March 31, 2017
It’s easy to think of capitalism as being an ever-present cultural artifact since most of us have grown up in countries where capitalism is the leading political and economic template. But capitalism as an ideology, and as a cultural manifestation, is a relatively recent phenomenon whose origins were violent and turbulent.
We are a trading species and haggling and opportunity seeking is part of the definition of being human. Almost every society has engaged in this form of activity from time immemorial. But in the late 17th century, and especially in England, something occurred which resulted in a departure from the norms that had prevailed for governing society for close to four thousand years.
Previously, religion provided the roadmap for morality, and hard work was promoted as the pathway to virtue. Royalty ruled over countries and provided order to their territories, which were constantly under threat. So remaining in power also meant engaging in war.
When taxes failed to meet the costs of war, King James the First, being the largest landowner in England, decided to increase his revenue by giving exclusive licenses for the production of a product, a trade or even a government service. This led to the construction of monopolies and in 17th century England, there were monopolies for almost everything from coal, bricks, food, and even belts and buttons.
But what King James, and monarchs after him, had not bothered to consider was the effect this was going to have on the culture of their society. As an increasing number of people tried to compete for these monopolies, the competition began to challenge submission. A growing number of new landlords, members of trading companies and cloth manufacturers began to gain a voice in the way the country was being run.
Juxtaposed with this transition was the English Civil War. Following the execution of King Charles the First, the monarchy was replaced by the Commonwealth. In a short span of 30 years, merchants and manufacturers went from being subjects to public personages with political power. Economic grievances thus became political issues and competition was seen as the sister of innovation. Gradually, the established hierarchy started to crack as new entrepreneurs began to emerge making society more fluid in the process.
The result was a departure from the old ways of thinking which ignited commentary, debate and explanations. As the traditional order was overturned, people began to change their ideas about fundamental values. Previously, change to the order was regarded as blasphemy. But the growing prosperity offered by capitalism encouraged individuals to take risks, question the status quo, challenge authority, and be less fearful of innovation and novelty.
Today, this might seem almost like common sense. But this mode of thinking was the result of the birth of capitalism. It was a renegade mode of thought that gave an attitude to the way men and women thought, and challenged the values, habits and modes of reasoning of the past. It was fraught with opposition, was the bedrock of revolutions in almost every developed country, including the Industrial revolution, and has defeated Socialism, Marxism, Communism or any other kind of ideological ‘ism’ till date.
As the centuries rolled on, capitalism spread like a prosperity juggernaut and in doing so, changed our mindsets and ingrained the concept of free markets and profit maximization as natural law. We believed the economists who preached it from their podiums and policy makers who used it as a yardstick for policy construction.
But just as King James, blind sighted by short-term gain, failed to see the cultural ramifications of capitalism, we too as a society have been oblivious to the cultural impacts of capitalism as we pursued our hedonistic objectives – both as individuals and societies, especially in the past few decades.
Following the second world war, advanced economies in the West installed a ‘state-administered’ version of capitalism where economic growth coexisted with social and political stability. For almost three decades, this version of capitalism became the gold standard of government and remains the nostalgic fodder for politicians’ campaigns:
But by the end of 1970’s, this formula for success began to crumble with the outbreak of the oil embargo and the Iraq-Iran war. As oil prices began to soar, industries began to suffer and the newly elected governments in the US and the UK realized that they needed to find radical new ways to create economic growth to stay in power.
One of the ways they responded to this crisis was by privatizing industries, a move that is now referred to as Reagan-Thatcherism. The strategy was simple – If companies and households could not earn their revenue as they did before, they could lend their way to it. As public services were privatized, economic decision making was taken from government and handed to Wall Street.
As time went on, this process was amplified. When globalization began to take manufacturing jobs, high-paid skilled jobs were replaced by low-wage jobs in the service industries. Wages stagnated and people began to earn less than they did before.
In the process of finding a solution, governments once again turned to the commercial banks and relaxed lending restrictions. Even if wages were static, people could borrow money and maintain a certain lifestyle. As a result, the ability to manage society and economics slid gently from the control of the state to the commercial banks and financial markets.
The cultural ramifications were that debt-based capitalism became a norm and an increasing amount of importance was given to growth and consumerism. We went from being ‘citizens’ to ‘consumers’. Free market policies and regulations that would aid in providing more debt (see the repeal of the Glass-Stegall Act) were one of the main tenets of macroeconomic policy.
The result is something we all know too well and which we are still recovering from – In 2008, our debt-based capitalistic system collapsed under the weight of unsustainable loans, as our hedonistic pursuits become collectively unsustainable.
Disclaimer: This article contains extracts from the author’s new book 'The Blockchain Alternative’ (2017).
Kary Bheemaiah is the author of ‘The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory’ (2017). Available now on Springer and Amazon.
The Relentless Revolution, Joyce Appleby (2010) How will Capitalism end, Wolfgang Streeck (2016) Between Debt and the Devil, Adair Turner (2015)