The implications of the author's startling conclusion (re-examined in a new foreword) - that the maximisation of profit must cease to be the main basis for allocating resources - are profound.
The implications of the author's startling conclusion (re-examined in a new foreword) - that the maximisation of profit must cease to be the main basis for allocating resources - are profound.
The Trouble with Capitalism: An Enquiry into the Causes of Global Economic Failure
256
The Trouble with Capitalism: An Enquiry into the Causes of Global Economic Failure
256Paperback(Reissue)
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Overview
The implications of the author's startling conclusion (re-examined in a new foreword) - that the maximisation of profit must cease to be the main basis for allocating resources - are profound.
Product Details
| ISBN-13: | 9781848134225 |
|---|---|
| Publisher: | Bloomsbury Academic |
| Publication date: | 09/10/2009 |
| Edition description: | Reissue |
| Pages: | 256 |
| Product dimensions: | 5.40(w) x 8.40(h) x 0.60(d) |
About the Author
Harry Shutt was educated at Oxford and Warwick Universities. He worked for six years in the Development and Planning Division of the Economist Intelligence Unit. He then moved to the Research Department of the General and Municipal Workers' Union (1973-76) and subsequently became Chief Economist at the Fund for Research and Investment for the Development of Africa (1977-79). Since then he has been an independent economic consultant. His books include 'The Myth of Free Trade: Patterns of Protectionism Since 1945', (1985), 'The Trouble with Capitalism: An Inquiry into the Causes of Global Economic Failure', (Zed 1999), 'A New Democracy: Alternatives to a Bankrupt World Order' (Zed 2001) and 'The Decline of Capitalism: Can a Self-Regulated Profits System Survive (Zed 2004).
Read an Excerpt
The Trouble with Capitalism
An Enquiry into the Causes of Global Economic Failure
By Harry Shutt
Zed Books Ltd
Copyright © 1998 Harry ShuttAll rights reserved.
ISBN: 978-1-84813-422-5
CHAPTER 1
The Origins of Modern Capitalism: A Brief History to World War II
Although capitalism is today generally recognised as the dominant economic system in the world, many people are scarcely aware that it has only attained this position relatively recently in human history. Even in Europe, where capitalism first made its appearance, it can hardly be said to have become the prevalent economic mechanism over much of the continent until around the middle of the nineteenth century. Up to that point economic activity had been regulated, in Europe as elsewhere, primarily by a system of customary rights and obligations within a stratified social order, where access to economic resources was generally determined far more by accident of birth than by commercial enterprise or financial acumen.
This system, loosely identified by the term 'feudalism', had been the more or less settled order of Europe – social, political and economic – since the end of the Dark Ages some thousand years before – as it was, broadly speaking, in most other parts of the world, including Japan and much of what is now known as the Third World. In the latter, indeed, feudal relationships often remain of central importance in the economic sphere to the present day, especially in the rural areas where such a large proportion of the population still lives.
Just as there are still many relics of the feudal system surviving in the late-twentieth-century world, so there were many instances of capitalistic enterprise occurring during the feudal era, particularly from the fifteenth century onwards. Yet prior to the late eighteenth century such activity tended to be confined to commerce – where it developed particularly in response to the demand for risk capital to finance long, costly and risky (but potentially lucrative) trading expeditions to the remoter parts of the world. A significant obstacle to the further development of such devices was posed by continuing restraints on the practice of usury (lending money at interest), which was contrary to the teaching of the Church. Indeed religion – along with strong social traditions based on a mixture of sectional vested interests and certain popular notions of equity – was for a long time a powerful force in resisting the more exploitative and adverse consequences of the untrammelled operation of market forces or the exercise of property rights derived solely from financial wealth.
Whereas the expansion of commerce provided the initial stimulus for the first significant manifestation of capitalist enterprise in late medieval Europe, its further development received enormous impetus from the technical advances in navigation which, starting with the discovery of the Americas at the end of the fifteenth century, rapidly extended commerce to the far ends of the earth. But if this initial advance can thus be attributed to one technological breakthrough, it was a series of far more significant ones in the eighteenth and early nineteenth centuries that finally pushed the feudal economy into a state of terminal obsolescence, at least in the Western world, and ensured the irresistible advance of the forces of capitalism. These comprised the various innovations in the harnessing of energy – through the application of steam power – which made possible the mechanisation of key processes in manufacturing, mining, agriculture and transport.
The increasingly large concentrations of capital needed to permit the application of these new technologies – far greater than those demanded by international commerce – would have been unthinkable without a capitalist structure of enterprise. Yet to make this socially and politically acceptable a profound ideological change was also indispensable. This entailed not only abandoning the medieval restraint on usury but, just as crucially, giving primacy to essentially impersonal property rights, derived from monetary transactions, over the personal, customary obligations of the feudal world. Such a transformation had already begun in the seventeenth century in those regions – notably England and the Netherlands – where the growing power of the emergent bourgeoisie, based mainly on the expansion of commerce, gave rise to an ideological rationalisation of the values associated with moneyed wealth. This new doctrine, particularly associated with the tenets of Calvinist religion and of the philosopher Locke – the arch-prophet of private property rights – was to have still greater resonance in the eighteenth and nineteenth centuries. Thus it at once helped the founding fathers of the United States to reconcile their belief in political freedom with their ownership of slaves and enabled the new industrial magnates of England (as well as those who legally expropriated common land through 'enclosure' acts to take advantage of the technical innovations of the agricultural revolution) to rationalise their own vast wealth amidst the degradation of millions of their countrymen.
Yet whatever the moral ambiguities evident in the rise of capitalism, few of its later chroniclers have doubted its inevitability. Indeed even its most famous detractors, Marx and Engels, insisted on the necessity and desirability of capitalistic production displacing inefficient cottage industries as a step along the road of material and social progress, while yet viewing it as merely a precursor to an equally inevitable proletarian revolution. In contrast its supporters, following Adam Smith, tended to suggest that the morally questionable consequences of permitting market forces to operate free of the restraint of medieval taboos should be regarded as the necessary price to be paid for enhancing the prosperity of society as a whole. Indeed this tendency may be seen as linked to the elevation of political economy in the late eighteenth century as a worthy field of study, with the important and quite novel implication that the 'wealth of nations' was at least as great a matter of public concern as the moral and material well-being of individuals, let alone the material well-being of particular disadvantaged groups.
Such considerations also played a part in prompting important changes to the legal framework governing the world of commerce and business. In order to mobilise capital through investment in joint-stock companies on the increasingly huge scale demanded by the new manufacturing industries, as well as the even larger scale of infrastructural enterprises such as railways, it was found necessary to offer investors some protection against the risk of total ruin which they might easily face in the traditionally uncontrolled financial markets. Hence laws were enacted to strengthen the accountability of companies to their shareholders and, more importantly, establishing the right to create companies where the liability of shareholders was limited to the value of the total equity they had between them subscribed. This privilege of limited liability was fundamental to the subsequent development of capitalism and it is perhaps surprising that the justification for it has never seriously been challenged – even though Adam Smith himself had objected strongly to the idea of separating control of an enterprise from its ownership as required in a joint-stock company. In fact such reservations, as well as doubts as to the propriety of giving shareholders, through their executive boards, the untrammelled right to deploy corporate assets in their own interests, were to raise increasing concern in the late twentieth century as companies grew ever larger and more global in their scope – and thus moved beyond the power of any governments (or even the vast majority of shareholders) to control them.
Naturally resistance to the advance of this self-serving ideology of private property based purely on moneyed wealth was strong – and was not confined to the still disenfranchised masses who suffered its worst consequences. It was further deepened by the appearance of a phenomenon hardly foreseen by Adam Smith – the trade cycle – which precipitated periodic deep recessions in capitalist economies. Such phenomena were not unknown in the pre-capitalist era; yet their effect in terms of lost wealth and livelihoods had been generally less severe under a system based on customary obligation than under one where profit maximisation was paramount, and the remorseless demands of shareholders and banks had to be enforced without sentiment.
After first appearing in Britain, the undisputed pioneer of full-blooded industrial capitalism, the cyclical depressions induced by the new laissez-faire climate became progressively more widespread and alarming in their intensity. That which coincided with, and was largely precipitated by the end of, the Napoleonic wars in 1815 induced such intense social misery and unrest in both urban and rural areas of Britain that the government of the day felt constrained to introduce ever more savagely repressive laws to counter the supposed threat of revolution. These events may be said to have prompted the efforts of the great classical economists of that era, Malthus and Ricardo, to analyse the causes of such cyclical disasters. However, their conclusion, which amounted to the view that the recurrence of such calamities must be accepted as more or less inevitable, was simply another facile recourse to the Invisible Hand (the favoured metaphysical device of Adam Smith). As such it satisfied few outside the ranks of the ruling oligarchy and the still unreformed parliament through which it ruled, and did nothing to silence the voices of protest, including most leading intellectuals of the early nineteenth century.
Yet these dissidents tended to follow William Cobbett, the great journalist and pamphleteer, in harking back to some kind of pre-industrial Arcadia instead of looking to ways of taming and harnessing the capitalist monster within an industrial economy. With the advent of recurrent economic depression in the 1830s and 1840s, this time affecting the Continent as well as Britain, more radical ideas began to be voiced. The resulting agitation produced a succession of revolutionary uprisings from the July Revolution in France in 1830 to the insurrections of 1848 in Paris and several other continental capitals. It was by no means a coincidence that Marx and Engels published their Communist Manifesto at the same time as the latter upheavals. Although it had no impact on the political convulsions of 1848, this polemic was to be profoundly significant in spreading awareness of the inherent threat to social peace and the political order arising from the spread of industrial capitalism.
Following the defeat of these revolutions, however, the danger of further conflict was lifted by the relative prosperity enjoyed for a generation after 1848, notwithstanding periodic sharp downturns in activity. During this time the Industrial Revolution was consolidated and vastly expanded to cover the whole of Europe and the United States, inevitably bringing with it the essential features of the capitalist system. In fact the main basis of this sustained expansion was the propagation of the technologies which had been first developed and applied in Britain to those parts of the world where they had not yet spread, and where it was seen by the European (mainly British) interests dominating the world's capital markets as both advantageous and feasible to extend them. These did not yet include those vast areas outside Europe which were under European imperial domination (or about to become so), and hence treated as the monopolistic preserve of metropolitan suppliers, with whom local manufacturers were still not allowed to compete. Likewise still excluded were China and Japan, which were effectively closed to investment from outside, but which Western powers were starting to force to trade with them.
This period of relatively sustained boom was brought to an end by the stock-market crash of 1873, which was followed by what was later referred to as the 'Great Depression', lasting over twenty years. Perhaps the most plausible explanation for the collapse of the boom at that moment is that it marked the exhaustion of the growth potential of the technology driving the original Industrial Revolution (based on steam power, textiles, railways and iron and steel). As with previous and subsequent booms, its later phases were marked by frenzied speculation and fraudulent flotation of companies, as investors chased new outlets for the accumulated capital no longer needed for new steelworks and railway construction.
It is striking, however, that the ensuing period of depression did not witness the same degree of social misery as had accompanied earlier depressions in Europe. Indeed many industrial and other workers even experienced rising real wages, if only because the widespread deflation induced by the downturn pushed up the purchasing power of wage rates that were held stable in cash terms. This relatively favourable outcome for the working class may be attributed mainly to the significant political advances it was then making in most of Europe, bringing the progressive extension of voting rights to all adult males and greater recognition of the rights of organised labour (as in Britain's Trade Union Act of 1871). These developments may in turn be ascribed to the onward march of political liberalism and a feeling among the bourgeoisie, perhaps born of the experience of 1848, that simple repression of the industrial proletariat in defence of profit margins was no longer a tenable response to cyclical depression.
A related development of great importance in the closing decades of the nineteenth century was the first appearance of publicly financed social welfare systems going beyond the traditional, and very harsh, measures of poor relief (involving, in Britain, consignment to the workhouses immortalised by Charles Dickens). Now for the first time the state became involved in enforcing social insurance, to which employers were obliged to contribute, so as to afford the working masses at least some protection against the destitution or pauperisation which had hitherto been the all too frequent accompaniment of unemployment or old age. The pacesetter here was Bismarckian Germany, where perhaps the teachings of Karl Marx were best understood – and doubtless provided a compelling spur to action in the light of the post-1873 depression.
It may be that the less unbalanced distribution of income resulting from these developments was instrumental in precipitating the next secular upswing in the world economy which began in the mid-1890s. Certainly a noticeable feature of the recovery was the signs of a broadening mass consumer market – based on such products as bicycles, the first domestic consumer durables (notably gas cookers) as well as the emergence of the first mass-circulation newspapers – which also reflected the growth of state-funded universal education and the consequent spread of literacy to virtually the whole population. However, as with all such periods of boom it is hard to find a definitive explanation of why it began precisely when it did. It may indeed be largely attributable to a purely cyclical response to the decline in the market rate of profit (the opportunity cost of capital) to levels at which investment again became attractive – as simple market theory would suggest – particularly as continuing innovation and competitive pressures meant that re-equipment was by then increasingly unavoidable.
The emergence of new technologies certainly provided a constant stimulus to investment and output during this period, with the development of electricity, petroleum, chemicals and the internal combustion engine. Yet not only can these innovations not be clearly linked to the timing of a renewed economic boom, as implied by the theories of the eminent Austrian economist J.A. Schumpeter; they may also perhaps be counted as to some extent a negative influence on growth. For although these technologies gave rise to new industries providing outlets for capital and labour, they also tended to displace some of the old ones, particularly as petroleum-powered motor vehicles and ships began to eat into the market for both coal and railways. Indeed these competitive pressures, threatening investments in the great industries which had been at the heart of the original Industrial Revolution, help to explain why the years immediately before 1914 were marked by increasing labour and social unrest in many parts of Europe, despite the general rise in prosperity.
(Continues...)
Excerpted from The Trouble with Capitalism by Harry Shutt. Copyright © 1998 Harry Shutt. Excerpted by permission of Zed Books Ltd.
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Table of Contents
Foreword: Apocalypse now? Introduction 1. The Origins of Modern Capitalism: A Brief History to World War II 2. The Post-1945 Economic Dispensation in the West 3. The End of the Boom and the Neo-classical Reaction 4. The Illusion of Orthodoxy 5. Incurable Addiction to State Support 6. Globalisation and the Power Vacuum 7. Technological Nemesis 8. Coping with the Capital Glut 9. Wider Symptoms of Disintegration: I - The Wreckage of Soviet Communism 10. Wider Symptoms of Disintegration: II - Third World Catastrophe 11. A Crisis of Legitimacy 12. Can the Profits System be Saved? 13. Political Paralysis 14. Essential Features of a Sustainable World Order Index