Capitalism Within Culture

Does Capitalism Exist?

By Gwydion M. Williams

Back in the 1960s, it was moot if capitalism still existed. Defenders of the ‘mixed economy’ certainly denied it. Most of the left insisted that Keynesianism or Democratic-Corporatistism was capitalism. There was also a strong belief that capitalism was a permanent barrier to sexual and racial equality, a perpetual source of class division, the root of bourgeois evil.

A misreading of the period 1945-1975 left the bulk of the left ill-equipped to cope with the last quarter of the 20th century, when the West has simultaneously become more capitalist and less bourgeois. Opportunities lost then cannot be recovered. But it is better to be wise after the event, than never to be wise at all. Especially since the New World Order invented by Bush Senior in 1990 is in a lot of trouble, economic and political and military, and could break down very suddenly.

What we had between World War Two and the 1980s was indeed a ‘mixed economy’. Theorists of both left and right disliked it intensely when the real world made an untidy mess across their nice clean categories. Instead of adjusting their minds and devising more realistic theories, they insisted that there was a fault in reality.

Some of us back then accepted the untidy mess as the actual reality that must be dealt with even if it wasn’t fully understood. We urged left-wingers to improve the mix on the assumption that the system was open-ended. The road was open to make it more socialist by means of workers control and incomes policies, but that was a road not taken. Most leftists insisted on confrontation, in the hope of collapsing the system. Which did indeed change radically, but by the emergence of a New Right that incorporated a lot of the anarchic individualism of the 1960s.

The New Right nowadays tries to have it both ways. Successes in the West in the period 1945-1975 are credited to capitalism. Failures over the same period are because it wasn’t capitalist. And if today’s culture continues to dump-down and sleaze-up, this is because of errors made before they came to power in the 1980s.

My view is that we have always had capitalism within culture. The abstract model developed by Smith, Ricardo and Marx is a good description of that portion of the economy where money has freed itself from social ties. Bourgeois or middle-class culture was dependent on rest of the privately-owned economy, and also on the state. The Thatcherite drive to liberate money from all remaining social ties dealt a massive blow to what was left of traditional middle-class values. It’s not surprising we now find Tories soliciting the gay vote, many years after Labour changed its official line on the basis of principle, and at some electoral cost. It remains to be seen if pink and blue are actually an attractive blend. Or how wise it is for the Tories to ignore their ‘core vote’ of people who trusted them to uphold old-fashioned values. The US Republicans have operated successfully as a ‘United Front of Saints and Sinners’, but Britain is another matter.

The world since the 1960s has evolved in ways that are absurd from the viewpoint of Classical Socialism. Such events cannot be fitted into the viewpoint of Ricardian Socialism and all of its descendants, including Marxism. If you see industrial society as mostly about plutocrats living off surplus value, you miss a great deal of what was going on. Forget to claim credit for all of the progress towards sexual and racial equality, which began as the unpopular concerns of Socialists and Communists and which are now standard.

In the 1960s, the leftist view was that sexual and racial equality were impossible within ‘capitalism’. They were impossible within the framework of bourgeois or middle-class culture, indeed. But what we’ve seen since the 1970s is a capitalism that feeds on the cosy niches of middle-class culture and spits upon its values.

The Marxist description was mistaken on many points. But not on the points that the New Right condemn it for. In particular, the Communist Manifesto contains a key concept that lacks a clear name, so I’ll call it sinistrality. Sinistrality in a social context is the process whereby a society gets subverted in a radical or left-wing direction for no obvious reason. This observable fact encourages a whole host of conspiracy theories: in Wealth Without Nations I documented the first of them, produced by a man called John Robison who was associated with Adam Smith’s circle of friends. Robison blamed the French Revolution on Freemasonry: never mind that Freemasons were present among almost all French political factions. Later writers adapted Robison and added Jews to the mix, without really explaining how persecuted minorities could be so successful.

Marx was the first person to see ‘sinistrality’ as a product of normal commercial economics: commerce generating capitalism generating working-class revolution. He was much too optimistic about the process; supposing that existing ruling classes would be unable to moderate or mediate. In fact the working class got caught up in nationalism from the 1870s to 1940s, and then conciliated by Keynesianism or Democratic Corporatism from the 1940s to 1980s. But all of the time sinistrality was at work, an economic system busily destroying its own conditions for existence. From the 1980s till today, capitalism economics have made a come-back at the expense of middle-class values; especially the security and certainty that was the basis of actual middle-class existence.

Much as 18th century industrialism and commerce were destroyers of the dominant order of gentry that let it get started.

18th century Britain had capitalists and industrialists, but very few capitalist industrialists. Sophisticated money-markets may well inhibit industrialisation: it is definite that the early developments of factories and machine-manufacture were all well away from London.

Adam Smith looked at the commercial world of his day and deduced a system of capitalism. The name came later, a generalisation from the specific and specialised function of the venture capitalist. A real-life venture capitalist would probably be good at reading people; figuring who was honest and also who was competent, realistic and hard-working. A real-life venture capitalist would place their money anywhere where it was a profitable bet, where the chances of a big profit justified the inevitable risks. Such a function could only exist within a sophisticated commercial economy, and only in combination with people who had a very specific Good Idea in a branch of trade that they already knew in detail.

Adam Smith did not speak of capitalism, and cannot be blamed for the application of the word to his theoretical system. But he did very specifically argue that commerce was based on what we’d now call ‘return on capital’. For Smith, ‘productive’ work as work that yielded a profit, slurring the important differences between increasing personal wealth and increasing the wealth of the society as a whole.

Someone who puts up a toll-gate on an existing road is pretty sure to increase their own wealth. It’s more moot if they increase the social wealth: 18th century toll roads were created by gift of parliament and without any fixed duty of road improvement. Moreover, a ‘turnpike trust’ might improve a road but also charge too much, grabbing all of the increased social wealth and some of the modest wealth of road-users in addition.

The mania for canal-building—just beginning in 1776, when Wealth Of Nations was published—showed the complexity of the matter. Some canals were built at huge expense and then abandoned. Sometimes there were several rival canals competing for the same traffic—unlike the ‘rational agents’ of economic textbooks, real people can get more interested in wining a fight than making a profit. And they also make wildly inaccurate guesses as to their own best interests.

If you look in detail at the ‘rational agents’ of economic textbooks, they turn out to be creatures with the emotions of a lizard and a superhuman grasp of their own economic needs. In real-world markets, the most successful and experienced traders are often surprised by events and frequently make mistakes. George Soros is a useful source: he describes how many of his currency speculations go wrong and lose money: it’s just that overall he comes out ahead.

Figuring the economic relationships of creatures with infinite wisdom and no emotions is much easier than figuring actual economics in a human context. It also allows right-wing academics to blame the poor and to praise the rich and powerful, who tend to repay the favour. No manager would consider running their own business on the lines that right-wing economists suggests. But good praise-singers is worth subsidising, especially when they help business interests to dump their own social costs onto other people.

In the 18th and 19th centuries, canals did approximate to Adam Smith’s model of capitalism, as did railways later on. There was a distinct separation between the people who did the work and the people who owned the means of production, with shares sold to people who knew little about the business. Managers and engineers were in the middle between these two groups, generally receiving shares and a high income to make them identify with shareholder interests. Adam Smith himself was distinctly old-fashioned on the point: he disliked the idea of joint-stock companies, which had been unpopular since the South Sea Bubble of 1720. But rather than look at actual cases of irrational and all-too-human capitalism, Smith simply evaded the point. (Smith was intellectually dishonest on a great many matters, as I detailed in my book Wealth Without Nations.)

The actual industrial revolution did not have capitalist beginnings. Sophisticated finance existed in London and was connected to the global market, but this was nothing new, nothing that hadn’t existed in ancient Babylon, if not before. Meantime new industries were springing up well away from London, while London’s own manufacturing sector was dominated by small trades and crafts. In those parts of England that the ruling class call ‘the provinces’, local elites plus a few ambitious characters of lower-middle-class origins figured out the factory system. They also worked out how to apply science and technology to production, an art that Britain later lost.

You get a good account of early manufacturers and scientifically-minded entrepreneurs in Jenny Unglow’s book The Lunar Men. And the actual human community of Boulton & Watt, of Josiah Wedgwood, Joseph Priestly, Erasmus Darwin etc. has little in common with the Adam Smith model.

Strict capitalist ideology see life as a burden on money: money is a magical self-multiplying entity that automatically ensures the production of goods. This was how Adam Smith saw it, and how Ricardo refined it. It was this model that Karl Marx turned into algebra in Das Kapital, and which Von Neumann analysed when he updated Marx’s algebra with the use of Games Theory. The same stuff gets awarded the Meretricious Nobel Prize for Economics ever since Swedish academics were bribed or bullied into accepting a new Nobel Prize, a prize alien to the founders intentions. “In 1968, to commemorate its 300th anniversary, the national bank of Sweden endowed The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, to be awarded by the Royal Swedish Academy of Sciences… [which] also awards the prizes for physics and chemistry.” (Microsoft Encarta 2003.)

Smith’s original analysis was Abracadabra Rationalism. It looks logical, but includes assumptions that are just as unlikely as rabbits with pocket-watches or gigantic fortresses dependent on the existence of magic rings. Works of fiction can be up-front with the supernatural element, and let you judge if the rest of the tale has any bearing on life. Abracadabra Rationalism claims scientific rigour and tries to trick you into accepting speculative ideas as proven.

I’ve already mentioned one of Smith’s Abracadabras: private profit is the same as public welfare. Another senseless idea—though one he shared with most Enlightenment thinkers—is that people will automatically see that their own best interest is served by the existence of fair and enlightened rules. But this is nonsense: the authentic benefits of other people keeping to an enlightened set of rules is different from your own interest in keeping them. Almost always, it is easier to cheat. Or easier if you have the emotions of a lizard, which is the ‘rationalist’ assumption.

The successful entrepreneur in Arthur Miller’s All My Sons has got clean away with monstrous behaviour—making dud aircraft parts that got people killed, and then telling a pack of lies so as to shift the blame onto his business partner. What ruins him in the play is that he has a conscience, especially when his children realise his guilt. We wouldn’t want to watch a play in which his dishonesty remained successful—though modern dramas from Dallas downwards are edging ever closer to such an outcome.

I’ve spoken elsewhere about ‘Units of The Individual’, which is what Anarchic, Liberal and Libertarian systems are built around. The concept of ‘The Individual’ slurs the social and the personal. It misses the point that an intelligently selfish person will ‘work the system’, telling selective lies to honest associates.

People can also be unintelligently selfish, and even a smart trickster can get caught. This is what breaks a trust-based system. That and the problem of different ideals and different ways of life. The USA was able to develop an extreme kind of individualism, because it operated a ‘melting pot’ for its citizens. People from all over were melted and remoulded into passable versions of a modern Anglo model of The Individual. Even if immigrants held out, the system would reliable scoop up and remould their children.

The ‘melting pot’ broke down when it was established that Blacks could not be excluded from it. The mainstream US viewpoint had always been fairly racist and did not wish to merge. Moreover, the USA’s vast open spaces and extreme kind of individualism allowed ‘white flight’ from the cities, a de facto apartheid. Whereas black and white Britons mostly live in mixed communities and often intermarry, the USA has kept up the separation. That’s why the USA’s extreme kind of individualism is probably going to fail.

US individualism is also not what most people expected, not a means by which people could live their own lives in their own way. The reality is that it’s a corporate world, and would remain so even if the New Right were able to realise their ideal. A world that was a gigantic suburb with Anglo culture and independent trading entities governed by Anglo commercial law would also be a world where no one had any time to live their own lives.

A ‘capitalist’ system is best described by its social relationships. Control is officially based on an abstract notion of ownership, without any requirements for social connection. But that’s not how any real business has ever worked. Mostly the managers function as ‘chieftains’, concerned mostly with the values of their own community. In as far as they could get away with it, managers sidelined the interests of shareholders.

The New Right’s bright idea to fix this was share options. Rather than assuming that managers took a pride in their work and their status, they used the infallible judgements of the economics textbooks to argue for the merits of giving managers more shares and share options, an abstract notion of ownership without social connection. It seems not to have occurred to them that this gave managers a common interest in pumping up the share price beyond its value. Or else it did occur to some people but they chose just to get in on the act. But for the hard-liners, there was no danger of cash incentives distorting the managerial role. Doctrinal capitalism tells them that things are sold for their proper price. The existence of ‘bubbles’ is a worry to economists and some of them deny that bubbles even exist.

Meantime success is achieved by very different methods—though often in areas where the state-military machine did the pioneering and then let private business scavenge for opportunities. This was very much true of computers, which have been the basis for the USA’s recovery from its low point in the1970s.

Computer-software giant Microsoft is an entity that plays within capitalist rules, but has never had capitalist motivations. It is Bill Gates’s hobby, a hobby he shared with some like-minded people and which expanded unexpectedly into a huge industry. And much the same could be said of Henry Ford and a lot of other pioneers. They were mainly interested in doing something new and interesting (interesting to engineers or software experts, whose concept of the interesting is rather different from the rest of humanity.) Money was just one of the elements that had to be fed into the process, a positive money-flow welcome because it gives a better chance of getting funding for some wonderful new ideas you’ve just had.

Microsoft has worked by developing good ideas, and waiting for the market to come into line with them. The first two versions of Windows were a flop, then Windows 3 caught on, though it was Windows 3.1 that got the major sales. They have also gained dominance by giving away software: first MS-DOS, then Windows and currently Windows-plus-Internet-Explorer. These are provided under licences that ensure that computer manufacturers sell home computers with the software already installed, which means that only a few determined hobbyists will switch to Linux or one of the alternatives. Meantime Microsoft makes a lot of money selling business tools that work better than their rivals on a system that only Microsoft really understands. Hence the recent fines and court cases, but the progress of Microsoft looks unlikely to be stopped.

Microsoft’s success has depended on the US courts deciding that their activities are part of the free market rather than a defiance of it. That’s not untypical: Henry Ford ran into trouble when he infringed a patent that had been claimed on the basic idea of a petrol-driven automobile, but be was lucky enough to get favourable judgements. All human societies are based on a mix of power, self-interest, sympathy, ideas of duty and the society’s own traditions. A commercial society is one in which power is mostly expressed through money. That does not mean it conforms to Adam Smith’s model of capitalism, which supposes that everything is controlled by pure self-interest mediated by money.

The idea of selfishness adding up to harmony is the hidden link between the apparently contradictory ideas of The Wealth Of Nations and Moral Sentiments. Smith believed that the sum of self-interest would be just the same as the sum of sympathy-plus-duty, and that both would be much the same as the society he had grown up in. Rather, it would resemble the minority view in Scotland and the dominant view in England, where Christian considerations had been swamped by greed, cynicism and self-interest. (A close look at Presbyterian values and practice makes one feel that greed, cynicism and self-interest have their merits.)

Within British society, Ricardo took Adam Smith’s model and found a flaw—there is no inherent rule as to how the benefits of better productivity should be distributed between different interest-groups, to put it in modern terms. Smith and Ricardo both elevated the difference between rent and profit to something fundamental, because this corresponded to the social reality in their time, with ‘landed power’ quite distinct from manufacturing interests. In England especially, there was a general rural interest in protecting agriculture from cheaper foreign imports, whereas urban interests thought that freer trade would let them sell more. But the distinction between rent and profit is social rather than logical, and ceased to be part of ‘economic science’ when the landed interests in Britain went into decline.

Ricardo’s model showed that the society might get richer but its workers get poorer and harder-worked, which was indeed the reality for most of Ricardo’s life. But this was a matter of social power: the political pull of the rising middle class outweighing everyone else for most of the 19th century. But when they expressed themselves in politics, their desire was for tariff-free trade and a minimum of state expenditure—a pattern that was actually fatal for their long-term survival.

It’s been noted that Britain was at war for 55 of the 77 between 1739 and 1815. That was also the approximate period of Britain’s rise as an industrial power—typically rated as 1760 to 1830, a marked overlap. The long peace under Walpole and the lack of major European wars after the fall of Napoleon did not in fact make Britain stronger in power-political or industrial terms.

Adam Smith believed that prosperity happened because of trade and despite government action. I’d say he had it exactly wrong: it was only warfare that outbalanced the gentry’s fatal desire to grab everything for their own consumption. Warfare was a crude mechanism that allowed the state to circulating money through the society.

In the USA today, post-war prosperity has been built on the military-industrial complex. The military can spend as much as they like on unproven ideas—microchips, the early internet, jet aircraft, a whole host of technologies. There has also been a fairly free transfer of ideas that were developed for the military and then put to non-military uses. Mostly you here about it in relation to corruption and dirty deals. But in commerce, the difference between corruption and ‘normal business’ is never very clear-cut. What mattered was that the ideas mostly did get circulated.

The USA’s wealth-generating military-industrial complex was a fortunate combination of elements. There was a very different pattern in both Britain and Russia, the old imperial powers with their 19th century assumptions (outlasting Tsarism and getting incorporated in the Soviet system). In both Britain and Russia, there was much stricter security and most useful ideas never got out of the military sector. In Britain also, there was a striking lack of enterprising industrialists able to turn a good idea into a marketable product. The ‘entrepreneurs’ of the Thatcher era were enterprising only at grabbing control of existing wealth. Good at squeezing other people for their own profit, lousy at tapping the potential of Britain’s fund of original ideas and skilled workers.

This is not to deny the significance of capital flow, or of Marx’s detailed analysis of how labour gets turned into financial flows. This is indeed one part of the truth, but only part. By analogy, you can look at water in terms of fluid flows, or chemically, or in a social context, or by its effect on the growth of plants.

Adam Smith is wrongly credited with discovering the Division of Labour. I detailed in my book Adam Smith: Wealth Without Nations that it was well known to the Classical Greeks, and not neglected by any later writer. At least not until Jevons, whose late-19th century innovation was to decide that ‘life was a burden on money’, much more definitely than Smith had ever argued. Jevons liberated economics from any relationship with labour or with the history of technology, a split that still continues. But that’s a topic for another article.

 

First published in Labour & Trade Union Review, 2004

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s