THE EAST INDIA COMPANY began importing colorful calicoes and ginghams at the end of the seventeenth century. After spending lifetimes wearing heavy wools and linens, ordinary Englishmen and women reacted with enthusiasm to this opportunity to wear light, bright fabrics. Their response so surprised observers that some of them waxed eloquent on the benefit of material desires. “The Wants of the Mind are infinite, Man naturally Aspires, and as his mind is elevated, his senses grow more refined, and more capable of delight,” one wrote, going on to connect these aroused tastes with a tendency to work harder to be able to spend more. An important component of capitalism’s triumph over the traditional order came from getting people to change their minds about fundamental values. Their world had been held together by a coherent set of ideas that did a pretty good job of describing the way things worked in a world of scarcity. The distribution of praise and disapproval in songs, sermons, and old sayings kept people in their proper places. Since we learn social prescriptions while we’re growing up, we rarely give them much thought later on. Studying how they function is the province of sociologists and psychologists. But in a history of capitalism they cannot be ignored because capitalism relied on people’s acting differently: taking risks, endorsing novelty, and innovating. The calico craze epitomized this switch to a new way of being in the world.
Traditional society is structured around statuses, permanent places in the social structure like that of a nobleman or commoner. Social classes came in with capitalism and refer to groups distinguished by their wealth or lack of it and their relation to the economy. The spirit of enterprise ran athwart traditional social norms in conspicuous and profound ways. For instance, in modern society the hope of enjoying a richer life is one of the principal inducements to economic innovation whereas the hierarchy of inherited statuses clogged the path of anyone wishing to rise in society. Statuses were inherited and bore no relation to merit. Being absorbed in making money gave offense to gentlemen who considered such ambitions vulgar. Gentlemen didn’t strive; only servants rushed around doing things. Classes congealed around work, those who employed others and those who were employed. In the United States today almost all consider themselves to be in the middle class. Then the middle class, or bourgeoisie, referred to wealthy merchants, doctors, and lawyers who did not do manual labor but were not part of the gentry or nobility either.
Without force, people will change behavior only when they understand why they should and then only slowly. Usually it takes a new generation or two to grow up with the fresh ideas. The major reason that societies change slowly is that novelties must be incorporated into culture forms, and this is the work of expression and discussion. By that I mean that people need to take stock of innovations, assess their impact, search out the meaning for their lives, and determine how other facets of their community will be affected. The proponents of an entrepreneurial economy came up with explanations to facilitate the kinds of social transformations they were pushing for. Those most involved in change speak out first, and then the more articulate members of society weigh in. While this seems obvious when spelled out, few accounts of the emergence of capitalism deal with the absolutely essential task of nurturing values supportive of the new system. It’s as though people think that because economies are about material things, only material forces operate in it when in fact economies involve human beings who don’t do anything without an idea in their heads.
Before institutions change, advocates and opponents of policies have to thrash out the pros and cons of the alternatives much as the Reverends Lee and Moore did about enclosures. Capitalist values could not be imposed by authority because the genius of the new entrepreneurial economy was individual initiative. These unknown people made the critical choices on their own. The poor could be indirectly coerced through their need for food and shelter, but the system gave even them more latitude in choosing where and how to work. Words like “new,” “improved,” “profitable,” and “interest” acquired cachet at the same time that the evident disruption of old patterns of living and working provoked cries of anguish and anger. Those who enjoyed high status differed on whether to accept reforms or maintain old ways. The power to persuade became a mighty weapon in the ensuing contest of world views.
A New Economic Discourse
During the two centuries in which England’s market economy took shape, there was a vibrant press, originally nurtured by the religious and constitutional disputes of the seventeenth century. When evidence of the new wealth-making possibilities became conspicuous, contemporaries began to seek explanations, and they found it easy to publish their ideas about what was happening to the traditional economy. Often they wrote to justify their particular interests as active participants in the market. Some analyzers were “hired pens,” pleading the case of the overseas trading companies or of domestic manufacturers. Moralists often wrote to lament the sinful selfishness of individuals who flouted old rules designed to protect the poor. Quite unexpectedly to almost all who watched the marketplace, many—though by no means all—ordinary men and women responded positively to new opportunities. This demonstration of a capacity to think for themselves and act in their own interests surprised their social superiors because it had long been assumed that simple farmers or small-town traders didn’t possess the imagination to act outside prescribed routines.
Slowly receding was the world of scarcity, where the country’s labor and resources were committed to replacing one year’s consumption with another year’s production. There was still widespread suffering from wants of many kinds. One respected expert, writing at the end of the seventeenth century, conjectured that half the English population required assistance to get through each year, having to rely on the countrywide tax-supported system of relief.1 In no way generous, outdoor relief did make it easier for innovating employers to fire or displace workers since local governments had in place ways to provide for those in want.
Soon those watching the novel phenomenon of economic development put into circulation descriptions of how people behaved in their market transactions. They started to depict men and women as having an inherent disposition toward the producing, selling, and buying that drove the market’s expansion. These observations, scattered in pamphlets, how-to books, broadsides, and learned tomes, many of them written by such luminaries as John Locke, Isaac Newton, and Daniel Defoe, converged on the universal appeal of making money. The initiatives of ordinary people, such as floating a meadow to gain a head start on spring planting or carrying locally made cheese to a distant market, mattered most. This no longer appeared as peculiar conduct; being responsive in their commercial dealings was treated as a newly discovered human capacity. Even as sober a witness of the human scene as Locke indulged in a futuristic fantasy when he wrote that if everyone worked, the world’s work could be done routinely in half a day.2
Every piece of advice about exchange rates, wages, rents, and account balances called on new notions about how men and women reacted to choice. Instead of human impulsiveness, these observers of England’s pulsating economic rhythms began to describe participants as calculating costs and weighing benefits. After several decades of such observations, a preponderance of commentators came to believe that there was a uniform response from market bargainers. People could be counted on because they counted their interests. By the mid-eighteenth century Samuel Johnson could casually comment that “there are few ways in which a man can be more innocently employed than in getting money.”3 A decisive cultural shift had clicked into place.
At the end of the eighteenth century, the intellectual effort to understand the phenomenon of capitalism found its Aristotle in Adam Smith, whose An Inquiry into the Nature and Causes of the Wealth of Nations appeared in 1776. Smith presented a brilliantly detailed explanation of the causes of the unparalleled wealth in Great Britain. (After the Scottish and English crowns were joined in 1706, England was called Great Britain or the United Kingdom.) Building on the new conception of human beings as responsibly pursuing their own interest, he advocated a system of “natural liberty” because he thought that the “invisible hand” of the market would function better if left free of most regulation.
With few opportunities to choose among options, men and women had appeared as fickle, impulsive, and given over to their passions. From the Christian point of view, they were also bathed in sin. With such a picture of human nature, it would have been a form of madness to leave them free to do as they wished with their resources. The new truths about how people behaved in their market transactions underpinned Smith’s recommendations. Smith himself seemed unaware that his immediate predecessors had dramatically upgraded human nature while observing the new market economy. The ideas had been around long enough for him to take them for granted. More significantly, these new assertions had acquired the status of universal truths, something Edmund Burke affirmed when he wrote Smith that “a theory like yours founded on the nature of man, which is always the same will last, when those that are founded on his opinions, which are always changing, will and must be forgotten.”4 What a seductive idea: an invariant human nature.
In England all this was played out in the public arena, where pamphlets were written, speeches reported, and disputes advertised with a significant proportion of the population attentive. The country had become highly homogenous during the course of the seventeenth century. It had one monarch, one language, one established church, a single legal system, and a vigorous press. As local farmers and artisans had moved in ever-wider circles, a national market emerged. London itself best expressed England’s unity. With more than half a million inhabitants in 1690, it was Europe’s largest city and still growing rapidly. Some 10 percent of the five million English people lived in London.
The pattern of London’s growth contains some fascinating features. With a high mortality rate, it required at least eight thousand outsiders moving in annually to sustain its growth. Since mobility was highest among the unmarried, we can presume that most of the men and women who came from other towns, villages, and hamlets were young. This churning through England’s metropolitan center had a countrywide effect. One scholar has calculated that more than one-sixth of the English had lived in London sometime in their lives. Coming into contact with London—the seat of government, matrix of enterprise, and center of public sociability—spread ideas, cultivated tastes, and stimulated wants.5
The debate over economic change might have remained an elite affair had not the Civil War with its ferocious battles over religion widened the catch basin of readers and discussants. The religious dissensions of the sixteenth and seventeenth centuries had spawned a large and diverse group of writers. The English were getting used to public discord. Like other European societies, a censorship system was in place, but unlike them, it was rarely enforced. Economic tracts were not particularly censorable anyway. What was important was the existence of many writers and even more readers accustomed to getting involved in public discussions. The settlement of the seventeenth-century political discord gave England a constitutional monarchy. All English persons received important guarantees for their person and property in the pathbreaking Bill of Rights of 1689. The licensing law through which publications could be censored was allowed to lapse, and the Bank of England was founded. The first promoted the circulation of ideas, and the second the circulation of money, both lubricants of innovation. Equally important, a new upper class with a mainly progressive attitude toward economic development solidified its power.
England came out of its “century of revolution” with significant economic and political gains. The century began with a king who believed he had a “divine right” to rule and ended with a constitutional arrangement that placed sovereignty in the balanced power of king and Parliament. Although the upper class longed for stability, it could not suppress the strong antiauthoritarian strand that now entered popular culture. Awe of authority had greatly diminished during the past three generations. Just think of this remarkable set of novelties: a king who got his crown only by giving his subjects a bill of rights, an aristocracy whose members showed a decided interest in commerce, entrepreneurs who expanded the realm of enterprise, young people who moved about the country with ease, and a capital that vibrated with contentious conviviality. Reviewing this is not to praise the English, but to point out the social environment necessary to enable capitalists to push aside a venerable social order.
The novelty of all these novelties tested people’s capacity to understand the invisible force in their lives. References to the spirited debates about commerce and money in England appear only obliquely in most studies of capitalism. For instance, in comparisons of China and England, scholars rarely give any attention to the public discussions that economic change provoked in seventeenth-century England. The Netherlands fostered freedom of expression and actually printed more books than the English, but Dutch publications on economic topics were rare and usually issued by the government. Elsewhere in Europe vigorous censorship stifled the emergence of a reading and talking public. Everywhere there was fear of disorder.
The hustle and bustle of profit-directed enterprise were not congruent with the aristocratic emphasis on taste and leisure, what Edmund Burke called “the unbought grace of life.” The aristocratic ethic that dominated European societies—indeed societies all over the globe—looked unkindly on unmannerly striving. Napoleon Bonaparte was not complimenting England in the early nineteenth century when he called it “a nation of shopkeepers.” It took persuasive advocates to make capitalism acceptable, even tolerable. Only in England did entrepreneurial advocates make their case persistently and publicly. The intensification of trade triggered a public discussion that led to fresh ways to imagine the economy. The effects of these English debates about the economy were intellectual and moral. They had to do with comprehension and analysis, critiques, and arguments, but they forced the disputants and their audience to rethink fundamental values.
Self-interest drove most authors to take up their pens. Changes in economic life had unsettled lots of people. Those who lost out were quick to complain about the innovations while the successful innovators wrote to point out why the novelties were good for the country. Tracts written by manufacturers coalesced around prescriptions for disciplining employees. Trading companies—particularly the English East India Company—hired writers to defend practices that went against conventional wisdom, like exporting bullion. Agricultural reformers published advice books. Interlopers in established trades urged the liberation of economic endeavor in their pamphlets. A few statesmen entered the fray to provide a bigger picture of what was going on. This serious and sustained examination of private enterprise led to a reconceptualization of economic matters. Such factors are too elusive to be quantified, but they were absolutely crucial to whether or not English institutions adjusted peacefully to the dynamics of capitalism. In pitting the private against the public and the personal against the moral, economic writers had to create a new ethic.
Assessing Employers’ Responsibility to Their Workers
In 1994 the World Bank held its annual meeting in Madrid. Spain’s most popular radio personality, Iñaki Gabilondo, in a rather perverse gesture, sent a reporter out to find out what the men and women waiting outside a church for a free Christmas dinner thought of the gathering of financiers in their city. They greeted the interviewer’s introductory question with derisive laughter. When he convinced them of the seriousness of his interest in their views, these recipients of free food eagerly ventured their opinions about the country’s economic needs. Not surprisingly, the consensus was that companies should spend some of their profits to provide jobs for those, like them, who were down on their luck. And if they didn’t do so voluntarily, the government should step in to give a hand to those who relied upon the business plans of the wealthy for their daily bread.6
Without realizing it, these Spanish mendicants put their finger on one of the oldest controversies in the history of capitalism: whether employers bore any responsibility toward their employees when they could no longer profit from their labor. Should they be able to dismiss them, like “fair-weather friends,” when demand for the things that they produced had collapsed. In one form or another—think outsourcing today—this question has continued to pop up as economic initiatives first challenged, then rendered obsolete laws designed to make employers the protectors of their workers. For monarchs, the problem was particularly acute, for kings looked upon all their subjects as arrayed in a hierarchy of dependency in a commonwealth entrusted to them.
The issue got sustained attention in the 1620s, when English clothiers suffered from the effects of a glut of cloth in Europe. The expansion of English woolen exports in the previous decades had created employment for an increasing number of families. They represented a new category of workers whose jobs arose from international trade. The impulse of the clothiers was to stop making cloth until the market turned up again. This appalled contemporaries. People were used to dire consequences from bad weather, but the distress caused by market downturns seemed different, even if the suffering was the same. What could be tolerated from nature appeared intolerable as an employer’s choice. From the standpoint of those officials charged with keeping order, the employers’ antisocial response undermined the well-off’s moral obligation to care for the sick, the weak, and the poor. The clothiers, wishing to conserve their capital, argued that retrenching for the present was the wisest course of action. If they spent it charitably now, there would be no stock to invest when the market turned up. At first the royal government responded positively to the poor’s demand for protection, committed as it was to the subordination of private concerns to the well-being of the whole.
The issue didn’t go away. A downturn in trade in the early seventeenth century stirred debate anew and led to a different outcome. This time the trade glut coincided with coin shortages and erratic exchange rates that plunged the country into a depression. Things got so bad that the king appointed a committee of merchants to study the situation. Its reports were subsequently published. The extent of the decay of trade discouraged the normal search for local bogeys or simple causes. Quite unexpectedly, the English government declined to restrain the clothiers. This was the most enduring consequence of this debate; henceforth the king and his advisers ceased thinking of turning back to a more contained economy in order to prevent the social disruptions that the ups and downs of international commerce caused.7
Out of the debate came a brilliant piece of economic reasoning from Thomas Mun, a major figure in the English East India Company. Mun broke free from thinking about the economy as a system directed by political rulers for social purposes. He argued persuasively that nothing the English authorities could do would bring back prosperity because buying and selling or sending coin abroad followed the transactions of private traders, not government fiat. Mun produced a model of trade as a coherent system of impersonal and largely autonomous interactions. England would get more specie solely if it sold more than it bought, he said. With a lovely flourish, he drove home his point: “Let the mere exchanger do his worst; let princes oppress, lawyers extort, usurers bite, prodigals waste…so much treasure only will be brought in or carried out of a commonwealth, as the foreign trade does over or under balance in value.” And then he picked up his pen to add a bold assertion: “And this must come to pass by a necessity beyond all resistance.”8 We’re used to believing in inexorable economic laws, but in 1621, when Mun wrote this, he was proclaiming that the economy was not under the control of the sovereign and hence not amenable to social demands.
Mun’s writings contributed to the popularity of the balance of trade theory, the so-called mercantilist idea that a country’s wealth came from being a better seller than a buyer. Actually Mun was making the more important point that money passively followed the exchange of goods through the circuitous channels laid out by the settling of trade accounts in international commerce. He didn’t aim to explain the benefits of a favorable balance of trade but rather to scotch the paternalistic notion that a depression could be cured by official regulations of exchange rates. The mercantilist goal of achieving a favorable balance of trade, advanced by a variety of commentators, continued to dog economic discussions, even though its basic fallacies were exposed repeatedly. Primarily a political response, the obsession with England’s balancing its trade—i.e., not buying any more than it sold—was cultivated by those who benefited from controlling domestic consumption.
The East India Company throve on spending at home and pushed for higher wages to enhance purchasing power. Manufacturers were concerned with exporting and wanted to keep wages down to keep their prices of goods low and competitive. The central mercantilist assumption was that the wealth of the world was a zero-sum pie. National enrichment came from getting a larger piece of the pie. Mercantilists also continued to give money a privileged place despite the obvious interchangeability of money and goods. Some form of mercantilist thinking always crept back into public discussion in times of national insecurity and economic instability and continues to do so.
Breaching the wall of paternalism in the 1620s with a ramrod of economic realism marked a significant moment in the history of capitalism. It indicated that men of commerce could persuade their social superiors—the aristocrats who sat on the king’s Privy Council—of the wisdom of their recommendations. The advisers and pamphleteers had created a public arena for discussing economic relations. Had we not the examples of Spain and Portugal, we might not stress the significance of this cooperation between entrepreneurs and members of the landed elite. The Spanish king and his noblemen had run roughshod over merchants and artisans whenever they challenged aristocratic privileges. It represents another critical difference between England and continental Europe.
Mun was a contemporary of the famous philosopher Francis Bacon, often credited with moving seventeenth-century English natural philosophy toward the science of observation and analysis. Bacon was a great believer in facts as a master teacher. Study nature, he advised his contemporaries. Test your ideas, and you will learn because nature fights back. Bacon’s bête noire was opinion—what today we might call ideology—because opinion promoted only heated conversations, never truth seeking. Empiricism gained a greater and greater hold on European imaginations, starting with Galileo’s idea about the cosmos on to Robert Boyle’s work on gases and Newton’s on gravity. Speculation about unknowable and imponderable subjects began to wither. These philosophical advances strengthened an interest in developing testable hypotheses about the economy.
Discussions of Usury
On a more practical level, getting capital into the hands of people who knew how to invest it presented a major challenge to the promoters of economic development. Lending money for repayment with interest contravened the biblical injunction against usury. A deeply rooted religious rationale impeded the free use of one’s money. Critics of commercial expansion drew heavily on the social vision embedded in the Old Testament in which money was considered sterile and could not be lent with the view of earning a return. For Jews the laws of the Pentateuch clearly evoked the goal of a Hebrew brotherhood.
The famous verses on usury in Deuteronomy explicitly denied legitimacy to the extension of credit for profit: “Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury: Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury….” The Deuteronomic injunction against usury was part of a moral code that sharply distinguished between acceptable behavior toward the members of one’s community and toward outsiders. Unable to criticize commercial transactions that were hidden from public scrutiny, opponents clung tenaciously to the tie of charity binding rich to poor. They frequently quoted biblical assertions that men were properly one another’s brothers.
The Catholic Church maintained that Christ’s coming had erased the distinction between brother and other, going, as one author has described it, “from tribal brotherhood to universal otherhood.”9 Still, the laws of the Hebrew brotherhood became a part of canonical law, representing the church’s stand against an unrestricted commercial economy. As in any simple prohibition, enforcement depended upon the unambiguous nature of the crime; commercial developments in the heart of Catholic Europe in the fourteenth and fifteenth centuries had eroded many of the distinctions that separated usurious from nonusurious practices. The imaginative evasions of merchants and the casuistry employed by clerical apologists had made a simple ban against charging interest difficult to enforce.10
Protestant theologians, from Luther to Calvin, moved away from a policy of enforcing Hebrew law as positive civil laws, preferring to rely on the promptings of Christian consciences. Usury was not to be condemned in all cases. Rather charity and the Golden Rule were to guide Christians. English lawmakers vacillated. In 1488 an antiusury statute proclaimed that all usury was to be extirpated and that anyone lending money at interest should forfeit one-half of the principal sum involved. Statutes during the subsequent reigns of Henry VIII and Elizabeth established a 10 percent ceiling, which was dropped to 8 percent in James’s reign. In 1652 the maximum allowable rate was reduced to 6 percent, where it stayed for the rest of the century. By contrast, in the Muslim world, all forms of taking interest remained sinful, leading to numerous evasions. An unintended consequence of accepting usury was the transparency introduced into bookkeeping, once there was less to hide.11
Moralists made usury a symbol of all that was distasteful in the commercial world, where private gain was sought, treasure tolled, hard bargains were struck, and unlucky competitors ill used. Social and religious conservatives found in the usury issue the means to expose the dangers of a market economy. Not only was the rational pursuit of profit thus against the law of charity, but it flouted Providentialism by its implicit reliance upon self. There was a fundamental incompatibility of religion and the profit-oriented commercial activities, they asserted. In the seventeenth century, when the influence of the market became more pervasive, the issue of usury continued to draw fire from those totally antagonistic to the self-centered, calculating spirit of the entrepreneur, be he merchant, landlord, farmer, or manufacturer. Where much of the fifteenth-and sixteenth-century literature on usury had centered on the fact that money could not earn more money, economic changes weakened that line of attack. Money, as capital, had proved to be very fruitful. The enhanced productivity that followed investments in agriculture and industry justified the taking of interest to many, but this required a new line of argument.
In all this public discussion, a model of the market system, for which the Dutch provided a stimulus, was taking shape. Envy and wonder stimulated English observers to try to figure out how they might imitate the phenomenal success of the Netherlands. During the seventeenth century the Dutch extracted tons of herring from waters that washed on English shores, had the largest merchant fleet in Europe, drew into their banks Spanish gold, borrowed at the lowest interest rate, and bested all comers in the commerce of the Baltic, the Mediterranean, and the West Indies. Dutch prosperity, like Dutch land, seemed to have been created out of nothing. The inevitable contrast with Spain, the possessor of gold and silver mines now teetering on the verge of bankruptcy, only underscored the conundrum of Dutch success.
The Netherlands represented a kind of anti–fairy tale. The rags-to-riches heroes of medieval folklore invariably found pots of gold or earned fortunes through acts of valor. Elfin magicians, fairy godmothers, and subdued giants were the bestowers of great wealth. Spanish exploits in the New World had been entirely in keeping with this legendary tradition. The conquistadors had won the fabled mines of the Incas and Aztecs with their military prowess. Even the less glamorous triumphs of the Portuguese conformed to the “treasure” image of getting wealthy. Venturing into uncharted oceans, they had bravely blazed a water trail to the riches of the Orient.
The Dutch, on the other hand, had made their money in a most mundane fashion. No aura of gold and silver, perfumed woods, rare stones, aromatic spices, or luxurious fabrics attended their initial successes. Instead their broad-bottomed flyboats plied the waters of the North Sea in an endless circulation of European staples. From this inglorious foundation the industrious people of the Low Countries had turned their cities into the emporiums of the world. The Dutch were the ones to emulate, but to emulate was not easy, for the market economy was not a single thing but a complicated mix of human activities that seemed to sustain itself.
The first step in economic reasoning was the isolation of key variables like value, profit, and various rates from the social activities in which they were enmeshed. This step in analysis is the most difficult because it requires that we not be distracted by the lively details of the actual. In addition, seventeenth-century men and women were used to thinking of a social whole like the king and his kingdom, not of the parts that interacted within it. The Dutch can be credited with pushing English thinkers toward analysis.
Goaded by a curious mixture of jealousy and admiration, English commentators from the first to the last decade of the seventeenth century took their questions about the market to the Dutch example. It provided a means of observing the buying, selling, producing, lending, and exchanging of goods, independent of personal and political considerations that had often veiled the purely economic aspect of these acts. Sometimes just pointing to the Dutch could overturn a policy. When Parliament revoked penalties for the export of foreign coin in 1663—a restriction that had reflected the mercantilist goal of increasing the country’s bullion—the fact that the Dutch allowed specie to move freely in and out of the country without harm alone convinced the members of Parliament.
Dutch accomplishments inspired some Englishmen with a zeal for the right ordering of trade, while they prompted those with a more speculative bent to search for the secret spring of the new market economy. Analyzing the Dutch economy encouraged the creation of an abstract model of the market and hastened an appreciation of the unseen forces at work in it. With the widening of the market, uniform and known prices replaced the face-to-face bargaining of the local market. Like gravity (which Newton was to explain in 1687), aggregate demand represented power exercised from a distance, motion through a void. As the ultimate consumers moved farther and farther away from the producer, the steps linking production and consumption became more obscure and more in need of clarification. The predominance of foreign trade in the Dutch economy made these links accessible for investigation.
In the Dutch example there were challenging contradictions between appearances and reality with puzzling divergences between expectations based upon established truths and what actually happened. Without mines, how did the Dutch come to have plenty of coin? With few natural resources for export, how could the Dutch engross the production of other countries? How did the Dutch have low interest rates and high land values? How were high wages maintained with a burgeoning population? How could high prices and widespread prosperity exist simultaneously in the Low Countries? Throughout the middle decades of the seventeenth century the Dutch were formidable rivals to English merchants and sources of raw data of incalculable value.
By the end of the period key assumptions about market relations had entered the public discourse in a way that decisively influenced all subsequent social thought. The discrete facts of buying and paying, employing and earning, producing and selling were woven into a single economic paradigm susceptible to sustained inquiry, challenge, and adjustment. Central to the efforts to analyze market relations was the conviction that there existed a determinable order. But this was not a political order to be presided over by a ruler; rather it was an ordering from the consistent behavior of men and women in their market transactions.
In denying the power of the sovereign to control commerce, analysts did not suggest that individual market decisions were random or idiosyncratic. Instead they searched for the relevant cause-and-effect relationships, assuming a uniformity operating at all levels. This in turn led to the conviction that anarchy was not the inevitable alternative to external control. Gone from discussion was the old description of the impulsive nature of human beings found in literature, replaced by a description of market participants as self-interested, calculating, and rational. Old words were given new meaning. If you were to look up words like “career,” “individual,” “expertise,” “interest,” and “manager” in the Oxford English Dictionary, which records changes in meanings over the centuries, you would find that “career” referred to horse races well into the nineteenth century and that “individual” was not applied to persons until the seventeenth century.
Members of the East India companies entered the list of disputants in order to defend their practice of exporting specie, which continued to be suspect as long as people considered a store of bullion the only form of wealth. The company offered a stellar example of how to make money in defiance of convention. Only piracy was more profitable than its first voyages, which returned a 200 percent profit. Then the company settled down to annual payments of more than 20 percent for the next century. Because its customers in the Orient didn’t want much that Europeans had to sell, company ships took out coin to pay for their purchases.
Demystifying money had been one of the intellectual goals of Thomas Mun’s pamphlets, but it wasn’t an easy job, for it went against a powerful hoarding instinct. It flouted the widely held belief that the whole point of foreign trade was to amass bullion. How could England benefit from reducing its stock of gold and silver? Since domestic consumption took from the store of English capital, how could it be healthy for the kingdom? Better to sell English goods to foreigners and take in their gold. In the regime of scarcity that had long prevailed, this made sense. Given traditional consumption patterns, it probably was better to hoard than to spend. The nobility and gentry were extravagant, and the poor spent just to keep body and soul together. Neither contributed to the kingdom’s wealth. But with new consumers buying new goods, wealth could be created at home. Money and goods were fungible. Sometimes people wanted money, and sometimes products. Societies were no different.
The balance of trade explanation of how nations grow wealthy had highlighted production and left in the shadows the role of consumption. Its verities were challenged when the maverick spirit of fashion revealed its power to change behavior. The English East India Company set off a nationwide craze for printed calicoes when it began bringing in cheap Indian cottons. By 1690 the taste for chintz, calico, and muslin had reached epidemic proportions. What began as an inconspicuous use of cotton for suit linings gave way to a craze for printed draperies, bedspreads, tapestries, shirts, and dresses.12 The names of the new fabrics betray their origins: “Calico” is a city in India; “chintz” is Hindu for “variegated” “seersucker” comes from the Persian word for “striped” and “gingham” is Malayan for “striped.” After generations of confinement in wool and linen clothing, the English public went wild for the new colors, designs, and textures. Even more important, delight in the new fabrics slid quickly down the social ladder, placing workingmen and women in a new light as consumers. But therein lay the rub. If people bought cottons, they would scale back on their purchases of wool and linen, the mainstays of the English cloth industry. The East India Company dispatched English artisans to show Indian textile makers how to design patterns to English tastes, while the clothiers worked at home with some success to get the government to ban the import of most Indian fabrics.
It was evident to all eyes that the colorful Indian fabrics adorned the bodies of servant girls as well as their mistresses. Under the sway of new consuming tastes, people spent more and somehow found the means to do so. Suddenly the commercial importance of the domestic market hove into sight. The elasticity of demand, as the economists would say, became apparent. Emulation, love of luxury, vanity, or just a taste for beautiful things began to look like positive human drives—at least for the economy—because they got people to work more so that they could spend more. Considering the susceptibility of young people to trends and their bulging numbers in London, their consumption pushed in new directions that would fully flower with industrialization.13 It was exactly this spectacular display of new consuming tastes that had triggered a positive discussion of the role of consumption in economic development. In retaliation, the clothiers did not hesitate to evoke the old balance of trade theory with its zero-sum pie assumption about world wealth and its “beggar thy neighbor” policy prescriptions. They stressed the difference between individual consumers’ preferences and the good of the whole economy.
One effusive observer of the new taste in Indian cottons dwelt on the fact that man’s “wants increase with his wishes, which is for everything that is rare, can gratify his senses, adorn his body, and promise the ease, pleasure, and pomp of life.” Another pamphleteer, taking issue with those who lamented the popularity of imported luxuries like East Indian calicoes maintained that they were not the source of sin but rather “true Spurs to Virtue, Valour and the Elevation of the mind, as well as the just rewards of Industry.”14 Biblical injunctions against the love of luxury were being overlaid with a secular enthusiasm for economic development.
Defenders of the East India Company came to the fore with explanations of why domestic consumption benefited the nation in contradiction to mercantilist ideas about saving at home and selling abroad. “The main spur to trade [English writers like metaphors about horseback riding], or rather to Industry and ingenuity, is the exorbitant appetite of men, which they will take pain to gratify, and so be disposed to work, when nothing else will incline them to it, for did men content themselves with bare necessaries, we should have a poor world.”15 The advocates of free enterprise were in the vanguard when they circulated these opinions. Undergirding them was the dawning realization that entrepreneurs could make money from laborers if they could change their habits and get them to earn more by working more regularly. This kind of optimism went against the grain of conventional upper-class ideas about ordinary people and their bad habits. Countering these assumptions was very much in the interest of the East India Company, which exported bullion and imported goods for domestic consumption.
Enthusiasm for spending may sound like an anticipation of Madison Avenue rhetoric, but it was a message carrying a potent association of desire and discipline. When men and women wanted something enough, they would work harder to get it. This notion led some writers to the conclusion that if wages were higher, then the poor could spend more on clothes and furnishings and thereby increase the consumption of the very goods that they manufactured. These observations suggested that consumption might actually fuel economic development, a truly radical idea for the time. Members of the elite had looked down on the poor for too long not to resist these assertions about their newly discovered capacity to stimulate the economy. After all, thinking that ordinary men and women were wayward, idle, and crude had long justified the social control of the lower classes by their social superiors.
In fact Englishmen and women earned much higher wages in 1700 than laborers in the rest of Europe and around the world. They also ate better. A study of the average caloric intake of eighteenth century Europeans showed that England alone was able to feed 80 percent of its people enough food so that they could put in a full working day.16 Contemporaries were not inaccurate when they described an urban scene of well-fed people, bulging shopwindows, and bustling workaday comings and goings. England had a large and growing working class capable of buying the new crockery, calicoes, cutlery, and cheap printed pictures now available to them. This large body of domestic consumers fueled England’s commercial expansion and a richly elaborated material culture dependent upon the market.
Ordinary men had created the infrastructure for a national market. Overseas trade linked this internal commerce to an expanding world trade. New attachments to objects, a raging delight in novelties, and the pleasures of urban sociability bespoke a deep engagement with the material world that made spending seem more beneficial to the economy than did parsimony. Average wages had gone up because men and women were moving out of low-paid farm work. They were also working more hours a week, evidence of demand for their labor. The number of feast days celebrated as holidays dropped considerably, while the old favorite of workingmen, the irreverently named St. Monday devoted to sobering up from weekend drinking, yielded to the desire for higher wages.17 During the eighteenth century the average number of workdays moved from 250 to 300.
The popularity of cheap-priced cottons alarmed woolen manufacturers, who used the balance of trade theory to explain what was wrong with spending good English coin on fancy Indian chintzes. They had long banked on the depiction of the economy as a kind of giant joint-stock trading company that worked cooperatively to lay up a hoard of bullion. When the conflict of interests between manufacturers and merchants came out in the open, the quality of analysis improved. A slew of pamphleteers mocked the stupidity of mercantilist notions. Defenders of the East India Company pointed out that any law that restricted the English to purchasing domestic goods would force them to pay more than necessary for their needs. Consumers’ having rights was a totally novel idea, at odds with conventional wisdom. Soon some reconceived the economy as an aggregation of self-interested men and women who were both producers and consumers. Commonplace to us, these comments were extremely radical because they undermined the aristocratic conviction that there was an enormous, unbridgeable chasm between ordinary people and themselves.
The idea of men and women as consuming animals with boundless appetites capable of driving the economy to new levels of prosperity excited the imagination of dozens of writers, but they were entrepreneurs, not moralists. The proposition that the wealth of nations began with stimulating wants rather than with organizing production robbed intrusive social legislation of a supporting rationale. Once advocacy of freeing trade became attached to a new explanation of economic growth, the earlier commercial wisdom of carefully managing trade to ensure high prices came under challenge, a century before Adam Smith’s explanation of why freedom was better than control in matters economic.
Popular responses to fashion revealed that some demand was elastic. If demand was elastic, then growth and prosperity required attention to people’s tastes and desires. Even the wastrel was saluted as a benefactor to society, for if he personally went bankrupt, his spending helped others, as could not be said about the miser. Going behind the new tastes, writers began to explore the human motives regulating personal spending and discovered a human dynamic and a market mechanism that undermined the static, bullion-oriented mercantilist view. The promoters of free trade wrote rhapsodically about the pleasures of shopping with a “the more the merrier” inclusiveness. But it must be noted that unlike the impulsive creatures who peopled Shakespeare’s plays, the new English consumers had to discipline themselves to hard work before they could enjoy their fancies. Then appeals to desire would replace the need for restraint and vigilance. In just these many ways did capitalism bore away at an age-old social ethic.
In the eighteenth century writers began talking about human nature, a term that had recently been coined. “Everyone from the peasant to king is a merchant,” said one commentator. This was social promotion rather than social leveling, for evidence of new spending habits gave the laboring class a boost toward importance, long denied them. Society was used to rewarding people according to merit and inherited status. Accepting, even admiring the market’s rewards meant going along with an impersonal system that operated through the collective actions of egocentric participants. It would take a long time before the old belief in natural inequality yielded to a commitment to equality, but the first steps were being taken at the end of the seventeenth century.
A Crisis in English Currency
Another breakthrough in English thinking about economics came in a crisis over money. Of all the novel elements in the new world of enterprise and exchange, none caused more headaches than money. A lot of diverse meanings crowd into that word. Money had always been a store of wealth, but now it had become the lubricator of distant market exchanges. Money was also cash, the means of instant gratification. And money was—well—money—that is, gold and silver minted into legal tender with the imprimatur of a monarch’s guarantee of amount and purity.
Thinking about money can cause vertigo. For instance, it’s confusing to keep in mind that gold and silver had a value that differed from the value of gold and silver after it had been turned into coin. In England the mint ratio—that is, the face value or denomination of a certain quantity of silver—was too low. Silver in coins was undervalued. This created an incentive to melt them down and export the silver to Europe to receive a higher price as bullion. Exporting English coin was illegal, but it was widely recognized as a common, if felonious, practice. This created a shortage of coin. It came at a bad time, for the government was at war with France and needed to send regular shipments of money to the Continent to pay soldiers’ wages and buy supplies for England’s allies.
The enhanced value of silver abroad promoted a further fraud. Some scofflaws discovered that they could clip off the edges of their hammered silver shillings, melt down the clippings, and send the silver abroad to sell while passing off the shillings to others. Strangely, clipped coins circulated as easily as shillings as unclipped ones, which made little sense. As the gravity of the shortage became more severe, attention focused upon the money mechanism itself. How was this slippery medium of exchange to be corralled if it wasn’t understood in the first place?
In 1695 the king’s ministers addressed the twin problems of the shortage of coin and the battered condition of the remaining silver shillings. They sought the advice of the treasury secretary, who composed a report that was a model of monetary analysis. As long as bullion was worth more by weight than coin, silver in bulk would never be brought to the mint for coining, he told them. It would be like bringing a one-pound chicken to a store to be turned into a halfpound package of chicken parts. Rather the opposite would take place: Coin would be melted down and shipped out as bullion, illegalities notwithstanding. The problem of the clipped coins presented a different problem. After decades of clipping, the coins themselves contained a lot less silver than they were supposed to have. A new milling process could give the coins fluted, unclippable edges, so the treasury secretary recommended reminting all the silver coinage circulating in England with 25 percent less silver, which would mirror the actual value of most shillings in circulation at the time.
The crisis over money brought to the fore two surprising facts: The exchange value of money did not depend wholly upon its silver content, and the exchange value of silver differed according to its form—that is, whether it was coin or bullion. Discussions about the money mechanism usually lead to glazed-over eyes, so I’ll move quickly beyond mint ratios and official denominations to the political battle that the coin shortage precipitated. Noble and gentry landlords still had a big say within the ruling class of England, and they wanted to avoid a devaluation of the currency. New coins with a lower silver content would lead to some inflation, a boon to their rent-paying tenants but not to themselves. Realizing this, they sought more advice about a recoinage.
They turned to the great philosopher John Locke, who took an interest in economic subjects, especially when they touched upon political matters. Locke rejected the treasury secretary’s reasoning and insisted that silver had a natural value that lawmakers and kings were unable to change. There was only one source of value in coin, he said, and that was its silver content. Any change of denomination would be a fruitless fraud. Shillings were but silver in another guise. Coins had only their intrinsic silver value; the monarch could not create an extrinsic value by turning it into a coin. He was wrong, but confident, as only a philosopher can be.
Those familiar with Locke’s political philosophy will realize that Locke had a great deal at stake in this debate. In his explanation of how people formed governments, he had asserted that the use of money arose in the state of nature. Because people gave an imaginary value to gold and silver, it became useful as a store of value. This meant that property had been created before government, a key point in his argument for limiting its power. Money, the essential mechanism for commerce, arose naturally and was not dependent upon anyone’s authority. Silver coins couldn’t be more or less valuable than silver bullion because the ruler didn’t have the power to enhance the value of a natural thing. In creating government, people had acted to protect their life, liberty, and property, and they chose government as a convenient means to do that. Locke gave the English a naturalistic theory of political obligations wrapped around an inaccurate description of the money mechanism.
More than three hundred pamphleteers, including Isaac Newton and Daniel Defoe, entered the ensuing debate over the proposed recoinage. The issue was whether or not the clipped coins should be reminted with the official silver content or lowered to match the devaluation by chisel. Sharply divided, the antagonists carried the conceptualization of money to a new level of sophistication. Locke’s opponents—for the most part merchants and entrepreneurs—started with the facts on the ground, as it were. Coining silver added value, as was evident when people accepted clipped coins as easily as they pocketed unclipped ones. The monarch under whose authority the coins were issued had added extrinsic value to the intrinsic value of silver by turning it into legal tender.
Practical rather than philosophical, many of these writers broke free of Locke’s dogmatic position. They accepted the definition of money as a medium of exchange, separable from precious metals. Reversing Locke’s cause and effect explanation for the rise of money, they said that the utility of having a medium of exchange prompted the use of gold and silver, not an imagined value making gold and silver useful as currency. Money was valued because it was useful, not because men in the state of nature had given it an imaginary value. One writer mocked Locke for pretending “that the Government had no more power in Politicks than they have in Naturals.”18 He hit the nail on the head; Locke was saying that government could no more affect the value of money than it could halt rainstorms. But Locke was far from the last theorist to claim that economic relations were natural rather than political.
Drawing more polemical conclusions, other critics pointed out that Locke “extends his care to creditors and landlords, not regarding the cases of tenants or debtors; men for this four or five years last past, have borrowed many thousand pounds in clipped money, but he notes no unreasonableness or injustice in compelling them to pay such debts again in heavy money, perhaps of twice the weight.”19 Such a clear statement of the interests involved in the case called attention to the differing impact of deflation upon those with money and their dependents. Expressed so publicly, this charge threatened to undermine the perception of the king’s advisers as reasoning impartially for the good of the whole.
Locke had the worst argument in this controversy but the greatest influence. When Parliament finally acted, it decided that the clipped coins would be brought in and reminted at the old standard. The disaster predicted by Locke’s opponents was fully realized. The reminted silver did not provide England with a good currency; much of it was quickly melted down and sent abroad as bullion. The halving of the number of silver coins in circulation caused a drastic deflation. Landlords and creditors reaped the benefits. The shortage of money pressed especially hard on the poor, who rioted in some towns. Even the government had difficulty paying its soldiers.
The fact that the clipped silver coins passed at face value even with a quarter to half their silver clipped away suggested the possibility that other things might be used for money. If money’s status as legal tender counted most, then it should be possible to find gold and silver substitutes. Writers began to tout various schemes to increase currency through paper issued by land banks.
Economic Development in a New English Regime
The year 1689 had brought Mary and her Dutch husband, William, to the throne of England, an event that precipitated the first of many wars with France. The animosities behind these wars had an economic impact, triggering a retreat from European trade and the raising of tariffs. The new king had to accept restrictions on his prerogative and worse—or better, from the people’s point of view—would henceforth share power with Parliament. In one stroke the English had limited and centralized national authority in the new sovereign, the king in Parliament. Both achievements boded well for enterprise. Five years later Parliament founded the Bank of England, a quasi-public institution to receive the tax revenues, lend to the government, and issue bills of exchange that could pass as currency.
Collecting taxes in most European countries was the occasion for protracted haggling between the central governments and the various local provinces, states, or counties within them. The monarchs spent their income as they saw fit. After the Glorious Revolution, uniform rates applied across the country and Parliament monitored how the king spent tax revenues. The new transparency in tax collecting and budgeting enhanced certainty and predictability, both important to enterprise. The rhetoric on free markets often stresses risk taking, which of course is imperative, but investors care about protecting capital and will do almost anything to cushion risks. England’s constitutional monarchy and national bank did both. In 1712 Parliament created a national postal service. By 1715 trade statistics were available to guide policy making.
A dashing Scottish speculator, John Law, founded the first bank in France and used that establishment to raise funds for the development of part of French Louisiana. Calling it the Mississippi Company, Law issued bank notes for the development of thousands of square acres in the New World. The government’s confidence in Law led to his gaining such privileges as those of minting coin and collecting revenue. People almost rioted in their eagerness to buy his company shares, but Law didn’t know when to stop issuing them. Their oversupply brought about a spectacular crash, and the Mississippi Company became the Mississippi Bubble, a new term to describe the sudden inflation and equally sudden deflation of an object of value, be it a certain kind of investment, tulips, or real estate.
Law knew how to dazzle people with the prospect of future riches. Successes like his in the 1720s appear repeatedly in the history of capitalism, pointing up the psychological component of the profit motive. In France what might have been a cautionary tale became a hypercautionary one. The government wouldn’t tolerate paper money for another seventy years. Even in England it soured people on paper money and its use as an economic stimulant. A new orthodoxy congealed. The supply of money, the philosopher David Hume maintained, had nothing to do with prosperity, which depended upon real things in the economy, like shops, stores, and factories. Any increase in money would only produce inflation. This became the classic, academic position throughout the nineteenth century, articulated by David Ricardo and enshrined in the elegant writings of John Stuart Mill.20
The Dutch had actually created the first modern banking system, one that pioneered bills of exchange backed by gold in the bank vault. They also started the first stock exchange and worked out a way to lend money on the collateral of real estate, a forerunner of our mortgages. But it was not until the early nineteenth century, when the Netherlands acquired a king, that the Dutch developed a centralized taxing system. Even then they couldn’t audit the budget of their new king. Matters were even more byzantine in France, where the monarchy had to negotiate with powerful provinces to set tax rates. At the same time, French tax exemptions covered whole provinces as well as most of the nobility. Taxes fell on the poor, whose poverty limited revenues. Not being able to raise sufficient revenue finally stopped the government in its tracks.21
The Bank of England became the most important financial institution of the eighteenth century. Sure of its power to repay the loans because of its publicly stated taxes, British financiers willingly lent to the government. Managing the public debt meant that the directors of the Bank of England were privy to the details of the government’s borrowing and its tax stream. With that knowledge it was easy to keep interest rates low by assessing the risk. These facts, perhaps more than any others, made possible Great Britain’s triumph in most of the eighteenth-century European wars (the American Revolution was an exception). The Bank of England stabilized the capital markets, which were playing an increasingly important role as enterprises became more costly. The British government levied higher per capita taxes than any other European country, but the people got their money’s worth in services and stability. Even the Royal Navy worked hand in glove with British enterprise, convoying home both the tobacco and sugar fleets.22
From these late-century debates emerged a strong sense that the elements in any economy were negotiable and fluid, the exact opposite of the stasis so long desired. Sometimes money was better to have than goods; other times the reverse. Investments in land and trade tended toward an equilibrium, one pamphleteer explained, for “the mutation frequently happens; the money man today is a landed man tomorrow; and the landed man today becomes a moneyman tomorrow; every man according to his sentiments of things turns and winds his estate as he…fancies will be most advantageous to him.”23 Actually to be a landed man in England conveyed a social status that would never be accorded the “moneyman,” but the pamphleteer conveyed accurately the new appreciation the English had for pragmatism in commercial matters.
In England people ceased to think of the market as a place for face-to-face bargaining and commenced to speak of it as an unseen entity comprising thousands of transactions. Throughout the century, writings on prices, demand, and trade policies reached an impressive level of sophistication. Money, food, and land lost their special status, homogenized by reference to prices and rates. The uniformity attributed to human beings when they were bargaining undercut in subtle ways the widespread belief in natural inequality. It would be awhile before the guardians of morals and fixed ranks would have to yield to the most popular idea of interchangeable market participants, but writers on the economy had established a beachhead for the coming invasion of commercial logic. Nobody aimed to change social values. That happened through the process of responding to new experiences. The expertise of the English in economic analysis gave them an advantage that neither the Dutch nor the French, their closest competitors in wealth making, had. Nowhere else had the old order been rejected intellectually as thoroughly as in England. There was little abstract discussion of the market in the Netherlands, and French economic thinkers concentrated on developing government fiscal and monetary politics rather than let business interests have their own way.
Fresh Economic Thinking
Since the late seventeenth century Louis XIV’s famous controller-general Jean-Baptiste Colbert had made the French government an integral part of business planning. It actively promoted new technologies, established administrative structures to deal with industry and labor, and generally offered advice on how to enhance profits, not always with happy results. Two generations later the drastic need to improve France’s capacity to feed its people inspired a new group of economists with strong connections to the monarch. Taking the name “physiocracy,” which meant “the rule of nature,” these analysts gave to agriculture a special quality that bordered on the mystical. They asserted that all value arose from land. Hence all taxation should fall on this economic foundation.
Perhaps nothing reveals how closely theories are tied to social realities than the French case. The English had succeeded in producing abundance while actually freeing farmers from legal restraints. Saddled with an absolute monarch, the physiocrats believed that only the king’s authority could get the country to do the things necessary to match the economic development of England, their greatest rival. Unlike Colbert, the physiocrats wanted more freedom for farmers, merchants, and manufacturers, but government assistance from public officials like themselves was needed to help market participants help themselves.24
Getting a moribund monarchy to reform the country’s agriculture was a daunting effort, but the physiocrats pushed ahead. In their many pamphlets, they urged the diversion of investments from manufacturing and trade to farming.25 Correctly noting the benefits in Great Britain coming from a free trade in grain, they made that, along with a single tax, their rallying cry. In the 1770s, when the baron de Turgot became the king’s principal minister, he liberalized by fiat the domestic market in grain. Nature was not on Turgot’s side; bad harvests undermined his effort and played right into the hands of his many opponents. In the end the physiocrats, despite their friends in high places, were too few, too theoretical, and too weak to overcome institutional resistance to all forms of change within old regime France.
Retrospectively, we can see that the physiocrats were attempting to do by command what English entrepreneurs had done for themselves by taking advantage of lax law enforcement to weave together local commercial connections into a national market. The larger point is important. Self-assertive individuals did the innovating in England whether they were improving farmers and landlords, joint-stock trading company managers, interloping merchants, cheese mongers, or professional lenders. They had no larger vision, and they bungled as often as they hit their mark. It often took several generations of trial and error to fashion an optimal operation, but English economic ventures succeeded not only in producing impressive results but, even more important, in demonstrating the unexpected social benefits of allowing men and women to make their own self-interested choices.
While slower, the way capitalism actually came into being was more enduring because it educated and changed ordinary people as it expanded. Change by authority is dependent upon the ruler or group. Those endowed with political power can find other interests or have successors who do not share their goals, as was demonstrated by the Ming dynasty emperor who sent out Zheng He to explore the east coast of Africa. This point having been made, it is well to add that once capitalism had emerged as the dominant economic system, capitalists acquired power as a new class of entrepreneurs that used its power to suppress labor unrest. They left untouched the old master-servant laws that were highly prejudicial to workers as well as laws that interpreted labor organizations as felonious conspiracies. Capitalism didn’t eliminate oppressive upper classes. It just changed the basis upon which they stood. The ladders for social mobility were spread about the landscape more generously, but those without capital suffered as had those without inherited status earlier.
In England, mercantilism came back into favor in the eighteenth century, but in actual practice, most enterprises had already escaped legal restraints. Mercantilists took advantage of the fierce international rivalries of the eighteenth century to argue for applying high tariffs to imports to strengthen the national industries and, not so incidentally, to help manufacturers by using higher prices to discourage purchases of foreign goods, usually described as luxuries. It was perhaps this crusade that led the philologist Samuel Johnson to comment that patriotism was the last refuge of the scoundrel! Mercantilists might have shaken their heads in disbelief that self-seeking men and women could establish order in the market, but they didn’t have much success convincing others.
Upper-class conservatives could slow the rate of change, and the poor could invoke a higher law of charity, but the momentum was with private enterprise. When food prices skyrocketed, as they still did when harvests failed, there was much talk of a commonwealth in which the concerns of the vulnerable had first priority. In the end, long-term relief came in the form of improved agricultural techniques. The laws against engrossing, forestalling, and regrating stayed on the books until the end of the eighteenth century, but they fell into desuetude as those marketing food crops did pretty much what they wished with the abundant harvests they had learned to produce.
Certain intellectual developments that were critical at the threshold of economic change became less important after capitalism had become established. Japan offers an instance of this. In 2006 Japan adopted for the first time a jury system. The idea of amateur participation in the judicial system ran so counter to deep-rooted prejudices against questioning authority that the government had to launch a massive public relations campaign to teach men and women how to behave on a jury. Few Japanese wanted to challenge others or give vent to their own opinions in public, the very stuff of jury deliberations. Such cultural traits may not appear as inhibitions of economic advance, but they would have been at the outset. By contrast, at the end of the seventeenth century, Englishmen and-women were already habituated to vociferous, public debates on everything from salvation to the bad manners of the poor. Questioning authority proved critical to getting novelty accepted. Once capitalist practices had been established for all to see, authorities might adopt them, as did Japan in the late nineteenth century. The initial reform of economic institutions proved to be a messy, noisy, contentious business. Nobody knew exactly what was happening. Copying a finished product can be orderly, even predictable.
In addition to intellectual openness, the elusive quality of trust played a critical role in the early years of capitalism. Almost everyone who has studied trade in its first flush of expansion has commented upon how hard it was for merchants to trust distant agents and customers. Sending their wares and payments through labyrinthine networks of commerce often seemed like playing the lottery. Typically, European merchant firms sent their children, cousins, and in-laws as agents to Tenerife or Batavia or Port-au-Prince to watch out for the family interests. England had some conspicuous advantages in laying a foundation of trust because the country had a pretty homogenous population of close to six million. While people in different regions spoke dialects, English was a lingua franca. The various doctrinal disputes among Protestants and between Protestants and Catholics had pretty much disappeared into conformity to the Church of England by the end of the seventeenth century. Periodicals carried news from one region to another. The king in Parliament, meaning the monarch and members of the House of Lords and the Commons, spoke for the whole. People took property disputes to court increasingly throughout the eighteenth century. The English were a litigious people, but they trusted their institutions to adjudicate their interests fairly.
The English Civil War had divided the elite, but when William and Mary took the throne, a new and more pragmatic generation had taken over direction of the country. English laws had long protected property, but after 1689 “the rights of Englishmen” became a rallying cry for the English as well as their North American colonists. While the upper class supported draconian laws for crimes against property, and Catholics and dissenters were excluded from holding office, Englishmen and-women mingled more freely across lines of class and status than their peers elsewhere. Sharing opinion in print took much of the poison out of conflict and made possible the emergence of a consensus about religion, the economy, and the constitutional balance between king and Parliament. These things provided deep underpinnings for trust. The English shared the same prejudices and pride, and somehow these shared convictions even taught them to trust foreigners.
Economics as a discipline acquired a certain cohesion with Adam Smith’s masterful Wealth of Nations. Throughout the nineteenth and twentieth centuries, economics, like other studies of society, became a profession. The subject acquired enough precision to lay out its major theorems in algorithms and stochastic statistics. I am deeply suspicious of this precision when it is applied to anything larger than a single rate or measure. A country’s economy is embedded in its culture, which embraces a hotchpotch of qualities at play in collective life. “At play” is the right phrase here, for the culture of everyday life is composed of lively sensibilities, convictions, expectations, aversions, taboos, secret pleasures, transgressive acts, conventional attitudes, and forms of politeness. Such disorder would never fit into an equation. Social science predictions generally carry the caveat that they will hold ceteris paribus—“if all else remains equal.” But all else rarely remains the same.
Many scholars do not believe that capitalism existed until there were concentrations of capital in industrial plants with a new proletariat as the work force. The term for them is synonymous with industrialization. For others, capitalism is as old as the first civilization when men and women stored wealth for some future enterprise. I think capitalism began when private investments drove the economy, and entrepreneurs and their supporters acquired the power to bend political and social institutions to their demands. For England this had happened by the end of the seventeenth century. Those who promoted the market economy were greatly aided by a public discourse about how nations grow wealthy. Efficiency, ingenuity, disciplined work, educated experimentation all became part of a new ethic. While these new ways of looking at the world of work had to coexist for a long time with the older values that stressed status, stasis, and communal obligations, the ideal of productivity finally became dominant. Where earlier talented young men might have aspired to be courtiers or even clergymen, as the eighteenth century opened, careers in manufacturing, finance, retailing, and foreign trade beckoned.
There can be no capitalism, as distinguished from select capitalist practices, without a culture of capitalism, and there is no culture of capitalism until the principal forms of traditional society have been challenged and overcome. But it must be said—and is not often enough said—that the mores of a more traditional organization of society do not die out with the dominance of capitalism. Rather they regroup to fight again with new leaders and new causes. Any history of capitalism must contain the shadow history of anticapitalism, sometimes carried out in the name of a new theory, but often as a reexpression of values that prevailed before the eighteenth century.
In describing in great detail how the capitalist system supplanted a venerable, established order, I want to stress the difficulty of such a development. I want readers to resist the temptation to bring capitalism onto the historic stage as something inevitable, because it was not. The number of societies today that won’t make the attitudinal and practical adjustments required of an industrial economy should reinforce this point. Social institutions, like the family, religious faith, or types of political regime—autocratic or anarchic—can exert great independent influence on economic decisions. Taking hold in the West was a way of talking about economic relations that assumed that economic progress was inexorable, and capitalism a force not to be blocked, but the irregular patterns of development during the past four centuries indicate that some traditional societies have found the power to put the brakes on changes that threaten their way of life. The variety of arrangements in the world today—even within capitalist economies—cautions against talking about universals and uniformities that might occur in the natural world but rarely do in the social realm.
Capitalism was never just an economic system. It impinged on every facet of life and was itself influenced by every institution or identity that shaped its participants. It created new cultural forms, stimulated new tastes, and introduced a whole new vocabulary for discussing the impact of private enterprise on the welfare of the society as a whole. In time traditional ways of acting and thinking lost their controlling power. They became options, to be chosen as matters of taste. A different, dominant ethos took shape, not so much making people freer as turning economic freedom and individual rights into values considered fundamental. Once its amazing power to generate wealth was detected, most countries, at least in the West, wanted part of the action. When capitalism emerged in eighteenth-century England, it was relatively easy for other countries to copy English innovations. They could also discriminate between what they wished to copy and what they found distasteful in the modernizing dynamic of. French capitalism was not exactly like the English original, or German capitalism a replica of how the French adapted this enriching economic system to their ways.