What Actually Is Capitalism?

One of the earliest coins in the world, an electrum coin from Miletus, in southeastern Turkey. Despite the existence of currency, the economic system of these people cannot be called “capitalism”.

Edgar and I are quarantining, just in case we were exposed to Covid. This is the second time we were in the same place, as someone who we later learned definitely had it (the first time, which is principally the impetus for the following piece, the infected individual didn’t know they were sick; the second time, they knew they were sick but didn’t know it was Covid.) This is prompting a bit of a reassessment of the way we have been conducting ourselves – even the outside-only, distanced social gatherings we have taken part in feel too risky for us.

When you’re effectively locked in your apartment, and not engaging with the minutiae of social reproduction – cooking, cleaning, laundry, and the like – you have only a small number of things that you’re really able to do. You can read. You can watch television. You can play video games. You can doomscroll. You can think.

I’m going to kill Francisco Franco at some point.

I’ve been doing a lot of all of these – more articles than books, much to the chagrin of my goodreads goal, on the first one; and I’ve gotten very deep into Hearts of Iron IV, relitigating the Spanish Civil War over and over again in the hopes of a better outcome; and we’ve finally begun Mr. Robot – but I’ve been doing more thinking than anything else. Part of this is that you can do it while you’re doing the cooking and cleaning.

The first brush with Covid I mentioned happened in the back yard of a friend’s house. We sat in a circle, engaged in a bullshit session, and drank cider. As most conversations between me and this friend do, this turned eventually to anti-capitalism (I can be a broken record on this, I admit.) I’m anti-capitalist, he once was.

Back in high school, this friend called himself a communist for a period, but now he fits more neatly into the “progressive” category, as far as I can tell. He wants the world to get better, but doesn’t think any major renegotiation is necessary. I think the current situation is a raging dumpster fire and something needs to be done, but the exact nature of it escapes me somewhat – which is why I try to convince people of the current system’s faults: a better world for everyone cannot be designed by one person alone.

One thing I noticed during the course of this conversation is a confusion of terms, though. We didn’t agree on what capitalism actually is. I’ve been turning this idea over and over in my head and that’s what I’m going to do today: provide a working definition of the problem.

Now – I’ve only begun to dip my toes into political economy, so this is going to be somewhat shallow a definition. However, there are certain things I come into this problem knowing: capitalism isn’t “human nature”, it isn’t the only form of “market economy”, it has a historical genesis that we can point to, and it has a logic behind it that that is to blame – at least in part – for a lot of the social problems that we experience.

Allow me to address these points in order.

Somehow not history’s most punchable economist.

People who hold that capitalism is part of human nature ultimately draw from Adam Smith, who stated in the second chapter of The Wealth of Nations, where he describes the origin of the division of labor, that “It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another” (underlining added by me, and leaving aside my normal complaints about essentialism.) This is ultimately determined through the fact that “Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog”. This chapter goes on to provide a mythic account of how the specialization of labor emerges out of a barter economy. Notably, he later goes on to describe how barter is eventually replaced by the use of coinage as a means of bypassing the logistical problems of barter (it depending on the occurrence of a “double coincidence of wants” – you and another person each want something that the other possesses of relatively equal personal value and so your orchestrate an exchange, which doesn’t work if one party has nothing the other wants.)

Of course, the myth of barter is just that, a myth. It’s been observed by anthropologists for almost a century that it didn’t actually happen that way. The repetition of this story is pure mythology, pure ideology. No society that proceeds solely on the basis of barter has ever been recorded or observed. Which certainly blows a hole in Smith’s observations, and (to my mind) throws most of what he later says into doubt.

(And here’s where I begin to bring in David Graeber, who I’ve been on about for weeks. Seriously, everyone should read Debt.)

I’ll stop talking about it at some point.

What you actually observe in indigenous societies from the Amazon and the Arctic to Oceania and Sub-Saharan Africa is more that these societies – which are the closest proxies for the pre-literate societies of the kind the Smith is talking about – is that they tend to proceed on the basis of credit and debt, much like our modern society, with the exception that they don’t quantify the debts. What you have tends to be a system of gifts, obligation, and favors. I give you shoes today, you help me re-thatch my roof next spring, and I owe you the best cut of meat at the harvest feast. These debts aren’t designed to be canceled out, the entire point is that they persist and tie the community together.

Consider that this happens, still, informally: you may be asked to help a friend move, for which you will be offered pizza and/or beer. The real payment, though, is that you can now expect the return of an equivalent favor at a later time. However, in a true friendship, the favors never really seem to cancel out.

We shall return to this momentarily. Let’s talk about where coinage comes from, historically and anthropologically, briefly.

The inscription, שעם מחנת, Shâm Machanat, means something along the lines of “for payment of the people of the camp” — Graeber makes a big deal out of the fact that coinage most likely emerged as a means of paying mercenaries, as a sort of substitute for plunder.

It’s the assertion of Smith’s disciples and the neoclassical economists that markets are their own thing, wholly separate from other institutions, and that currency evolves semi-naturally to fulfill this role. However, coins are only rarely noted in the earlier part of the historic record to be produced by any agency other than a temple of state. The historical record tends to show the emergence of coinage alongside powerful – and especially militaristic – states.

Before the advent of coinage as the dominant form of exchange, almost all precious metals were held in temple and palace complexes. It’s only when some of these proto-states began to conquer and plunder their neighbors that you see coins begin to show up in the archaeological record. This is what the first coins most likely were: idols and jewelry melted down and cast into coins of equal size and weight, to split up the plunder.

This still begs the question of why anyone would want a disk of silver. Sure, you could drill a hole through it and make an earring, but what else? There was no reason to value a silver coin as more or less than a bushel of barley. It’s pure convention that it’s worth anything before the emergence of electrical engineering. Some sort of pressure had to be applied to make a market emerge. When the first standing armies began to appear in the classical age, certain monarchs (or clever advisors) hit upon the idea that if you paid soldiers in coin and demanded that everyone produce a certain number of these coins back in the form of taxes, that money would begin to move, generating a market (in the same way that moving a sufficient electrical current through a medium might generate a magnetic field – and, much the same way, you see the market persist after the collapse of the state for a time before it breaks down.)

As a result of later financial crises (which also led to the liquidation of buddhist temples,) the Chartalist position allowed China to invent paper money long before the rest of the world, during the Song dynasty (CE 960–1279)

This last – that states create markets through taxes is called the “chartalist position”, and is the cornerstone of traditional Chinese forms of economics, and is also found in Aristotle. Essentially, whatever the government demands taxes be paid in becomes the de jure currency. In weaker states – such as those of the European middle ages – you also see the emergence of de facto currencies (which you also see in contemporary criminal enterprises. For at least a period of the last decade, bottles of tide detergent were being used as currency to purchase drugs. Of course, addiction functions a bit like a tax: if it’s a commodity you have to pay for one way or another, the currency you use to buy it becomes valuable for you.)

Now we’ve happened upon our second point: capitalism isn’t the market (and the market and government are mutually dependent. I’m setting this point aside to continue with the main thrust, though.) Market economies existed long before capitalism, and the tendency to refer to them as primitive or undeveloped forms of capitalism reads a particular motive into them. Capitalism cannot exist without capital, and capital isn’t money, it’s a particular arrangement of social relations concerning money.

According to Graeber, perhaps the first instance of finance capital would be found in India – note, this is capital, not capitalism – with the emergence of the Buddhist monastic practice of the Inexhaustible Treasury. In short, when someone made a donation to a Buddhist monastery, they would then turn around and loan out that same amount, and would then put the interest from that loan toward the purpose that the original donation was made for – thus meaning that if someone donated ten silver coins for the purpose of buying candles the monks would make a loan to another farmer or merchant or artisan, who would eventually pay back the loan with interest, the interest would buy candles, and the principal would then be loaned out again.

When this practice spread to China it often resulted in a great deal of conflict between the religious and temporal powers, as the strong Chinese state found its people impoverished through the usury of these Buddhist temples: all of the available currency was gradually siphoned up by these temples, melted down and cast into idols. It led to a reenactment of the birth of coinage, in short.

This leads me to what capital is. Capital is a vast reservoir of liquid currency that can be used to generate further currency. All capital is currency, but not all currency is capital. If you have to spend $500 to fix your car, that $500 is earmarked for something in particular, it isn’t liquid, and therefore isn’t capital. Capital as such didn’t actually make its way to Europe until the Early Modern Period, despite emerging in India before the BCE-CE (or BC-AD) switchover: it was resisted by Hindu and Confucian authorities in India and China, and never actually spread westward before the emergence of Islam, which had two strong institutions that made it unfeasible for the formation of something like Capitalism. They already had a strong merchant class, and they had a stronger prohibition against usury, which led them to create a rather complex non-capitalist market economy.

Cortes committed genocide against the Aztecs because he was deeply in debt, and he died a penniless beggar. Everything he extracted from Mexico was drained to Spain and from Spain to the merchant cities of Italy.

But even at this point, capital — a mass of liquid currency that can be used to extract further value through debt — isn’t identical to capitalism. The one is a social phenomenon, the other is a system of social relations. The latter cannot exist without the former, but it goes beyond that – because there is a difference between using the interest from a loan to a small artisan to pay for candles and what happened in the first few centuries of the Columbian exchange.

If any system can be said to be the true precursor or primitive form of capitalism it would most likely be the form of colonialism practiced in the Colonial period. In Europe and the Americas, this took the form of a vast machine of human cruelty designed to extract the mineral wealth of the Americas and ship it eastward (most of this ultimately moving as far east as China, which had recently switched from a paper fiat currency back to a precious metal standard currency,) and brought increased wealth in the form of various luxuries into Europe.

I say that this is a primitive form of Capitalism because it shows one of what I considered the hallmarks of Capitalism: the logic of extraction. For the colonial system, this was a geographic horizon, and the whole system was designed to siphon the wealth from the outside of that system and bring it inside.

The emergence of capitalism, in my mind, came when that horizon ceased to be geographic. What came before was a system of incalculable cruelty: what came after was a different system of incalculable cruelty. The exact transition happened in England with the enclosure of the commons, which (through a quick bit of research, not guaranteed to be correct,) seems to have reached the tipping point under Henry VIII and the latter part of the Tudor period (it seems that the last King of England who could actually balance a budget was Henry VII.) This period saw previously existing village commons enclosed and made into private farms, thus making it less possible for someone to continue to live as a peasant – because medieval peasants actually had a pretty sweet deal after the plague and provided they lived in politically stable environment: when your employment depended on the rhythm of the seasons, you essentially had one third of the year off as you wait for the right conditions to plant and reap. The enclosure was specifically a problem for those peasants who made their living rearing sheep: given that the non-human Apex predators in the British Isles are foxes and owls, sheep are pretty safe, meaning that not much has to be done to keep an eye on them, especially when there’s grazing land held in common by your whole village.

Pictured: a significant portion of the wealth of one early modern British peasant.

So, enclosure meant that there was a large surplus population that was unemployed because they were denied the commonly-held resources that had enabled them to live as they had been. This was actually the invention of unemployment. From the ranks of these unemployed people came not only the British settlers of the Americas but also the urban proletariat.

Pictured: the utter financial ruin of the Netherlands. (photograph from wikimedia user Bernd Haynold, used under a CC BY 2.5 license.)

Around the same time, new financial instruments emerged on the continent and were adopted elsewhere: the Dutch East India Company was one of the first publicly-traded stocks, and the application of these instruments to other commodities led to the well-documented Tulip Mania that followed. It wasn’t the first joint-stock corporation, if memory serves, the medievalist Jean Gimpel found evidence of one operating a mill in (I think) 12th century France, though it’s been some time since I read his book The Medieval Machine.

When you get down to it, the existence of stocks is a bureaucratic phenomenon, by a definition I worked out in a prior piece: it exists not just to share the burden, but also to diffuse blame across a large group. If a bureaucratic arrangement is responsible for a wrongdoing, then no particular person is responsible for it, it’s simply diffused across the whole formation and it continues as it was. This is why the sweat shop persists – the clothing executive isn’t responsible for the conditions, because they subcontracted out to a producer in the global south, who has to keep expenditures low so that the company will continue to pour money into their country and not move the factory elsewhere. Ultimately, by the dominant logic of the situation, no one is responsible for the hellish conditions that result. For more information, read No Logo by Naomi Klein.

Capitalism emerged from the confluence of these things: the colonization and enslavement of distant lands, the replication of this logic to the intentional immiseration of the poor at home, the use of capital to generate further capital, and the use of stock trading – a fundamentally bureaucratic instrument – to make it happen. Looking over it all, we can boil it down to two essential components.

Look, if it’s the Early Modern Period and the Iberians show up, it’s already too late.

The first is the logic of extraction. Capital must constantly re-litigate its boundaries so that it is always extracting something from the outside, pulling it inside. Contrary to the adage that “there ain’t no such thing as a free lunch”, Capitalism would starve itself down to nothing if deprived of a free lunch. Whether it was the jump start of free labor provided by the Trans-Atlantic slave trade, the human meat grinder of of the Spanish mines in the new world, the depopulation of the North American continent (which left behind an unprecedented agricultural infrastructure,) the introduction of Piracy into the Indian Ocean by Vasco da Gama, or even the existence of unpaid interns and social media algorithms today, capitalism always finds a new frontier to exploit, and it has no problems mining your dreams, your nostalgia, your fears, and your very identity for something that it can repackage and sell back to you (consider the funko pop…)

So, to rewrite the Margaret Thatcher quote: “the problem with Capitalism is that eventually you run out of other people’s stuff.”

This is part of the problem with orthodox Marxism: the Marxist project, because it was focused on the relationship of production has very little, if anything, to say about the relationship of extraction (I don’t know, I’m still working on Capital.) As if a worker-owned strip mine would be any better than a privately-owned strip mine.

The second essential component is the bureaucratization of this logic. Consider Comcast. If you’re lucky enough to never have bought the services of Comcast, consider yourselves blessed, because you effectively cannot cancel the service one it’s engaged. Not only is it a monopoly within the markets that it operates in (and the emergence of a monopoly is the result of the logic of extraction: competition is waste.) but it has no actual customer service, only an endless, recursive gauntlet of overlapping sales departments. If you contact them for anything, the end result will be you giving them more money or you hanging up. However, no individual that you talk to is responsible for the situation. You’re actually talking to people who have little or no choice but to work in a call center (possibly even prisoners, because some call centers are operated out of prisons, which means that the person you’re talking to on the other end is potentially enslaved.) They may be regretful, they may want to help you, but they will be punished by someone if they don’t try to extract value from the interaction with you – and the person who would punish them is likewise not wholly responsible. When you get down to it, the CEO of a company is only partially responsible – they’re legally obligated to seek the greatest value for their shareholders, who don’t really get a say in the matter of how it’s run other than voting with their dollar.

If you think I’m being histrionic, consider also the fact that Capitalism simultaneously insists that there is no alternative to it and also can’t help but be obsessed with its temporal as opposed to physical boundaries. Quoting Graeber:

It’s a strange story because we are used to thinking of the Enlightenment as the dawn of a unique phase of human optimism, borne on assumptions that the advance of science and human knowledge would inevitably make life wiser, safer, and better for everyone—a naïve faith said to have peaked in the Fabian socialism of the 1890s, only to be annihilated in the trenches of World War I. In fact, even the Victorians were haunted by the dangers of degeneration and decline. Most of all, Victorians shared the near-universal assumption that capitalism itself would not be around forever. Insurrection seemed imminent. Many Victorian capitalists operated under the sincere belief that they might, at any moment, find themselves hanging from trees. In Chicago, for instance, a friend once took me on a drive down a beautiful old street, full of mansions from the 1870s: the reason, he explained, that it looked like that, was that most of Chicago’s rich industrialists of the time were so convinced that the revolution was immanent that they collectively relocated along the road that led to the nearest military base. Almost none of the great theorists of capitalism, from anywhere on the political spectrum, from Marx to Weber, to Schumpeter, to von Mises, felt that capitalism was likely to be around for more than another generation or two at the most.

One could go further: the moment that the fear of imminent social revolution no longer seemed plausible, by the end of World War II, we were immediately presented with the specter of nuclear holocaust. Then, when that no longer seemed plausible, we discovered global warming. This is not to say that these threats were not, and are not, real. Yet it does seem strange that capitalism feels the constant need to imagine, or to actually manufacture, the means of its own imminent extinction. (Emphasis added.)

It’s amazing that there was a time when one of the most respected military leaders in the U.S. could be an anti-capitalist, but here is Smedley Butler.

A further irony is that, as soon as people act like Capitalism might actually be the system with no alternative, it begins to break down. In the past century or so, the periods of the greatest free market orthodoxy almost universally result in the worst crashes: not just our current slump (which, while triggered by the virus, is made much worse by the policies of the government,) not just the 2008 crash or the Dot-Com bubble, but also the Early 90s crash, and the Great Depression. I don’t know enough to extend it back further, but I wouldn’t be surprised if it did. Only when it’s limited is it at all functional, but this still doesn’t account for the whole human cost.

A big part of this human cost? The upsurge in depression or, as it was called in the Early Modern period, Melancholia. While Depression has always been with us, there seems to have been a notable uptick in the instance of it starting in the 17th century: physician Robert Burton published the Anatomy of Melancholy in 1621, and as far as I can tell it’s the first work focused on melancholy as a problem, which might indicate that it was widely acknowledged as a problem at the time. I have yet to read it, but apparently James Oliver wrote a compelling argument about the interrelation of mental health and capitalism called The Selfish Capitalist. It is here that I am contractually obliged to quote from the place I found reference to this, the late theorist Mark Fisher, who wrote in Capitalist Realism that:

The current ruling ontology denies any possibility of a social causation of mental illness. The chemico-biologization of mental illness is of course strictly commensurate with its depoliticization. Considering mental illness an individual chemico-biological problem has enormous benefits for capitalism. First, it reinforces Capital's drive towards atomistic individualization (you are sick because of your brain chemistry). Second, it provides an enormously lucrative market in which multinational pharmaceutical companies can peddle their pharmaceuticals (we can cure you with our SSRls). It goes without saying that all mental illnesses are neurologically instantiated, but this says nothing about their causation. If it is true, for instance, that depression is constituted by low serotonin levels, what still needs to be explained is why particular individuals have low levels of serotonin. This requires a social and political explanation; and the task of repoliticizing mental illness is an urgent one if the left wants to challenge capitalist realism.

In short, the conjunction between a Logic of Extraction (using force and unequal exchange to acquire more and leaving the other party with less) and a Bureaucratic formation (in which no one in particular is responsible for wrongdoing,) creates an unstable and unhealthy society that somehow needs to be corrected.

Now, at this point in the tirade, my friend often asks me what we should replace this with, and so I’m going to quote, again, from Graeber (a quote that I previously inserted into a piece on this website,) specifically the article “A Practical Utopian’s Guide to the Coming Collapse”.

He wrote:

Normally, when you challenge the conventional wisdom—that the current economic and political system is the only possible one—the first reaction you are likely to get is a demand for a detailed architectural blueprint of how an alternative system would work, down to the nature of its financial instruments, energy supplies, and policies of sewer maintenance. Next, you are likely to be asked for a detailed program of how this system will be brought into existence. Historically, this is ridiculous. When has social change ever happened according to someone’s blueprint? It’s not as if a small circle of visionaries in Renaissance Florence conceived of something they called “capitalism,” figured out the details of how the stock exchange and factories would someday work, and then put in place a program to bring their visions into reality. In fact, the idea is so absurd we might well ask ourselves how it ever occurred to us to imagine this is how change happens to begin.

This is not to say there’s anything wrong with utopian visions. Or even blueprints. They just need to be kept in their place.

No human system is going to be perfect, but perhaps read some Ursula K. LeGuin in the mean time?

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