Is capitalism unique?
Perhaps my greatest problem with Marxist explanations of history is that they invariably set year zero to the age of European feudalism. Capitalism, you see, generates imperialism (according to Lenin), or requires continuous expansion (already present in Marx), and these things represent a new phase of social and economic development. Are they really all that new though? This claimed newness is already present in the ancient world, that period glossed over in these traditional narratives.
A dyed-in-the-wool Marxist might object. Don’t you know that historical materialism progresses from primitive communism to slave society to feudalism, and only then to capitalism? There is a pre-feudal society in the retelling, after all, and I have just not read enough of the sacred texts to understand! This is an inevitable problem with critiquing anything within the leftist realm: There is always some text or another school of thought that you haven’t considered properly. Your critique is invalid because of the third declaration of the internationalist revolutionary worker. You have never critiqued the real thing, only one of an infinite number of branches of the theory. (To be fair to the left, the right reacts to critiques in exactly the same way.)
But humor me in my failure to have read the appropriate texts which render every critique irrelevant. In the popular retellings of historical materialism, the pre-feudal society is commonly ignored, and what isn’t ignored often seems to be historically inaccurate. I am no scholar of antiquity, but what I know of it makes me suspect that Marxists have been badly misrepresented it in their historical analyses. Critiques I see that claim to target capitalism — that it generates financial crises, that it requires expansion to fuel itself — seem to apply equally well to the Roman empire. It is actually quite hard to find a supposed critique of capitalism which cannot be transposed directly onto antiquity. Unless one thinks that the Romans were capitalists (in which case capitalism is a trans-historical arrangement), this is odd. The thing I want to ask and try to answer here is: Why do Marxist critiques so often seem to be equally relevant to both 100 and 1900 AD; or in other words, in what way is the capitalist system not unique?
What capitalism is
The traditional Marxist definition of capitalism (or the “capitalist mode of production”) consists of several parts, minimally:
The private ownership of productive capacity
Goods generated by labor which does not own the productive equipment
The sale of these goods so produced on a market, for a profit
The reinvestment of this profit (“surplus value”) into productive capacity
A brute-simple version of this cycle I am stealing from the gentlemen at the Good Ol’ Boyz is: Capitalism is the use of capital investment. That is, the reinvestment of profit into developing the machinery of production, yielding more efficient production and greater profit in the future. Capital investment is, in a nutshell, the part of capitalism that separates it from previous systems. Neither Caesar nor the Sun King were practicing capital investment.
This is a fair enough definition, and I am happy to accept it without complaint. It effectively describes the changes to society over the past half millennium or so. A variety of problems are claimed to be generated by capitalism, including an underlying economic system that generates perpetual crises. But as we will see from history, this supposed uniqueness of capitalism is not in fact unique.
Pre-capitalist financial crises
Leftists often claim the capitalist system is particularly prone to certain kinds of financial crises. “Capitalism is the crisis” as they say. But if financial crises are a result of capitalism, one would expect that these are a recent phenomenon, with older systems generating other kinds of crises (being non-capitalist).
There is first of all a recency bias to investigating the truth of such a claim. If capitalism is the system of capital investment, it is somewhere around 500 years old at this point (give or take, probably take), and our access to detailed and continuous economic records extends to about that same period of time. Although some people spend their lives reconstructing the economic history of 13th century Italy, we just don’t have the data to understand the detailed historical development of that system the way we do for 18th century France. So if there were financial crises plaguing the feudal and ancient world on a semi-regular basis, we would not have as much data about it as we do for recent history.
But we should have some historical data, and if we look for it we will indeed find it. Perhaps the earliest documentation of an economic crisis is the Financial Panic of 33 AD in Rome. Rome had banks which served mostly the wealthy (unlike today ordinary private citizens did not have bank accounts), and wealthy people were able to put up their land as collateral for loans on credit, which they then invested in various business ventures. As a result of a political crisis under Tiberius, more land opened up in Italy (traitors to the emperor had their lands seized), which drove down the value of all that land that had been put up to banks for collateral. A few more external shocks and a credit crunch ensued. There were runs on banks and banks went bankrupt. In the end, the state bailed out prominent debtors with interest-free loans.
None of the above (highly abbreviated and simplified) story should look all that strange to people to who lived through the 2008 financial collapse. How curious, then, that the two systems — modern capitalism and Roman antiquity — should generate such similar financial crises!
The Financial Panic of 33 may well be unique and the person seeking to maintain that it is capitalism that generates financial crises through its unique labor-capital relation (in opposition to more ancient economic arrangements) may say that this was a one-off, a fluke. This person may even be correct, but the nature of fragmentary historical records makes it hard for us to know if other crises were similar, or even how many there were. We do know that the civil unrest and trade breakdowns of the third century drove the Roman economy into hyperinflation (something modern people should keep in mind, as we will likely face similar challenges as the global trade network enabled by Pax Americana begins to break down). Skipping a millennium, 14th century medieval Europe entered a long financial crisis, probably driven initially by the climatic changes of the little ice age, which caused crops to fail. This caused a collapse in the demand for goods, the housing market, and since land was again used as collateral for banking, Italian banks began closing. This part all happened prior to the arrival of the plague in Europe that century, which then further drove the continent’s economy into a tailspin.
These are not meant to be exhaustive lists of pre-modern economic crises. Merely enough to show that they existed prior to the modern era, and prior to the invention of capitalism. Since all these systems were periodically threatened by collapse, what drives these crises?
Growth machines
I will here pull an inverse-leftism and mostly gloss over the feudal era in preference for antiquity. The capitalist economic model is united with Roman imperialism in that both are systems for infinite(*) growth. They are machines that run by consuming their own output. In Rome, the fruits of conquest were new lands and access to new raw materials (whether plundered from the conquered people’s temples and treasure stores or generated by opening up new mines). The land was used directly to pay soldiers, who also were the means for acquiring new land through conquest. The extraction of metals and minting them into currency (which had to be paid back in tax) set up the same kind of system: Conquest generates more money supply, which is used to pay soldiers, to whom ordinary people must sell goods in order to acquire currency to pay their taxes. Once you have this up and running — no small feat, as historians have been admiring the military prowess and efficiency of Rome for millennia now — you have a machine that, at first glance, appears to generate infinite growth. Its expansion feeds its expansion, causing it to expand. Perpetual motion achieved.
Capital investment works the same way as the Roman machine, but in the domain of the production of goods instead of the acquisition of land. In capitalism, a good is produced and sold for more than the cost of its production, including the cost of labor. This generates a surplus profit which goes back as investment into capital, enabling the production of more goods at an even lower cost, generating profit which can be invested back into productive capital. Again, the expansion of the operation feeds its expansion. Unlike Rome, there is not one of these machines, but many individual firms using the same social-economic blueprint and operating in different sectors producing different goods.1
Once you have a machine of infinite growth, you can borrow against your future by using your existing goods. The machine will produce more in the future (because it consumes its own output as input), so I will give you a little bit of what I have today, on the assumption I will have enough tomorrow to pay you back with interest. This existed in the Roman banking system just as it exists in the modern one. And it all works wonderfully, generating profit for everyone (and especially for those who already have wealth), so long as the machine of infinite growth continues growing.
But I had an asterisk above next to “infinite growth.” Nothing is actually infinite. The predictable and gradual expansion of land, ensuring both the value of existing landholdings and the value of trading against future, even larger landholdings, is suddenly rendered unpredictable by a shock that causes massive amounts of land to be dumped into the Italian markets, which in turn causes the rest of the system to collapse as the land value was the collateral for business holdings across the empire. Or the reliable payment on home mortgages, driven by an increase in home ownership, suddenly becomes unreliable because of a number of defaults, triggering a collapse of the rest of the system as they were used as collateral in financial vehicles.
Or in the longer term, the cost for the maintenance of the system becomes a drag on its growth, the very growth which is in fact fueling its growth. The Roman empire contains 60 or 70 million souls, and the bureaucratic management of all those cities — enforcing the law and just keeping track of what is going on within your own borders — takes up resources which would otherwise be feeding the machine of infinite growth. For the modern firm, it first expands rapidly into some market, and then requires internal HR departments, number crunchers and monitors of its employees and capital holdings, lawyers and other legal bureaucrats, further bureaucrats who manage all the previous bureaucrats, and so on, leaving less profit available for capital investment, the very capital investment that fuels its expansion.
For whatever reason, the machine of infinite growth either slows to a stop or suddenly hits a wall. This is the actual source of financial crises, and why they are not present only in modern capitalist societies. Capitalism is just one of many possible machines of temporarily infinite growth. If there are more financial crises today than there were in pre-capitalist societies (and I am not sure that this is the case), then it is only because we have more growth machines today, as each firm is its own little system, linked in through stock exchanges and financial vehicles to a more global growth machine, both making the system more dynamic and more open to shocks.
The individual and the machine
I don’t really know how to conclude this. If one were a primitivist, or perhaps an anarchist, one could just say, “Well I am against such machines. They are always fragile and will collapse.” The problem is that you can’t be outside of them, or at least not for long. Anyone who, in the face of a machine of infinite growth, says, “I shall not compete on this terrain—I know that this will one day it will crash,” will just be run over by it. In the long run the primitivist may be right. But by the time he is right, he will be dead or outcompeted into obsolescence by the users of the machine. Even in the aftermath of its collapse, he will not have the resources to implement a new society. Feudal lords were those who still had access to the remaining wealth of the previous system. To not play the game is to be lost to history.
I’m not wise enough to know the course people’s lives should take, so I’m not telling people what to do. What I’ve written about here are historical forces against which an individual can do very little. But it is prudent to have some idea of which historical stage of such a machine you live in. For a variety of reasons I suspect we are in a period roughly equivalent to late antiquity, with America playing the part of Rome. It may not crash around us tomorrow, but it is clear that the infinite growth Pax Americana depended on is coming to an end. One cannot opt out of this, and any long-term civilizational change is beyond the reach of an individual (or even a collection of individuals). You are forced to play the game into which you have been born. But knowledge of what has happened before and what is happening around you can help you try to position yourself as well as possible for the future, and also to train up your children so they likewise can navigate their way through the slowing of this machine of infinite growth. And (of course I say this, in the grand tradition of the idiot nerd, the fool autodidact, and the mad monk) the knowledge and hopefully eventually the wisdom of how human society functions serves as its own immaterial reward, one which brings a kind of equanimity and inner peace to people in a world that is ultimately beyond their control.
In fact, the system is so similar one begins to wonder if Roman imperialism and capitalism are really all that different. Aside from the difference in scope (one machine in Rome versus many in the modern era joined together through a state-operated market) I rather suspect the main driving difference is the availability of more power (literally, more joules), generated in the first instance by the discovery of fossil fuels. Rome had access to the power output of physical labor and gravity in the form of aqueducts moving water downhill and water mills. This is simply orders of magnitude less than the burning of oil or coal.