin ople th e A m alf it a n s w ere b u yers, n ot se lle rs. 57 In th e e le v en th a n d tw elf th c e n tu rie s, th e Ven etia n s h ad tr a d ed in th e lo ca l p ro duce o f th e G re ek m ain la n d a n d G re ek is la n ds a n d o f s o uth ern Ita ly , in it e m s s u ch a s o liv e o il, c h eese , w in e, w heat, r a w s ilk , a n d r a w c o tto n. A bo ut s ix ty p erc e n t o f Ven ic e ’s tr a d e w it h th e e m pir e is s a id to h av e b een tr a n sa cte d in G re ece . 58 S outh ern C ala b ria w as a majo r p ro duce r o f r a w s ilk 59 a n d t h is m ust a ls o h av e r e ach ed m an ufa ctu rin g c e n te rs s u ch a s T heb es in Ven etia n s h ip s. O liv e o il c a m e f r o m t h e P elo po nnese . 60 A V en etia n b y t h e n am e o f V it a le V olt a n i, w ho se ttle d in G re ece in th e 1 160s, w as sa id to h av e “ d om in ate d th e o il m ark et in C orin th , S parta a n d Theb es.” 61 F or t h eir p art, t h e G en oese c o m bin ed t h e b u lk t r a d es o f t h e B la ck S ea r e g io n, P hokaia , a n d Chio s ( g ra in , a lu m , le ath er, c o tto n, e tc .) w it h th e im po rta tio n o f e x p en siv e fa b ric s, “ m an y d if fe re n t ty pes o f E uro pean c lo th ,” 62 t h e e x p o rt o f A nato lia n c a rp ets , 63 R ussia n f u rs, 64 a n d s o o n. VEN IC E T O P O R TU GAL Unlik e t h e r u le rs o f B yza n tiu m , i t w as M am lu k p o lic y n ot t o i n te rv en e i n t h e c o nflic ts b etw een V en ic e an d G en oa. I n 1 294 t h e c o m merc ia l b attle b etw een t h em h ad s p ille d o ver i n to t h e f a r e n d o f t h e e aste rn Med it e rra n ean . T he S yria n ch ro nic le r al- J a za ri n ote s th at in 1294 “w it n esse s re p o rte d th at la rg e num bers o f F ra n ks c a m e b y s e a to A yas fo r p u rp o se s o f tr a d e a n d th at th ey b elo nged to tw o n atio ns ( ta if a ). O ne l o t w ere c a lle d V en etia n s, t h e o th er G en oese .” A s a cts o f h ostilit y e sc a la te d b etw een t h em , th ey g ot i n to a b it te r f ig ht a n d “ o n o ne d ay a lo ne o ver 6 000 p eo ple w ere k ille d .” “ T he G en oese g ot t h e bette r o f t h e V en etia n s.” 65 A l- J a za ri w as d esc rib in g a c ru cia l p art o f t h e p re lu de t o t h e m ajo r w ar t h at dev elo ped tw o y ears la te r, w hic h b eg an a n d e n ded w it h th e V en etia n s se ttin g fir e to P era a n d th e Gen oese r e ta lia tin g b y m assa crin g l a rg e n um bers o f t h em i n t h eir q u arte r o f t h e c it y . In th e tw elf th a n d th ir te en c e n tu rie s, th e e x p an sio n o f Ita lia n b u sin ess in te re sts in th e L ev an t ra n pa ra lle l to a r a p id g ro w th o f M uslim tr a d e a n d s e ttle m en t o n th e M ala b ar c o ast. 66 T he L ev an t c o tto n tr a d e w as d om in ate d b y t h e I ta lia n s, s o t h at b y t h e l a te f if te en th a n d s ix te en th c e n tu rie s “ in p eak y ears th e to ta l v olu m e o f V en etia n c o tto n im po rts fr o m a ll s o urc e s c o uld e x ce ed 4 ,0 00 to ns.” 67 T hey h ad su bsta n tia l in te re sts in th e L ev an tin e s u gar in dustr y , fo r e x am ple , in th e v illa g es a ro und T yre w here th e m ost im po rta n t s u gar p la n ta tio ns o f t h e S yro -P ale stin ia n c o ast p asse d in to V en etia n h an ds in 1 123 (b etw een t h e f ir st a n d s e co nd C ru sa d es). 68 W it h t h e f a ll o f A cre in 1 291, V en etia n s u gar in te re sts w ere re lo ca te d to th e is la n ds. In C ypru s in th e la te r fo urte en th an d fif te en th ce n tu rie s, th e C orn ers, a po w erfu l V en etia n f a m ily , b u ilt a t h riv in g e n te rp ris e i n s u gar. 69 I n 1 183 t h e S pan is h t r a v ele r I b n J u bay r sa w in num era b le lo ad s o f p ep per b ein g s h ip ped t o t h e S udan ese p o rt o f A ydhab a n d t r a n sp o rte d f r o m th ere in n um ero us ca ra v an s. 70 B are ly se v en y ears la te r, th e v alu e o f g oods e x p o rte d b y C hris tia n merc h an ts t r a d in g t h ro ugh t h e N ile p o rts w as e stim ate d t o b e “ w ell o ver 1 00,0 00 d in ars,” a n d t h is a t a tim e o f c o nsid era b le p o lit ic a l te n sio ns (S ala d in h ad c a p tu re d Je ru sa le m in 1 187). 71 T he n um ber o f merc h an ts f r o m t h e w est t r a d in g i n A le x an dria i n 1 216 w as ( a s I n ote d e arlie r) p u t a t t h re e t h ousa n d b y th e h is to ria n a l- M aq riz i. 72 I n ca . 1260 V en etia n s o urc e s in dic a te “ la rg e c o tto n s h ip m en ts fr o m A cre .” 73 Can dia i n V en etia n -c o ntr o lle d C re te b eca m e a m ajo r s p ic e m ark et i n t h e e arly f o urte en th c e n tu ry . T he su gar a n d c o tto n e x p o rte d t h ere f r o m A le x an dria w ere r e ex p o rte d t o I ta ly i n V en etia n g alle y s. 74 B y t h e mid dle o f t h e c e n tu ry t h e p ap ers o f t h e V en etia n n ota ry B re sc ia n o r e fle ct massiv e i m po rts o f I ta lia n a n d Fle m is h te x tile s in to C an dia , s o m eth in g th at w as d oubtle ss tr u e o f o th er V en etia n c o lo nie s. 75 B y th e en d o f t h e c e n tu ry t h e v olu m e o f I ta lia n b u sin ess h ad i n cre ase d d ra m atic a lly . I n vestm en ts c o uld r u n a s hig h a s 4 50,0 00 d in ars w it h t h e V en etia n s in t h e 1 390s, a n d b etw een 2 00,0 00 a n d 3 00,0 00 d in ars e v ery year b etw een 1394 an d 1400 in G en oa’s ca se . (T he C ata la n s ca m e th ir d w it h an an nual av era g e ca . 200,0 00.) 76 A nd b y th e fif te en th c e n tu ry w hen , a s B ra u del sa y s, “ V en ic e w as u nqu estio nab ly th e vig oro us h eart o f th e M ed it e rra n ean ,” 77 th an ks la rg ely to it s tr a d e w it h th e L ev an t, m erc h an t g alle y s wit h g oods w orth o ne m illio n d uca ts p lu s 4 00,0 00 i n c a sh w ere s a ilin g f r o m V en ic e f o r A le x an dria a n d Beir u t. 78 The L ev an t t r a d e w as t h e m id dle s e g m en t o f a c ir c u it t h at e x te n ded t o t h e p o rts o f M ala b ar in S outh In dia a n d b ey ond th em in to S outh east A sia . H ere th e g re at c o unte rp art to th e c ru sa d in g p erio d’s “cre atio n o f n um ero us L atin tr a d in g co lo nie s in th e N ear E ast w it h th eir o w n co nsu ls , h oste ls , ware h ouse s, m ark etp la ce s, a n d c h urc h es” 79 w as t h e e x p an sio n o f I sla m , w hic h , s im ila rly , b eg in s in t h e tw elf th c e n tu ry a n d r e ach es it s c o m merc ia l z e n it h in t h e f if te en th . T he o ld est r e lia b ly d ata b le m osq u e on th e M ala b ar c o ast w as fo unded in 1 124, a t M ad ay i. 80 B y th e e n d o f th e th ir te en th c e n tu ry M uslim se ttle m en ts w ere w ell e sta b lis h ed b o th th ere a n d o n th e C oro m an del c o ast, 81 r e fle ctin g a n e x p an sio n acro ss th e e n tir e w este rn h alf o f th e I n dia n O ce an . E ven in th e e arly th ir te en th c e n tu ry , it h as b een cla im ed , th e E ast A fr ic a n c o ast w as la rg ely Isla m ic , 82 a n d c e rta in ly b y th e e n d o f th e c e n tu ry th e ev id en ce fr o m K ilw a im plie s a “ v ery la rg e M uslim re sid en t p o pu la tio n.” 83 B y ca . 1331 Ib n B attu ta desc rib es a “ v ast n etw ork o f M uslim s a ll a ro und th e p erip h ery o f th e I n dia n O ce an .” 84 T hese w ere esse n tia lly c o m merc ia l n etw ork s d ra w n f r o m m an y d if fe re n t p arts o f t h e N ear E ast. C alic u t’s M uslim s who te n dere d th eir a lle g ia n ce to th e R asu lid su lt a n a l- A sh ra f II in 1 393 re fle cte d a m ult ip lic it y o f geo gra p h ic o rig in s, 85 a n d th e s a m e is s u ggeste d in B arb o sa ’s r e p o rt th at b y th e s e co nd d eca d e o f th e six te en th c e n tu ry t h ese c o sm opo lit a n m erc h an ts “ d ep arte d t o t h eir o w n l a n ds a b an donin g I n dia a n d i t s tr a d e,” 86 fo llo w in g th e d ra m atic a n d v io le n t w ay in w hic h th e P ortu guese m ad e th eir e n tr y in to th e In dia n O ce an tr a d e w it h V asc o d a G am a in sis tin g o n th e e x p u ls io n o f th e M uslim s fr o m C alic u t a n d bo m bard in g t h e t o w n w hen i t s r u le r r e fu se d . 87 That t h e c ru sh in g o f t h e V en etia n s p ic e m onopo ly w as t h e p re m ed it a te d g oal o f P ortu gal’s m arit im e ex p an sio n in th e fif te en th c e n tu ry c a n , o f c o urse , b e ru le d o ut. T he str a te g y o f A tla n tic e x p an sio n ev olv ed o nly g ra d ually . 88 T here w as, a s L uís F ilip e T hom az h as a rg ued , n o co h ere n t im peria l p ro je ct till th e la st tw o d eca d es o f th e fif te en th c e n tu ry a n d w hat h e c a lls th e “ ca lc u la te d im peria lis m ” o f a model th at w as “ im peria l, g lo baliz in g, a n d s ta te -d riv en .” 89 F ro m th e r e ig n o f D om F erd in an d ( 1 367– 83), P ortu guese r o yal p o w er h ad f o und i t s s tr o ngest s u ppo rt i n t h e p o pu la tio n o f t h e p o rts , 90 w here t h e Portu guese m erc h an t c la ss g re w in s tr e n gth . 91 B ut in th e p artn ersh ip th at e v olv ed o ver th e fo llo w in g ce n tu ry b etw een th e m onarc h y a n d p riv ate c a p it a l, th e sta te c a n sc a rc e ly b e d esc rib ed a s a p assiv e ag en t o f th e la tte r. F in an cia lly , it d ep en ded o n th e re so urc e s o f b ig L is b o n m erc h an ts lik e F ern ão Gom es ca . 1469 a n d, la te r, o f p o w erfu l s y ndic a te s o f G erm an a n d I ta lia n b u sin essm en , b u t it w as th e cro w n t h at b o th d ro ve a n d m onit o re d t h e p ro ce ss, a n d ( ju st a s im po rta n t) t h ere w as n ev er a n y “ cle ar- cu t d em arc a tio n b etw een th e fin an ce s o f th e S ta te an d it s co m merc ia l ca p it a l.” 92 A ll co m merc ia l ca p it a lis m s o f th e six te en th to e ig hte en th c e n tu rie s w ould c o m e to b e in ex tr ic a bly b ou nd u p w it h th e sta te , b u t i n P ortu gal’s c a se t h e r e la tio nsh ip w as p o sit e d a s i m med ia te . I t w as t h e c ro w n t h at w ould a ct as a m erc h an t c o m pan y o n th e w est c o ast o f I n dia , “ se ttin g u p fe it o ria s (tr a d in g p o sts , fa cto rie s) in vario us k ey p o rts , b u yin g u p p ep per, s p ic e s a n d o th er p re cio us c o m modit ie s, w hic h t h ey w ould s h ip t o Euro pe a n d s e ll t h ere a t a h uge p ro fit .” 93 The P ortu guese , o f c o urse , w ere q u it e c le ar w ho th eir c o m petit o rs w ere . T ry in g to c o nvin ce th e mem bers o f h is c o uncil o f th e n eed to c a p tu re a n d re ta in M ala cca , A lb u qu erq u e w ro te , “ S in ce w e gain ed c o ntr o l o f t h e M ala b ar p ep per t r a d e, C air o h as n ot r e ce iv ed a n y e x ce p t w hat t h e M osle m s h av e been a b le t o t a k e f r o m t h is r e g io n ( th e S tr a it s ) . . . I a m v ery s u re t h at, i f t h is M ala cca t r a d e i s t a k en o ut of t h eir h an ds, C air o a n d M ecca w ill b e c o m ple te ly l o st a n d no s p ic e s w ill g o t o t h e V en etia ns e x ce p t t h ose th at th ey g o to P ortu gal to b u y .” 94 T he ta rg et h ere , in 1 511, w as th e e n tir e R ed S ea ro ute , a c ir c u it dom in ate d b y a so rt o f m assiv e jo in t v en tu re b etw een V en etia n c a p it a l, C air o m erc h an ts , a n d th e su pplie rs in C alic u t. B ut m ovin g b ack alo ng th e ch ain , th e m ajo rit y o f h is ca p ta in s ag re ed w it h Alb u qu erq u e, it w as e sse n tia l t o “ ta k e t h e c it y o f M ala cca , to e x pel t h e M osle m s , a n d t o b u ild a f o rtr e ss th ere .” 95 P ortu gal’s “ co m merc ia l a n d re lig io us w ar a g ain st Isla m ” 96 o ccu pie d th e g re ate r p art o f a ce n tu ry a n d w as n ev er c o m ple te ly s u cce ssfu l, b u t i n C alic u t t h e e ffe cts o f h er i n tr u sio n w ere f e lt a lm ost im med ia te ly . A lr e ad y b y 1 507 o ne tr a v ele r, th e I ta lia n L udovic o d i V arth em a, w as w rit in g, “ C alic u t was r u in ed b y t h e K in g o f P ortu gal, f o r t h e m erc h an ts w ho u se d t o c o m e t h ere w ere n ot t h ere , n eit h er did th ey c o m e.” 97 I t w as C och in th at b eca m e P ortu gal’s e co nom ic b ase in th e r e g io n a n d th e b u lk o f Portu guese p ep per fr o m M ala b ar w as e x p o rte d fr o m th ere . 98 B y 1 512 A lb u qu erq u e w as te llin g K in g Man uel th at th e net v alu e o f s h ip m en ts fr o m I n dia w as n ow “ w orth a m illio n cru za d os .” 99 I f s o , th ese le v els w ere nev er su bse q u en tly su sta in ed . T he m ajo rit y of actu al cu lt iv ato rs w ere St. T hom as Chris tia n s. 100 P ep per w as so ld to th e P ortu guese fa cto ry in C och in by m erc h an ts fr o m th eir co m munit y a n d b y C och in J e w s. 101 A ppare n tly , t h e k in g h ad a sk ed o ffic ia ls t o d eal w it h C hris tia n a n d Hin du tr a d ers (N air s w ere u se d as b ro kers) “ an d to keep th e M uslim m erc h ants aw ay fr o m tr a d e activ it ie s .” 102 D om M an uel’s “ro yal ca p it a lis m ” 103 w as a cu rio us m ix tu re of m erc a n tilis m an d messia n is m 104 w here h ard head ed b u sin ess d ecis io ns an d a M ed it e rra n ean -sty le eco nom ic w ar w ere clo ak ed i n r e lig io us z e al a n d a g re at d eal o f b o th i g nora n ce a n d b ig otr y . The habit u al u se o f f o rc e a s a n a cce p ta b le p art o f t h e c o m petit io n b etw een s u bsta n tia l blo cs o f c a p it a l was n ow , fo r th e fir st tim e in th e h is to ry o f eit h er se a, tr a n sp o se d fr o m a th eatr e w here it h ad flo uris h ed fo r c e n tu rie s (sin ce V en ic e ’s d ev asta tin g a tta ck o n C om acch io in 9 32, sa y ) to th e In dia n Oce an , w here it s m ajo r ta rg ets w ere th e p o w erfu l M uslim c o m merc ia l n etw ork s th at str a d dle d th e en tir e o ce an f r o m K ilw a a n d S ofa la in E ast A fr ic a t o S um atr a a n d t h e s o uth ern P hilip pin es. I n C och in it s e lf t h e p rin cip al m erc h an ts o f t h e p o rt ( M uslim c o nverts o f t h e M ara k kar f a m ily ) r e lo ca te d t o C alic u t by th e 1 520s, fo rc e d o ut b y w hat o ne h is to ria n c a lls a n “ atm osp h ere o f c o erc io n a n d v io le n ce .” 105 Ahm ad Z ay n a l- D in ’s la te s ix te en th -c e n tu ry h is to ry , Tuhfa t a l- m uja hid in , h as g ra p h ic d esc rip tio ns o f th e v io le n ce i n flic te d o n M ala b ar’s M uslim c o m munit ie s. H e w rit e s o f t h e b u rn in g o f t h e ja m i‘ m asji d i n Calic u t in 1 510, th e e arlie r d em olit io n o f th e C och in m osq u e, th e se iz u re o f sh ip s, d estr u ctio n o f pro perty , a n d s o o n. T here w as a ls o t h e r e p eate d p erso nal h um ilia tio n M uslim s w ere s u bje cte d t o , a n d of c o urse b lo odsh ed . Z ay n a l- D in h ad a n a cu te s e n se o f t h e h is to ry o f h is o w n lif e tim e, k now in g t h at th e a d ven t o f th e P ortu guese h ad b een r u in ous fo r th e p ro sp erit y o f M uslim c o m merc e in th e I n dia n Oce an . T he P ortu guese , h e w rit e s, h ad s o ught t o “ se cu re f o r t h em se lv es a mon op oly o f t h is t r a d e ” ( th e sp ic e t r a d e). 106 T hey h ad e sta b lis h ed t h em se lv es “ in t h e g re ate r p art o f t h e s e a p o rts o f t h is p art o f t h e world .” 107 T hey h ad ev en “ fo und th eir w ay to th e C hin ese em pir e , ca rry in g o n tr a d e in all th e in te rm ed ia te a n d o th er p o rts , in a ll o f w hic h th e c o m merc ia l in te re sts o f th e M uslim s h av e b een in co nse q u en ce c o nsig ned t o r u in .” T he P ortu guese “ re n dere d i t im possib le t h at a ny o th ers s h ou ld c o m pete wit h t h em ” i n t h e t r a d es t h ey s o ught t o d om in ate . 108 T he M uslim s o f M ala b ar h ad s e en t h e b u lk o f t h eir in te rn atio nal c o m merc e m assiv ely d is ru pte d a n d w ere le ft o nly w it h t h e c o astin g t r a d e o f I n dia . T hey had b eco m e “ im po veris h ed a n d w eak a n d p o w erle ss.” 109 There i s a f a sc in atin g r e fe re n ce i n t h ese p assa g es t o a s e lf – fin an cin g m odel t h at b eca m e c h ara cte ris tic not o nly o f P ortu gal’s tr a d e in A sia n w ate rs b u t, e v en m ore c ru cia lly , o f th e b ette r-o rg an iz e d D utc h ex p an sio n th at w ould la te r re p la ce it in th e se v en te en th ce n tu ry . T he P ortu guese m onarc h y w as ch ro nic a lly s h ort o f c a sh a n d s o ught t o s u sta in t h e E uro pean s id e o f it s m onopo ly o f t h e s p ic e m ark et by in volv in g th e b ig gest G erm an a n d I ta lia n c a p it a lis ts a s in vesto rs a n d e n co ura g in g g overn ors lik e Alb u qu erq u e to fin an ce th e ro yal sh are o f p u rc h ase s fr o m p ro fit s g en era te d b y P ortu guese tr a d in g wit h in A sia n m ark ets . 110 A t th e M ala b ar e n d, th ere w as n ev er a n y re al m onopo ly , sin ce e x p o rts to Lis b o n n ev er s e em to h av e e x ce ed ed a b o ut 4 0 p erc e n t o f th e to ta l o utp u t o f p ep per e v en in th e e arly six te en th c e n tu ry a n d fe ll d ra m atic a lly b y th e e n d o f th e c e n tu ry , w hen F ra n cis c o d a C osta r e lia b ly estim ate d th at o f a to ta l p ro ductio n o f 2 58,0 00 q u in ta ls , e x p o rts to P ortu gal w ere a m eag re tw en ty th ousa n d to th ir ty th ousa n d q u in ta ls . 111 I n 1 587 F erd in an d C ro n, C och in a g en t o f th e F uggers, w ro te th at a lt h ough ca . th re e h undre d t h ousa n d q u in ta ls o f p ep per w ere p ro duce d a n nually i n s o uth ern I n dia , only a v ery lit tle o f th is c a m e in to th e h an ds o f th e c o ntr a cto rs to b e ta k en to E uro pe. 112 T hom az h as arg ued th at “ P ortu guese c o m merc e in th e s ix te en th c e n tu ry d ev elo ped p re d om in an tly in th e I n dia n Oce an , ov er a n etw ork o f s h ort a nd m ed iu m r a ng e r o u te s w hic h a ctu ally e n co m passe d a lm ost e v ery c o ast of A sia . . . T he m ain r e aso n w hic h d ro ve t h e P ortu guese t o a p ply t h em se lv es t o t h e lo ca l t r a d e s e em s to b e th at th e C ap e ro ute to P ortu gal w as o fte n a lo se r.” 113 In sh ort, P ortu gal’s A sia n tr a d e c ro ss- su bsid iz e d t h e t r a d e t o L is b o n, s in ce o verh ead s w ere s o h ig h i n t h e l a tte r. Pep per w as g ro w n o n lit e ra lly th ousa n ds o f g ard en s in M ala b ar. 114 T he P ortu guese s im ply d id n ot hav e th e lo gis tic a l s e t- u p to d eal w it h p ro duce rs d ir e ctly a n d c e rta in ly h ad n o w ay o f c o ntr o llin g th e pro duce rs. 115 T here fo re , p ric e d om in atio n h ad to b e e n fo rc e d th ro ugh a g re em en ts w it h th e ru le r o f Coch in a n d o th er l o ca l r u le rs. A l o w f ix ed p ric e w as v it a l t o t h e w hole e n te rp ris e a s k in g D om M an uel had c o nce iv ed t h is in it ia lly . I n 1 503 t h e p ric e o f a bh ar o f p ep per ( th at is , o f a b atc h o f ca . 166 k g) w as fix ed a t le ss t h an h alf t h e m ark et p ric e p re v ailin g in C alic u t t h re e y ears e arlie r. 116 P ric e s w ould r e m ain fix ed fo r d eca d es. B ut M ala b ar p ep per w as a h ig hly c o m petit iv e m ark et w it h o ver a d oze n r e g io nal ce n te rs w here m erc h an ts b o ught th e p ro duce w hole sa le . C om petit io n w as fie rc e in th ose m ark ets . 117 This acco unts fo r th e p u re ly th eo re tic a l n atu re o f th e P ortu guese m onopo ly , sin ce , as C esa re d e Fed eric i n ote d , p ro bab ly in th e 1 570s, th e b u lk o f g ood-q u alit y p ep per w as b ein g s h ip ped to th e R ed Sea b eca u se m erc h an ts c o nnecte d w it h th at tr a d e pa id m ore a nd g ot a b ette r q u alit y o f p ro d uce , “ cle an e an d dry an d bette r co ndit io ned .” 118 T his is th e esse n tia l re aso n beh in d th e re silie n ce of th e Med it e rra n ean r o ute t h at B ra u del c o nsta n tly d re w a tte n tio n t o . 119 If th e “ ro yal ca p it a lis m ” o f th e early six te en th ce n tu ry w as ev en tu ally ab an doned fo r a “ m ore str a ig htf o rw ard s e m i- A bso lu tis t c o nce p tio n o f t h e s ta te ’s r e la tio nsh ip t o t r a d e,” 120 P ortu guese c o lo nia l en te rp ris e , o r th e A sia n th ala sso cra cy th at fo rm ed it s c o re , b eca m e e v en s tr o nger a s a m ag net fo r a n ag glo m era tio n o f ca p it a lis t in te re sts th at is p ro bab ly b est d esc rib ed in H en ry B ern ste in ’s id ea o f “cla sse s o f c a p it a l.” A t th e to p w ere th e b ig gest G erm an a n d I ta lia n c a p it a lis t h ouse s ( th e W els e rs, Fuggers, H öch ste tte rs, A ffa it a d i, B arto lo m eo M arc h io nni, G io van ni R ovela sc a ) w ho co m bin ed in po w erfu l s y ndic a te s to fin an ce th e a ctu al e x p ed it io ns to I n dia , s u ch a s th e o ne in 1 505 in w hic h th e Wels e rs h ad a v ery s u bsta n tia l in vestm en t o f tw en ty th ousa n d cru za d os , o r a g re ed to h an dle s a le s in Euro pe, w it h p le d ges to b u y a stip u la te d q u an tit y o f p ep per a t a n a g re ed p ric e . B oth a rra n gem en ts were f r a u ght w it h t e n sio ns b o und u p w it h t h e v ola tilit y o f t h is m ark et, w it h t h e c ro w n q u it e c a p ab le o f re n eg in g o n co ntr a cts . F lo re n tin e m erc h an ts w ere w ell- e n tr e n ch ed in L is b o n an d m an y o f th em “fin an ce d a n d j o in ed t h e P ortu guese o n t h e e arlie st v en tu re s t o t h e I n die s d urin g t h e f ir st q u arte r o f t h e six te en th c e n tu ry .” 121 T he S outh G erm an c o m merc ia l h ouse s h ad s tr o ng o rg an iz a tio nal s tr u ctu re s a n d work ed th ro ugh ca rte l arra n gem en ts w it h o ne an oth er. 122 T hey “am asse d ca p it a l fa r b ey ond th e ca p ab ilit y of an y F lo re n tin e m erc h an t- b an ker,” 123 so th at ev en at th is ra re fie d le v el th ere w ere in te re stin g d if fe re n ce s. C onsid era b ly b elo w th ese g ia n t c a p it a lis ts w ere th e r ic h er ca sa d os o f C och in , se ttle rs o f P ortu guese o rig in , w ho a t v ario us tim es a cte d a s fin an cie rs to th e Esta d o a n d d om in ate d Coch in ’s co asta l tr a d e. 124 B etw een 1 570 an d 1 600 th e ca sa d os , “ a p o w erfu l m erc a n tile g ro up w it h co nsid era b le c a p it a l r e so urc e s,” “ v ir tu ally t u rn ed C och in in to o ne o f t h e b ig gest e n tr e p ô ts o f A sia .” 125 Their in te re sts ex te n ded all o ver th e In dia n O ce an . 126 H ow ev er, fr o m th e se co nd d eca d e o f th e se v en te en th c e n tu ry , th ere w as a m ass e x o dus o f ca sa d o tr a d ers f r o m C och in to th e o ppo sit e c o ast, a s th e la tte r p art o f th e s ix te en th c e n tu ry s a w d w in dlin g s u pplie s o f p ep per th an ks to m ass d is a ffe ctio n am ong S t. T hom as C hris tia n s w ho h ad s e en t h eir b is h op a rre ste d t w ic e ( a n d d ie i n R om e i n 1 569) a n d “b eg un t o c o opera te w it h t h e t r a d ers o f t h e g hat r o ute ” in r e ta lia tio n. 127 F in ally , M ala b ar’s o w n n ativ e Muslim s, th e M ap pila s, w ere a m ong th e “ la rg est fin an cie rs o f P ortu gal’s im peria l p ro je ct in A sia ” 128 an d w ere d oubtle ss a ctiv e in m uch o f th e tr a d e th at e sc a p ed P ortu guese c o ntr o l, th e v ast a m ounts o f pep per t h at c ro sse d t h e g hats t o m ak e i t s w ay t o t h e e ast c o ast, f r o m w here i t w as w id ely e x p o rte d . In e co nom ic t e rm s, t h e f r a g ile b asis o n w hic h P ortu gal’s a rm ed t h ala sso cra cy r e ste d w as o bv io us t o mem bers o f it s é lit e . I n 1 563 th e O tto m an s o ffe re d th e P ortu guese a fr e e tr a d e a g re em en t, w it h th e la tte r b ein g g iv en th e r ig ht to “ esta b lis h tr a d in g h ouse s in B asra , C air o , a n d A le x an dria a n d to tr a d e fr e ely in a ll th e O tto m an -c o ntr o lle d p o rts o f b o th th e P ersia n G ulf a n d th e R ed S ea,” in r e tu rn fo r sim ila r fr e ed om s fo r O tto m an m erc h an ts to tr a d e th ro ughout th e In dia n O ce an , w it h th e rig ht to esta b lis h c o m merc ia l a g en cie s o f t h eir o w n “ in S in d, C am bay , D ab u l, C alic u t, a n d a n y o th er p o rt t h ey desir e d .” 129 A gain st th is q u it e re m ark ab le p ro po sa l o ne fid alg o is su ppo se d to h av e a rg ued , “ if th e Turk s w ere a llo w ed t o t r a v el f r e ely t o I n dia , a n d e sta b lis h f a cto rs, a n d t r a d e in m erc h an dis e w here v er th ey w is h ed , n ot o nly w ould Y our M aje sty ’s o w n p ro fit s s u ffe r g re atly , b u t t h e r e st o f u s w ould b e l e ft co m ple te ly e m pty h an ded , b eca u se all o f t h e b u sin ess [ h and le d b y t h e P ortu guese ] w ou ld i m med ia te ly f a ll to t h e T urk s .” T here w as a c le ar r e fe re n ce h ere to P ortu guese priv a te c a p it a l. H e w en t o n to s a y , “ A s fo r [th e sta te m onopo ly in ] p ep per an d o th er co ntr o lle d sp ic e s, th is w ould als o b e th re ate n ed b y allo w in g th e T urk s to e sta b lis h fa cto rs in I n dia . Even n ow , w hen th ey h ave n ot b een a llo w ed to o p en ly co m pete a g ain st th e P ortu guese , it is k now n th at th ey co nduct a tr a d e in se cre t, ca rry in g sp ic e s to Horm uz, t o B asra , a n d t o B en gal, P eg u, C hin a, a n d o th er la n ds, a n d e sp ecia lly t o t h eir o w n m ark ets , desp it e th e g re at ris k s in volv ed . T hus, [if a llo w ed to o pera te fr e ely , th eir tie s w it h ] lo ca l M uslim s would le a ve th em e v en b ette r in fo rm ed a nd b ette r o rg aniz e d , su ch th at b y m ean s o f th e [R ed S ea a n d Persia n G ulf ] t h ey c o uld s e n d a s m uch [ p ep per] a s t h ey w an te d , and b eco m e m aste rs o f t h e l io n ’s s h are o f th e t r a d e in s p ic e s .” 130 H ere it w as a n e n tr e n ch ed n etw ork o f tr a d in g c o m munit ie s th at w as s e en a s th e big gest p o te n tia l “ co m petit iv e a d van ta g e” t h e O tto m an s w ould h av e i f c o m merc e w as c o m ple te ly f r e e, th at i s , n ot d ete rre d b y t h e p erm an en t t h re at a n d a ctu al u se o f v io le n ce f r o m t h e P ortu guese s id e. 131 In h is g re at His to ry o f I ta ly , F ra n ce sc o G uic cia rd in i s a w P ortu gal’s b re ak in g o f th e V en etia n s p ic e monopo ly a s “ th e m ost m em ora b le t h in g t h at h as h ap pen ed in t h e w orld f o r m an y c e n tu rie s.” 132 T his was w rit te n la te in t h e 1 530s a n d w as a r e m ark ab ly a ccu ra te a sse ssm en t, n ot o nly b eca u se c o m merc ia l po sit io ns th at V en ic e h ad b u ilt u p o ver ce n tu rie s w ere (m om en ta rily ) p lu nged in to d ep re ssio n a n d dra stic a lly a ffe cte d b y t h e n ew t r a d e r e g im e, 133 b u t m ore o bv io usly b eca u se P ortu gal’s o pen in g o f th e Atla n tic r e co nfig ure d t h e w hole s h ap e o f c o m merc ia l c a p it a lis m a s t h e w orld h ad k now n it t ill t h en . I t open ed th e w ay f o r a n ew c a p it a lis m w hic h w ould s o on b e r e fle cte d in th e c o m merc ia l d om in an ce o f th e D utc h in t h e s e v en te en th c e n tu ry a s w ell a s E ngla n d’s e x p an sio n in t h e s a m e c e n tu ry . I n 1 519 t h e Ven etia n s w ere p erfe ctly a w are o f P ortu gal’s d ev asta tin g im pact o n th e L ev an t p ep per tr a d e, a n d f o r th e n ex t te n y ears th ey w ere to ta lly a t th e m erc y o f th e P ortu guese a s g lo bal s u pplie s o f p ep per w ere co rn ere d b y th e la tte r. 134 B ut B ra u del rig htly in sis te d th at V en ic e re m ain ed a fo rm id ab le e co nom ic fo rc e th ro ughout th e s ix te en th c e n tu ry . A s la te a s 1 585 th ere w ere s till s o m e fo ur th ousa n d V en etia n fa m ilie s “ sc a tte re d th ro ughout th e c it ie s a n d la n ds o f I sla m ” a s fa r a w ay a s H orm uz. 135 N or w as th e Red S ea r o ute e v er c o m ple te ly s tif le d . I n 1 560 th e P ortu guese a m bassa d or a t R om e r e ce iv ed r e p o rts th at e n orm ous q u an tit ie s o f p ep per a n d s p ic e w ere a rriv in g a t A le x an dria . 136 I n 1 593 t h e F uggers w ere sim ila rly to ld th at A le x an dria w as su pply in g V en ic e w it h as m uch p ep per as L is b o n re ce iv ed . 137 How ev er, b y t h e s e co nd d eca d e o f t h e s e v en te en th c e n tu ry V en ic e ’s p rim acy i n t h e M ed it e rra n ean w as fin ally o ver. 138 T he Ita lia n cris is o f th e se v en te en th ce n tu ry h as b een ch ara cte riz e d as a “ g ra d ual in tr o versio n o f t h e n orth ern I ta lia n b o urg eo is ie ,” a “ p ro gre ssiv e c lo su re t o t h e w orld b ey ond I ta ly .” 139 If s o , G uic cia rd in i’s j u dgem en t w as e v en m ore p ro ph etic . DUTC H P R IM ACY The f a ll o f A ntw erp i n A ugust 1 585 t r ig gere d a v ast e x o dus o f r e fu gees f r o m t h e s o uth ern p ro vin ce s o f th e N eth erla n ds to th e N orth , w it h m ajo r co nse q u en ce s fo r A m ste rd am an d D utc h co m merc e . Am ste rd am ’s p ro sp erit y a fte r 1 600 w as b u ilt b y ém ig ré s fr o m A ntw erp . 140 O ver h alf th e D utc h E ast In dia C om pan y/ V ere en ig de O ostin dis c h e C om pag nie or V O C’s sta rtin g ca p it a l of 6.4 2 m illio n guild ers w as su bsc rib ed in A m ste rd am , bu t am ong A m ste rd am in vesto rs th e big gest in div id ual in vestm en ts w ere m ad e by m en lik e Isa ac le M air e an d B alt h asa r C oym an s, all ém ig ré s fr o m Antw erp . 141 T hey w ere W allo on o r F le m is h e x ile s a n d p ro vid ed c lo se t o 4 0 p erc e n t o f t h e C om pan y’s to ta l c a p it a l. 142 I t w as t h eir “ v ast w ealt h a n d in te rn atio nal c o nnectio ns” 143 t h at e n ab le d H olla n d’s r a p id bre ak th ro ugh i n to t h e r ic h t r a d es o f t h e M ed it e rra n ean a n d A sia . The s e v en te en th c e n tu ry w as d om in ate d b y t h e c o m petit io n b etw een E nglis h a n d D utc h c a p it a l. T he tr a je cto ry o f D utc h c a p it a lis m ru ns fr o m it s ra p id e x p an sio n in th e e arly se v en te en th c e n tu ry to it s declin e in th e s e co nd q u arte r o f th e e ig hte en th c e n tu ry , w it h a p eak in th e d eca d es a ro und 1 647– 72, desc rib ed b y J o nath an I sra el a s t h e z e n it h o f t h e R ep u blic ’s “ w orld -tr a d e p rim acy .” 144 D utc h t r a d e w it h Asia h ad f a r o uts tr ip ped t h at o f t h e P ortu guese p o ssib ly a s e arly a s 1 601. 145 T he c la sh w it h E ngla n d f o r maste ry of th e M ed it e rra n ean tr a d e ex p lo ded in th e la te 1640s, pro m ptin g th e fir st of se v era l “N av ig atio n A cts ” b y w hic h E nglis h ca p it a l so ught to cu rb D utc h d om in an ce . In 1661 C olb ert assu m ed t h e d ir e ctio n o f c o m merc ia l a ffa ir s in F ra n ce , a n d b y t h e la te s e v en te en th c e n tu ry t h e F re n ch had e m erg ed a s a m ajo r c o m merc ia l p o w er, 146 w it h th e la st q u arte r o f th e c e n tu ry d om in ate d b y a co nfr o nta tio n b etw een t h em a n d t h e D utc h . 147 T he 1 680s w as a ls o w hen t h e V O C w as a t t h e p eak o f i t s su cce ss a s a n A sia n p o w er. 148 The c ru sh in g I ta lia n s u pre m acy o f t h e t w elf th t o f if te en th c e n tu rie s h ad e n ca p su la te d a c a p it a lis m o f netw ork s , t h e o nly k in d in dig en ous t o t h e M ed it e rra n ean c o untr ie s a n d t h e w id er w orld o f I sla m . T he new ca p it a lis m o f th e se v en te en th ce n tu ry w as d riv en , in co ntr a st, by jo in t- sto ck co m pa nie s th at em erg ed f r o m t h e m arit im e f r in ge o f n orth w este rn E uro pe a n d e n jo yed t h e s tr o ng b ack in g o f t h e s ta te (a s, in deed , V en etia n ca p it a l h ad ). T hey w ere ca p it a lis t en te rp ris e s o f a h ig her po w er th an th e im perfe ct “ ro yal c a p it a lis m s” o f I b eria , b u t lik e th em th ey r e ta in ed a p u blic o r se m i- p u blic c h ara cte r th at e m bo die d a q u asi- fo rm al d ele g atio n o f s o vere ig nty t h at m ad e t h em f o rm id ab le c o m petit o rs. 149 T he main E ast I n dia C om pan ie s ( E nglis h , D utc h , a n d F re n ch ) w ere th e m ost p o w erfu l o f th e jo in t- sto ck co m pan ie s in th e s e v en te en th a n d e ig hte en th c e n tu rie s, a n d th e c o m petit io n b etw een th em w as s u ch th at D av id H um e, in a n e ssa y p u blis h ed in 1 742, c o uld f a m ously s a y , “ T ra d e w as n ev er e ste em ed a n affa ir o f s ta te t ill t h e la st c e n tu ry .” 150 T he h ead -o n c la sh b etw een t h e E nglis h a n d t h e D utc h g en era te d th e d octr in e th at c a m e to b e c a lle d “ je alo usy o f tr a d e.” 151 T ow ard th e e n d o f th e e ig hte en th c e n tu ry Adam S m it h a g re ed w it h H um e t h at t r a d e h ad c h an ged E uro pean p o lit ic s in t h e s e v en te en th c e n tu ry . In Wea lt h o f N atio n s h e r e fe rs to “ m erc a n tile je alo usy ” w hic h “ in fla m es, a n d is it s e lf in fla m ed b y th e vio le n ce o f n atio n al a nim osit y .” 152 S ta te a n d c a p it a l n ow h ad a u nif y in g “ n atio nal” i n te re st i n s e cu rin g o r re ta in in g c o m merc ia l d om in an ce . I n “ O f t h e J e alo usy o f T ra d e” ( 1 752) H um e w ro te “ N oth in g i s m ore usu al, a m ong s ta te s w hic h h av e m ad e s o m e a d van ce s i n c o m merc e , th an . . . t o c o n sid er a ll t r a d in g s ta te s as t h eir r iv a ls .” 153 I n t h e la te n in ete en th c e n tu ry G usta v v on S ch m olle r e x p re sse d t h is m ore f o rc e fu lly . “C om merc ia l c o m petit io n, e v en in tim es n om in ally o f p eace , d eg en era te d in to a s ta te o f u ndecla re d hostilit y : it p lu nged n atio ns in to o ne w ar a fte r a n oth er, a n d g av e a ll w ars a tu rn in th e d ir e ctio n o f tr a d e, i n dustr y , a n d c o lo nia l g ain . . . . ” 154 To J o sia h C hild w ho b eca m e g overn or o f th e E nglis h E ast In dia C om pan y in 1 681, th e e sse n tia l ch ara cte ris tic o f t h e D utc h m odel w as i t s p ecu lia r i n te g ra tio n o f s ta te a n d c a p it a l. A t t h e t o p o f C hild ’s lis t o f r e aso ns f o r D utc h e co nom ic s u cce ss “ w as t h e f a ct t h at D utc h C ouncils o f S ta te , t h e l a w -m ak in g bo die s, w ere c o m po se d o f tr a d in g m erc h an ts w ho h ad liv ed a b ro ad m ost o f th eir liv es a n d w ho h ad gre at p ra ctic a l a n d th eo re tic a l k now le d ge o f c o m merc ia l m atte rs.” 155 I n Obse rv a tio n s u pon th e U nit e d Pro v in ce s o f th e N eth erla nd s ( 1 673), S ir W illia m T em ple w ould lik ew is e n ote th is p artic u la r f e atu re o f th e D utc h R ep u blic ; a m ong i t s s tr e n gth s, h e c la im s, w as “ [a ] G overn m en t m an ag ’d e it h er b y m en t h at tr a d e, o r w hose F am ilie s h av e r is e n b y it , o r w ho h av e t h em se lv es s o m e I n te re st g oin g in o th er m en ’s Tra ffiq u e, o r w ho a re b o rn a n d b re d in T ow ns, T he so ul a n d b eein g w here o f c o nsis ts w holly in tr a d e.” 156 In oth er w ord s, th e V O C an d it s pre d ece sso r co m pan ie s “ty pif ie d th e hig h deg re e of in te ra ctio n o f ru lin g o lig arc h y w it h p riv a te e n te rp ris e w hic h c h ara cte riz e d m uch , if n ot m ost, o f D utc h overse as c o m merc e .” 157 T he V O C w as “ th e c re atio n o f th e D utc h s ta te a s m uch a s o f th e m erc h an ts who h ad a ctu ally o pen ed u p t h e E ast I n dia t r a ffic ,” 158 a n d, l ik e i t s l a te r, A tla n tic , c o unte rp art, t h e W est In dia C om pan y, “ in tim ate ly e n tw in ed ” w it h th e c o untr y ’s “ re g en t o lig arc h y.” 159 I n s h ort, th e n ex u s betw een s ta te a n d c o m merc ia l c a p it a l w as a lt o geth er m ore d ir e ct h ere th an a n yth in g r e fle cte d in th e “str o ng s o cia l a n d c o m merc ia l t ie s b etw een t h e m erc h an ts a n d f in an cie rs o f t h e C it y o f L ondon a n d t h e Brit is h s ta te a n d a ris to cra cy ” 160 t h at w ere c o ev al w it h i t . The sh eer effic ie n cy of D utc h ca p it a l ste m med fr o m th e re m ark ab le effic ie n cy of it s sh ip pin g in dustr y , t h e m assiv e c o nce n tr a tio n o f c a p it a l i n A m ste rd am ’s e x ch an ge-b an k, e sta b lis h ed i n 1 609 ( o ne early e ig hte en th -c e n tu ry e stim ate p u t t h e b an k’s h old in gs a t a ro und t h re e h undre d m illio n g uild ers), 161 th e t e ch nic a l s o ph is tic a tio n a n d f le x ib ilit y o f t h e D utc h f in e-c lo th i n dustr y , 162 a n d t h e “ so ph is tic a tio n o f Dutc h m eth ods an d te ch nolo gy” 163 m ore g en era lly . B ut b ey ond th ese fa cto rs, all esse n tia l, w as a co m merc ia l s tr a te g y d efin ed b y it s s in gle -m in ded c o nce n tr a tio n o n t h e r ic h t r a d es o f E uro pe a n d A sia , by f a r-re ach in g v ertic a l in te g ra tio n in to s o urc e -m ark ets a n d, m ost s tr ik in gly , b y th e s h eer s c a le o f it s Asia n tr a d e n etw ork 164 ( u nm atc h ed b y th e E nglis h ) 165 a n d th e w ay th e V O C w as a b le to in te g ra te it s lo ca l, in te r-A sia n t r a d e in to a la rg ely s e lf – c o nta in ed if e x p an din g c ir c u la tio n o f c a p it a l t h at m in im iz e d th e n eed f o r p ay m en ts i n s ilv er. 166 I n m ost w ay s, it w as t h e A sia n p art o f t h is s tr a te g y t h at s h ow ed ju st how m uch t h e D utc h e n tr e p ô t w as h arn esse d t o t h e a ctu al m ach in ery o f t h e D utc h s ta te , 167 s in ce D utc h co m merc e in A sia w as “ h eav ily a rm ed ” f r o m t h e o uts e t. 168 B y 1 623, t h e D utc h h ad n in ety s h ip s in t h e East I n die s a n d t w o t h ousa n d r e g ula r t r o ops p o ste d i n t w en ty f o rts ! 169 Ralp h D av is ex p la in ed w hy D utc h sh ip pin g w as m ore effic ie n t. B efo re th e se v en te en th ce n tu ry Dutc h s h ip bu ild ers d id n ot h av e to lo ok o ut fo r th e d efe n sib ilit y o f th eir s h ip s b u t s im ply c a rry in g ca p acit y a n d c o st o f o pera tio n. “ T hey e v olv ed h ull fo rm s th at m ax im is e d c a rg o s p ace in r e la tio n to overa ll d im en sio ns.” B eca u se th ey w ere fla t- b o tto m ed , “ th ey d ra w e n ot s o e m uch w ate r a s o ur s h ip s do,” w ro te t h e E nglis h e x p lo re r G eo rg e W ay m outh i n 1 609, “ . . . a n d t h ere fo re m ust h av e le ss M asts , Say le s, T ack lin g a n d A nch ors, t h an o urs h av e; and a re th ere fo re a ble to s a yle w it h o n e th ir d p a rt o f m en le ss th an o u rs , o r th er a bou ts .” “ T hus, b y th e a d van ta g e th ey g ay n o f u s in b u rd en , a n d b y th e c h arg e th ey sa v e in m arrin ers w ag es, an d v ic tu als , th ey are ab le to ca rry th eir fr a ig ht b ette r ch eap th an wee.” 170 Wit h in E uro pe a n d l a rg e p arts o f t h e M ed it e rra n ean , b arte r w as w id ely u se d a s a m erc a n tile s tr a te g y beca u se it w as alw ays “ m ore p ro fit a b le t o t r a d ers t o e x p o rt g oods r a th er t h an m oney .” 171 H ow ev er, in Asia th e c ru cia l c o nstr a in t o n E uro pean tr a d e, a s th e P ortu guese ra p id ly d is c o vere d , w as E uro pe’s “in ab ilit y t o s u pply w este rn p ro ducts a t p ric e s t h at w ould g en era te a l a rg e e n ough d em an d” t o p ro vid e th e n ece ssa ry r e v en ue fo r th e p u rc h ase o f A sia n g oods. “ T he o nly m ajo r it e m th at E uro pe w as in a po sit io n to p ro vid e A sia [w it h ] w as p re cio us m eta ls .” 172 (E ven d ow n to th e e n d o f th e se v en te en th ce n tu ry , “tr e asu re ” acco unte d fo r 70 to 90 perc e n t of th e E nglis h E ast In dia C om pan y’s to ta l ex p o rts .) 173 T he re su rg en ce o f eco nom ic co nflic t b etw een S pain an d th e D utc h in 1621 an d th e em barg o o n D utc h sh ip pin g in Ib eria n p o rts 174 w ere th ere fo re p o te n tia lly d is a str o us to co ntin ued Dutc h ex p an sio n in A sia , b eca u se th ey ch oked th e tr a n sfe r o f S pan is h A m eric a n b u llio n to th e Neth erla n ds a n d c re ate d a n e n dem ic sh orta g e o f sp ecie th ere ; th e V O C in p artic u la r re q u ir e d “ an im men se re g ula r in pu t o f b u llio n to se ttle it s b ala n ce s in th e E ast In die s.” 175 In ste ad o f se ek in g in fu sio ns o f c a p it a l f r o m A m ste rd am , t h e V O C’s g overn or-g en era l a t B ata v ia , J a n P ie te rsz o on C oen , ev olv ed a c o m merc ia l s tr a te g y o r “ m aste r p la n ” t h at e n co ura g ed t h e D utc h t o p artic ip ate ex te n siv ely i n th e t r a d e o f t h e I n dia n O ce an . 176 N o o th er E uro pean c o m merc ia l p o w er d id t h is o n q u it e t h e s a m e s c a le or w it h th e so ph is tic a tio n an d ru th le ssn ess dem onstr a te d by th e D utc h th ro ugh m ost of th e se v en te en th c e n tu ry . W it h th eir p re co cio us b ase in T aiw an , th ey c o m man ded a m ajo r sh are o f th e Nag asa k i tr a d e ( b asic a lly , a n e x ch an ge o f C hin ese s ilk y arn fo r J a p an ese s ilv er), w hic h m ean t th at a la rg e p art o f th eir A sia n o pera tio ns c o uld b e fin an ce d w it h J a p an ese silv er a n d, to a le sse r d eg re e, Chin ese g old . “ In 1 652, f o r e x am ple , t h e V O C e x p o rte d f r o m N ag asa k i 1 ,5 55,8 50 g uild ers ( e q u iv ale n t to 1 7,0 22 k gs.) o f J a p an ese s ilv er” o f w hic h l e ss t h an 9 p erc e n t a rriv ed a t t h e C om pan y’s h ead qu arte rs in B ata v ia , t h e r e m ain der e n din g u p i n C hin a. 177 Yet b u llio n s to ck s w ere n ev er e n ough t o r e so lv e t h e p ro ble m o f f in an cin g c o m merc ia l a ccu m ula tio n in A sia n m ark ets , a n d th e V O C w ould e v en tu ally c re ate a v ast c o ntin en ta l s y ste m o f b arte r w hic h , re d uce d to it s s im ple st e le m en ts , e m bo die d a n e x ch an ge o f I n donesia n s p ic e s f o r I n dia n te x tile s. T his is th e s e n se i n w hic h “ th e s a le s o f s p ic e s f o rm ed t h e b asis o f C om pan y e x p an sio n i n o th er s p h ere s o f t r a d e in A sia ” 178 a n d t h e r e aso n w hy t h e d ir e cto rs c o uld s ta te i n 1 648, “ T he c o untr y t r a d e a n d t h e p ro fit f r o m it are th e s o u l o f th e C om pa ny w hic h m ust b e lo ok ed a fte r c a re fu lly .” 179 T he C om pan y b eca m e a n A sia n tr a d er o n a l a rg e s c a le , 180 w it h m ajo r p o sit io ns a t o ne t im e o r a n oth er i n e v ery th in g f r o m C hin ese s u gar an d J a p an ese s ilv er t o J a p an ese c o pper, s p ic e s f r o m t h e A rc h ip ela g o, i n dig o f r o m B ay an a a n d G uja ra t, co tto n c lo th fr o m th e C oro m an del, p ep per fr o m M ala b ar, c in nam on fr o m C ey lo n, ra w silk , D acca muslin s a n d o piu m f r o m B en gal, s ilk f r o m P ersia , c o ffe e f r o m M och a, a n d s o o n. I n 1 619 w hen C oen se n t h is b lu ep rin t o f th e A sia n tr a d e to th e d ir e cto rs in A m ste rd am , th e C om pan y alr e ad y h ad a “p erm an en tly c ir c u la tin g c a p it a l” o f b etw een ƒ 2.5 a n d ƒ 3.5 m illio n i n t h e E ast I n die s a n d C oen w an te d more . 181 A fte r 1 647 th e r e su m ed f lo w o f S pan is h s ilv er to A m ste rd am r e v erse d th e d eclin e o f b u llio n re m it ta n ce s t o t h e e ast, 182 a n d b y t h e m id dle o f t h e c e n tu ry t h e E ast I n dia f le et w as r e tu rn in g h om e w it h ca rg oes w orth b etw een f if te en a n d t w en ty m illio n g uild ers, r o ughly e q u iv ale n t t o t h e c o m bin ed v alu e of th e C ad iz a n d S m yrn a fle ets ! 183 B y 1 673 S ir W illia m T em ple w ould r e fe r to th e “ v astn ess o f th e Sto ck tu rn ’d w holly to th at T ra d e” a n d to th e V O C “ en gro ssin g th e w hole C om merc e o f th e E ast- In die s.” 184 Ren ew ed a cce ss t o S pan is h s ilv er in t h e la te 1 640s a n d a b o om in L eid en ’s t e x tile in dustr y t r ig gere d by c o nversio n t o t h e e x p en siv e f a b ric s k now n a s c a m le ts a n d la ken m ean t r a p id D utc h d om in atio n o f Med it e rra n ean m ark ets , 185 w it h T urk ey n ow a b so rb in g a t h ir d o f L eid en ’s o utp u t. F or t h e E nglis h t h is sp elle d a s u dden c ris is a s “ m assiv e q u an tit ie s o f f in e g oods b eg an t o b e lo ad ed o n t o D utc h v esse ls a t Liv orn o f o r th e E nglis h a s w ell a s f o r th e D utc h m ark et.” 186 I t w as th is “ su dden m arit im e c ris is ” th at fo rm ed th e “ b ack gro und o f th e f ir st th oro ughly w ork ed o ut p ie ce o f E nglis h p ro te ctiv e le g is la tio n— th e N av ig atio n A ct o f 1 651— an d o f t h e F ir st A nglo -D utc h W ar.” 187 T he o rd in an ce o f 1 651 e sta b lis h ed a m odel fo r th e tig hte r N av ig atio n A ct o f 1 660, w hic h “ re m ain ed a t th e h eart o f E nglis h m arit im e po lic y f o r n early t w o c e n tu rie s,” p ro vid in g t h at “ all g oods im po rte d t o E ngla n d s h ould c o m e d ir e ctly fr o m t h eir p la ce o f p ro ductio n ( th us e lim in atin g t h e D utc h e n tr e p o t) ” a n d t h at “ n o f o re ig n ( i.e . D utc h ) sh ip s s h ould t r a d e w it h E nglis h c o lo nie s.” 188 T he y ears f r o m 1 651 t o 1 672 h av e b een d esc rib ed a s “ th e peak o f A nglo -D utc h c o m merc ia l riv alr y .” 189 H ow ev er, fr o m th e m id -1 660s C olb ert’s m erc a n tilis m beca m e th e p iv ot o f a n ew str u ggle fo r M ed it e rra n ean d om in an ce , th is tim e b etw een F ra n ce an d Holla n d, w it h th e F re n ch ta rif fs o f 1667 u nle ash in g a co m merc ia l w ar in w hic h C olb ert’s “ cle ar obje ctiv e w as t o c a p tu re t h e r ic h t r a d es,” w re stin g c o ntr o l f r o m t h e D utc h . 190 B y t h e 1 690s t h e F re n ch co uld m ak e r a p id in ro ad s in to th e O tto m an m ark et, a n d b y 1 701 w ere s e llin g m ore fin e c lo th th ere th an t h e D utc h . 191 T he D utc h h ad d om in ate d S m yrn a f o r m ost o f t h e s e v en te en th c e n tu ry . 192 A s la te a s 1680 s ilv er r e m it ta n ce s t o t h e L ev an t w ere r u nnin g a t w ell o ver t w o m illio n g uild ers a y ear. 193 I n 1 675 th e m ajo rit y o f E uro pean s in S m yrn a w ere r e p o rte d t o b e D utc h . 194 H ow ev er, b etw een 1 688 a n d 1 719 th e n um ber o f D utc h m erc h an t h ouse s t h ere f e ll d ra stic a lly f r o m ca . tw en ty -fiv e t o o nly s ix , 195 c le arin g th e w ay f o r t h e o verw helm in g F re n ch d om in atio n t h at c h ara cte riz e d t h e L ev an t f o r t h e g re ate r p art o f th e eig hte en th ce n tu ry . R ic h elie u an d C olb ert re fle cte d id eas th at o vertly alig ned th e in te re sts o f co m merc ia l ca p it a l to th ose o f th e sta te . In th e w ord s o f th e F re n ch d ip lo m at N ic o la s M esn ag er, Ric h elie u “ d id n ot f in d a n y m ean s m ore e ffe ctiv e t o in cre ase t h e p o w er o f t h e k in g a n d t h e w ealt h o f th e s ta te t h an t o i n cre ase n av ig atio n a n d c o m merc e .” 196 Much of th e pré cis ab o ve is base d on Jo nath an Isra el’s tig htly -a rg ued his to ry of th e D utc h co m merc ia l s y ste m , w hic h e n ds b y s u ggestin g th at “ th e b asic r e aso n fo r th e d ecis iv e d eclin e o f th e Dutc h w orld -tr a d in g s y ste m in t h e 1 720s a n d 1 730s w as t h e w av e o f n ew -sty le in dustr ia l m erc a n tilis m whic h s w ep t p ra ctic a lly t h e e n tir e c o ntin en t f r o m a ro und 1 720.” 197 A “ co m pre h en siv e i n te rv en tio nis m ” to ok h old o f n orth ern E uro pe, w it h fa ta l c o nse q u en ce s fo r D utc h e x p o rt m ark ets a n d in dustr ie s. 198 Wit h in E uro pe, th e D utc h ric h tr a d es w ere “ d ev asta te d ” d urin g th ose d eca d es, an d in In dia th e Englis h E ast I n dia C om pan y “ h ad d ecis iv ely o verta k en t h e D utc h ” i n m ost p arts o f t h e c o untr y w here th ey w ere p re se n t b y 1 740. 199 T he esse n tia l v it a lit y o f th e se v en te en th -c e n tu ry en tr e p ô t h ad b een la rg ely d estr o yed b y t h e m id dle o f t h e e ig hte en th c e n tu ry . 200 EN GLA N D’S R IS E T O D OM IN AN CE In E ngla n d th e “ co nsc io us u se o f sta te p o w er fo r c o m merc ia l e n ds” 201 fir st c a m e to th e fo re in th e re v olu tio nary d eca d es in th e m id dle o f th e se v en te en th c e n tu ry , ro ughly a w hole c e n tu ry afte r th e Eliz a b eth an c o m merc ia l e x p an sio n b eg an . T hat e x p an sio n, a s B re n ner s h ow ed , w as d riv en b y t h e r a p id gro w th o f th e im po rt tr a d es a n d h ad n oth in g to d o w it h E nglis h c lo th m erc h an ts lo okin g fo r n ew mark ets . 202 T he re m ark ab le fe atu re of th e im po rt tr a d es of th e la te six te en th ce n tu ry is th eir in te rlo ck in g str u ctu re , w it h th e sa m e g ro ups o f en tr e p re n eu rs d om in atin g th e v ario us co m pan ie s flo ate d b etw een 1 573 a n d 1 592. 203 E nglis h o verse as c o m merc e w as th us h ig hly c o nce n tr a te d a n d o f co urse re m ain ed so a s lo ng a s it w as o rg an iz e d a s a c lu ste r o f c o m merc ia l m onopo lie s ru le d b y a han dfu l of big L ondon m erc h an ts . A “clo se -k nit gro up of V en ic e C om pan y m erc h an ts w it h wid esp re ad o pera tio ns” h elp ed o rg an iz e t h e L ev an t C om pan y i n 1 592, a n d t h e E ast I n dia C om pan y i n tu rn , w hen i t w as f o unded i n 1 599, “ w as d om in ate d b y t h e L ev an t C om pan y m erc h an ts .” S ev en o f t h e orig in al fif te en d ir e cto rs w ere L ev an t C om pan y m erc h an ts . 204 “ L ev an t C om pan y m em bers p ro vid ed betw een o ne-fo urth a n d o ne-th ir d o f t h e t o ta l f u nd in veste d in t h e f ir st, t h ir d , a n d f o urth jo in t s to ck s” of t h e E ast I n dia C om pan y. 205 B y 1 630 t h e t o ta l c o m bin ed v alu e o f I ta lia n , L ev an tin e, a n d E ast I n dia n im po rts w as £ 527,0 00, in 1 634 £ 689,0 00, a n d in 1 669 £ 1,2 08,0 00, sh ow in g w here th e d ynam is m o f Engla n d’s tr a d e la y fo r m uch o f th e fir st h alf o f th e s e v en te en th c e n tu ry in to th e e arly y ears o f th e Resto ra tio n. N oth in g b ette r d em onstr a te s t h e d om in an ce o f t h e i m po rt t r a d es ( in b o th E ngla n d a n d t h e Neth erla n ds) t h ro ughout t h e s e v en te en th c e n tu ry t h an t h e f a ct t h at ex ports w ere v ery l a rg ely a f u nctio n of th e n eed to fin an ce th ese s u bsta n tia l a n d r is in g le v els o f im po rts ; fo r e x am ple , E nglis h m erc h an t im po rte rs “ in cre ase d t h eir c lo th e x p o rts in o rd er t o p a y f o r in cre a se d im ports , a n d t h ey g en era lly f e ll f a r beh in d.” 206 I t w as t h is t h at c a u se d m ajo r c o nce rn a b o ut t h e b ala n ce o f t r a d e i n E ngla n d. The im po rt b o om o f th e se co nd q u arte r o f th e se v en te en th c e n tu ry 207 fu ele d a ste ad y in cre ase in re ex ports f r o m t h e 1 630s o nw ard s. 208 I n f a ct, t h e g ro w th o f a r e ex p o rt t r a d e w as t h e c h ie f in novatio n o f th e l a te r S tu art p erio d 209 a n d b o und u p b o th w it h t h e m onopo ly c re ate d b y t h e N av ig atio n A cts a s w ell as th e n ew m ass p ro ductio n in dustr ie s lin ked to th e c o lo nia l tr a d es in p la n ta tio n p ro duce . 210 B etw een th em i m po rts a n d r e ex p o rts s u sta in ed a n ew , g ig an tic w av e o f e x p an sio n o f E nglis h m erc h an t s h ip pin g, esp ecia lly i n t h e y ears 1 660– 89. 211 N ot o nly d id t h e L ev an t t r a d e r a n k h ig h i n t h e o verse as c o m merc e o f Resto ra tio n L ondon, 212 b u t th e s a m e y ears s a w a n ear-d oublin g o f E ngla n d’s p la n ta tio n to nnag e ( th e dead w eig ht to nnag e o f th is sh ip pin g se cto r). 213 T obacco im po rts h ad re g is te re d a fiv efo ld in cre ase betw een 1 620 a n d 1 640, l e ad in g t h e w ay t o s u gar. 214 L ondon’s s u gar i m po rts t r e b le d b etw een t h e 1 660s an d 1 680s, w it h s ix h undre d im po rte rs a ctiv e in t h e t r a d e in 1 686. 215 I n t h e s a m e y ear t h ere w ere 1 ,2 83 merc h an ts tr a d in g to th e W est In die s, o f w hom tw en ty -e ig ht, w it h tu rn over ex ce ed in g £ 10,0 00, acco unte d f o r ju st o ver 5 0 p erc e n t o f t o ta l im po rts b y v alu e. 216 T hey w ere am on g th e b ig gest c o lo nia l merc h an ts a n d c o uld “ accu m ula te s u ffic ie n t c a p it a l t o d iv ersif y in vestm en t a ro und t h eir c o re b u sin ess in to sh ip -o w nin g, jo in t- sto ck s, in su ra n ce , w harf- le ase s, a n d in dustr y .” 217 L ondon a cco unte d fo r 8 0 perc e n t o f c o lo nia l im po rts a n d 8 5 p erc e n t o f a ll re ex p o rts ca . 1700, a n d in th e la st d eca d es o f th e se v en te en th c e n tu ry “ E ngla n d e sta b lis h ed a la rg er sta k e in th e A tla n tic th an a n y o th er c o untr y in North ern E uro pe.” 218 T obacco , su gar, an d In dia n ca lic o es acco unte d fo r th e bu lk of E ngla n d’s re ex p o rts a n d p re fig ure d t h e m ass m ark ets o f t h e e ig hte en th c e n tu ry . 219 B y 1 700 t h e E nglis h p la n te rs i n Barb ad os, J a m aic a , a n d th e L eew ard s w ere su pply in g c lo se to h alf th e su gar c o nsu m ed in W este rn Euro pe. 220 Of t h e 1 70 L ondon m erc h an ts c la ssif ie d b y Z ah ed ie h a s “ b ig c o lo nia l m erc h an ts ,” t w o-th ir d s a re s a id to h av e h ad a “ su bsta n tia l tr a d e in th e C arib bean .” 221 T hat w ould m ak e a ro und 1 10 m erc h an ts w it h su bsta n tia l s ta k es, w hic h m ak es t h e A tla n tic t r a d es v astly m ore a cce ssib le t h an a n y o f t h e t r a d es t o t h e east, L ev an tin e, o r E ast I n dia n . B y it s c h arte r o f 1 592, th e L ev an t C om pan y w as r e str ic te d to fif ty – th re e p erso ns, a n d r e cru it m en t t o t h e L ev an tin e t r a d e r e q u ir e d b o th w ealt h a n d f a m ily c o nnectio ns. 222 The ric h est an d m ost activ e tr a d ers w ere , in B re n ner’s w ord s, “ jo in ed in a ra m if ie d n etw ork o f in te rlo ck in g fa m ily r e la tio nsh ip s, th e m em bers o f w hic h c o ntr o lle d a m ajo r s h are o f th e tr a d e.” 223 I n th e E ast I n dia C om pan y, th e la rg est o f th e jo in t- sto ck v en tu re s, tw en ty -fo ur d ir e cto rs “ cla im ed th at th ey h eld m ore sto ck th an fo ur h undre d o f th e g en era lit y .” 224 A gain , it is u se fu l to co nce p tu aliz e London’s c o m merc ia l c a p it a l in te rm s o f “ cla sse s o f c a p it a l,” w it h th e e astw ard -tr a d in g c o m bin e th at fo rm ed t h e h eart o f L ondon’s c o m merc ia l e sta b lis h m en t 225 f o rm in g a s u bsta n tia lly m ore p o w erfu l l a y er th an th e “ m id dlin g s tr a tu m ” fr o m w hic h th e v ast m ajo rit y o f c o lo nia l m erc h an ts d eriv ed . 226 O n th e oth er h an d, in te rm s o f c o m merc ia l c o nce n tr a tio n, th e tw o tr a d e se cto rs w ere n ot v astly d if fe re n t. Durin g 1 627– 1635, w hen th e tr a d e to th e L ev an t ra n b etw een £ 200,0 00 a n d £ 300,0 00 a y ear, so m e tw en ty -fo ur Lev an t C om pan y m erc h an ts co ntr o lle d 54 perc e n t of th e tr a d e, 227 w hic h is not dra m atic a lly h ig her t h an t h e 5 0 p erc e n t s h are c o ntr o lle d b y t h e b ig gest t w en ty -e ig ht m erc h an ts t r a d in g to th e W est I n die s w ho w ere m en tio ned p re v io usly . R eg ard le ss o f w heth er tr a d es w ere r e se rv ed o r open , e co nom ic c o nce n tr a tio n w ork ed i n t h e s a m e w ay . In t h e M ed it e rra n ean in t h e e arly p art o f t h e s e v en te en th c e n tu ry E ngla n d’s m ain c o m merc ia l r iv als , th e V en etia n s a n d t h e F re n ch , b o th l o st g ro und r a p id ly . T he V en etia n s w ere “ u nderso ld a n d d riv en o ff th e s ta g e,” th eir a g en ts c o m pla in in g o f th e lo w p ric e o f th e c lo th s e n t o ut b y th e E nglis h . 228 B y th e 1620s L iv orn o h ad e m erg ed a s t h e p rim e c o m merc ia l b ase f o r E ngla n d’s t r a d e w it h s o uth ern I ta ly a n d th e L ev an t. “ In 1 629,” W ood re p o rts , “ th ere w as sa id to b e fo ur m illio n c ro w ns w orth o f E nglis h goods l y in g o n t h e q u ay s o f L eg horn ( L iv orn o).” 229 I n The T re a su re o f T ra ffic k e ( 1 641) L ew is R oberts note d th at a m illio n d uca ts in c a sh w ere e x p o rte d fr o m L iv orn o a n nu ally . 230 T he “ m ost m odern a n d fu lly e q u ip ped p o rt i n t h e M ed it e rra n ean ,” 231 i t p la y ed a c ru cia lly im po rta n t p art in t h e L ev an t t r a d e a s a c e n te r w here E nglis h e x p o rts a n d re ex p o rts c o uld b e c o nverte d in to c u rre n cy . 232 T hat th e L ev an t Com pan y c o uld r e p eate d ly a tta ck th e E ast I n dia C om pan y fo r it s e x p o rt o f b u llio n to I n dia s u ggests th at th e L ev an t tr a d e it s e lf w as la rg ely a b arte r tr a d e, th at is , o ne w here th e b u lk o f im po rts w as fin an ce d b y t h e e x p o rt o f c lo th , t in , s p ic e s, a n d s o o n. T hom as M un c la im ed , “ O f a ll E uro pe t h is n atio n dro ve th e m ost p ro fit a b le tr a d e to T urk ey b y r e aso n o f th e v ast q u an tit ie s o f b ro ad c lo th , tin , & c., whic h w e e x p o rte d th it h er; en ou gh to p u rc h ase a ll th e w are s w e w ante d in T urk ey — where a s a b a la nce in mon ey is p a id b y th e o th er n atio n s tr a d in g th it h er .” 233 O n t h e o th er h an d, in t h e “ cu rra n t is la n ds” w here th e E nglis h p u rc h ase d a b o ut t w o-th ir d s o f t h e c ro p, t h ere w as “ p ra ctic a lly n o m ark et f o r E nglis h g oods an d p ay m en t h ad to b e m ad e in r e ad y m oney .” 234 I n 1 629 th e V en etia n a m bassa d or r e p o rte d th at th e Lev an t C om pan y, “ h av in g a c o nsid era b le c a p it a l, bu y u p b efo re h and th e p ro duce o f th e p o ore st o f th e in hab it a n ts o f th ese is la n ds . . . so th at fo r th em th e p ric e s a re a lm ost a lw ays th e sa m e .” 235 A dvan ce pay m en ts w ere u se d t o e n su re l o w s ta b le p ric e s. I n I ta ly , E nglis h m erc h an ts r a n a d efic it o n t h e t r a d e i n goods w it h a ll I ta lia n s ta te s th ro ugh m ost o f th e s e v en te en th c e n tu ry , w hic h th ey c o uld s u cce ssfu lly tr a n sfo rm in to a tr a d e su rp lu s th an ks to th e su rp lu s on “in vis ib le s,” th at is , net earn in gs fr o m sh ip pin g, 236 in su ra n ce , a n d th e c o m mis sio ns c h arg ed o n E nglis h e x p o rts . 237 It w as th is co m merc ia l str a te g y t h at w ould l a te r f o rm t h e h eart o f t h e C it y ’s e co nom ic d om in an ce i n t h e n in ete en th c e n tu ry . The L ev an t C om pan y w as n ot a j o in t- sto ck , m em bers t r a d ed i n dep en den tly o n a “ re g ula te d ” b asis . 238 Facto rs w ere r e cru it e d a s a p pre n tic e s o n s e v en -y ear t e rm s, a fte r w hic h t h ey w ere p aid a c o m mis sio n o n all g oods th ey h an dle d th at v arie d fr o m 2 to 4 p erc e n t. O f c o urse , a s w it h th e E ast I n dia C om pan y’s se rv an ts in In dia , “ fa cto rs m ad e a g ood d eal o f p ro fit fr o m th eir o w n p erso nal tr a d in g.” 239 W ood’s His to ry o f t h e L ev a nt C om pa ny s u ggests t h at t h e t h re e f a cto rie s a t C onsta n tin ople , S m yrn a, a n d A le p po “re ach ed th eir g re ate st p ro sp erit y a n d s iz e in th e la tte r h alf o f th e s e v en te en th c e n tu ry .” 240 H ow ev er, th e b u lk o f t h e c o m merc e w as c o nce n tr a te d o nly in t h ose f a cto rie s a n d t h ere w as a s tr o ng t e n den cy t o dis c o ura g e e x p an sio n a t o th er tr a d in g s ta tio ns. 241 B y th e 1 680s b o th th e E ast I n dia C om pan y a n d th e Fre n ch h ad b eco m e m ajo r so urc e s o f c o m petit io n. T he L ev an t m erc h an ts w ould c o m pla in b it te rly ab o ut t h e im po rt o f I n dia n r a w s ilk a n d s ilk g oods b y t h e f o rm er, b u t “ th e c ro w n c o nsis te n tly b ack ed th e E ast I n dia C om pan y a g ain st it s c rit ic s.” 242 M ean w hile , C olb ert’s r e v iv al o f th e L an gued oc c lo th in dustr y m ad e t h e F re n ch e v en m ore f o rm id ab le r iv als , a s t h ey p ro ved t o b e f o r t h e D utc h a s w ell. B y th e e n d o f t h e c e n tu ry , F re n ch i m po rts f r o m t h e L ev an t w ere s o arin g, a n d b y t h e 1 720s s ig ns o f a r a p id declin e b eca m e v is ib le i n t h e f o rtu nes o f t h e E nglis h c o m pan y. 243 The eig hte en th ce n tu ry sa w th e decim atio n o f E nglis h tr a d e in th e L ev an t, 244 th e re su lt b o th o f Fra n ce ’s d om in atio n o f t h e t e x tile m ark et a n d o f t h e C om pan y’s o w n f a ta l p o lic y “ to c u rb a tte m pts a t ex p an sio n a n d t o d is c o ura g e t h e o pen in g o f n ew m ark ets .” 245 I t w as le ft t o t h e E ast I n dia C om pan y t o note , in 1 696, “ it h as a lw ay s b een o bse rv ed t h at t h e p artic u la r t r a d ers in a r e g ula te d c o m pan y c o nte n t th em se lv es t o g o t o a c e rta in k now n p la ce i n t r a d e, e v er t a k in g a m easu re o f t h eir p ro fit a n d l o ss b efo re th ey g o o ut . . . .” 246 I n a d dit io n t o w hic h , t h ro ughout t h e la te e ig hte en th c e n tu ry t r a d e w as h am pere d by a C om pan y r e g ula tio n f o rc in g m erc h an ts t o m ak e a ll p u rc h ase s i n t h e L ev an t b y t h e b arte r o f g oods ex p o rte d fr o m E ngla n d a n d fo rb id din g th e e x p o rt o f c o in o r b u llio n to T urk ey , w here as F re n ch a n d Dutc h m erc h an ts “ca rrie d la rg e q u an tit ie s o f co in to th e L ev an t,” w here lo ca l tr a d ers p re fe rre d outr ig ht s a le s t o b arte r. 247 B y t h e 1 730s o nly s o m e f if ty o r s ix ty L ev an t C om pan y m erc h an ts r e m ain ed activ e t r a d ers, “ an d i t w as w id ely b elie v ed t h is h an dfu l o f m onopo lis ts d elib era te ly c u rb ed a ll i n it ia tiv e, en te rp ris e , a n d e x p an sio n in p u rsu it o f h ig h p ro fit s o n a lim it e d b u sin ess.” 248 A gain , th e C om pan y’s fa cto rs w ere c ru cia lly d ep en den t o n J e w is h b ro kers in th e O tto m an m ark ets , b u t th e f e ar o f p o te n tia l co m petit io n fr o m th em s u sta in ed s tr o ng r e sis ta n ce to th e a d m is sio n o f J e w s to th e C om pan y. W hen th ey fin ally w ere ad m it te d (in th e 1750s) Je w is h m em bers o f th e C om pan y w ere ban ned fr o m em plo yin g f e llo w J e w s a s f a cto rs i n t h e L ev an t! 249 In th e e ig hte en th c e n tu ry w ell o ver h alf th e se ab o rn e tr a d e b etw een E uro pe a n d th e M id dle E ast ca m e to b e c o ntr o lle d b y th e F re n ch m erc h an ts o f M arse ille s, 250 a n d F re n ch c o m petit io n w as w id ely ack now le d ged t o b e t h e m ain c a u se b eh in d t h e c o lla p se o f t h e L ev an t C om pan y. I f t h e M ed it e rra n ean had b een t h e s e m in al g ro und o f E ngla n d’s c o m merc ia l e x p an sio n i n t h e l a tte r p art o f E liz a b eth ’s r e ig n, by t h e e ig hte en th c e n tu ry t h e d ecis iv e c e n te rs o f g ra v it y h ad f ir m ly s h if te d t o t h e A tla n tic a n d t h e E ast In die s. B y 1 750 a lm ost h alf o f E ngla n d’s m erc h an t f le et w as e n gag ed i n t h e t r a n sa tla n tic t r a d e. 251 F ro m th e 1 730s th ere w as a h uge in cre ase in th e v olu m e o f c a p it a l a d van ce d to th e c o lo nie s b y sp ecia lis t gro ups o f c o m mis sio n a g en ts . 252 J a m aic a n e sta te s tr ip le d in v alu e a n d p la n te rs lik e P ete r B eck fo rd co uld d ie le av in g fo rtu nes w orth £ 300,0 00. 253 S ugar b eg an to b e fin an ce d b y lo nger-te rm le n din g o n mortg ag e, a n d w hen H en ry L asc e lle s d ie d i n 1 753, h e h ad ca . £194,0 00 ( ste rlin g) o ut o n lo an t o c lie n ts in B arb ad os a n d Ja m aic a . 254 L asc e lle s h ad fin an ce d h is lo an s b y b o rro w in g fr o m L ondon b an k ers, whic h s h ow s u s th at N ew W orld s la v ery w as tig htly in te g ra te d in to fin an cia l a n d c o m merc ia l w eb s ce n te re d in L ondon. 255 B y a ro und 1 770 th e to ta l su m o w in g to L ondon m erc h an ts b y W est In dia n su gar p la n te rs w as i n t h e r e g io n o f s e v era l m illio n p o unds. 256 D oubtle ss t h e s a m e w as t r u e o f A m eric a n pla n te rs. I n 1 784 T hom as J e ffe rso n d esc rib ed t h em a s “ a sp ecie s o f p ro p erty a nnex ed t o c e rta in m erc a ntile hou se s in L on d on ”! 257 B y th e 1 770s th e A m eric a n c o lo nie s p ro vid ed 4 0 p erc e n t o f B rit is h im po rts a n d to ok o ver 4 0 p erc e n t o f B rit a in ’s d om estic e x p o rts . 258 The tr a n sfo rm atio n o f th e E ast In dia C om pan y fr o m a p u re ly co m merc ia l o rg an iz a tio n in to a “p o lit ic a l p o w er” 259 w as o f c o urse it s m ost d is tin ctiv e fe atu re h is to ric a lly . H ow ev er, a n in ord in ate str e ss o n w hat J o hn B re w er h as c a lle d t h e “ p riv atiz e d i m peria lis m o f t h e E ast I n dia C om pan y” 260 r u ns a double r is k , b o th o f d is tr a ctin g a tte n tio n f r o m t h e f a ct t h at t h e C om pan y w as a lw ay s r u n “ b y a g ro up of e x tr e m ely r ic h c a p it a lis ts ” 261 and o f fa ilin g to s e e, o r n ot s e ein g s u ffic ie n tly , th at it s tr a n sfo rm atio n fr o m a p u re ly c o m merc ia l e n tit y in to a n im peria lis t o ne r e d efin ed th e fr a m ew ork w it h in w hic h n ew fo rm s o f c o m merc ia l c a p it a l p ro lif e ra te d f r o m t h e e n d o f t h e e ig hte en th c e n tu ry t o s p aw n t h e p o w erfu l co m merc ia l lo bbie s o f th e n in ete en th , s u ch a s th ose w hic h la y b eh in d th e O piu m W ars. I n th e p ag es th at f o llo w t h e f o cu s i s t h us o n t h e p u re ly c o m merc ia l o r c a p it a lis t a sp ects o f t h e C om pan y’s o pera tio ns sim ila r t o t h ose t h at K . N . C hau dh uri f o re g ro unded in h is s u bsta n tia l m onogra p h The T ra d in g W orld of A sia a nd t h e E ng lis h E ast I n d ia C om pa ny . The E nglis h E ast In dia C om pan y w as a tig htly ce n tr a liz e d bu sin ess org an iz a tio n w here th e in vestm en t d ecis io ns w ere m ad e b y th e C ourt o f D ir e cto rs w ork in g th ro ugh th e c e n tr a l m an ag eria l co m mit te es in L ondon. C ap it a l su m s w ere assig ned to in div id ual “ fa cto rie s” fr o m L on d on . 262 T he bu sin ess m odel w as o f c o urse im po rt- d riv en , w hic h in tu rn im plie d ( a ) a m assiv e e x p o rt o f c a p it a l to fin an ce im po rts a n d ( b ) th e v it a l p art p la y ed b y th e r e -e x p o rt tr a d es “ in c lo sin g th e g ap th at w ould oth erw is e h av e o pen ed u p in B rit a in ’s v is ib le t r a d e b ala n ce .” 263 I n t h e E IC ’s c a se , c a p it a l e x p o rts t o ok th e fo rm , o verw helm in gly , o f p re cio us m eta ls , w hic h w ere p u rc h ase d in it ia lly in L ondon fr o m th e gold sm it h -b an kers an d la te r, fr o m th e eig hte en th ce n tu ry , on th e co ntin en t (in C ad iz an d Am ste rd am ). 264 T he C om pan y’s A sia n im po rt p o rtf o lio w as “ so f in ely d if fe re n tia te d t h at it t o ok m ore th an t w o h undre d p ag es i n t h e L ed ger B ooks t o l is t t h em ,” 265 b u t b y a n d l a rg e i m po rts w ere d om in ate d by a fe w k ey c o m modit ie s su ch a s c o tto n a n d silk p ie ce g oods, ra w silk , p ep per, te a, a n d so o n. Dis tr ib u tio n a t t h e L ondon e n d t o ok t h e f o rm o f q u arte rly s a le s a tte n ded b y i n div id ual m em bers o f t h e Com pan y w ho w ere th em se lv es s u bsta n tia l e x p o rte rs a s w ell a s b y w hole sa le d eale rs fr o m H olla n d, Germ an y, a n d e ls e w here , 266 w it h o rd ers fo r fu tu re s u pplie s b ein g a d ju ste d o n th e b asis o f th e a ctu al pric e s r e ce iv ed a t t h ose a u ctio ns. At th e In dia n e n d, th e a d van ce c o ntr a cts h ad to b e m ad e in a n tic ip atio n o f th e e x act o rd ers a n d fin an cia l r e so urc e s t h at w ere t o c o m e f r o m E ngla n d. T he p o st- R esto ra tio n p erio d s a w c a lic o es r a p id ly gain in g in p o pu la rit y , a n d b y th e 1 680s th e C om pan y w as im po rtin g m ore th an a m illio n a n d a h alf pie ce s, w it h th e te x tile sh are o f to ta l im po rts e x ce ed in g 8 0 p erc e n t b y v alu e. 267 T o se cu re th is v ast su pply t h e C om pan y r e lie d o n s u bsta n tia l lo ca l m erc h an ts a ctin g a s b ro kers w it h t h e p o w er t o e n su re th at o rd ers w ould b e f u lf ille d o n t im e. “ [T ]h e C om pan y’s s e rv an ts a d voca te d t h e u se o f m id dle m en o n th e g ro und th at if th ey d ealt d ir e ctly w it h th e w eav ers, ‘a tt th e y eare s e n d, w hen w e e x p ecte d to b e in veste d o f o ur g oods, w e s h ould u ndoubte d ly c o m e s h orte o f h alf o ur q u an tit y e.’” 268 I n o th er w ord s, th e r is k o f d efa u lt b y t h e w eav ers w as s h if te d t o t h e s h ould ers o f t h e m erc h an ts . C hau dhuri n ote s, “ A ll co m merc ia l ris k s w ere to b e b o rn e b y th e In dia n m erc h an ts , a n d if th e la tte r m ad e a lo ss o n th e Com pan y’s b u sin ess t h ey w ere s till e x p ecte d t o c a rry o n c o ntr a ctin g f o r g oods a s b efo re .” 269 W eav ers, of co urse , re fu se d to w ork w it h out su bsta n tia l ad van ce s w hic h C hau dhuri co nfu sin gly ca lls th eir “w ork in g c a p it a l,” 270 w hen t h e a d van ce s, t h e ca pit a l l a id o ut o n l a b o r a n d o n r a w m ate ria ls , c a m e f r o m th e C om pan y. T he “ w ork in g c a p it a l” w as s tr ic tly th at o f th e C om pan y, s in ce th e d is b u rse m en ts o f ca sh m ad e th ro ugh th eir b ro kers (a n d la te r, m ore d ir e ctly th ro ugh th e ag en ts ca lle d gum ash ta s ) in volv ed a c ir c u la tio n o f t h at p art o f t h e C om pan y’s c a p it a l w hic h w en t i n to e n ab lin g t h e l a b o r p ro ce ss, in clu din g r e p ro ductio n o f w eav ers’ l a b o r p o w er. In th e 1 720s A le x an der H um e n ote d , “ T he E nglis h a n d D utc h , w ho a re th e g re ate st T ra d ers in th is co untr y (B en gal) , d o th eir b u sin ess w holly b y th eir B ro kers, w ho a re th eir p rin cip al M erc h an ts .” 271 Forw ard co ntr a cts w it h la rg e w hole sa le m erc h an ts w ere th e ru le b o th in th e C oro m an del an d in Ben gal, 272 w it h m erc h an ts w ho c o ntr a cte d fo r th e in vestm en t fr e q u en tly b o rro w in g “ la rg e su m s o f money to c a rry it o n” a n d w ealt h y b an kers a ctin g a s th eir g uara n to rs. 273 T he C om pan y w ould n’t alw ay s se cu re su ch g uara n te es. “ T he w ealt h y m erc h an ts liv in g in H ugli o r K asim baza r h ab it u ally re fu se d th e C om pan y’s dem an d fo r fin an cia l se cu rit y as th eir cre d it an d bu sin ess sta tu s w ere unim peach ab le .” 274 H um e s ta te s in t h e s a m e m em oir t h at t h e g re ate r t h e a d van ce t h e m ore c e rta in t h e Com pan y w as o f r e ce iv in g th e g oods o n tim e, w hic h is p ro bab ly w hy in B en gal th e g ro up k now n a s dad ni o r dad an m erc h an ts w ere u su ally p aid a s m uch a s 5 0 to 7 5 p erc e n t o f th e c o ntr a ct v alu e in ad van ce . 275 F ro m t h e 1 750s, w it h l a rg e p arts o f I n dia r e elin g u nder t h e i m pact o f t h e M ara th a i n cu rsio ns an d t h e d am ag e i n flic te d o n m erc a n tile f o rtu nes, t h e s u bsta n tia l m erc h an ts w ho a cte d a s b ro kers f o r t h e Com pan y f o und it le ss a n d le ss p o ssib le t o g uara n te e d eliv ery a n d t h e s y ste m b ro ke d ow n. T he dad an merc h an ts w it h dre w fr o m th e C om pan y’s tr a d e, th us fo rc in g it to e sta b lis h m ore d ir e ct c o ntr o l o ver pro duce rs, a d riv e th at c u lm in ate d in a s e rie s o f r e g ula tio ns ( b etw een 1 773 a n d 1 793) th at s o ught to re d uce w eav ers to th e sta tu s o f C om pan y em plo yees, w it h re str ic tio ns o n th eir m obilit y , tig hte r su perv is io n o f l o om s, a n d a m ore o vertly c o erc iv e u se o f d eb t. 276 I n deb te d ness b eca m e a n “ in te g ra l p art of p ro ductio n fo r th e C om pan y” in th e fin al d eca d es o f th e eig hte en th ce n tu ry , an d ab sc o ndin g work ers w ere p u rsu ed r e m orse le ssly . 277 Dutc h e x p o rts fr o m th e C oro m an del r a n a t a lm ost tw o m illio n g uild ers b y th e la te 1 660s, 278 w hile to ta l E IC e x p o rts w ere o fte n i n e x ce ss o f £ 1 m illio n a y ear a c e n tu ry l a te r. 279 V olu m e p ro ductio n m ean t th at th e E uro pean c o m pan ie s d ealt w it h w hole c lu ste rs o f w eav in g v illa g es, e it h er o n th eir o w n o r more u su ally t h ro ugh t h eir b ro kers ( “ p rin cip al m erc h an ts ” ), o n a m odel b ro ad ly s im ila r t o t h e w id ely dis p erse d Verla g n etw ork s th at S outh G erm an co m merc ia l fir m s lik e th e F uggers h ad b u ilt th eir pro sp erit y o n in th e th ir te en th to s ix te en th c e n tu rie s. 280 F or m ost o f th e s e v en te en th a n d e ig hte en th ce n tu rie s th e C om pan ie s w ere cru cia lly dep en den t on lo ca l m erc h an t ca p it a lis ts 281 w ho had th e re so urc e s to ru n th eir o w n co m merc ia l n etw ork s an d ev en fin an ce p ro ductio n o n b eh alf o f th e Com pan y. B oth t h e E nglis h a n d t h e D utc h u se d t h e b ig m erc h an ts o f K asim baza r f o r t h eir s ilk b u yin g in N orth B en gal. 282 B en gal silk , C oro m an del c a lic o es, A gra a n d B ay an a in dig o, e tc . w ere a ll, lik e Mala b ar p ep per, h ig hly c o m petit iv e m ark ets ; f o r e x am ple , “ th e c o ntr a ct p ric e f o r s ilk w as a n o bje ct o f in te n se barg ain in g betw een th e (B en gal) m erc h an ts an d th e Euro pean tr a d in g co m pan ie s.” 283 How ev er, b y th e e ig hte en th c e n tu ry th e c o m petit io n o f priv a te , m ostly E nglis h , m erc h an ts in je cte d a new d im en sio n in to th e c o m merc ia l d ynam ic s o f th e E ast I n dia C om pan y. B rit is h p riv ate c a p it a l a n d it s in volv em en t in th e c o m merc e o f I n dia s a w a s te ad y e x p an sio n in th e e arly p art o f th e e ig hte en th ce n tu ry an d th en a b ig ger an d m ore ra p id ex p an sio n in th e la te r eig hte en th ce n tu ry , fo llo w in g dev elo pm en ts th at qu ic k ly open ed th e in la n d tr a d e of B en gal to priv ate ca p it a l an d sa w th e co nte m po ra n eo us c a p tu re o f S ura t i n 1 759. Alr e ad y b y t h e l a te r s e v en te en th c e n tu ry ( th e 1 660s, i n f a ct) t h e C om pan y e x te n ded a “ w id e m easu re of o ffic ia l to le ra tio n” to th e p riv ate sh ip pin g th at e m erg ed in In dia n p o rts w it h siz e ab le E uro pean tr a d in g co m munit ie s over w hic h th e B rit is h had so m e co ntr o l. 284 M asu lip atn am (n ot a B rit is h se ttle m en t b u t a c o sm opo lit a n p o rt) , 285 M ad ra s a n d C alc u tta b eca m e, in tu rn , th e m ajo r h ubs o f a bu rg eo nin g “ co untr y tr a d e” th at w as p ro gre ssiv ely d om in ate d b y p riv ate c a p it a l. In th e c o nte x t o f Com pan y d om in an ce , t h e t e rm “ p riv ate c a p it a l” is o f c o urse a m biv ale n t, s in ce it w ould h av e t o c o ver th e p riv ate tr a d in g a ctiv it ie s o f o ffic ia ls lik e th e G overn ors o f M ad ra s w ho w ere b ig -tim e p riv ate tr a d ers a t th e s ta rt o f th e e ig hte en th c e n tu ry , o th er C om pan y s e rv an ts w it h c o m merc ia l in te re sts o f th eir o w n, as w ell as th e g re ate r m ass o f so -c a lle d fr e e m erc h an ts w ho w ere en tir e ly o uts id e th e Com pan y. I n 1 681 c a m e th e C om pan y’s “ d ra m atic a n d s u dden d ecis io n to w it h dra w fr o m th e lo ca l tr a d e o f th e In dia n O ce an ,” 286 an d a p o te n tia lly v ast fie ld o pen ed u p fo r th e ex p an sio n o f n on- Com pan y c o m merc ia l c a p it a l, w here t h e m ain c o m petit io n s te m med n ot f r o m t h e C om pan y it s e lf b u t fr o m in dig en ous A sia n c a p it a ls t r a d in g t o t h e R ed S ea a n d t o m ark ets lik e A ch eh a n d t r a d in g b etw een th e m ain c o asta l re g io ns o f In dia . In th e tr a d e b etw een S ura t a n d B en gal, th e fr e e m erc h an ts w ho ev en tu ally gain ed co ntr o l of C alc u tta ’s sh ip pin g fa ce d “fo rm id ab le co m petit io n fr o m A sia n sh ip o w ners.” 287 Y et B rit is h d om in an ce o f In dia ’s c a rry in g tr a d e w as sw if t, a n d b y th e 1 730s A sia n – ow ned s h ip s h ad la rg ely c e ase d to tr a d e b etw een B en gal a n d S ura t. 288 B y th e 1 780s fr e e m erc h an ts were g ro w in g r a p id ly i n n um bers a n d w ealt h , 289 b eg an t o s u pply a l a rg e p art o f t h e C om pan y’s e x p o rts of t e x tile s ( in t h e D hak a ara ng s v astly m ore t h an e it h er t h e C om pan y o r it s C om merc ia l R esid en t) , 290 an d t o ok t h e le ad in o pen in g u p n ew a re as f o r t r a d e. 291 O ne u psh ot o f t h is s u rg e o f p riv ate c o m merc e was th at a s m uch a s ca . £15 m illio n c o uld b e s e n t h om e in r e m it ta n ce s o ver th e tw en ty -se v en y ears betw een 1 757 a n d 1 784. 292 B y t h e 1 790s t h e m assiv e e x p an sio n o f B en gal in dig o, m uch o f w hic h c a m e fr o m A wad h a n d f u rth er a fie ld , w as d om in ate d b y p riv ate m erc h an ts . 293 T heir c h ie f c o ntr ib u tio n t o t h e co m merc ia l h is to ry o f b o th B rit a in a n d I n dia w ere th e “ h ouse s o f a g en cy ” w hic h C alc u tta -b ase d f r e e merc h an ts w ere la rg ely r e sp o nsib le f o r e sta b lis h in g. I t w as th is la y er o f c a p it a l th at h elp ed to d estr o y th e m onopo ly o f t h e E ast I n dia C om pan y e arly i n t h e n in ete en th c e n tu ry . 294 The tr a n sa tla n tic tr a d es w ere ro ughly a ce n tu ry ah ead o f B rit is h p riv ate en te rp ris e in A sia in in novatin g t h e c o m mis sio n s y ste m a s t h e c h ie f m eth od o f t r a d in g t y pic a l o f c o m merc ia l c a p it a ls i n t h at se cto r. T he r e aso n s h ould b e o bv io us: p riv ate c a p it a l w as d om in an t in t h e c o lo nia l t r a d es b y t h e m ain part o f t h e s e v en te en th c e n tu ry , in deed it n ev er f a ce d t h e c h alle n ge o f t h e b ig “ C om pan y m erc h an ts ” ex ce p t fo r th e R oyal A fr ic a n C om pan y’s sh ort- liv ed m onopo ly o f th e sla v e tr a d e. T his p re co cio us dev elo pm en t o f n on-m onopo ly , p riv ate e n te rp ris e w as sig nif ic a n t b eca u se a lr e ad y b y th e 1 660s th e co lo nia l tr a d es w ere “ am ong th e g re ate st o f E nglis h tr a d es.” 295 In In dia , H ouse s o f A gen cy o nly ev olv ed f r o m t h e 1 770s a n d t h en m ore r a p id ly f r o m t h e 1 790s, f o llo w in g C orn w allis ’s b an o n s e rv an ts of th e E ast In dia C om pan y e n gag in g in p riv ate c o m merc ia l e n te rp ris e . 296 B ut th e C alc u tta a g en cy house s a re th e m ost p alp ab le lin k b etw een th e tw o m ain p erio ds o r “ ep o ch s” o f B rit is h c o m merc ia l ca p it a lis m , w hose d iv id in g lin e lie s a t th e s ta rt o f th e “ lo ng n in ete en th c e n tu ry ” ( 1 784– 1914), in th e years afte r 1784 w hic h sa w th e en din g o f th e A m eric a n W ar o f In dep en den ce , a b o om in n ew co m mis sio n h ouse s, 297 a n d a r a d ic a lly n ew e co nom ic c o nju nctu re t h at s a w b an kin g r e v olu tio ns o n b o th sid es of th e A tla n tic , a dra m atic ex p an sio n of th e co tto n in dustr y in B rit a in , an d a su rg e in man ufa ctu re d ex p o rts to th e U S an d o th er in te rn atio nal m ark ets . M ean w hile , th e E IC ’s tr a d in g monopo ly w as f o rm ally t e rm in ate d i n 1 813, t h at o f t h e L ev an t C om pan y i n 1 825.
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1 2 © 2 020 H ad as T hie r P ublis h ed i n 2 020 b y H ay m ark et B ooks P.O . B ox 1 80165 C hic ag o, I L 6 0618 773-5 83-7 884 w ww.h ay m ark etb ooks.o rg in fo @ hay m ark etb ooks.o rg I S B N : 9 78-1 -6 4259-2 18-4 D is tr ib ute d t o t h e t r a d e i n t h e U S t h ro ug h C onso rtiu m B ook S ale s a n d D is tr ib utio n (w ww.c b sd .c o m ) a n d i n te rn atio nally t h ro ugh I n gra m P ublis h er S erv ic es I n te rn atio nal (w ww.i n gra m co nte n t.c o m ). T his b ook w as p ublis h ed w ith t h e g en ero us s u pport o f L an nan F oundatio n a n d W alla ce A ctio n F und. S pecia l d is c o unts a re a v aila b le f o r b ulk p urc h ase s b y o rg an iz atio ns a n d i n stitu tio ns. P le ase c all 7 73-5 83-7 884 o r e m ail o rd ers @ hay m ark etb ooks.o rg f o r m ore i n fo rm atio n. C over a rtw ork , d esig n, a n d i n te rio r i llu str a tio ns b y T an ia G uerra . L ib ra ry o f C ongre ss C ata lo gin g-in -P ublic atio n d ata i s a v aila b le .3 To Uri and Tzvia Thier , who instilled in me a knee-jerk r eaction to injustice, and who gave me enough confidence to do something about it. And to Naim, with love, and with the hope that someday you can use this book to explain to your children what life was like before we relegated capitalism to the dustbin of history .4 CO NTEN TS Introduction CHAPTER ONE The Birth of Capital CHAPTER TWO The Labor Theory of V alue CHAPTER THREE Money CHAPTER FOUR Where Do Profits Come From? CHAPTER FIVE The Accumulation of Capital CHAPTER SIX Capitalist Crisis CHAPTER SEVEN Credit and Financialization CONCLUSION Capitalism’s Gravediggers AFTERWORD The Coronavirus Crisis Acknowledgments GLOSSAR Y5 FURTHER READING NOTES INDEX6 CHAPT ER FO UR WHER E DO P R O FIT S C O M E F R O M ? The product [of labor] is the property of the capitalist and not that of the worker , its immediate producer. Suppose that a capitali st pays for a day’ s worth of labor -power; then the right to use that power for a day belongs to him , just as much as the right to use any other comm odity, such as a horse that he has hired for the day… The produ ct of this proce ss belongs to him just as much as the wine which is the product of the process of fermentatio n going on in his cellar . —Capita l, V olu m e 1 1 RE AL W ORL D E X CH ANGE Up to now we’ve discussed commodities and values in a simplified world where furniture makers meet bread makers in a market. Happily, the furniture maker takes her chair to the market and exchanges it for money , which she uses to buy bread or other necessities. Of course, this is not how things work in our society . Today , the people who produce commodities, by and large, do not own what they’ve made and therefore they have no power to sell or directly exchange these commodities for othe r essentials. In fact, most furniture makers are not really “furniture makers,” in the sense that they don’t make a chair from start to finish, but are lumber handlers, machine operators, assemblers, and finishers who work collectively at a factory . And at the end of the day, they don’t ta ke home the chairs they’ve made; they return home with a paycheck. The finished products are not owned by these various laborers, but by the furniture company, which put them to work manufacturing chairs. This company then exchanges the chairs on the market for money , which—as we noted—acts as an intermediary representative of value. And while there may72 still be some local marketplaces, or online venues facilitated by companies like Etsy in which small numbe rs of artisans craft their own chairs to sell, you’d be hard-pressed to find an individual constructing phones, refrigerators, cars, or the myriad of things that we depend on and which fill our everyday lives. How did this come about? Answering this question leads us to the crux of the system: exploitation, and the special role played by labor under capitalism. In this chapter , we’ ll unpack what Marx meant by CAPIT AL , labor, and class society , and out of these concepts we will build a framework for understandin g the particular form that exploitation takes in a capitalist society . To start, let’s lo ok at what makes capitalist exchange unique. In a sense, the “sim ple commodity exchange” we described above never existed in quite so simple a form. But in pre-capitalist formations, exchanges between communities or individuals were “simple” in the sense that the point of these exchanges was to trade commensurate items. Communities could trade any surpluses they had accumulated in order to obtain different goods of equal value. A tribe could, for instanc e, trade their surplus of kola nuts for another tribe’ s iron rods for tool making . 2 This type of direct barter could take place among individuals as well. Commodity for commodity , or “C–C,” represents this basic bartered exchange—say , exchanging a chair for an equivalent value of bread. The more likely scenario would involve money as an intermediary , but the process remains the same. A commodity of one value is traded in for cash, which can then be exchanged for a commodity of a similar value. We can represent these exchanges with the formula: C-M-C: Commodity, C, is exchanged for Money , M, which in turn buys a dif ferent Commodity, C. Marx uses this formula to expr ess simple commodity exchange, which implies that goods exchange for their equivalents. If a chair maker sells her chair for $30, she should be able to get an amount of meat for her $30 that is roughly equivale nt in value (or the labor -time that went into producing it). In this setup, no one is extracting more value than what they put in—it is only the form of the value that is changing: from commodity , to money , to ano ther commodity . Everything equals out. Therefore “chair = $30 = 7 lbs. of beef”73 is the same as saying “$30 = $30 = $30” or “x hours of labor = x hours of labor = x hours of labor .” This is a theoretical example that simplifies the process of exchange in order to better elucidate the processes of capital. 3 The point to note is that the goal of such an exchange is qua litative (gaining new use-values ) rather than quantitative (making money). The purpose is to procure a dif ferent item, which you did not possess before. The development of professional traders transformed the goal of exchange from the procurement of like items for use to the accumulation of money. The equation thus changed from C-M-C to M-C-M; or more accurately M-C-M’. The doohi ckey above the M (“M prime,” technically speaking) represents more money , or an increase of value above and beyond the money initially invested. In pre-capitalist societies, the basis for this added wealth was, more often than not, pilfering loot. Merchan ts from more economically developed centers were able to take advantage of societies that did not rely on large-scale internal trade. They could thus purch ase goods on the cheap, and then sell them at a higher price in places where these goods were scarce and their values unknown. Not surprisingly , while the merchant class grew and developed, stories from around the world during this time emphasize the thievery , dishonesty , and piracy found at the source of the wealthy man’s riches. Yet for all this piracy , the circulation of money , wrote Mandel, “is sterile from a global point of view; it does not increase the total wealth of huma n society . It consists in fact of a transfer of weal th, pure and simple; what one gains the other loses, in absolute value. Social value remains unchanged.” 4 TH E H ID DEN A BO DE O F P R O DUCTIO N Modern capitalism, on the other hand, is characterized by an immense expansion of wea lth. Its entire history is marked by growth. The US economy , when healthy , grows by about 4 percent per year. The Chinese economy , until recently , was growing by as much as 10 percent per year . And the world economy as a whole has expanded by roughly 3 perc ent annually74 since 1980, according to data from the World Bank. In fact, if any country’ s output stops expanding, it goes into recession. How do capitalists generate this ever-expanding surplus? Like the merchant class that preceded them, capitalists produce and exchange goods through an M-C-M’ circuit. They start with money (M), invest in the production of commodities (C), and then sell those commodities on the market to get back more money than they started with, (M’). Marx referred to this as “the general formula of capital.” Rather than money serving an intermediary role, it is the driver of the process. Capitalists don’t exchange goods for the sake of qualitative enrichment. Steve Jobs didn’t decide he had more iPhones and MacBooks than he reasonably needed and therefore might as well trade them for something he didn’t ha ve. (What didn’ t Steve Jobs have?) A capitalist invests for the sole purpose of accruing further wealth. To exchange like-for-like items and wind up with the same amount of money that they started with would be, to use Marx’ s words, “absurd and empty .” The purpose of exchange is the accumulation of extra value, or SURPLUS VALUE , which forms the basis of capitalist profit. As Marx ar gued: The simple circulation of commodities—selling in order to buy— is a means to a final goal which lies outside circulation, namely the appropriation of use-values, the satisfaction of needs. As against this, the circulation of money as capital is an end in itself, for the valoriz ation of value takes place only within this constantly renewed movement. The movement of capital is therefore limitless. 5 The satisfaction of even the most extravagant of needs can only go so far. But the boundl ess goal of acq uiring money through its circulation is an inexhaustible endeavor . But unlike mercantilism, modern capitalism doesn’t depend on a process of “buy ing cheap and selling dear.” Surplus value is produced when capitalists are buying goods for their true value and selling them for their true value . Capita lists may certainly defraud other players along the way —75 pay less for inputs or char ge more for the final product. But surplus is produced without that duplicity occurring, even when the system is at its most “honest” and “lawful.” Rather than being cunning in the market, the key to surplus value is a production process that creates more wealth than it begins with. Contrary to mainstream explanations (see sidebar: “How Capitalism Explains Capital”), capitalist surplus is not generated within the realm of exchange at all. It is created, argued Marx, within “the hidden abode of production on whose threshold there hangs the notice ‘No admittance except on business.’ Here we shall see, not only how capital produces, but how capital is itself produced. The secret of profit-making must at last be laid bare.” 6 Wherein lies the secret? Let’s look more closely at the circuit of capital. The merchant bought commodit ies that had already been produced and then sold them for a higher price. However , the capitalist invests not in finished products, but rather purchases two different types of commodities: 1) means of production (MP), and 2) labor -power (L). As we discussed in chapter one, the mea ns of production are the tools and materials that are necessary to make goods (e.g. factories, office buildings, land, machinery , software, IT infrastructure, etc.). The capitalist employs both “inputs” in a production process (P) that creates a new set of commodities, worth more than the combined value of the original inputs. The circuit of capital can thus be expanded to a more precise formula: M-C (MP+L) … P … C’-M’. 7 The “secret” hidden within the production process lies in a special commodity of labor -power—the ability to work. Marx explained that the ability to work has become a commodity under capitalism, which the capitalist buys in exchange for a wage (its exchange-value). At first look, this seems self-evident. We wak e up, go to work, come home with a wage (or at least the promise of one to be paid at the end of the pay period). W e are selling our ability to work—our labor-power . And since selling our old Beanie Baby collection will only get us so far, by and large, for most of us, if we are “lucky” enough to be considered employable, our labor -power is the only commodity we really have to sell. But what makes this commodity special, and to whom? Marx wrote:76 In order to extract value out of the consumption of a commodit y, our friend the money-owner must be lucky enough to find within the sphere of circulation, on the market, a commodity whose use- value possesses the peculiar property of being a source of value , whose actual consumption, therefore is itself an objectification of labor, hence a creation of value. The possessor of money does find such a special commodity on the market: the capacity for labor, in other words labor -power. 8 [emphasis added] The exchange-value of labor -power is paid out in a wage. But the use- value of labor -power is labor itself— the source of value, as we discu ssed in chapter two. What’ s more, the exchange-value of labor -power , and the value that labor then produces for the bosses, are two very different things. The worker is paid one thing, but then will normally create much more value during her shift than she is paid: The value of labor -power , and the value which that labor -pow er valorizes in the labor-process, are two entirely different magnitudes; and this difference was what the capitalist had in mind when he was purchasing the labor -power…. What was really decisive for him was the specific use-value which this commodity possesses of being a sour ce not only of value, but of more value than it has itself. This is the spec ific service that the capitalist expects from labor-power , and in this transaction he acts in accordance with the eternal laws of commodity-exchange. 9 The key to this golden egg arrangement for the boss is an agreement in which your labor is put under his control for a set amount of time, and you are paid for this time, not for the fruits of your labor. Just as a baker parts with the use-value of bread once she sells it, so too does the worker part with the use-value of her labor -power once she has sold it. As soon as she punches the clock, the condition s of her labor and the products of her labor are no longer hers, but the boss’ s. Marx thus continued: In fact, the seller of labor -power , like the seller of any other commodity , realizes its exchan ge-value, and alienates its use- value. He cannot take the one without giving the other . The use- value of labor -power , in other words labor , belongs just as little to its seller , as the use-value of oil after it has been sold belongs to the dealer who has sold it. The owner of the money has paid the value of a day’ s labor -power; he therefore has the use of it for a77 day, a day’ s lab or belongs to him. On the one hand the daily sustenance of labor -power costs only half a day’ s labor , while on the othe r hand the very same labor -power can remain effectiv e, can work, during a whole day, and consequently the value which its use during one day creates is double what he pays for that use; this circumstanc e is a piece of good luck for the buyer , but by no means an injustice towards the seller . 10 [emphasis added] In other words, the boss can get away with paying you for just half (or some other fraction) of the day for the “daily sustenance of labor -power” while reaping the full day of your labor. On top of it, he can proclaim it a fair day’ s wage, and the secret to this claim is in the determination of exchange-value of labor -power . Marx explained: “The value of labor -power is determined by the valu e of the means of subsistence habitually required by the average worker .” 11 That is to say , its value, like that of any other commodity , is bas ed on the amount of labor that has gone into producing it. In the case of labor – power , this amo unts to the labo r-time required to keep the worker alive, to daily reproduce her capacity and readiness to go to work every day, and to keep her children alive, so that they may one day replace her in the workforce. The value of food, rent, clothing, training, and education, along with other necessities deemed essential by society therefore make up the value of labor -power . If, for example, social norms attach an ave rage of $120 to the cost of minimal daily needs, that would loosely translate into the value of labor -power. 12 The bosses also get a big discount when they purchase labor-power . A good deal of unpaid work also contributes heavily toward its reproduction: for instance, childbirth, childcare, food preparation, laundry, and household cleaning, to name a few . As Marxist feminist Tithi Bhattachary a explained, “The working class doesn’ t onl y work in its workplace. A woman worker also sleeps in her home, her children play in the public park and go to the local school, and sometimes she asks her retired mother to help out with the cooking. In other words, the major functions of reproducing the working class take place outside the wor kplace.” 13 The free labor , performed largely by women within the home, is not accounted for within labor-power ’s exchange-value. The realm of social reproduction, as discussed in the sidebar “Outside the Abode of Product ion,” reproduces and regenerate s workers at very little cost to the system. Yet even if we limit ourselves more narrowly to the paid labo r th at goes into producing your subsistence, if all things were fair and just, you would give over to your boss only the amount of time that it takes to reproduce the78 value of your labor-power . Say it takes four hours to produce $120 worth of goods, the equivalent of your daily wage, you could go home after four hours. But if your boss allowed that, his inputs and outputs would be equal. It truly would just be M-C-M. What would be the point? Why not just keep the mon ey he started with? But all things are not fa ir and just. The capitalist pays you for the cost of your labor-power , not for the value of the goods you produce. Thus your paycheck is worth the exchange-value o f your labor- power . B ut the use-value o f your labor-power is the production of greater value . Let’ s sa y you work for Starbucks and they pay you $120 for an 8-hour shift. But you can probably make $120 worth of fancy coffee in an hour , or probably in a half hour at a busy store. Even once you subtract the cost of materials and use of the equip ment, Starbucks doesn’t pay you anywhere near the value you’ve created (hundreds of dollars a day). They buy your labor -power f rom you, not the actual fruits of your labor . And you make that value back for them in an hou r. The rest of your shift, you’re basically working for free! This extra labor they extract from us is called surplus labor. While necessary labor is that part of the day required to reproduce the cost of labor – power , the surp lus labor is the free labor that the capitalist benefits from during the rest of your workday . Thus, if after you finish making $120 worth of coffee, instead of throwing down your apron and going home, you finish out your eight-hour shift, one hour will be necessary labor, and seven hours are surp lus labo r! (This seven to one ratio is overly simplified because it doesn’t yet factor in the machinery and equipment we mentione d above. But we will get to those next!) Marx wrote: I call the portion of the working day during which this reproduction takes place necessary labor-time, and the labor expended during that time necessary labor; necessary for the worker , because independent of the particular social form of his labor; necessary for capital and the capitalist world, because the continued existence of the worker is the basis of that world. During the second period of the labor process, that in which his labo r is no longer necessary labor , the worker does indeed expend labor-power , he does work, but his labor is no longer necessary labor, and he creates no value for himself. He creates surplus value which, for the capitalist, has all the charms of something created out of nothing. 14 In this way , thr ough the “charm of something created out of nothing,” capitalism disguises a process of exploitation, of appropriating surplus labor79 from the working class, as a “fa ir day’ s wage for a fair day’ s w ork.” As we discussed in chapter one, appropriating surpluses was a visible and obvious norm of previou s class societies. But in examining capitalist society , we have to go beneath the surface appearance of a “fair day’s work,” to find the inner essence of exploitation. 15 HOW C APIT A LI SM EX PL A IN S C APIT A L Mainstream economists have a number of ways that they explain how capitalists turn a profit. As we discussed in chapter two, the predominant mainstream explanation is based on the neoclassical theory of mar ginalism. In this view , profits are generated in the market, not in production. When capital has a “high marginal product,” if the demand for goods generates a higher income per unit than the cost of producin g those goods, then profits are high. When labor has a “high marginal product,” wages rise and profits are low. This clearly pits bosses versus workers, but unlike the labor theory of value, this view sees workers as parasitic —a necessary evil and a dra in on profits when they become too expensive. In this model, their labor plays no role in the success or failure of a busin ess. And profits are determined by what’ s happ ening in the market. Another version of this argument is that the final goods don’t have any additional or surplus value whatsoever compared to the value of their inputs. Instead, the fact that items can be sold for a greater amount of money than it took to produce them is the result of shrewd buying and selling. The profit created is the result of keen investing—by a capitalist that can pay workers minimally and buy raw material s on the cheap, and then find a way to mark up the price on the final product. This is a conven ient explanation for capitalists because it means that profits are the result of the genius of bosses, a good justification for paying themselves ungodly sums of money . But where this argument fails is that it implies that every sale must have winners and losers. A car manufacture r would benefit by buying materials and parts from suppliers at cut-rate prices. But the suppliers must then lose out, having sold materials for below their worth. Say, for exampl e, that steel plates are worth $750 a ton. This is the average price paid throughout the market for steel plates by all steel producers and all buyers of steel plates. But our savvy automaker80 investor is able to cut a deal with their supplier to pay just $650 a ton. That steel is used in the production process and becomes part of the car. Additionally , our automaker , w hen figuring out the price of the car, prorates the cost of steel in each car at a price of $800 a ton. But by doing this, our investor hasn’ t created $150 of new value . All that has happened is that he has stolen $100 from the steel manufacturer and $50 from the car buyer . He has been able to buy somethin g worth $750 for $650. And he’s been able to sell something worth $750 for $800. In the process, he is $150 richer, but it has come by taking advantage of other parties. Plenty of good, old-fashioned fleecing such as this happens in the market economy . 16 And historically it was the basis for mercantilism, an early predece ssor of modern capitalism. But at the end of the day, this model would not add money or value. It has simply been redistributed, with the automake r benefiting at the expense of the steel manufacturer and the consumer . One section of society has defrauded another . If this defined how capitalism worked, our less savvy suppliers would have no profits and be forced out of business, unless somewhere in their production process they, too, were buying their inputs cheaply and marking up the price of thei r outputs. (But that would merely mean some other company involved in the production of steel was in the position of having no profits and would be forced to shut down.) So the idea of profits being generated by “buying as cheaply possible and selling as dear as possible,” fails to explain how the system itself can expand. It denies the reality of capitalism, which is constan tly growing in wealth and outputs. If it were just about keen buying and selling, there would be a constant process of roughly half of businesses succeeding while the other half were failing, and no new value being generated. This explanation also oddly precludes a scenario where the majority of capitalists are turning a profit. In reality , when the auto industry is humming, all of the companies that are involved in the production of cars and in parts supply profit simultaneously . In times of economic boom, investme nt, employment, and profits all ride high, bosses grow elated, “miracle economies” are declared, and economists proclaim that the days of economic busts are over . Yet another argument is that profits are a reward to investors for putting their capital “at risk.” The logic here is that capita lists are putting up the capital and tying it up into a production process for which81 they will not be paid back quickly (or perhaps at all). Profit therefore provides incentive to the capital ist for taking this risk rather than sitting on their money , thus the rate of return should be higher than if the capitalist safely tucked their capital away in a low-interest savings account. This explanation essentially equates capitalism with gambling. If a gambler wins at a hand of cards, is this too a profit that is the reward for his risk? Or is it merely the result of someone else losing money? Similarly, if profits are the reward for taking risk, doesn’ t it imply that there is—somewhere—a loser in the transaction? The Marxist understanding of capitalism reveals, however, that surplus value is produced when capitalists are buying goods for their true value and selling them for their true value. It illustrates that surplus value, and therefore profits, are rooted in the production process—in the difference between paid and unpaid labor—not in the cunning of market-based exchanges. DEFIN IN G CA PIT A L Marx called the capital invested in labor -power VARIABLE CAPITAL because it “both reproduces the equivalent of its own value, and also produces an excess, a surplus value, which may itself vary, may be more or less according to circumstances .” 17 Labor ’s use-value is “ a sour ce not only of value, but of mor e value than it has itself.” Tha t is, its value expands through its use. But how much extra value is produced can vary, as we’ll discuss below . Money advanced to purchase equipment and materials, however, passes its value on to the newly created goods without any quantitative change in its worth. Marx called this part of the capitalist’ s investment CONST ANT CAPITAL . Its value “merely reappears” in the commodities produced. 18 As we discussed in chapter two, the inputs of machinery , resources, and tools embody generations of DEAD LABOR manufactured by previous groups of workers. This value is transmitte d as is through the production process. Raw materials transfer their total value when they are consumed by production (Marx called this “productive consumption” of the means of production). Machinery and equipment, on the other hand, pass on fractions of their value during every use. Let’s say a piece of machinery was expected to last for a year before brea king down, and it cost the capitalist $365 when he purchased it. Every day, the machine would pass on a dollar ’s worth of value. In this82 way, ar gued Marx, it enters “piecemeal in proportion to its average daily depreciation.” 19 A machine can deteriorate physically , through wear and tear as it’ s used. Or it can eventually be consum ed by the elements while it sits on a shelf unused. “But in addition to the material wear and tear,” Marx pointed out, “a machine also under goes what we might call a moral depreciation . It loses exchange-value, either because machines of the same sort are being produced more cheaply than it was, or because better machines are entering into competition with it. In both cases, however young and full of life the machine may be, its value is no longer determined by the necessary labor- time actually objectified in it, but the labor -time necessary to reproduce either it or the better machine. It has therefore been devalued to a greater or lesser extent.” 20 [ em phasis added] For example , a tractor may lose its value over time through rust and wear of its body in a physical depreciation. Or it can lose value in a “moral depreciation” once newer lines of tractors equipped with wireless maps and monitors of machine data can do more work for the same price. An agricultural company that uses outdated machinery will incur losses because it will require greater time (and therefore higher costs) to do the same amount of work as its competitor . If we re turn to Starbucks, perhaps the executives there invest $360 a day in constant capital : a store’ s espresso machines, coffee grinders, refrigerators, dishwashers, cash registers, coffee beans, milk, cream, sugar, etc. The coffee beans and other raw materials pass on the whole of their value as they are consumed. The machinery passes on fraction s of its value during every use (which will eventually add up to the full value of the machine getting passed on during its lifetime). They invest another $120 worth of variable capital in employing the store’ s barista. This barista, for her meager paycheck, sets to work on the coffee grinders and espresso machines, producing the first $120 of lattes, cappuccinos, and caramel macchiatos in the first hour, enough to cover her paycheck. She produces another $840 of drinks in the next seven hours, for a total of $960 worth of drinks. After paying out wages and expenses, an extra $480 is left. By investing in constant (c) and variable (v) capital, the capitalists set in motion a produc tive process. At the end of the process these values will have replicated themselves, along with an additional surplus value (s). Marx expressed this with the formula: c + v -> c + v + s. In the case of our made- up Starbucks example, this would be $360 (c) + $120 (v) turns into $360 (c) + $120 (v) + $480 (s).83 The RATE OF SUR PLUS VALUE m easures the rate at which we are exploited (synonymous with RATE OF EXPLOIT ATION ). It is the ratio between that part of the day that creates the value of your wages (v), and that part of the day in which your labor is unpaid (s): in this case $480 (s)/ $120 (v) is 400 percent. 21 If a 400 percent rate of exploit ation seems far fetched to you , consider this real-life example quoted in a 2018 Oxfam report. Oxfam interviewed Lan, a V ietnamese garment worker who explained: When I got pregnant, they let me work in the warehouse. There were many boxe s full of shoes, and my job was to put the stamp on. Those shoes would fit my son perfectly , they are very nice. I’d like my son to have shoes like these, but he can’ t. I think he’d want them, and I feel sorry for him. The shoes are very pretty . You kno w that one pair of sho es that we make is valued more than our whole month’ s salary. 22 Finally, while the rate of surplus value importantly tells us the rate at which we are being exploited, what the capitalist ultimately cares about is his rate of profit. The RATE OF PROFIT is defined as the ratio of surplus value to variable and constan t capital: that is the total amount of capital that was invested. It tells him how much profit he is generating relative to the capital he advan ced. In our example $480 (s)/ $ 480 (c+v) is 100%. 23 W e’ll return to this important concept in later chapters. For the time being, we can see that capital is money that is invested in labor-power (variable capital) and materials and equipment (constant capital) in order to prod uce a commodity whose sale generates a greater quantity of money. It is a self-expansion of value. Marx distinguished again between the appearance of capital, which alternates, through the course of its life between capital as money and capital as commodities, and the essence of capital, which under goes a process of self-expansion. He wrote: If we pin down the specific forms of appearance assumed in turn by self-valorizing value in the course of its life, we reach the84 following elucidation: capital is money , capital is commodities. In truth, however , value is here the subject of a process in which, while constantly assuming the form in turn of money and commodities, it changes its own magnitude, throws off surplus value from itself … and thus valorizes itself independently . For the movement in the course of which it adds surplus value is its own mo vement, its valorization is therefore self -valorization. By virtue of being value, it has acquired the occult ability to add value to itself. It brings forth living offspring, or at least lays golden eggs. 24 [emphasis added] But these golden eggs can only be laid because of capitalism’ s particular social relation of production, forged through the historical processes we discussed in chapter one. Workers’ lack of control over the means of production makes us dependent on capital. We are coerced by the threat of poverty to sell the only commo dity we have: our labor -power . W ithin the “hidden abode of production” our labor then produces more value than our labor-power costs in wages, adding extra value to the final product that the capitalist does not pay for in his initial investment. Capital therefore reflects a relationship rather than a mathematical formula. Most economists think of capital as things: money, machinery , and labor . But these “things” do not become capital except through a social process in which they are activated to create more value. “Capital is not a thing, but a social relation between persons which is mediated through things.” 25 Marx summarized the point in V olume 3 of Capital : [The capitalist] can convert the value he advances into a higher value only by exchanging it with living labor, by exploiting living labor. But he can exploit labor only in so far as he advances at the same time the conditions for the realization of this labor , i.e. means and object of labor , mac hinery and raw materials, that is by transforming a certain sum of value that he has in his possession into the form of the conditions of production. Similarly , he is only a capitalist at all, and can only undertake the process of exploiting labor because he confronts, as proprietor of the conditions of labor , the worker as the mere owner of labo r- power . W e have already shown in Volume 1 [of Capital ] how it is precisely the possession of the means of production by the non- workers that turns the workers into wage-laborers and the non- workers into capitalists. 2685 OUTS ID E THE ABOD E O F P R O DUCTIO N Capitalism doesn’t just control the places where production of surplus value takes place. As is made all too clear by the conditions of our schools, homes, and communit ies, and the reach that police brutality and a decrepit health care system have into our lives, the system penetrates every layer of day-to-day existence. This is because sustaining the needs of capital accumulation also necessitates the creation, maintenance, and discipline of the working class as a whole. As a basic starting point, in order for capital relations to produce and reproduce themselves, the owne r of labor -power (i.e. the worker) must daily, in the words of Marx, “be able to repeat the same process in the same condition s as regards health and strength. His means of subsistence must therefore be sufficient to maintain him in his normal state as a working individual.” 27 The “means of subsistence” is historically and socially conditioned, and determines the value of labor – power . It must also include the maintenance of the workers’ children as well, as they will be the next generation of laborers. But what about the labor necessary to prepare the food, wash the clothing, provide the childcare? This, essentially , is extra labor that is mostly produced outside of the sites of capitalist production. 28 While Marx and Engels rightly located the reproduction of labor -power for the system within the nuclear family, they did not delve deeply into this topic. The concept of social reproduction has been theorized largely due to the importan t work of secon d-wave feminism (the women ’s rights movement that, beginning in the 1960s, fought for equality beyond suffrage and legal rights) and Marxist feminists (who incorporated and elaborated on Marx’ s ideas to explain the roots of women’ s oppression). In fact, as most women know all too well, the bulk of day-to-day responsibilities for the reprodu ction of labor at home fall on wives, daughters, mothers, and sisters. This unpaid labor does not directly create surplus value, yet it is critical to workers’ abilities to produce surplus, and therefore necessary to main taining the profitabili ty of the system. And so it is no coincidence that sexist ideologies that relegate women to second-class citizens emphasize women’ s nurturing capacity, which make us “naturally suited” to prioritizing husbands and children over our own lives.86 One of the leading theoreticians of social reproduction theory, Lise Vogel, situated the theory within Marx’s concept of “consumption”— within which he distinguish ed between a laborer ’s pr oductive consumption and individual consumption . “Productive consumption” Marx defined as the process by which workers “consume” the means of production while on the job, not by eating the machinery of cou rse, but by activ ating it. “Individual consumption” compromises the daily functions—eating, having clean clothes to wear , and so on—of reproducing our ability to live and go back to work the following day. Marx ar gued: The worker ’s productive consumption and his individual consumption are therefore totally distinct. In the former , he acts as the motive power of capital, and belongs to the capitalist. In the latter , he belongs to himself, and performs his necessary vital functions outside the production process. The result of the first kind of consumption is that the capitalist continues to live, of the second, that the worker himself continues to live. 29 Vogel added the element of domestic labor to understanding individual consumption. Marx wrote that with individual consumption, “the worker uses the money paid to him for his labor -power to buy the means of subsistence.” 30 But, Vogel argued, “he said little about the actual work involved in individ ual consumption. Here was a realm of economic activity essential to capitalist production yet missing from Marx’s exposition.” 31 In fact, without this labor, individual consumption could not take place. As capitalism has increasingly come to rely on women’ s ability to work outside the home, and to make up a low-wage sector of the workforce, the necessities provided by domestic labor have become strained. All the more so since those elements of social reproduction that do take place outside the home—public education, pensions and retirement for the elderly , pu blic transportation—have come under systematic attack over the last several decades. In part this tension has been mitigated by the increasing use of things like laundromats, microwaves, and frozen foods, which reduce the amount of time necessary for domestic labor. But in the main, the contradictory needs of capital to dep end on women’ s labor both inside and outside the home has been “solved” through the ruthless intensification of the double-87 burden faced by women. More paid and unpaid labor is expected of women, outside and inside the home. So the same woman who is being forced to spend extra hours at work as a teacher also faces increasing pressures as a mom when childcare costs rise out of reach. DIV ERG IN G RA TES O F E X PL O IT A TIO N We simplified the cost of labor -power above to an arbitrary $120 per day in order to distill the basic mechanism of this special commodity . In reality , the cost of the subsistence and reproduction of workers is both socially and historically determined. It refle cts the changing cost of producing food or acquiring skills; as well as differences—based, for instance, on the balance of class forces—in what is dee med a socially acceptable requirement for subsistence. For both of these reasons, the cost of labor differs, too, between countries or regions with disparate levels of productivity and histories of class struggle. This is why US-based companies chase cheaper wages to other countries like China or Mexico, or to the closer distance of the “right- to-work” states within the US. 32 The cost of labor also reflects the injustice of oppression. As of 2019, women in the United States were still paid 79 cents to a man’ s dollar . 33 (Or in the case of the country’ s most talented and famous soccer team, the United States women’ s national soccer team earns 38 cents to their male counter – parts, despite generating greater revenue. 34 ) Bla ck men are paid 70 cents and Black women 61 cents in comp arison to their white counterparts. 35 Latina women earn 53 cents to a white man’s dollar . 36 Increas ed educ ation does little to change this ratio for women or people of color . 37 Blacks, Latinxs, and wom en at all education levels earn less than white men. Women of color occupy the bottom of the totem pole. American capitalism relies upon women and people of color to populate permanent, low-wage sectors of the labor force. 38 The disparities in racial and gender wage gaps point to the fact that “socially determined” is not only dependent on public perception of what is acceptable, but is also based on historic and systemic institutions of oppression. People of color , for example, have less inherited familial wealth on average to draw from, and therefore disproportionately suffer from the accumulation of considerable amounts of debt in order to go to college or earn an advanced degree. Combined with the reality of severely underfunded, under-resourced, segregated public schools, this ensures that88 they never enter a level playing field. Then come long-documented discriminatory practices, which ensure that they are the last to get hired and the first to be fired, contributing to higher rates of unemploymen t and a more desperate workforce, forced to accept lower wages for equal work. Capitalism also depends on the superexploitation of immigr ants—and particularly those who are not protected by legal documentation. Disenfranchised and disempowered by the threat of deportation, undocumented workers are subject to draconian conditions and wages, and fired if they protest or attempt to unionize. As author Justin Akers Chacón has written, the criminalization of immigration has been “used widely by employers to structure lower-wage tiers within and across whole industries, setting the low-wage standard of ‘immigrant labor’ by the early 1990s. The declining wage benchmarks for undocumented labor had the further effect of holding all wages down within those same industries.” 39 Inequality has long been built into the core fabric of the American business model. Pitting Black workers against white workers against immigrant workers has been a particularly potent, tried-and-true tactic of employers to drive down all wag es. But the cursory sketch laid out here does not even begin to discuss the very many oppressions—of people with disabilities, of gay people, of transgender people, of Native peoples, of elders, and more—that play an integral role in upholding the profitability of US capitalism. In fact, any place where bosses can hold down the wages of one section of the workforce not only ensures a cheaper labor pool among the oppressed demographic, but also, in the words of abolitionist Frederick Douglass, divides both in order to conquer each, so that everyone’ s wages are pushed down. Lastly , the value of labor will also vary among industries and skills. One reason is the cost of education and training required for different jobs, and another is the expectation of how stable of a workforce bosses are looking to buy. Fast food workers, home health aides, farm workers, and other low- wage workers are consistently paid wages far short of the cost of living (and therefore their true value). The capitalists bank on getting away with it because they expect, in fact depend on, a high turnover rate and unemployment rate, which will ensure that those positions will fill easily . Bosses see low-wage workers as quickly replaceable commodities, bought and employed as easily as one would buy other cheap “inputs.” Meanwhile, higher paid workers don’t suf fer the crushing weight of poverty , but this does not mean that they are not exploited. In fact, they often face even greater rates of exploitation if the value of the goods that they produce are significantly higher. A Boeing engineer may earn over a hundred thousand dollars a year , but she contributes to products that sell for millions89 or billions of dollars. 40 More importantly , varying rates of exploitation make up an integrated web of labor . The extraction of value does not happen on a case-bycase basis, but is a collective process. Google’s high-paid programmers work in buildings cleaned by low-paid janitors. The one’ s work is, in fact, dependent on the other ’s, and therefore so is the extraction of its value. TH E W ORK IN G-CL ASS M AJO RIT Y Across these experiences, workers collectively make up a cla ss of people exploited to create surplus value for the bosses. 41 A very basic definition of classes as they exist in capitalist society begins with this premise. Workers have to sell our ability to work, and capitalists buy and command our labor – power . Y ou can’ t understand either the worker ’s or the boss’ s class position without understa nding that the whole of the system is one in which labor is set to work on means of production, in order to produce a profit for someone else. Class, in other words, is a relationship of exploitation. This understand ing of class as a social relationship is complete ly absent in mainstream analysis. If class is discussed at all in the main stream, it is considered in terms of wealth and social stratification. Income levels, education, lifestyles, and pattern s of consumption are used to divide people into a society that is mostly middle class, with some rich and poor people around the fring es. Indeed, in most accounts, the majority of us are middle class, and there is no working class at all. We are reminded of this fact at least every two to four years in election seasons, when politicians appeal to the “struggling middle class,” a category that apparently includes all “good Americans,” or as former president Bill Clinton said, people who “work hard and play by the rules.” 42 Bernie Sanders’ s presidential campaigns have been so notable precisely because he uttered the words “working class.” An explanation of classes based on levels of wealth also has a more progressive version, as populari zed by the Occupy Wall Street movement in 2011. The slogan “we are the 99%” caught on like wildfire as activists identified the top 1 percent of the country’ s economic elite, which owns about 40 percen t of the nation’ s wealth, as culpable for creating the financial meltdown of 2008 and the Great Recession that followed. While this analysis is a subs tantial leap forward from that which assumes that we are nearly all middle class, it still assumes that the quantity of wealth is the determinant of class positions. Class and wealt h surely have everything to do with each other, but they are not the same thing. A stable , well-paid job (to the extent that these still90 exist) such as a train conduct or in New York City may pay upward of $70,000 a year , and a small bodega owner in the Bronx may earn much less. But the former is a worker—who does not control her own hours and conditions of work, and the latte r is a small business owner, char ged with his own exploitatio n, as well as that of others (even if few in number). The numbers on someone’ s paychec k can’ t tell you everything. It can’ t tell you, for instance, that a manager at Starbucks, who makes less than a subway conductor , has the power to fire every worker in the store. We can see then that wealth is just one part of the picture, and one that is more symptomatic of class inequality than explanatory of its origin. In fact, power , control over working conditions, and financial decision-making are the bedrocks of exploitation. Economics Professor Michael Zweig explained it this way: “By looking only at income or lifestyle, we see the results of class, but not the origins of class. We see how we are different in our possessions, but not how we are related and conn ected, and made different, in the process of making what we possess.” 43 [em phasis added] The Marxist explanation instead emphasiz es that one’s position in society is not measured quantitatively , but is determined by a person’ s relati onship to labor , the fruits of labor , and the means of production. Anyone who controls the means of production, has political power, dictates the terms of other ’s working conditions, or owns capital that can be invested in production, is part of the CAPIT ALIST CLASS . A nd anyone who must sell their labor -power for a wage and has no access to the means of produc tion themselves is part of the WORKING CLASS . This does not just extend to workers engaged in production of physical goods. Teachers and nurses must sell their labor in order to prov ide services, and thus are part of the working class. 44 As Marx argued: “If we may take an example from outside the sphere of material production, a schoo l-master is a productive worker when, in add ition to belaboring the heads of his pupils, he works himself into the ground to enrich the owner of the school. That the latter has laid out his capital in a teaching factory, instead of a sausage factory , makes no dif ference to the relation.” 45 It is in this sense that Marx and Engels wrote that the “prol etarian is without property.” PROLET ARIANS is ano ther word for workers; and private property does not mean personal belongings, like your TV or laptop, but the means of production—the buildings, machinery , software, equipment, tools, and other materials owned by capitalists. Marx wasn’t saying that workers literally have nothing, although that is often and increasingly true. He meant that we are without any means to produce and reproduce our91 livelihoods, and therefore we are at the mercy of capitalist exploitation. A construction company has mechanical shovels, drills, and dozers, which allow them to exploit laborers and turn a profit. I have a shovel, which I can use to grow flowers or tomatoes. Historian Geof frey de Ste. Croix put it this way: [Class] is the collective social expression of the fact of exploitation, the way in which exploitation is embodied in a social structure… Class is essentially a relationship —just as capital , another of Marx’ s basic concepts, is specifically described by him… as “a relation,” “a social relation of production,” and so forth. And a class (a particular c lass) is a group of persons in a commun ity identified by their position in the whole system of social production, defined above all according to their relationship (primarily in terms of the degree of control ) to the conditions of production (that is to say , to the means and labor of production) and to other classes. 46 Using this defin ition, we see that wealth and poverty do not determine class, rather they are manifestations of it. The bosses are thus not defined by the degree of their extravagance. At the same time, society’ s poor do not represent an “underclass” who, due to lack of employment or wealth, stand outside of society . Poverty is an integral par t of the experience of the working class, and unemployment is just a stone’ s throw away for most workers. Almost half the US population would not be able to pay their bills if they missed one paycheck, and one in four people report foregoing health care treatment because they could not afford it. 47 A quart er of the population have jobs that are defined as low-wage. 48 Ad d to this bleak picture the mountains of student debt carrie d by tens of millions of people and a rising cost of living, and it becomes very clear just how intrinsic poverty is to the fabric of American society . Capitalism requir es that there be some level of unemployment at all times, or as Marx termed it, a RESER VE ARMY OF LABORERS . The bosses depend on this reserve army of laborers to ensure that there is always someone else willing to take your job, and can thus discipline the paid workforce into acquiescing to the terms set by employers. High levels of unemployment are certainly a cruel feature of every downturn in the economy , but even when “times are good,” unemployment is still a painful reality for millions. What mainstream economists consider “full employment” is in fact about 5 percent unemployment. The introduction of new machinery , a growing labor force due to demographic or migration92 changes, regular changes in the structure of the economy (what is and isn’t produced, and where), can all contribute to unemployment during the “best” of times. This understanding of society yields a much different picture than the popularized version of the Unit ed States as a “middle class country .” To be sure, there is a middle class. They do not just live in a glossy alternate universe on television screens. The MIDDLE CLASS is a lay er of society that stands between the working class and the ruling class. It includes small business owners, as well as middle managers, supervisors, and professional occupations that have a fair amount of autonomy within the system (such as doctors and lawyers). They are often the daily face of exploitation. You see your manager every day at work . He may reward your work with a raise, or reprimand you for being late, but you will rarely encounter the CEO who profits from this arrangement. Still, this middle class is much smaller than usually assumed, and many of those traditionally deemed “professionals” are being shoved into the working class (or “proletarianizing”) as computer programmers become routine code writers punching timecards, social workers with enormous caseloads spend their days filling out forms, and academic professorial jobs increasingly give way to adjunct positions. 49 W ithin many middle-class job classifications as well, the differences between the kind of conditions faced by professors at elite colleges versus those at public universities, or doctors with private practices contrasted to those working in emer gency rooms, lead to very different levels of cont rol at the workplace. “The bourgeoisie has stripped of its halo every occupation hitherto honored and looke d up to with reverent awe,” wrote Marx and Engels. “It has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage laborers.” 50 Michael Zweig and labor journalist Kim Moody have both estimated that the working class makes up about 63 percent of the US labor force. The corporate elite makes up 2 percent, and in between, the middle class makes up 35 percent. 51 Further , if you include broader society beyond the accounted-for labor force (family members not working, elderly people, people permanently unemployed because of disabilities, etc.), the numbers reflecting the working class would be even higher . As Moody ar gued: “If working-class people in employ ment make up just under two-thirds of the workforce, those in the class amount to at least three-quarters of the population—the overwhelming majority. As teachers, nurses, and other professionals are pushed down into the working class, the majority grows even lar ger.” 52 Thi s highlights a broader point: classes are fluid and plenty of93 gray area exists between them. These numbers only offer a general guide to emphasize the broader trend toward increasing polarization. As Marx and Engels wrote in the Communist Manifesto ove r 150 years ago (at a time , incidentally , when the working class was a clear minority of the world’ s population): “Society as a whole is more and more splitting up into two great hostile camps, into two great classes directly facing each other: bourgeoisie and proletariat.” 53 Lastly , one belo ngs to a class regardless of whether one belie ves in the notion or identifies with the interests of that class. Whether Democrats tell you that you are part of the middle class they are trying to save or Donald Trump promises tax breaks to the “for gotten middle class,” and whether you believe any of them, have little to do with whether you still have to wake up to go to work tomorrow morning, follow someone else’s instructions for what to do, and return home with little more than a meager paycheck and a backache. Class position is therefore determined by material reality rather than ideology . At the same time, the structure of the working class does then lend itself to the development of class-consciousness. In that sense, we can identify a secondary definition of the working class on the basis of its consciousness and activity . Along these lines, Marx distinguished between the working class as a “class in itself ”: defined by a common relationship to the means of pro duction; and a “class for itse lf ”: or ganiz ed in active pursuit of its own interests. As Ste. Croix explained: The individuals constituting a given class may or may not be wholly or partly conscious of their own identity and commo n interests as a class, and they may or may not feel antagonis m towards members of other classes as such. Class conflict (class struggle, Klassenkampf ) is essentially the fundamental relationship between classes, involving exploitation and resistance to it, but not necessarily either class consciousness or collective activity in common, political or otherwise, although these features are likely to supervene when a class has reached a certain stage of development and become what Marx once (using a Hegelian idiom) called “a class for itself .” 54 TH E W ORK IN G D AY The opposing class positions—and therefore interests—of workers and bosses pits these classes against each other. Bosses try to squeeze more94 profits out of workers; the working class is always trying in some way to relieve the intensity of exploitation and oppression. As Marx argued, the history of capitalism is, at its heart, the history of class struggle: “carried on an uninterrupted , now hidden, now open fight.” It isn’ t alw ays a clear conflict, like a strike or a protest, and it is never an evenly two-sided fight, but it is an ongoing struggle nonetheless. The battle between capitalist and worker over the terms of exploitation has historically been centered on the terms of the working day, to determine how much surpl us value bosses are able to extract from their employees. If we start with a baseline scenario in which a worker delivers four hours of necessary labor (to replace her own wages) and four hours of surplus labor (to go to the capitalist’ s profits), the rate of exploitation is 100 percent. Capitalists will attempt to impose faster, more intensive working conditions or lower the value of labor -power in order to extract more surplus labor and a greater profit. This is not driven by an individu al capitalist’ s cruelty , or a Mr . Burns-like maniacal cackle. 55 T o surv ive and thrive in a com petitive market, business owners can get an edge over the competition by raising the rate of exploitation and lowering the cost per unit of their goods. And so the structure of capitalism typically rewards the Mr. Burnses of the world, and puts out of business any bosses who attempt fairness, equity, and job safety . 56 There are two main roads to increase the rate of exploitation. One is raising the ABSOLUTE SURPLUS VALUE : how much total surplus value is created during the day. The other is increasing RELA TIVE SURPLUS VALUE : alte ring the ratio of value produc ed during the course of the day so that less of it goes toward the reproduction of labor -power (paid out in wages) and more of it goes over to the capitalist in the form of surplus value. To increase absolute surplus value, capitalists lengthen the working day without paying any additional wages. By doing this—forcing workers to toil for two, three, or four additi onal hours—the capitalist will accumulate additional surplus labor. If the working day is lengthened from eight hours to twelve hours with no additional pay , the rate of exploitation will change from 4 hours / 4 hours = 100 percent, to 8 hours / 4 hours = 200 percent. 57 In Marx’ s day , the battle over whether workers would be forced to work twelve-hour days or ten-hour days raged on over decades. Today , working ten or twelve hours is still very much a reality for many working-class people—from restaurant workers, to unregulated sweatshops in the garment industry , to Apple’ s infamous Foxconn factories. Salaried “middle class”95 jobs in IT and other office workers regularly work ten- and twel ve-hour days without extra compensation. Even seemingly “secure” jobs with union protections are vulnerable to unpaid increases in the working day. Lengthening the school day without compensating teachers is a common example. Of course it’s als o completely “normal” for teachers to spend countless hours of unpaid work as it is, grading homework and preparing lesson plans. Just as it is for homecare nurses to spend many unpaid hours filling out reports. On the whole, US workers labor for a month longer per year than our European counterparts. This has been one of the prevailing strategies of American capitalism to increase profitability since the 1970s. FIG URE 4 . A BSO LU TE S U RPL U S V A LU E Of course there are human limits to the level to which people can be driven to work. There are, unfortunately for the bosses, a finite number of hours in a day . And the human body can cope with only so much work before it collapses. Indeed, many of the nineteenth-century regulations on the length of the working day stemm ed from the fact that the damage done to the working class was so severe as to undermine a suf ficient labor pool from which businesses could hire. Marx noted that the British ruling class set limits on the working day and took measures to strengthen the working-class families in order to prevent future generations of laborers from literally being worked to death before they came of age. Bosses gave male workers a “family wage” just high enough to provide for their families.96 Most importantl y, labor , unlike machinery and other production inputs, is made up of thinking, toiling humans who can organize to fight back against their own ruination. Workers’ resistance, as Marx put it, is “that obstinate yet elastic natural barrier” to capital. 58 Th us bosses must rely on a second strategy of increasing relative surplus value: that is to change the ratio of who gets what from the fruits of the working day. In this case, the length of the working day doesn’ t chang e, but how much surplus value is produced does. “The prolongati on of the working day beyond the point at which the worker would have produced an exact equivalent of that surplus labor by capital—this is the process which constitutes the production of the absolute surplus-value,” wrote Marx. “For the production of relative surplus-value,” he continued, “the necessary labor is shortened by methods of producing the equivalent of the wage of labor in a shorter time.” 59 In other words, the ratio of nec essary labor to surplus labor changes in favor of the bosses, because the amount of labor -time that is necessary for a worker to reproduce her wage will be reduced. If the workers’ wages can be reproduced in three hour’s time , rather than four hour’s, the rate of surplus value will jump from 100 percen t (four hours of surplus labor / four hours of necessary labor) to 166 percent (five hours of surplus labor / three hours of necessary labor). FIG URE 5 . R ELA TIV E S U RPL U S V A LU E97 We can see roughly four ways to increase relative surplus value: First, increasing the intensification of labor—that is forcing workers to deliver more value in the same amount of time than they had previously . Marx described this process as a “con densation of labor ,” or a “closer filling up of the pores of the working day,” 60 more commonly referred to today as speedups and attrition of workers, so that fewer bodies do the work that more employees used to do. As Marx explained: “This compression of a greater mass of labor into a given period now counts for what it really is, namely an increase in the quantity of labor .” 61 In the United States, older workers in the auto industry can remember a time when workers would “work up the line” by moving faster than the belt, and would wind up with some downtime during their shift. Now the belts move at the fastest rate possible so there is no downtime possible. Motions are timed and regulated such that they are in motion fifty-seven seconds in every minute (compare this to forty-five seconds per minute on a traditional Fordist assembly line). The result, explained political science professor Tony Smith, “is an equivalent to hiring an extra 333 workers to work a forty-hour week.” 62 This process of intensifying labor was first turned into a science by Frederick Taylor in the late nineteenth century and dubbed “Taylorism” (see sidebar: “A ‘Scientific’ Obsession”). Since then, the twenty-first century version of the same is often referred to as “lean production”: speedups, de-skilling, use of temporary and contract workers, greater management flexibility on hours and tasks, etc. These processes have resulted in “the greatest work intensification in US history ,” according to Kim Moody , “far surpassing the now quaint norms of Taylorism.” 63 Her e we see that the value of labor -power (paid out in wages) remains the same, but the time that it takes to reproduce it is lessened. So if you are paid $120 per day, you r wage would stay the same, but instead of making $120 worth of value for your boss in four hours, you would make it in, say , three and a half. Alternatively , a second means of increasing relative surplus value is lowering the value of labor -pow er—let’ s say from $120 to $90 a day . In this case, workers employed at the same level of intensity could reproduce this value in three, rather than four hours. This happens if technology in other industries producing necessities like food and clothing create cheaper commodities for workers, and wages are reduced accordingly . For instance, a 75 percent drop in the cost of buying food and other requirements, could lead to wages being cut by 75 percent as well. These costs can also be lessened by reducing the worth and quality of the things that workers need. Thus household items bought from discount stores, cheap shoes, and fast-food98 dinners increasingly make up what is considered an “acceptable” standard of living. This is not necessarily a deliberate strategy on the part of the capitalist class, but a convenient by-product of competition. As Marx explained: “When an individual capitalist cheapens shirts, for instance, by increasing the productivity of labor , he by no means necessarily aims to reduce the value of labor -power and shorte n necessary labor-time in proportion to this. But he contribu tes toward increasing the general rate of surplus-value only insofar as he ultimately contributes to this result.” 64 A third means of increasing relative surplus value is the de-s killing of jobs, lowering the amount of education or training necessary , and therefore the value of the labor -power . Co nsider , for instance, the trend to have home health aides, who have minimal training requirements and are usually paid $7–10 per hour , administer medications, which used to be sole ly the job of highly trained and well-paid nurses. Or, there are jobs that have become so automated that an afternoon’ s worth of training is sufficient for their execution. These de-skilled jobs correspond to vastly lower wages, which have the same impact as reducing the pay of current employees. In fact, a division of labor in the workplace is key to creating ef ficiency in production, and is also critical to the process of de-skilling and cheapening labor . Charles Babbage, the Eng lish mathematician and zealous advocate for a strict division of labor , wrote On the Economy of Machinery and Manufactures in 1832. In it, Babbage argued that by dividing crafts into their simplest component parts, each can be devalued to its lowest possible point. Writing about the meatpacking industry , Babbage explained: It would be difficult to find another industry where division of labor has been so ingeniously and microscopically worked out. The animal has been surveyed and laid off like a map; and the men have been classified in over thirty specialties and twenty rates of pay , from 16 cents to 50 cents an hour . The 50-cent man is restric ted to using the knife on the most delicate parts of the hide (floorman) or to using the ax in splitting the backbon e (splitter); and wherever a less-sk illed man can be slipped in at 18 cents, 18½ cents , 20 cents, 21 cents, 22½ cents, 24 cents, 25 cen ts and so on, a plac e is made for him and an occupation mapped out. In working on the hide alone there are nine positions, at eig ht different rates of pay . A 20-cent man pulls off the tail, a 22 ½- cent man pounds off another part where good leather is not foun d,99 and the knife of the 40-cent man cuts a dif ferent texture and has a different “feel” from that of the 50-cent man. 65 A final means to increase relative value is to drive wages down below the value of labor -power . In the current age of austerity , the common scenario is that the cost of living (not just food and clothing, but also housing, transportation, and health care) increases, while compensat ion (usually through cuts to health care and other benefits) is still reduced, forcing wages below t he actu al value of labor -power . The higher the rate of unemployment, the easie r it is to push a desperate workforce to accept wages below the cost of living. More often than not, increasing household debt makes up the difference. While recessions are frequently the excuse to drive down living standards, wages don’t usually bounce back once bosses start making record profits again. Each of these routes to increasing surplus value—lengthening the working day, lowering the value of labor -power , lowering the wages paid, and increasing the intensificatio n of labor—yields gains to capit alists. And if they push on multiple fronts at the same time, they can dramatically increase the rate of exploitation. An addi tional point, which we will discuss in the next two chapters, is that in the short-term , bosses can also raise the rate of exploitation through increases in productivity , by introducing new laborsaving technologies. Using advanced machinery or tools, a single worker can churn out the same commodities in ten or twenty times the speed. Introducing new technologies thus allows capitalists to reduce the unit cost and undersell rivals—but still sell somewhat above value. But this competitive advantage is wiped out when others introduce the same technology . It will have only a temporary effect on profitability , unless , as we noted above, the increases in productivity are in industries that cheapen the goods needed for workers’ subsistence, and therefore lower the cost of labor -power in society as a whole. Marx ar gued: New machinery produces relative surplus value, when it is first introduced into an industry not only by directly depreciating the value of labor -power , and by indirectly cheapening the same through cheapening the commodities that enter into its reproduction, thus enabling the capitalist to replace the value of a day’ s labor -power by a smaller portion of the value of a day’ s product. During this transitional period, while the use of machinery remains a sort of monopoly , profits are exceptional, and the capitalist endeavors to exploit thoroughly “the sunny time100 of this his first love” by prolonging the working day as far as possible. The magnitude of the profit gives him an insatiab le hunger for yet more profit. 66 The sunny time of his first love will quickly give way to increasing competition when other capitalists adopt the same means, thus returning to the forefront, yet again, the need to extort more labor from the workers themselves. CO NCL USIO N Surplus-labor is not an invention of capitalism. As Marx argued: “Wherever a part of society possesses the monopoly of the means of production, the worker, free or unfree, must add to the labor -time necessary for his own maintenance an extra quantity of labor -time in order to produce the means of subsistence for the owner of the means of production, whether this proprietor be an Athenian [aristocrat], an Etruscan theocrat, a civis romanus , a Norman Baron, an American slave-owner , a Wallachian boyar , a modern landlord or a capitalist.” 67 Previous class societies, too, were predicated on exploitation—the appropriation of a part of the wealth of those who work by a ruling class. A serf, for example , would be required to work for a certain number of days on the lord’ s land. In this way, the extraction of surplus labor was quite explicit. Modern-day exploitation, however, is disguised by the appearance of a fair deal. It seems that workers are paid a fair day’ s wage for a fair day’ s work, as the saying goes. But we are not paid for our work, we are paid for our labor – power , and therein lies the rub. What distingui shes capitalism is the particular (and particularly deceptive!) form in which surplus labor is extracted: the gap between the labor-power ’s ex change-value, paid out in wages, and the value of the labor that is delivered back to the capitalist. This exploitation of labor by capital is the propellant of class society . It is not newly reinvented each time a worker applies for a job, but is a product of historically ingrained class positions, which continuously repeat and renew themselves. As Marx wrote: It is no longer a mere accident that capitalist and worker confront each other in the market as buy er and seller . It is the alternating rhythm of the process itself which throws the worker back onto the market again and again as a seller of his labor -power and continually transforms his own product into a means by which101 another man can purchase him. In reality , the worker belongs to capital before he has sold himse lf to the capitalist. His economic bondage is at once mediated through, and concealed by, the periodic renewal of the act by which he sells himself, his change of masters, and the oscillations in the market-price of his labor . 68 We’ve gotten a glimpse of what this economic bondage means for the working class. In the next chapt er we’ll see that capitalists, too, in their own opulent ways, are bound to the economic laws of the system—ones that they clearly benefit from tremendously , but which bind them to a certain modus operandi nonetheless. A “ S C IEN TIFIC ” O BS ESSIO N The compulsion to increase the intensity of labor ratcheted up to an obsession in the 1890s with the methods of “scientific management.” Frederick Taylor developed the ideas of industrial efficiency first as a manager at Midvale Steel Work s and later at Bethlehem Steel. Every task was studied, broken down into individual components, and timed in order to deter mine the minimal intervals required to accomplish each. The timing and methods of wor k could then be standardized—whether that be through speeding up the conveyor belt in an auto plant or using keystroke counters to mechanize of fice jobs. Scientific management is base d on a severe alienation of labor , which assumes that the greatest and most specific level of supervision will yield maximum productivit y. So long as workers have any control over the labor process, goes the argument, they will try to thwart their full productive potential. According to Taylor , managers should specify “not only what is to be done but how it is to be done and the exact time allowed for doing it.” 69 Taylor wrote at length about his own experience as a manag er at Bethlehem Steel. While studyin g the physics of loading pig iron, he discovered that a pig iron handler ought to handle between 47 and 48 tons per day , but in fact they averaged 12½. To resolve this situation, he set upon buying of f the most fit workers and training them to follow second-by-second instruction in order to produce optimal efficiency . These workers were then set as examples and their work-speed imposed as the standard on the shop floor .102 Taylor outlined the process by which this was accomplished in his book, The Principles of Scientific Management . Fir st they picked out a man who seemed physically capable and who they assumed could be sufficiently convinced to work harder by the promise of a raise: “a little Pennsylvania Dutchman who had been observed to trot back home for a mile or so after his work in the evening about as fresh as he was when he came trotting down to work in the morning.” 70 (Im agine the nerve, leaving work still feeling fresh!) Taylor recounted a very patronizing conversation with the man he called “Shmidt,” which ended in the following lecture: Well, if you are a high-priced man, you will do exactly as this man tells you tomorrow , from morning till night. When he tells you to pick up a pig and walk, you pick it up and you walk, and when he tells you to sit down and rest, you sit down. You do that right straight through the day. And what’ s more, no back talk. Now a high-priced man does just what he’s told to do, and no back talk. Do you understand that? When this man tells you to wa lk, you walk; when he tells you to sit down, you sit down, and you don’t talk back at him. Now you come on to work here tomorrow morning and I’ll know before night whether you are really a high-priced man or not. 71 For the reward of being judged a “high-priced man,” Shmidt and eventually others were paid $1.85 a day instead of $1.15, an increase of 60 percent in their wage. In exchange, the workers each loaded 47.5 tons of pig iron on average instead of 12.5, an increase in productivity of 280 percent. Not a bad deal for the bosses. Taylor justified his astonishing condescension toward the workers by explaining that they were too “mentally sluggish” to understand how to efficiently do the work themselves: Now one of the very first requir ements for a man who is fit to handle pig iron as a regular occupation is that he shall be so stupid and so phlegmatic that he more nearly resembles in his men tal make-up the ox than any other type. The man who is mentally alert and intell igent is for this very reason entirely unsuited to what would, for him, be the grinding monotony of work of this character . Therefore the workman103 who is best suited to handling pig iron is unable to understand the real science of doing this class of work. 72 But the real implication of Taylorism is not that workers are too “mentally sluggish” to efficiently work themselves to the bone. Quite the opposite, their own interest would lead them to work as little as possible in order to preserve their health and well-being. This very intelligent sense of self-preservation is in fact the reason that workers need to be supervised to the second. Indeed, more often than not, management observes their employees only to discover that the workers have found ways to shorten the labor -time it takes to perform various functions. They do this in order to have more downtime for themselves, but managers take that knowled ge in order to enforce speedups and to steal more surplus labor -time. Capitalism uses our ingenuity to further immiserate us. Socialism would use every advance to make more time for humans to rest, play, and thriv e. This is why Russian Revolutionary Leon Trotsky was onto something when he lauded human laziness as a quality necessary for human progress: As a general rule, man strives to avoid labor. Love for work is not at all an inborn characteristic: it is created by economic pressure and social education. One may even say that man is a fairly lazy animal. It is on this quality , in reality , that is founded to a considerable extent all human progress; because if man did not strive to expend his ener gy economically , did not seek to receive the largest possible quantity of products in return for a small quantity of ener gy, there would have been no technical development or social culture. It would appear, then, from this point of view that human laziness is a progressive force. Old Antonio Labriola, the Italian Marxist, even used to picture the man of the future as a “happy and lazy genius.” 73104
Instructions Write a 5-7 page paper (double spaced, 12 point font, standard margins) on one of the following topics. Your title page and bibliography (and any other pages that are not writing) do not
WINNER OF THE PAUL A. BARAN – PAUL M. SWEEZYMEMORIAL AWARD Established in 2014, this award honors the contributions of the founders of the Monthly Review tradition: Paul M. Sweezy, Paul A. Baran, and Harry Magdoff. It supports the publication in English of distinguished monographs focused on the political economy of imperialism. It also applies to writings previously unpublished in English, and includes translations of new work first published in languages other than English. Please visit monthlyreview.org for complete details of the award. PAST RECIPIENTS Imperialism in the Twenty-first Century: Globalization, Super-Exploitation, and Capitalism’s Final Crisis John Smith The Age of Monopoly Capital: Selected Correspondence of Paul A. Baran and Paul M. Sweezy, 1949–1964 Edited and annotated by Nicholas Baran and John Bellamy Foster Value Chains: The New Economic Imperialism Intan Suwandi Copyright © 2021 by Utsa Patnaik and Prabhat Patnaik Published by Monthly Review Press All Rights Reserved Library of Congress Cataloging-in-Publication Data available from the publisher ISBN paper: 978-158367-890-9 ISBN cloth: 978-1-58367-891-6 Typeset in Bulmer Monotype MONTHLY REVIEW PRESS, NEW YORK monthlyreview.org 5 4 3 2 1 Contents Preface | 7 PART 1 1 A Money-Using Economy | 11 2 Money in Some Theoretical Traditions | 28 3 The Marxian System and Money | 40 4. Capitalism and Its Setting | 54 5 Increasing Supply Price and Imperialism | 68 PART 2 6 Periods in Capitalism | 85 7 The Myth of the Agricultural Revolution | 101 8 Capitalism and Colonialism | 115 9 Colonialism before the First World War | 128 10 Further on Colonial Transfers and Their Implications | 151 PART 3 11 The Unraveling of the Colonial Arrangement | 173 12 A Perspective on the Great Depression | 186 13 Public Policy and the Great Famine in Bengal, 1943–44 | 200 PART 4 14 Postwar Dirigisme and Its Contradictions | 221 15 The Long Postwar Boom | 236 16 The End of Postwar Dirigisme | 249 PART 5 17 The Neoliberal Regime | 267 18 Inequality and Ex Ante Overproduction | 284 19 Capitalism at an Impasse | 298 PART 6 20 Capitalism in History | 315 21 The Road Ahead | 329 Notes | 341 Index | 363 For Akeel Bilgrami and C. P.Chandrasekhar part 4 Postwar Dirigisme and Its Contradictions C apitalism emerged from the war facing a serious threat to its sur- vival. The socialist bloc had expanded greatly through the Red Army’s march across Eastern Europe; and though the left lost the Greek civil war, partly no doubt as a consequence of the Yalta agree – ment that prevented adequate Soviet support for the revolution, a “Soviet threat” nonetheless loomed large over Western Europe, where in any case the Soviet Union enjoyed much goodwill because of its epic strug – gle against Nazi Germany. The working class in Western Europe, which had made enormous sacrifices during the war, was determined not to go back to the prewar years of Depression and unemployment. An expres – sion of this determination was the defeat of the Winston Churchill–led Conservative Party in the postwar British elections. It was also clear that the old imperialist powers of Europe could no longer hold on to their colonial possessions in the face of the postwar upsurge of national liberation struggles. Many of these struggles were led by the Communists, but whether they were or not, they almost invariably enjoyed the support of the Soviet Union. The Restructuring of Capitalism Capitalism’s response to this threat to its survival was twofold. One was to start the cold war against the Soviet Union; the other was to restructure CHAPTER 14 222 CAPITAL AND IMPERIALISM itself in several ways, as a means of rolling back the socialist challenge, by making concessions that it otherwise would have recoiled from. There were at least three major spheres where such concessions were made. The first concession was the institution of electoral democracy based on universal adult suffrage, which, even in France, the country of the classic bourgeois revolution, occurred only in 1945. Many believe these days that electoral democracy with universal adult suffrage is a “natural” accom – paniment of capitalism. This, however, is untrue; its realization occurred predominantly in the postwar years and only after long years of struggle. (Even in Britain, women had got the vote only in 1928, and still some property-based restrictions on suffrage had remained.) The second concession made by capitalism was political decoloniza – tion. In East and South East Asia where the United States had become the preeminent power after the defeat of Japan, it sought to place itself in the position occupied earlier by the old colonial powers and thereby prolong imperial occupation. But this policy, which had disastrous consequences in Korea and Vietnam, could not succeed; the process of political decol – onization could not be halted, though in many instances, such as West Africa, it still remains incomplete in crucial ways to this day, as French troops continue to remain stationed there. Yet more important and contentious than political decolonization was the process of economic decolonization, that is, former colonies’ acquir- ing control over their own natural resources, which metropolitan capital had seized during the colonial era. Economic decolonization was bitterly fought by the metropolitan powers, with coups against third world leaders, like Mossadegh in Iran and Arbenz in Guatemala, who dared to national – ize their country’s resources. There was a full-fledged invasion of Egypt by a joint Anglo-French force when Nasser nationalized the Suez Canal. The Soviet Union’s role was particularly important in making economic decolonization possible. Toward this end it helped to build up the public sector in many third world countries for developing and processing their natural resources, the control over which was snatched back from metro- politan capital. The third concession that capitalism had to make was the institution of state intervention in demand management, as had been advocated by PoSTwAR DIRIgISME AND ITS CoNTRADICTIoNS 223 Keynesianism. State intervention through monetary policy had always been there, as was the use of the fiscal instrument for stimulating demand by inducing capitalists to spend more. What Keynesianism had advocated, however, went further, namely the direct intervention by the state, through its own spending, to maintain aggregate demand close to full employment output. This got instituted in the postwar period. It may appear odd at first sight to call the maintenance of a high level of aggregate demand through state intervention in this manner, which keeps up employment, output and profits, a concession on the part of capital. It represents after all a “Pareto-improvement” compared to a state of large- scale involuntary unemployment, in the sense that nobody is worse off through such improvement, while some, if not all, are better off, which includes the profit-earners. Then why should capitalists object to such intervention in the first place? Even capitalists, in other words, benefit from an increase in state expen – diture that is meant to increase aggregate demand, by getting larger prof – its. If the increase in state expenditure is financed by a fiscal deficit, then the rise in profits caused by it is obvious. But even if the increase in state expenditure is financed entirely through taxes on profits, there need not be a fall in post-tax profits compared to the initial situation if the workers consume their entire income. In this case, moreover, since capacity utiliza – tion improves, so does private investment over time , and hence profits. Why, then, should capitalists object to state intervention in demand man – agement through fiscal means, that is, through enlarged state expenditure? The opposition of capitalists to state intervention through fiscal means for raising employment, certainly as long as unemployment remains greater than the “inflationary barrier,” appears at first sight to be inexplica – ble. And yet, there can be little doubt about the reality of such opposition, which has manifested itself time and again. There was the opposition to Lloyd George’s 1929 plan of fiscal-deficit-funded state-run public works for overcoming mass unemployment, which predated the “Keynesian Revolution.” And in the 1930s, when Roosevelt’s New Deal had started a recovery in the United States, it was soon abandoned under the pressure of financial interests precisely because of its success, plunging that country once again into a recession in 1937. 224 CAPITAL AND IMPERIALISM In chapter 12, we argued that this opposition is not of an economic but of an epistemic character. Direct state intervention in demand man- agement, which bypasses the capitalists, undermines the social legitimacy of the system. The capitalists’ class instinct therefore tells them to oppose such intervention, to project an intellectual position that helps to enforce an “epistemic closure,” where there is no scope for looking beyond the capitalists to generate a recovery. This way, there is no chink left for ques – tioning the social legitimacy of the system. In the immediate postwar period capitalism, faced with a threat to its survival, had little choice before it. It had to put up with Keynesian demand management through state expenditure, both in the United States and in Europe, because of which the postwar era saw capitalism achieve high rates of employment that were, over a comparable period of time, quite unprecedented in its entire history. Such state intervention in demand management required, to start with, an appropriate international monetary arrangement, one the Bretton Woods system provided. The Bretton Woods System The presumption behind state intervention in demand management was that the pursuit of private rationality by economic agents produced in the aggregate an outcome that was not only socially irrational but also inimical to private interests, which a situation of involuntary unemployment evi – dently was. The state was seen, therefore, not as an entity having some specific interest of its own and entering the fray to achieve it, but as the promoter of the social interest. It effected an intrusion of social rationality into a sphere characterized by the pervasive, and futile, pursuit of private rationality. An obvious necessary condition for this to happen was that the state must have the autonomy to pursue policies it considered appropriate. The state that is supposed to pursue such policies, however, happens to be a nation-state. For it to have such autonomy, not only must it not be a prisoner of finance capital, but it also should be able to pursue policies that are not necessarily to the liking of finance capital. For this it is neces- sary that cross-border flows of finance must be restricted, for, if finance is international and can move across national boundaries at will, then the PoSTwAR DIRIgISME AND ITS CoNTRADICTIoNS 225 nation-state’s writ cannot run against it, as it would simply quit the coun – try en masse, precipitating a crisis. Keynes, we saw earlier, had expressed this idea in an article in The Yale Review in 1933, even before The General Theory had been written, where he had said, “. . . above all, let finance be primarily national.” 1 The Bretton Woods system that was set up in 1944 gave expression to this idea. It was a regime where controls were imposed by the nation- states over cross-border capital flows, including above all the cross-border flows of finance, so that the state could intervene in demand management to push economies closer to full employment. But even if demand could be “managed” by the state, there still remained a problem relating to the balance of payments. Moving close to full employ – ment could still be thwarted by the emergence of a current account deficit on the balance of payments that was unsustainable. Of course, since the deficits of all countries taken together must add up to zero, if the surplus countries could expand their domestic demand, if not through an increase in domestic employment (for they are likely to be close to full employment anyway) then at least through an increase in domestic consumption at that given level of employment, then the deficit countries could automatically get rid of their deficits without having to curtail their domestic activity. The Bretton Woods arrangement, however, could not institute such adjustment on the part of surplus countries. The United States, then a surplus country, opposed any provision that would force adjustment upon surplus countries to get rid of their surpluses. Under the Bretton Woods system, therefore, it was only the deficit countries that were obliged to carry out adjustment. And they were allowed a whole range of instruments for this purpose, from exchange rate depreciations to tar – iffs and quantitative restrictions. Exchange rate depreciations, of course, would be of no avail if they were followed by retaliation by other coun- tries. To prevent such retaliation and hence to curtail the absolute rights of countries to undertake depreciations, the Bretton Woods system insisted that these could be effected only with the permission of the IMF. It was, in short, a fixed nominal exchange rate system with capital and trade controls (and hence a system of multiple effective exchange rates) where the nominal rate could be adjusted with the permission of 226 CAPITAL AND IMPERIALISM the IMF. And within this system, nation-states could undertake demand management measures. Though Keynes was no means the sole or even the principal author of this arrangement (the U.S. representative at Bretton Woods, Harry White, had a powerful role), an inkling of its theoretical underpinnings can be obtained from certain remarks of Keynes in The General Theory. Holding that a “competitive struggle for markets” as a cause of wars “probably played a predominant part in the nineteenth century,” he wrote that under the system of domestic laissez faire and an international gold standard, which prevailed, there were no means available to governments other than a competitive struggle to reduce domestic unemployment. Keynes, as we have seen, was factually wrong. The latter half of the nineteenth century was a period remarkably free of wars over markets (since Britain kept its markets open to its rivals and yet kept up its aggre- gate demand and managed to balance its payments through the control it exercised over its colonies). Indeed, between the Crimean War and the First World War, the only wars between European powers were over the German and Italian unifications, and these were not, primarily, struggles for markets. But what concerns us here is his theoretical position, namely that a regime of balanced budgets and fixed exchange rates leaves no scope for any internal mechanism for increasing employment. What the Bretton Woods system did was to negate both. Budgets did not have to be bal – anced, for which control over financial flows was necessary, and exchange rates became subject to adjustment. Contradictions of the Dirigiste Arrangement Colonialism had been ideal from the point of view of capitalism, because not only did the colonies provide a market via the replacement of local craft production, but also because the same act of destruction released raw mate – rials for capitalist use. The act of finding a market, in short, was simulta – neously an act of income deflation in the colonies through the destruction of local crafts (supplemented, of course, by income deflation through the “drain” effected by the taxation system). Inflationary pressures were thus kept at bay in the metropolis even while metropolitan capitalism got itself PoSTwAR DIRIgISME AND ITS CoNTRADICTIoNS 227 a market. The two requirements of capitalism, for finding markets and for imposing an income deflation in the outlying regions to ward off the threat of increasing supply price, were both achieved at one stroke. But when state expenditure creates a market, it does not thereby release any raw materials in the way that the market obtained through the destruc – tion of colonial crafts had done. The two moments, of finding a market and of obtaining supplies of raw materials, which are subject to increasing supply price, are now no longer woven into each other. If state expendi – ture provides the market, then it is necessary in some other way to impose income deflation on the third world raw material users, so that increasing supply price does not come into play, threatening the value of money in the metropolis. But within the postwar dirigiste arrangement, there was no such “other way,” which left the system perennially vulnerable to inflation. This vulnerability was quite distinct from the vulnerability to inflation arising from the high level of employment, which Joan Robinson’s “infla – tionary barrier” had emphasized and which actually went back to Marx’s proposition that the existence of a certain reserve army of labor was an essential condition for the viability of capitalism. Marx’s proposition has been usually interpreted to mean that if the reserve army fell below a certain relative size vis- à-vis the active army, then the trade unions would become strong enough to demand and obtain real wages relative to labor productivity, which would squeeze the rate of profit to levels that would threaten the survival of the system. (This is not the only reason for the existence of a reserve army according to Marx; the imposition of work-discipline, which capitalism achieves through coer – cion upon the workers, becomes impossible in the absence of a reserve army into whose ranks the workers from the active army can be pushed as punishment for “indiscipline.”) Marx’s argument actually related proximately to money-wage move- ments, but, since in his schema money-wage and real wage movements always went together, as he was talking about a commodity money system, the argument can be interpreted as referring to either. If we talk, however, of a paper money or credit money system, then a fall in the relative size of the reserve army of labor would raise money wages, exactly as Marx had argued, though instead of increasing real wages, higher money wages 228 CAPITAL AND IMPERIALISM would get “passed on” in the form of higher prices. Marx’s proposition about the system depending upon the existence of a minimum relative size of the reserve army of labor therefore has a wider validity beyond the com – modity-money world that he was specifically talking about, which Joan Robinson’s 1956 concept of an “inflationary barrier” brought out later. 2 But even if a reserve army of adequate size is maintained and there is stability in money wages, as the economy grows it would require larger and larger amounts of raw materials, a part of which has to come from the tropical landmass. Since the supply price of this part is increasing, it would jeopardize the value of money in the metropolis either directly or indirectly, via jeopardizing the value of money in the periphery, which would then control its exports to the metropolis. Even with given money wages all around, therefore, there would be a threat to the value of money. Because of this, the imposition of income deflation on input producers and input users in the periphery becomes necessary, even if the state through its expenditure provides adequate markets for the capitalist prod – ucts in the metropolis. The postwar dirigiste arrangement did not have any mechanism for imposing such income deflation. The Consequences of the Absence of Drain Deindustrialization had not been the only mechanism for income deflation in the periphery. The drain of surplus was also an important mechanism for achieving the same end, so that the value of money in the metropolis did not get undermined by the phenomenon of increasing supply price. Political decolonization, which brought the drain to an end, removed ipso facto a powerful instrument of income deflation. To be sure, other ways of surplus transfer from the periphery continued, such as through unequal exchange, 3 or through payment for intellectual property rights to metropolitan capital. However, the politically imposed transfers, such as through the colonial taxation system, came to an end, which regenerated the possibility of inflation and hence the threat to the value of money. There is yet an additional powerful implication of the elimination of the colonial drain. In the colonial period Britain, the leading capitalist coun- try, kept its own market open for the newly industrializing countries of PoSTwAR DIRIgISME AND ITS CoNTRADICTIoNS 229 that time. Had it not done so, the system of the gold standard would have been difficult to sustain because of the struggles for markets among the rival capitalist countries, and the world capitalist economy would have run into a crisis much earlier than it did. In fact, keeping its market open for encroachment by newly industrializing countries is an important hallmark of a world capitalist leader at all times. Britain, however, managed to avoid getting into any balance of payments problems because of the drain from the colonies. Suppose it did not have access to the drain, then it would have got into debt with countries run – ning a current account surplus vis-à-vis itself. The drain, in other words, prevented an outpouring of IOUs by Britain. In the post–Second World War period, since political decolonization forecloses the possibility of a drain, the leading capitalist country of this time, the United States, which had to keep its markets open to others as part of its leadership role, has increasingly gone into debt. (This “open – ness” was being revoked under Donald Trump, an issue we discuss later.) In the absence of the drain, in other words, the world has had to hold on to a continuous outpouring of IOUs by the United States, making it, paradoxically, the most indebted country in the world. The most powerful capitalist country in the world being the most highly indebted represents an unprecedented situation in the history of world capitalism. But this only reflects another unprecedented situation, namely that we have for the first time the leading capitalist country not having access (to a degree that covers its current account deficit on the balance of payments) to a drain of surplus from an empire. This has two obvious implications. The first is the fragility it lends to the global financial system. This is an obvious and much discussed point and need not be labored any further. The second is that the IOUs of the leading country provide the base for an enormous growth of a financial superstructure. While this growth in the financial superstructure has been a remarkable fact in the postwar period, and some have even coined a new term, “finan – cialization,” to describe it, what is often not appreciated is that financial- ization owes not a little to the phenomenon of the absence of the drain of surplus from the periphery into the leading capitalist power. 230 CAPITAL AND IMPERIALISM To be sure, even if there had been a drain of surplus from the periphery, it still might not have sufficed to prevent a rise in the outpouring of IOUs from the leading capitalist power, so that some “financialization” might still have been inevitable. But financialization certainly would not have proceeded at the pace it has if the leading capitalist country had access ∆to a substantial drain of surplus from the periphery. Financialization, in short, is the other side of the coin to the absence of a substantial “drain of surplus” from the periphery to the metropolis as had occurred in the colonial period. With the outpouring of IOUs from the leading capitalist country to the rest of the world, the question arises: How is the value of the leading coun- try’s currency, not just vis-à-vis the currencies of other capitalist countries, but also with respect to the world of commodities, preserved? The Bretton Woods system sought to resolve this problem in a purely formal way by officially decreeing the U.S. dollar to be “as good as gold” and by fixing its price in terms of gold at $35 per ounce of gold. Such a system, however, could remain viable only if there was no rush to actually convert dollars into gold, but it obviously could not survive if there was such a rush. Since the printing of dollars was unrelated to the magnitude of gold that actually happened to be in the possession of the central bank of the leading capitalist country, gold convertibility of the dollar could clearly not be sustained, if ever it was seriously challenged. The presumption behind the Bretton Woods arrangement was that it would not be challenged because of an implicit understanding between the major capitalist countries, that is, the sheer power relationship between the advanced countries will keep the system going. But clearly if the outpouring of dollars reached massive proportions (an issue we will examine later), the system could not last. This is precisely what happened in the early 1970s, leading first to the suspension of dollar convertibility in 1971, and then the abandonment of the Bretton Woods arrangement altogether in 1973. To sum up, the basic weakness of the postwar dirigiste arrangement lay in that it sought to erect an international monetary system without the underpinning of colonialism, as the gold standard had. The absence of the colonial prop manifested itself in two ways: first, the absence of any mechanism for income deflation meant that inflation arising from increas – ing supply price and threatening the value of money could not be kept PoSTwAR DIRIgISME AND ITS CoNTRADICTIoNS 231 at bay; and second, the absence of colonial drain meant that the debt of the leading capitalist country piled up, causing a massive expansion in the financial superstructure and making the system particularly vulnerable and fragile. The collapse of the Bretton Woods system and with it of Keynesian demand management was the inevitable result, which only underscored that capitalism could not function without either a direct colonial prop or some arrangement that could produce a similar effect as a colonial prop. Putting it differently, two of the concessions that postwar capitalism had given, namely political decolonization on the one hand and Keynesian demand management on the other, were mutually contradictory. This would become clear only over time. During the time the contradiction did not erupt (for reasons we shall discuss later), the system functioned exceedingly well, to produce what has been called the “Golden Age of Capitalism.” But this “Golden Age” was essentially an aberration, some – thing that was intrinsically incapable of being sustained. Contradictions of Third World Dirigisme Dirigiste regimes also came into existence in most third world coun- tries in the wake of decolonization. Though these regimes differed from one another in important ways, as we shall see, they all had one point in common, namely to use the state, including a public sector, against the domination by metropolitan capital that had been their legacy. Public sector enterprises were started to develop and process natural resources, to develop infrastructure, and to plug gaps in the production structure, especially with regard to basic and producer goods industries. Since the domestic capitalist class had been relatively weak and underdeveloped to start with, with little interest in undertaking any research and development, the public sector also became the means for developing whatever limited technological self-reliance that third world countries managed to achieve. Breaking out of the colonial pattern of international division of labor, through embarking on a process of industrialization, required protecting the home market from the entry of metropolitan products. The dirigiste regimes therefore set up tariff barriers and quantitative trade restrictions, behind which “import-substituting” industrialization could proceed. But 232 CAPITAL AND IMPERIALISM since the technology for such industrialization remained largely in the hands of metropolitan capital, collaboration with such capital became necessary for the domestic bourgeoisie, so that joint ventures involving domestic and foreign capital became the order of the day, and came up behind tariff walls. Thus, protectionism necessarily also meant protecting metropolitan capital that had jumped the protectionist walls to locate pro- duction units within the country through joint ventures. Protectionism, however, only enabled domestic producers, whether in the public or in the private sector, to capture a larger chunk of the home market; it could not by itself give rise to larger growth over time. The dynamics of the system depended upon the rate at which the home market itself was expanding, especially since breaking into export markets for units that developed under the dirigiste regime behind protectionist walls was extremely difficult (unless metropolitan capital permitted it, which, except in the case of a few countries in East Asia in that period, close to the United States and supportive of its war against the Vietnamese, was scarcely on the cards). One very important factor affecting the growth of the home market was the rate of growth of agriculture. And while all over the third world the growth rate of agriculture picked up compared to the colonial period, there were major constraints upon this growth arising from the degree of land concentration. We must distinguish here between three distinct cases. The first is where the Communists had led the anti-colonial struggle; decolonization here was followed by radical land redistribution (followed in most cases by the formation of cooperatives and collectives). The second case is where the land had been substantially taken over by colonialists earlier, as in the case of the Japanese colonies; here, the U.S. occupation forces at the end of the war carried out land redistribution at the expense of the Japanese land – lords. The third case is where neither of the above two situations obtained; decolonization in these remaining cases was not followed by any radical land redistribution so that the rural power structure did not change suf- ficiently to encourage investment by smaller peasants. (Zimbabwe was one important exception to this, though it carried out land redistribution not immediately following decolonization but at a much later date.) PoSTwAR DIRIgISME AND ITS CoNTRADICTIoNS 233 The reason for this pusillanimity in carrying out land redistribution is what Lenin had noted in the case of Russia much earlier. 4 Where the bourgeoisie comes late to the historical scene, it is afraid that any attack on landed property may rebound into an attack on bourgeois property, and thus makes common cause with the landed interests in defending pri- vate property, even though this entails arresting the democratic revolution in the country. Therefore, the dirigiste regimes that came up in countries where the bourgeoisie, or proto-bourgeois elements, had played a lead – ing role in the anti-colonial struggle invariably eschewed any radical land redistribution. This is not to say that in this third group of countries, which constituted the majority of the countries of the third world, the nature of landowner – ship remained completely unchanged. Many feudal or semi-feudal land – lords, those who were not interested in turning to capitalist farming in the new situation, sold their land to rich tenants who now came to constitute a proto-capitalist kulak class. A tendency toward capitalist agriculture con – taining an admixture of landlord and peasant capitalism emerged in these countries. But, while the composition of the top landowning group thus underwent a change, the extent of land concentration did not diminish; a vast mass of pauperized peasants and agricultural laborers with little or no land continued to exist as before, despite decolonization. At the same time, agriculture was protected and promoted in various ways under the dirigiste regime by the new post-colonial state: through subsidized inputs; tariffs and quantitative trade restrictions; provision of cheap credit; provision of assured remunerative prices; public investment in irrigation and infrastructure; research and development under the aegis of the government for developing better seeds and better agricultural prac – tices; and public extension services for disseminating information about better practices. The main beneficiaries of these measures no doubt were the better-off peasants and landlords turning to capitalist farming; but compared to the colonial period, agricultural growth picked up. What was striking about the new third world dirigiste regime is that though it did not break land concentration and allowed the eviction of tenants for the resumption of land for capitalist farming by the earlier land – lords (which constitutes one kind of primitive accumulation of capital), 234 CAPITAL AND IMPERIALISM it did insulate agriculture from encroachment by domestic and foreign monopoly capitalists, and thereby prevented primitive accumulation of the other, classic kind. Though the growth rate of agriculture picked up in these countries, it nonetheless limited the growth of the domestic market, especially because of the unequal distribution of income that accompanied such growth across the agriculture-dependent population. The constraint upon industrializa- tion arising from this source continued to plague the dirigiste regime. The other major source of the growth of the domestic market was the growth of state expenditure, which created greater employment opportu – nities in the traditional bureaucracy, in the “development bureaucracy,” and in the public sector, for large numbers of middle-class youth. Michal Kalecki had coined the term “intermediate regimes ” to describe this phe – nomenon. 5 He saw the urban middle class and the rich peasants who had a similar “intermediate” social position to this middle class in the coun – tryside as constituting the main social support–base for regimes that were characterized by a policy mix of state capitalism (public sector) and non- alignment (in foreign policy), and which obtained aid from both the Soviet Union and the advanced capitalist countries, using the former to drive a better bargain with the latter. What Kalecki’s analysis misses, even if we go along with his characterization, is the contradictions of these regimes. The basic contradiction of such regimes, notwithstanding their sub – stantial achievements , is that the growth in state expenditure, which is the main source of the dynamics of the system (given the inadequate stimulus from agricultural growth owing to the absence of land redistribu – tion), cannot be sustained because the state gets gradually engulfed in a fiscal crisis. This is because the competing claims upon the state budget from the bourgeois and proto-bourgeois elements, and from the emerging rural capitalists drawn from the ranks of both landlords and rich peasants, cannot be reconciled, except either through inflation at the expense of the workers, agricultural laborers, and middle-class employees, or through a curtailment of state spending, or, typically, a mixture of the two. 6 The dirigiste regimes that came up in the postwar years had much to their credit. They sustained rates of economic growth which were quite unprecedented, both in the advanced and in the underdeveloped PoSTwAR DIRIgISME AND ITS CoNTRADICTIoNS 235 countries, by their respective historical standards. But they represented essentially a passing phase, a transitional arrangement that could not be sustained for long. They represented an attempt to control capitalism, but “controlled capitalism” could not withstand the “spontaneity” of this mode of production. The Long Postwar Boom T he postwar economic regimes in advanced capitalist economies that involved state intervention in demand management over- came one particular problem that had arisen with the end of the prop of colonialism, namely the problem of deficiency of aggregate demand, of which the Great Depression had been a clear manifestation. However, they did not contain any mechanisms for overcoming the other problem, namely the tendency toward inflation that could arise in the event of demand outrunning raw material availability, and also, more generally, because of increasing supply price. And, of course, demand stimulation by the state to raise employment also opened up the possibility that the reserve army of labor could dwindle to a point where inflation could arise from the side of the labor market, as Joan Robinson’s idea of an “inflation- ary barrier” had anticipated. If, despite these obvious hurdles that could stifle a state expenditure– stimulated boom, postwar capitalism nonetheless enjoyed a prolonged boom more pronounced than any boom ever experienced in its entire history over a comparable period of time, which has made many call this period the “Golden Age of Capitalism,” then the reasons for it need care – ful investigation. This is what we do in the present chapter. But first, let us look briefly at the nature of the boom itself. The facts about this boom are well known, though the interpretations differ; we will therefore focus more on interpretations, and, more generally, the theoretical perspectives. CHAPTER 15 ThE LoNg PoSTwAR booM 237 State Intervention in Demand Management State intervention in demand management through larger government expenditure took the form of military spending in the United States, which is why some have called this policy “military Keynesianism.” 1 The United States came out of the Great Depression essentially through larger military expenditure in the run-up to the Second World War. Germany and Japan, which had begun the militarization drive earlier, had overcome the Depression earlier as well, Japan being the first country to do so. The finance minister in the early 1930s, Takahashi, had been murdered for wanting a halt to further militarization once the “slack” associated with the Depression had been exhausted. The liberal capitalist countries, notably the United States, had followed suit only in the late 1930s. The United States continued with a large military budget even after the war for a number of reasons: first, because it was a convenient way of preventing a slide back into recession, which, in the new context of the socialist challenge, would also have been politically inexpedient; second, because military expenditure has the “advantage” that it does not entail encroaching upon the sphere of activity of private capital and hence does not arouse any opposition on that count; and third, because military expenditure neither increases the standard of living of the workers, which would strengthen their bargaining strength vis-à-vis the capitalists, gener – ating anger among the latter, nor adds to capacity as investment does. If it did add to capacity, then it would create problems of capacity utilization in the future, and require that the state, if it is to avoid such unutilized capac – ity and hence the onset of a recession, must keep increasing its investment expenditure and piling up capacity in a meaningless spiral, as the Russian economist Mikhail Tugan-Baranovsky had visualized. 2 But it was not just a question of keeping up the level of aggregate demand. The share of government expenditure increased as a proportion of GDP in the United States during the 1950s and 1960s. This increase, which was part and parcel of an increase in the share of economic surplus in the GDP, has been interpreted differently by different authors. Baran and Sweezy, following their own earlier separate works that had argued along similar lines, suggested that there was an ex ante tendency 238 CAPITAL AND IMPERIALISM for the share of surplus to increase, because the rate of growth of labor productivity tended to exceed the rate of growth of real wages, which meant that there was also an ex ante tendency toward overproduction, since wage-earners’ propensity to consume was higher than of those to whom the surplus accrued. Overproduction, however, was kept in check by growing government expenditure, especially military expenditure. 3 Nicholas Kaldor, reviewing Baran’s book, contested this claim of a ten – dency for the share of economic surplus to rise on the grounds that there was no sign of any secular increase in the share of post-tax profits in GDP. 4 If there had been an ex ante tendency for the surplus to increase, and its effect by way of generating overproduction had been kept at bay through state expenditure financed by a fiscal deficit , then we would have certainly seen the share of (post-tax) profits in GDP increasing over time. Since there was no sign of this, Kaldor would have had a point in claiming that Baran’s premise of a rise in the share of surplus was wrong, provided the overpro – duction-offsetting expenditure had been financed by a fiscal deficit. But from an observed ex post constancy in the share of (post-tax) profits in GDP, we cannot reject the claim of an increase in the ex ante share of surplus, as Kaldor does, for two obvious reasons. First, if growing govern – ment expenditure is financed by a tax on profits, then all three phenomena can simultaneously occur, namely a rise in the ex ante share of surplus, growing government expenditure (which means a rise in the observed ex post share of surplus), and a constancy in the ratio of post-tax profits in GDP. An observed constancy in the share of post-tax profits therefore does not constitute a refutation of Baran and Sweezy’s argument. Second, since surplus also includes the post-tax wages of “unproduc – tive workers,” apart from total post-tax profits and all tax revenues accru – ing to the state, an increase in such wages, associated for instance with a rise in the costs of circulation, could reflect a rise in the share of surplus (both ex ante and ex post), even if neither the share of government tax rev – enue nor the share of post-tax profits in GDP increase over time. Since Baran and Sweezy’s argument also focused on a rise in costs of circulation and on growing government expenditure relative to GDP financed not by a growing ratio of fiscal deficit but by growing taxes, including on capital- ists, they were clearly immune to Kaldor’s criticism for this reason as well. ThE LoNg PoSTwAR booM 239 Nonetheless, a question does remain over Baran and Sweezy’s argu- ment. Suppose there is no tendency for the share of surplus to rise ex ante but the government increases its expenditure relative to GDP by taxing workers, with the tax share on profits remaining unchanged and the dis – tribution of income between pretax wages and pretax profits remaining unchanged. In this case, there would have been no increase in the ex ante share of surplus, but only an increase in the ex post share of surplus. We cannot infer from an observed increase in the ex post share of surplus that there is also an increase in the ex ante share as well. The latter has to be independently and separately established. One may think that looking at the ratio of pretax profits to pretax wages in GDP would be an obvious way of establishing an ex ante tendency for the share of surplus in GDP to rise. Even this, however, is inadequate: at any given level of capacity utilization, if the government raises its expendi – ture and finances it by taxing profits, and if the capitalists squeeze wages in order to make up for the higher taxes they have to pay, then there would be a higher share of pretax profits (at the expense of pretax wages) in output, but it would not have been caused by any ex ante tendency for the share of surplus to rise as Baran and Sweezy had envisaged. Hence, the Baran- Sweezy argument requires a more careful marshalling of evidence than just looking at a few ratios. But no matter what view we have on the question of an increase in the ex ante share of surplus, there can be little doubt that capitalism in the period of postwar dirigisme saw an increase in the ex post share of surplus in output in the United States and in the capitalist world as a whole. In other words, whether the increase in the share of government expenditure in output and of the costs of circulation warded off a tendency toward overproduction that was immanent in an increase in the ex ante share of surplus, it did occur, so that the share of post-tax wages of the productive workers in total output declined over time. This assertion would appear to go against the “profit-squeeze” hypoth – esis that has been put forward by many, including Glyn and Sutcliffe in the context of British capitalism. Quite apart from the statistical issues that have been raised with regard to this hypothesis, namely whether to take depreciation and stock appreciation as part of profit, it should be 240 CAPITAL AND IMPERIALISM remembered that we are not discussing the share of wages compared to that of profits, but the share of wages compared to the surplus, much of which accrues to the state. 5 As Turner, Jackson, and Wilkinson argued in the context of British capitalism, taxation was a major instrument for squeezing wages; they had even talked of a “wage-tax spiral.” 6 Much of the welfare state expenditure undertaken in Europe was financed by taxes on the workers themselves, though obviously not all of that expense was so financed, for then it would have had little demand-stimulating effect, which it undoubtedly had. 7 Even if the tax revenue raised from the workers and the capitalists is in exactly the same ratio as the one in which pretax income is distributed among them, and the value of the balanced budget multiplier is unity, larger government expenditure raises the share of ex post surplus in total output. When there is unutilized capacity and unemployment in the econ – omy, it does so via output adjustment. And if the increase in government expenditure relative to base output persists even after “involuntary unem – ployment” has been overcome, then despite balancing its budget through taxes raised in this manner, the government would be unleashing a process of inflation in terms of the wage unit. In other words, even the process of overcoming involuntary unemploy – ment through government expenditure financed by equivalent taxation may entail an increase in the share of surplus in total output in the econ – omy. Whether larger government expenditure takes the form of military spending as in the United States, or of welfare state spending under the aegis of Social Democracy as in Europe, 8 as long as this enhanced expen – diture is met through taxing productive workers to a greater extent than before, it would still entail a rise in the ex post share of economic surplus in total output. 9 In other words, the postwar dirigiste regimes, while keep- ing the advanced capitalist economies close to full employment (but never at actual full employment, since a capitalist economy can never function without a reserve army of labor), effected, at the same time, an increase in the ex post share of economic surplus in GDP. This now raises an important question: If the unemployment rate is low and yet the share of surplus in output is increasing, then why did the work – ers not press for higher wages in order to fight against their declining share? ThE LoNg PoSTwAR booM 241 The Question of Working-Class Resistance Two answers can be given to this question. The first is that inflation below a certain threshold would go unnoticed by the workers, in the sense of not being anticipated and hence not entering into the money-wage bar – gain. 10 This is simply the “money illusion” argument of Keynes in a differ – ent guise. Some hypothesis of this sort also underlies the Phillips Curve, which states that workers never anticipate inflation. The first argument says that they do not anticipate inflation below a certain threshold, but it amounts to saying that as long as inflation remains below that threshold the Phillips Curve remains valid. And for a long period when the postwar dirigiste regime was in operation, the rate of inflation, though positive and eroding the share of post-tax wages, was not too high, which makes this hypothesis regarding why workers did not jack up money-wage demands to fight against a declining share of post-tax wages in output a plausible one. Workers fighting against a declining wage share would have meant accelerating inflation. The second answer is that the United States, to an extent, exported its inflation to other capitalist countries. Traditionally the United States had been a current account surplus economy, which was one reason why it prevented the Bretton Woods system from having any provision for making the surplus countries undertake measures to overcome their cur – rent account surpluses. But during the 1950s it set up a string of bases across the world to encircle the Soviet Union in the name of warding off its challenge to capitalism, a challenge that did not exist at all, since having lost 20 million people in the war, the Soviet Union was in no mood to spread socialism beyond what had been achieved by the end of the war, and was criticized on this score by Mao’s China. The cost of maintaining this string of bases meant that in the course of the 1950s the United States became a current account deficit econ – omy. Expenditure on these bases was met through the budget, and cor – responding to the fiscal deficit there developed a current account deficit. The United States simply printed money to meet these deficits, and since under the Bretton Woods system the dollar was “as good as gold,” other countries were obliged to hold on to these dollars. 242 CAPITAL AND IMPERIALISM To be sure, behind the formal acceptance of the dollar to be “as good as gold” there was the real acceptance of the fact that the U.S. bases against the Soviet Union were meant to serve not just U.S. interests but the interests of the entire capitalist world. The other capitalist countries accepted the outpouring of dollars not because of a piece of paper signe∆d at Bretton Woods declaring the dollar to be “as good as gold” but because the United States was the undisputed leader of the capitalist world. And they accepted for the same reason the outflow of dollars from the United States even when some of these printed dollars were being used for taking over European factories and other assets. There was some breast-beating in Europe over this, specifically over the unwisdom of lending to a country (which is what holding on to its cur – rency means) so that it can use the loans to buy up the assets of the lending country. But little could be done about it. As a result, the torrent of dol – lars from the United States continued, and these were held by European banks, which wanted to invest them abroad but were prevented from doing so because of the Bretton Woods system that allowed all sovereign countries the right to control capital flows into or out of their economies. In the absence of the ability of the United States to run these current deficits, it would have to squeeze domestic absorption via a higher rate of inflation compared to what actually occurred for maintaining its overseas bases. Its own rate of inflation, therefore, was moderated because of its abil – ity to run current deficits, which meant, in turn, that elsewhere the pres – sure of demand, and hence the rate of inflation, was higher than it would ceteris paribus have been otherwise. The United States thus exported to an extent its inflation to other countries. To summarize the picture that obtained during the so-called Golden Age, U.S. militarism kept up demand both within the country and else- where. It kept up demand elsewhere in two distinct ways: one was by virtue of the fact that a high level of demand within the United States props up other economies; the other was because the United States ran a current account deficit, which meant that other countries, forced to run a corresponding current account surplus, found their aggregate demand to be even higher than their domestic circumstances warranted. They too used government expenditure to boost their domestic economies, and in ThE LoNg PoSTwAR booM 243 Europe’s case through substantial welfare expenditure under the aegis of social democracy. But their domestic boost to aggregate demand was bol- stered by U.S. militarism. Since this meant high levels of employment and capacity utilization, it called forth significant private investment and hence high rates of eco – nomic growth. As a direct consequence of economic growth, as the Kaldor- Verdoorn law suggests (that there is a positive relationship between eco- nomic growth and growth of labor productivity, with causation running from the former to the latter), and because several innovations that had not been introduced during the Depression could now be introduced in boom conditions, advanced capitalist economies witnessed high rates of labor productivity growth. And in a situation of low unemployment and hence strong bargaining power of trade unions, that meant high rates of real wage growth. With unemployment low and real wages growing rap- idly, the working class in the advanced capitalist countries witnessed an improvement in its living standards that was quite unparalleled in the his – tory of capitalism. Even so, the share of post-tax wages in total output was declining during this period, with a corresponding increase in the share of economic surplus. This would normally be expected to cause strong money-wage demands, leading to accelerating inflation, but inflation remained both low and non-accelerating, with no signs of any wage explosion until 1968 (on which more later), because the lowness of this inflation rate prevented its being taken into reckoning. Besides, it always takes time for workers to take stock of their cumulative losses. Put differently, the significant abso- lute improvement in the conditions of the workers prevented them from becoming agitated over their loss of shares in relative terms. This was a situation that was bound to come to an end sooner or later, as it actually did. But while it lasted, it kept the “Golden Age” going. But what about the other source of inflationary pressures, namely pri – mary commodity prices? Let us turn to this issue now. Terms of Trade vis-à-vis Primary Commodities Many economists, notably W. Arthur Lewis, 11 had predicted after the 244 CAPITAL AND IMPERIALISM Second World War that there would be a rapid increase in raw mate – rial prices in the years to come. But far from this happening, raw mate – rial prices after the Korean War boom fell relative to manufactured goods prices, and that too when the overall rate of inflation was low. Between 1952 and 1971, there was a 23 percent drop in the prices of all primary commodities relative to manufactures; if we take non-oil primary com- modities the drop was 26 percent. Also remarkable is that almost the entire drop in the terms of trade of primary commodities vis-à-vis manufactures occurred prior to the notable acceleration in inflation that happened in the advanced capitalist coun – tries with the wage explosion of 1968, which one would expect to turn the terms of trade against primary commodities. Paradoxically, in the period 1967–72, there was hardly any movement in the terms of trade in either direction, but in the period 1951–67, there had been a secular movement in favor of manufactures while the fact of the protracted boom, together with the rapid growth of labor productivity in manufacturing, would have suggested the opposite, as economists like Lewis had also anticipated. The terms of trade movement is not difficult to explain. Economic surplus as a proportion of gross value added in the advanced countries increased during the 1950s and ’60s. Capitalists producing manufactured goods typically charge a price that is a mark up over the unit prime cost. The state further imposes an indirect tax mark up on this price. The rise in the profit-cum-indirect tax margin, which raises the share of surplus in the gross value of output, is likely to entail a decline not only in the share of predirect-tax wages in gross value of output but also in the share of primary commodity producers. And despite this decline for primary producers the share of pretax wages in gross value added too can still go down, as indeed happened. 12 Hence, the adverse terms of trade movement for primary producers is also a part of the rise in the share of surplus. But the real question is, how did this happen while the rate of infla- tion remained relatively low? This is contrary to what would be expected since the phenomenon of increasing supply price in primary production, if nothing else, should have caused an acceleration of inflation owing to the persistence of the boom. Even over 1960–73, toward the latter part of which inflation had become quite pronounced, the average inflation rate ThE LoNg PoSTwAR booM 245 for twenty-one OECD countries was just 4 percent. In particular when income deflation through the mechanisms of the colonial period could no longer be imposed upon the third world, how is it that the phenomenon of increasing supply price did not make itself felt through a primary com – modity price explosion? Two reasons can be adduced for it. One, we have seen that the phe – nomenon of increasing supply price could be countered, in the case of commodities produced by the tropical landmass, through land-augment- ing measures, 13 of which irrigation is the most important (both for its own sake and also for making other land-augmenting measures such as high- yielding seed varieties effective). The colonial administration had under – taken very few land-augmenting measures in the third world. In fact, the Canal Colonies of Punjab were the only major irrigation project under- taken anywhere in the British Empire during the entire colonial period. The post-colonial dirigiste regimes that arose in the third world, however, made it a point to undertake land-augmenting measures. Corresponding to the growing demand in the metropolis for the products of the tropi – cal landmass, there was also a growing supply through land-augmenting measures, which therefore kept the phenomenon of increasing supply price (which occurs only when there is little or no land-augmentation) in abeyance. Put differently, metropolitan capitalism imposes income deflation on the outlying regions for obtaining supplies of products of the tropical landmass at non-increasing prices relative to money wages not because such income deflation is inevitable in any sense, but because it is capi- talism’s way of obtaining supplies. Capitalism does not want an activist state intervening to raise production via land-augmentation, even within peripheral economies. Under British colonial rule, all government invest- ment had to fetch a minimum rate of return, and the colonial administra – tion always advanced the argument that there was no certainty that invest – ment in land-augmentation would fetch this rate of return. The reason for income deflation on the producers in the periphery, in other words, was not natural or geographical; it was social. And with the coming into being of post-colonial regimes, this social compulsion dis- appeared to a great extent. The post-colonial dirigiste regimes had no 246 CAPITAL AND IMPERIALISM compunctions about using fiscal resources, including fiscal deficits, to undertake irrigation investment, and more generally to undertaking land augmentation. Per capita agricultural output increased like never before, and this meant that inflation arising from this source was kept in check. The second reason is that all over the third world the effort on the part of the new regimes was to industrialize, for which these countries required as much foreign exchange as they could possibly lay their hands on. Hence the pressure to sell products of the tropical landmass made many of these countries fight against one another to boost sales. The new producing countries, moreover, were at an advantage since they could ini- tiate price competition and snatch away markets from the existing large producers among such tropical countries who dominated the market but could not engage in price competition without being large-scale losers. Hence, price competition to expand market shares became the order of the day, with new or small sellers taking the lead in cutting prices. Sri Lanka expanded its market shares in the tea market at the expense of India, while Bangladesh did the same in the case of jute textiles. And they did so through price competition. This increased competition among third world countries was also a factor keeping down the rate of inflation, despite the phenomenon of increasing supply price. The initiation of land augmentation within most third world countries, and the intense competition among them for push – ing out more and more primary product exports to obtain the foreign exchange required for industrialization, were the two factors that kept pri – mary commodity prices under control, even in the midst of such a large boom. This, however, could only provide a temporary palliative. The third world dirigiste regimes got embroiled in fiscal crises over time, since the emerging capitalist and landlord-capitalist strata used the budget as a means of primitive accumulation of capital that included rampant and growing tax evasion. The state therefore could continue the government investment-led growth process only through larger recourse to indi – rect taxation or deficit financing, both of which imposed an inflationary squeeze on the working people that was politically inexpedient within a framework of parliamentary democracy. Under the circumstances, it cut ThE LoNg PoSTwAR booM 247 back on the tempo of public investment, pushing dirigisme into a dead end and holding back on land augmentation. The Golden Age conjuncture was necessarily a transient one. It could last only as long as the workers in the metropolis did not take note of the rising share of economic surplus in the GDP and did not jack up their money-wage claims to get back lost ground, and also as long as land aug – mentation could continue in the third world with the dirigiste regime not getting enmeshed in a fiscal crisis. Both of these denouements were bound to occur sooner or later, as indeed they did. But before that happened, capitalism enjoyed a Golden Age not because of itself but despite itself. This was so because dirigisme , both in the metropolis and in the third world, though an essential factor underlying the boom, was anathema for capitalism. A Perspective on Imperialism Political decolonization was followed by economic decolonization against which the metropolitan countries fought bitterly, to the point of staging coups d’état against third world governments that dared to take control over their own national resources. The coups against Mossadegh in Iran and Arbenz in Guatemala were among the earliest such efforts, to be fol – lowed, prominently, by the coup against Allende in Chile. The fact of mili – tary interventions against third world governments in the course of this protracted fight has given the impression that imperialism was a powerful reality in the 1950s and ’60s, and apparently no longer is a reality. Precisely the opposite is correct. Once imperialism is seen as an arrangement for imposing income deflation on the third world population in order to get their primary commodities without running into the prob – lem of increasing supply price, it is clear that this arrangement had fallen through after political decolonization. The period of the 1950s and ’60s, far from being the heyday of imperialism in a new guise, represents rather a loosening of the imperialist knot, when imperialism could not impose its will on the third world. Imperialism’s aggressiveness in that period reflects its frustration at this inability. As we shall argue in a later chapter, metro – politan capital is in a much stronger position today to impose its will on 248 CAPITAL AND IMPERIALISM third world states and third world petty producers than in the Golden Age years. Indeed, in the sense of not having to resort to so many coups, imperialism appears “invisible.” The End of Postwar Dirigisme T he unraveling of the colonial arrangement, which preceded the various measures of political and economic decolonization, and which, in our view, was a major reason for the Great Depression, had meant that markets were no longer available “on tap” from this source for metropolitan capitalism. Political, and subsequently economic decolo – nization, meant two further things: first, the drain of resources that had characterized the colonial period and had acquired immense proportions during the Second World War and inflicted upon Bengal a famine that killed three million people was no longer available. This meant that com – modities were no longer available gratis to the leading capitalist power, so that playing the leadership role by running a current account deficit with other emerging powers got it deeper and deeper into debt. This is what happened to the postwar leader, the United States. Second, the income deflation that the drain and the process of dein- dustrialization had imposed on the colonies and semi-colonies of the thi∆rd world to prevent the effects of increasing supply price from manifesting themselves in the form of a destabilization of the value of money could now no longer be imposed, which made the system additionally vulnerable. While state intervention in demand management, which Keynes had advocated and which became a reality after the Second World War, could overcome the problem of deficiency of demand that the unraveling of the colonial arrangement had thrown up, the other two problems mentioned CHAPTER 16 250 CAPITAL AND IMPERIALISM above could not be overcome. The postwar dirigiste regime in the met – ropolitan capitalist countries remained vulnerable on these two counts. It also remained vulnerable to the possibility of a money-wage explosion, since the share of surplus in GDP was increasing in metropolitan coun- tries during the long boom, even as the unemployment rate came down greatly, to around 2 percent in Britain in the mid-1960s and around 4 per – cent officially in the United States in the Kennedy years, which greatly strengthened the bargaining position of the workers. These vulnerabilities did not become apparent immediately. They took time to manifest themselves, giving a false impression that they did not exist at all. But when they did appear, it spelled the end of the postwar boom, the so-called Golden Age of Capitalism, and of the dirigiste regime itself, which was no longer sustainable in the new situation. Let us look at how the different contradictions of the postwar regime played out. Inflation and the Wage Explosion Throughout the 1950s and ’60s, the workers, especially the “produc- tive workers,” were losing ground because of the increase in the share of surplus (including costs of circulation) in GDP in the advanced capitalist countries. This was because, apart from the rise in the costs of circula- tion, there was a significant increase everywhere in the ratio of government expenditure to GDP. Whether this warded off an independently given ten- dency toward overproduction or was a sui generis phenomenon, an issue we touched upon earlier, need not enter the discussion here. But its obvi – ous manifestation was that prices rose more rapidly than unit labor costs (taking post direct-tax wages), that is, post–direct tax real wages rose less than labor productivity. This did not, however, disrupt the boom, and that is because the rate of inflation, itself being small, did not attract notice from the workers, espe – cially since (post–direct tax) real wages were rising rapidly anyway, even if less rapidly than labor productivity. Rapid labor productivity growth was stimulated both by high GDP growth and also by the use of the backlog of un-introduced innovations from the interwar period when the conditions of depression had thwarted their introduction. ThE END of PoSTwAR DIRIgISME 251 The rate of inflation began increasing in the mid-1960s. The reason was that the United States had become a current account deficit country from its earlier status of being a surplus country. The primary reason for this turnaround was the expenditure it incurred in maintaining military bases all over the world. This basically meant that other countries, taken together, were forced to run a current surplus with the United States, which meant, on the one hand, a boost to their aggregate demand coming from this external source, and, on the other, accumulating dollar reserves as payment for this current surplus. The running of a current account deficit by the United States provided a boost to the process of diffusion of capitalism to other countries, nota- bly in East Asia, which was exactly analogous to the way that Britain’s running of a persistent current deficit with capitalist rivals like Germany and the United States had done in the period before the First World War. The only difference was that Britain’s deficit with rival powers was more than offset by its drain from the colonies. Britain, far from becoming exter – nally indebted, actually became the world’s largest creditor nation at that time, whereas in the case of the United States there was no such drain income, and its current account deficit entailed accumulating external debt (which was paid for under the Bretton Woods system by the export of U.S. dollars). Running a current account deficit for facilitating a diffusion of capi – talism and thereby satisfying the aspirations of the bourgeoisies in other emerging countries is a hallmark of the leader of the capitalist world. A deficit is the instrument through which the leader holds together the capi – talist world and keeps the system of its international payments arrange- ment intact, by accommodating its rival powers. The U.S. deficit played this role. With the heating up of the Vietnam War the U.S. fiscal deficit, and con – sequently its current account deficit, began to widen further, which cre – ated excess demand pressures, not just in the United States but in other capitalist countries as well, which had to run correspondingly wider cur – rent account surpluses. 1 This meant a boost to the rate of inflation glob- ally, that is, a further increase in the level of prices relative to post–direct tax wages in the advanced capitalist world. This increase proved to be the 252 CAPITAL AND IMPERIALISM proverbial last straw on the camel’s back; the rate of inflation exceeded the threshold rate above which it is incorporated into wage demands. In consequence there was a worldwide money-wage explosion in 1968, which further pushed up the inflation rate. This was the first instance of the bursting forth of a contradiction that underlay the long boom but had until then remained dormant. Sweezy and Magdoff, following a line of argumentation that goes back to Hyman Minsky and even earlier to Irving Fisher, argue that an increase in inflation is endemic to a situation of Keynesian demand management. 2 The aim of demand management is to prolong the boom and to prevent a crisis that would cause substantial unemployment. However, the longer the boom lasts, the fragility of the economy, including financial fragility, which Minsky emphasized, keeps increasing, and hence the depth of the crisis that would follow the collapse of the boom also keeps increasing. Preventing a collapse of the boom therefore acquired greater and greater urgency over time, but it amounted, in effect, to continuing to support an increasingly fragile economy through state intervention. Such support, needless to say, must also take the form of preventing a drop in the inflation rate, for any such drop would push the economy toward a debt deflation of the sort that Irving Fisher had discussed, which would have serious recessionary consequences. So, the only direction in which the inflation rate can move realistically, in a capitalist economy where state intervention is supposed to maintain a high level of employ – ment, is upward. (Steady inflation is at best an exceptional case.) Whether an increase in the inflation rate was inevitable in an economy where the state was committed to propping up the level of activity despite growing financial fragility, which Sweezy and Magdoff suggested, or whether it arose because growing military expenditure, which necessarily leads to war, and eventually did actually precipitate one (in Vietnam), required even greater growth in such expenditure, is an issue that need not detain us here. On the basis of what we have suggested about a threshold level of infla – tion beyond which it becomes incorporated into the wage-bargain, even an erratic jump in inflation would push it beyond this threshold, precipitating accelerating inflation. The system, in short, was foredoomed to an inflation- ary crisis for any of these reasons. ThE END of PoSTwAR DIRIgISME 253 Put differently, the concept of an “inflationary barrier” advanced by Joan Robinson cannot be identified with some particular level of unem – ployment. (Likewise, the idea of a unique “non-accelerating inflation rate of unemployment” is a chimera.) A given level of unemployment at which inflation has not been accelerating may suddenly witness accelerating inflation if there is an increase in workers’ consciousness and militancy. Indeed, whether inflation accelerates at a given rate of unemployment depends upon a host of factors, including the movements in the terms of trade, the past history of inflation, erratic jumps in aggregate demand, the learning process of the workers, and so on. The idea that a capitalist economy can be stabilized at a high rate of employment forever through state intervention in aggregate demand alone is false. This became apparent in the advanced capitalist economies in the course of the long boom. The postwar dirigiste regime in the metropolitan world did experience an increase in the rate of inflation in the latter half of the 1960s. This caused a money-wage explosion, both as a response to it, and also for making up the loss in the share of the workers over the preced- ing period, which in turn led to a further acceleration in inflation. This was serious enough, but it also made the system unviable for another reason, to which we now turn. The Collapse of the Bretton Woods System The Bretton Woods system was based on a contradiction. The dollar was declared to be as “good as gold” and convertible into gold at $35 per ounce. Since the specificity of gold arises from the idea that it is never expected to, and never does, fall in value relative to the world of commodi – ties in a secular sense, which is what gives meaning to the term “as good as gold,” the dollar being declared as good as gold required that its value should not fall in a secular sense vis-à-vis the world of commodities. If it ever did, then the dollar would cease to be “as good as gold,” in which case it would be impossible to maintain its convertibility into gold. In other words, the Bretton Woods system required for its viability that there should be no secular inflation in commodity prices in terms of the dollar. At the same time, it had no mechanism to ensure that there was no secular 254 CAPITAL AND IMPERIALISM inflation in commodity prices in terms of the dollar. The contradiction in the Bretton Woods system consisted in institutionalizing something that it had no means of realizing. The worldwide wage explosion in 1968 was thus the first blow to the Bretton Woods system. The creditors of the United States, who were sitting on a mountain of dollars that had accumulated ever since dollars started pouring out of the country as it became a current deficit country, now insisted on converting dollars into gold, which was not tenable. The gold-dollar link that had been the lynchpin of Bretton Woods was aban – doned in 1971 and the system itself in 1973. There is a misconception about the events leading to the collapse of the Bretton Woods system. Since President de Gaulle of France had taken a lead in demanding gold in lieu of dollars, the crisis of the system has often been attributed to de Gaulle’s bloody-mindedness arising from the American takeover of European firms through dollars printed back home. There was no doubt much angst in Europe at the time over the “American challenge,” and the Bretton Woods system that sanctified the dollar as being “as good as gold” was seen as an instrument of American hegemony. But the contradiction of the system was deeper and had structural roots: crucial elements of the colonial system that had worked to Britain’s advan – tage were not available to the United States. It lacked, to be more specific, any mechanism for keeping the inflation rate under control. And it is this lacuna that manifested itself in the late 1960s and early ’70s. It was not de Gaulle’s bloody-mindedness but the basic contradictions of the Bretton Woods system that led to its collapse. Terms of Trade Movements The collapse of the Bretton Woods system in 1973 suddenly left the world capitalist economy without a stable medium of holding wealth. The dollar (and dollar-denominated assets) had played this role earlier, but with cur – rencies on a float and their respective values subject to great uncertainty, the world’s wealth-holders were suddenly left without any reliable medium for holding their wealth. There was a rush to holding commodities, which contributed to the sudden upsurge in primary commodity prices in 1973. ThE END of PoSTwAR DIRIgISME 255 No doubt an excess demand pressure was beginning to be felt, but the massive jump in the net barter terms of trade cannot be explained merely by “normal” excess demand without bringing in the panic shift to com – modities that followed the collapse of Bretton Woods. The net barter terms of trade between manufacturing and primary products that had moved against the primary commodities between 1950 and 1972 jumped by nearly 25 percent in their favor in 1973, and whether we include oil in primary commodities makes little difference to this move – ment. Soon enough, this rush to commodities subsided, even though there was a marginal increase, by about 9 percent, in the terms of trade of non-oil primary commodities between 1973 and 1974. In the case of oil, how – ever, the story was completely different. The formation of OPEC and the decision to jack up oil prices by enforcing output cuts among members shifted the terms of trade between primary commodities including oil and manufactured goods by about 104 percent in favor of the former between 1973 and 1974. The oil price hike was followed by a period of rapid inflation in the advanced countries. The inflation rate for the twenty-one OECD coun – tries as a whole was 8.5 percent for 1973–80, and 8.8 and 8.6 percent for 1980 and 1981, respectively, compared to a mere 4 percent for the entire period of 1960 to 1973. The inflation that continued in the late 1970s despite a reduction in the level of activity that occurred after 1973, which is often referred to as the “second slump” (the first being the slump of the 1930s), has been much discussed, with the term “stagflation” used to describe the phenom – enon. But there is nothing remarkable about it. The inflationary upsurge was sustained by its own momentum, with inflation causing money wage demands, which then fed into inflation, and so on. This inflation was finally brought under control only with a change in economic regime, with dirigisme and the commitment to high levels of employment becoming things of the past, and a new regime of “neoliberalism” being introduced in the advanced countries with the triumph of Thatcherism in Britain and of Reaganomics in the United States. There is a difference between the 1973–75 slump and what followed in the Reagan-Thatcher period. The 1973–75 slump occurred when the 256 CAPITAL AND IMPERIALISM massive oil shock resulted in a shift in global income distribution from the bulk of the population in the advanced capitalist countries that were oil consumers to the OPEC countries, which held much of their enhanced incomes in the form of bank deposits with metropolitan banks. The “mar – ginal propensity to consume” (to use a Keynesian term) by those from whom income distribution shifted was higher than the marginal propen – sity to consume of those in whose favor income distribution shifted. The oil price hike in short had a demand-depressing effect on the global economy . To offset this effect what was needed was an increase in state expendi – tures at the global level. But since there was no coordination among capi- talist states in this regard at the global level, since each state was making its own decision about how to cope with the oil shock and the resulting inflation, each took the decision to restrain or contract state expenditure in the wake of this shock. Individual capitalist states, instead of taking needed counter-recessionary measures, took measures on the contrary that either did nothing to offset the recession or actually compounded it. The 1973–75 crisis can thus be seen as the consequence of the kneejer∆k reaction of the dirigiste regime to the upsurge of inflation. The paradigm still remained the Phillips Curve, only with the proviso that it had “shifted”; that is, the presumption was that after a certain time things would “settle down,” and there would once again be a revival of state intervention in demand management to achieve high levels of employment, perhaps not so high as had been experienced during the Golden Age, but sufficiently high nonetheless. Some even thought of a “prices and incomes policy” with which coun- tries could recapture the low levels of unemployment they had experi- enced during the “Golden Age” years. Such policies were tried for a while but without success. It was clear that a going back to the days of the post – war dirigiste regimes was no longer possible. An altogether new regime then began to emerge. But capitalism is not a planned system; so the new regime did not emerge in a planned manner. It emerged as a consequence of the balance of class forces then existing. In particular, finance capital, which had been forced to make concessions after the war and had to willy-nilly accept the Keynesian demand management it had opposed in the prewar period, ThE END of PoSTwAR DIRIgISME 257 now asserted its will, both because Keynesianism was discredited by the inflation and also because finance capital had become greatly strength- ened during the Golden Age years. It had become “international,” pre- cisely what Keynes had not wanted it to be, anticipating rightly that such internationalization would undermine the autonomy of the nation-state to pursue demand management policies, though he did entertain the hope that the opposition of finance to state intervention in demand management would disappear when the correct theory was presented to it, since he attributed such opposition to a basic misconception. International finance capital backed the Reagan-Thatcher agenda, and the outcome was the end of the dirigiste regimes. Let us turn now to a discussion of the process of “internationalization” or “globalization” of finance. The Process of Globalization of Finance The end of the colonial arrangement meant that the leading capitalist country, which in an earlier epoch had offset its current deficit with rival powers through a drain from the colonies, now had to increase its debt. In the case of the new leader, the United States, debt took the form of export- ing dollars. And as the U.S. current balance, which was positive to start with (otherwise the United States could not have become the world capi – talist leader) became negative, the deficit started widening, with the ratio of dollar deposits in metropolitan banks (toward which the exported dol – lars gravitated) to the GDP in the metropolis increasing. And with it, there was increased pressure to open the entire world to unrestricted financial flows in search of profitable investment opportunities, which the Bretton Woods system had allowed countries to put up barriers against. This pressure in a sense had to succeed. Since under Bretton Woods the surplus countries had been under no obligation to undertake any adjustments, which had to be carried out exclusively by the current-deficit countries, the latter, before undertaking the journey of deflation-cum-cur – rency devaluation, were keen to have at least some short-term financing to give them some breathing space. The increased liquidity in the interna – tional financial markets caused by the large-scale dollar outflows from the United States, which had been the progenitor of the Eurodollar market, 258 CAPITAL AND IMPERIALISM made it possible for the deficit countries to arrange short-term funding through “hot money” flows to meet immediate balance of payments dif – ficulties. Britain, which was in balance of payments difficulties toward the end of the 1960s, was a major recipient of such flows. The process of globalization of finance can be said to have begun with such flows. Once the flows started, governments had to be careful not to upset the “confidence of the investors,” a euphemism for speculators’ confi- dence, for then the balance of payments could suddenly plunge into a crisis. And since such “confidence” required keeping the economy open to finan – cial flows, economies increasingly became open to such flows, moving away from the capital controls that the Bretton Woods system had allowed them to institute. This happened in Europe toward the end of the’60s, in Africa and Latin America, where IMF “conditionalities” were used for such “opening up,” in the ’80s, and in India in the ’90s. Whether the currency acquired full convertibility, which in many of these third world countries it did not, the economy got caught in the vortex of globalized financial flows. When the oil shocks happened in 1973 and 1980, there was a further swelling of dollar deposits with the metropolitan banks, and several coun- tries, especially in the third world, got saddled with balance of payments problems. The metropolitan banks were involved in the recycling of pet – rodollars, but they needed an agency to act as a monitor for them and the IMF took on this role. It not only acted as a conduit for such recycling through its own “Oil Facility” and “Extended Facility” loans, but it also facilitated borrowing by third world countries once they had accepted the “discipline” of IMF “conditionalities.” All this meant a change in the role of the IMF, from merely being an occasional lender to countries undergo- ing balance of payments stress and advising them to undertake “stabili – zation,” to becoming an instrument of international finance capital to get countries to undertake “structural adjustment,” which would open them up to unrestricted global flows in goods, services, and capital, including above all finance. It was ironic that an institution with whose founding John Maynard Keynes had been associated in his capacity as a founder of the Bretton Woods system, who had wanted to “let finance be national,” now became an instrument for opening up economies to “reforms” so that finance ceased to be national. ThE END of PoSTwAR DIRIgISME 259 Opening economies to global financial flows entailed a change in the relative weights of the nation-state and the-now globalized finance capital. To prevent finance from flowing out en masse , the state had to be careful not to upset the “confidence of the investors,” which meant kowtowing to the demands of finance. Finance, in turn, which had had to yield ground in the immediate postwar years because of the socialist threat and working- class restiveness in the advanced countries, was now in a position to estab- lish its supreme hegemony, of which the adoption of neoliberal policies was an obvious manifestation. This hegemony, and the associated neoliberal policies did not suddenly appear fully formed on one fine day. The crisis of the dirigiste regime caused by inflation, against which it had no bulwark in the post-colonial era, was exploited by international or globalized finance capital, which was in the process of being formed within the Bretton Woods system to launch an attack against this regime and replace it with the neoliberal regime, whose characteristics and implications we will examine in the next chapter. But before proceeding further we must distinguish between the account of the transition from dirigisme to neoliberalism that we have given above and accounts given by others. In particular, we shall take up certain comments by Paul Krugman for underscoring the sui generis nature of our analysis. The Pitfalls of a Ricardian Reading of the Transition Paul Krugman, of course, is not concerned with the transition between regimes. His concern is with the phenomenon of inflation, why it occurred in the late ’60s and early ’70s, and why it subsided subsequently, and he has provided a Ricardian interpretation. 3 While we have emphasized the vulnerability of metropolitan capitalism because the colonial prop was no longer available to it, and while its market-providing role was taken over by the state that now carried out “demand management,” its inflation- restraining role could no longer be fulfilled, so that it was only a matter of time before the system would run aground, Krugman takes an altogether different track, which is essentially Ricardian in nature. The inflation in the early ’70s, he argues, was because of a resource crisis, that is, excess demand pressures with regard to resource availability. 260 CAPITAL AND IMPERIALISM The crisis was overcome, according to him, through supply adjustments such as oil strikes in the North Sea and the Gulf of Mexico, and the entry of new land into cultivation. This is essentially a Ricardian explanation (though without bringing in the question of “diminishing returns” and secular shifts in terms of trade). The inadequacy of this explanation is evident from the fact that the crisis of resource shortage of the 1970s was not universally overcome through supply adjustment. In the case of the most vital primary commodity for instance, food grains, it was overcome through a severe compression of demand, and this was achieved through the imposition of an income defla – tion upon large masses of the population of the world. Globalization of finance, which was responsible for ushering in the neoliberal regime, played the role of imposing this income deflation. An income deflation, it is often not recognized, has an effect analogous to that of what Keynes had called a profit inflation in eliminating excess demand. While profit inflation does so by raising prices relative to money incomes, an income deflation does so by squeezing money incomes rela – tive to prices. Hence “inflation control” can always be achieved through an income deflation that brings about the same effect as profit inflation would have done, but in a different way. But whereas the two have the same consequence by way of eliminating excess demand, an income deflation is preferred by finance capital since it does not cause a fall in the real value of financial assets. The hegemony of finance in the world economy there – fore meant a switch to income deflation, which was imposed through the neoliberal regime that the world moved into with the collapse of dirigisme . The methods of income deflation, especially in the third world, were obvious: cuts in subsidies; cuts in transfer payments to the poor; cuts in government expenditure that reduced both welfare spending and employ – ment; privatization of essential services, which, though it raises the effec – tive price paid by the poor, is not captured by typical price indices; the reduction in private demand for other goods owing to the privatization of essential services; and so on. In short, the entire gamut of measures that constitute neoliberal policies have this one overwhelming characteristic, of squeezing the demand for goods on the part of the working people from the income side rather than from the price side. And it is this squeeze ThE END of PoSTwAR DIRIgISME 261 rather than any supply adjustment that ended the 1970s inflation in pri – mary commodity prices. Because of this income deflation, the supply side also suffers. In other words, income deflation, while squeezing the demand side, also squeezes the supply side, since the victims of such deflation include the peasants and petty producers as well. But the squeeze on the demand side is greater than any squeeze on the supply side, which, after all, is how it overcomes the problem of excess demand. According to the Food and Agricultural Organization (FAO), the aver – age annual world cereal output during the triennium 1979–81 was 1,573 million tons for a population (for the midyear of the triennium) of 4,435 million. For the triennium 1999–2001, the cereal output had increased to 2,084 million tons for a world population (again for the midyear 2000) of 6,071 million. This represents a decline in per capita cereal output of the world, from 355 kilograms in 1980 to 343 kilograms in 2000. In other words, far from there being a supply adjustment, there was actually a decline in the per capita cereal output of the world. Since the income elasticity of demand for cereals is certainly positive if we take both direct and indirect demand for cereals (the latter through processed foods and through feed for animals whose products are then consumed), that is, if we take the final demand for cereals as well as the input demand in the Leontief (input-output) sense, there should have been an excess demand for cereals causing a rise in their prices relative to the vector of money wages and money incomes. This should also have caused a shift in the terms of trade between cere – als and manufactured goods in favor of the former, since manufactured goods prices are typically fixed on a prime cost-plus basis, and the rate of growth of labor productivity was much higher in manufacturing than in cereal production. Ironically, we find a decline in the terms of trade for cereals vis-à-vis manufacturing in the world economy that was as high as 45 percent over these two decades. 4 In other words, excess demand pres – sures that would have arisen in the cereal markets were nullified without causing any profit inflation through the imposition of an income deflation, which was so sharp that the terms of trade actually moved in a direction opposite to what one would have expected. 262 CAPITAL AND IMPERIALISM An Echo of Colonialism The colonial regime, as we have seen, imposed income deflation upon the working people of the colonies and semi-colonies of the third world. The income deflation that neoliberalism has imposed is a replication of this colonial phenomenon. The mechanisms through which income deflation is imposed in the two periods are obviously different: in the colonial period the mechanism was a mix of drain and deindustrialization. In the neolib – eral era the mechanism is through public expenditure cuts, some degree of deindustrialization in the sense of traditional activities being replaced by those under the aegis of multinational corporations, such as Walmart replacing a host of retail traders, and also a winding up of the institutional support system by the state that had been developed for peasant agricul – ture and other petty producers like handloom weavers, which lowers their incomes. At any rate, colonial-style drain of surplus is no longer possible, though some transfers from the third world to the metropolitan countries continue. But income deflation is imposed nonetheless. We shall look at the implications of the neoliberal regime in detail in the next chapter. But two points about it need to be noted here. First, the diri – giste period had seen an attempt to build an alternative structure, under the influence of Keynesian ideas, which was an alternative to the colonial structure, with state intervention boosting aggregate demand. This, how – ever, suffered from a major lacuna: there was nothing to replace the infla – tion-controlling role of the colonial regime, which is why inflation flared up in the early 1970s. Neoliberalism entails a partial rectification of this, by instituting income deflation, as in the colonial times, but in a new form, so that a mechanism for inflation control of the sort that had existed earlier is re-created. Neoliberalism, in short, represents a reassertion of imperialism. But precisely because this reassertion occurs without any necessary armed intervention, through the “peaceful” operation of the market, it is not recognized as such. We have seen that many who recognize imperial – ism as a phenomenon during the dirigiste period because of the several instances of armed intervention against third world governments attempt – ing economic decolonization, do not do so in the current period when such instances of armed intervention have become comparatively more ThE END of PoSTwAR DIRIgISME 263 scarce (except in specific regions). 5 This is an error. The earlier interven- tions occurred because imperialism was being challenged and was gen – erally in retreat. The absence of such interventions today testifies to the triumph of imperialism: income deflation can be imposed on third world populations through governments compelled to do so by the logic of being caught in the web of neoliberalism. Second, because neoliberalism represents the hegemony of interna – tional finance capital, which frowns upon state intervention in demand management, it has no mechanism for stimulating demand in the metro – politan capitalist economy. Colonial markets are now clearly inadequate, and the state is no longer allowed to stimulate demand directly. The only means through which demand can be stimulated in metropolitan capital – ism today is through the formation of asset price bubbles. To put it differently, the colonial arrangement constituted an ideal situa – tion for capitalism. The failure of Keynesianism, which fulfilled one role of colonialism but not the others, showed that capitalism could not function for any length of time in its absence. Neoliberalism fulfills the role of colo – nialism that Keynesianism could not, but in the process it fails to fulfill the role that Keynesianism had done. Neoliberalism tries to re-create some features of colonialism, namely income deflation on the working people of the third world, with a view to stabilizing capitalism, and does succeed in this regard. In the process, it exposes capitalism to another kind of structural crisis arising from the side of demand, which we will soon examine.

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