Wednesday, February 11, 2009

Markets vs. Capitalism

So, last night, our culture's gradual abandonment of the printed word afforded me the opportunity to pick up a used copy of the last volume of Fernand Braudel's Capitalism and Civilization series. For reasons I can no longer remember, the first book I read in the series was Volume 2 -- The Wheels of Commerce -- and I found Volume 3 a while back as somebody in in the East Village was having a moving sale, so it was only Volume 1 -- The Structures of Everyday Life -- that I was missing.

No longer.

Being Volume 1, it has a nice introduction to the whole series, which rather efficiently summarizes the message I took away from reading all 600 pages of Volume 2. But before I tell you the punch line, let me preface the introduction by describing Braudel's project a little. Basically, the guy was a French historian (not an economist) who wrote a huge and wildly empirically detailed history of early capitalism, from the 15th to the 18th century. The focus of the volume I read was on Europe, primarily, but the series as a whole, and the third volume in particular, puts the development of Europe in the context of the other parts of the world that, Braudel contends, are essential in understanding what happened there. As you will see from this piece of the introduction, the work is elegantly written, and contains an overwhelming amount of detail about how society and the economy actually functioned in this period, something which anyone who seeks to get beyond our current ideological blinkers will presumably appreciate.

When, in 1952, Lucien Febvre asked me to write this book for the collection World Destinies which he had recently founded, I had no idea what an interminable venture I was embarking upon. The idea was that I should simply provide a summary of the work that had been done on the economic history of pre-industrial Europe. However, not only did I often feel the need to go back to the sources, but I confess that the more research I did, the more disconcerted I became by direct observation of the so-called economic realities, between the fifteenth and the eighteenth centuries. Simply because they did not seem to fit, or even flatly contradicted the classical and traditional theories of what was supposed to have happened: whether the theories in question were Werner Sombart's (1902, and backed up by a wealth of evidence) or Josef Kulischer's (1928); or indeed those of economists themselves , who tend to see the economy as a homogeneous reality which can legitimately be taken out of context and which can, indeed must, be measured on its own, since nothing is intelligible until it has been put into statistics. According to the textbooks, the development of pre-industrial Europe (which was studied quite exclusively of the rest of the world, as if that did not exist) consisted of its gradual progress towards the rational world of the market, the firm, and capitalist investment, until the coming of the Industrial Revolution, which neatly divides human history in two.

In fact, observable reality before the nineteenth century is much more complicated than this would suggest. It is of course quite possible to trace a pattern of evolution, or rather several kinds of evolution, which may rival, assist or at times contradict one another. This amounts to saying that there were not one but several economies. The one most frequently written about is the so-called market economy, in other words the mechanisms of production and exchange linked to rural activities, to small shops and workshops, to banks, exchanges, fairs and (of course) markets. It was on these 'transparent' visible realities, and on the easily observed processes that took place within them that the language of economic science was originally founded. And as a result it was from the start confined within this privileged arena, to the exclusion of any others.

But there is another, shadowy zone, often hard to see for lack of adequate historical documents, lying underneath the market economy: this is that elementary basic activity which went on everywhere an the volume of which is truly fantastic. This rich zone, like a layer covering the earth, I have called for want of a better expression material life or material civilization. These are obviously ambiguous expressions. But I imagine that if my view of what happened in the past is accepted, as it seems to be nowadays by certain economists for what is happening in the present, a proper term will one day be found to describe this infra-economy, the informal other half of economic activity, the world of self-sufficiency and barter of goods and services within a very small radius.

On the other hand, looking up instead of down from the vast plane of the market economy, one finds that active social hierarchies were constructed on top of it: they could manipulate exchange to their advantage and disturb the established order. In their desire to do so -- which was not always consciously expressed -- they created anomalies, 'zones of turbulence' and conducted their affairs in a very individual way. At this exalted level, a few wealthy merchants in eighteenth-century Amsterdam or sixteenth-century Genoa could throw whole sectors of the European or even world economy into confusion, from a distance. Certain groups of privileged actors were engaged in circuits and calculations that ordinary people knew nothing of. Foreign exchange, for example, which was tied to distant trade movements and to the complicated arrangements for credit, was a sophisticated art, open only to a few initiates at most. To me, this second shadowy zone, hovering above the market economy of constituting its upper limit so to speak, represents the favored domain of capitalism, as we shall see. Without this zone, capitalism is unthinkable: this is where it takes up residence and prospers.

This triple division, which I gradually saw forming itself before my eyes, as the elements of observation fell into place almost of themselves, is probably what my readers will find the most controversial aspect of this book. Does it not amount to making too rigid a distinction -- indeed a term by term contrast -- between the market economy and capitalism? I did not myself take up this position hurriedly or without hesitation. But in the end I accepted that the market economy had, between the fifteenth and eighteenth centuries and indeed even earlier, been a restrictive order, and that like all restrictive orders, whether social, political, or cultural, it had created an opposition, counter-forces, both above and below itself.

What I find most encouraging to my view of things is that the same schema can be used ti show easily and clearly the articulations of present-day societies. The market economy still controls the great mass of transactions that show up in the statistics. But free competition, which is the distinctive characteristic of the market, is very far from ruling the present-day economy -- as nobody would deny. Today as in the past, there is a world apart where an exceptional kind of capitalism goes on, the my mind the only real capitalism: today as in the past, it is multinational, a close relation of the capitalism operated by the great Indies Companies, and the monopolies of all sizes, official or unofficial, which existed then and which were exactly analogous in principle to the monopolies of today.Would we not call the Fugger or Welser firms transnational today, since the had interests all over Europe and had representatives both in India and Latin America? And Jaques Coeur's business empire in the fourteenth century was as big as the trading interests of the Netherland in the Levant.

But the coincidences go further than this: in the wake of the economic depression following the 1973-74 crisis, we are beginning to see the development of a modern version of he non-market economy: hardly disguised forms of barter, the direct exchange of services, 'moonlighting' as it is called, plus all the various forms of homeworking and 'odd-jobs'. This layer of activity, lying below or alongside the market, has reached sufficient proportions to attract the attention of several economists: some have estimated that it may represent 30 or 40% of the gross national product, which thus lies outside all official accounting, even in industrialize countries.
... and just imagine what that fraction might be for present-day China.

As you can probably imagine, what I find interesting about Braudel is how he traces back, right to the dawn of capitalism, its most basic feature -- to (continue to) be a capitalist, you have to find some way to avoid competition, some way to avoid the free market. There are many ways to do this, but that is the fundamental task of any system that purports to have capital make more capital. I will avoid belaboring analogies to evolution; let me simply suggest that for the market, profits are dinner, whereas for the capitalist, they are life itself.

For some strange reason we are still surprised by this, and still equate capitalism with the free market, when nothing could be more anti-thetical in fact. The same strange logic induces us to think that Goldman Sachs wouldn't ever try to manipulate the government and that the government, in turn, would never go into business with Goldman Sachs.

Ethics will never defeat mechanism. Ethics is nothing but the cold dead invisible hand of mechanism.

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