"Capitalism has always existed"

Taking on one of the Internet's dumbest myths

One of the most irritating things I hear all the time is the idea that “capitalism has always existed,” or something similar. It drives me up a wall! When I hear it, it's clear that whoever is making this claim is conflating capitalism with voluntary exchange, commerce, markets and trade, which have indeed existed throughout much of human history.

I remember getting into an argument with someone online (I know...) who claimed that capitalism has always existed, and always would. After a while, it became clear that this person was defining capitalism as, "people voluntarily exchanging stuff with one another." Eventually, they admitted this. Any time, anywhere, people exchanged one item for another—voila, there was capitalism!

Obviously if you define the term this broadly it becomes meaningless. The whole point of using the term is to distinguish it from earlier economic systems such as manoralism, sharecropping, householding, plantation slavery, subsistence agriculture, palace economies, nomadic pastoralism, horticulture, hunting and gathering, gift economies, central planning, the commons, rationing, and so forth.

I tried to cite a number of well-known economic historians who had written entire books charting the historical development of capitalism in Northwestern Europe from previous economic systems, but it was to no avail. Those are just economic historians, my interlocutor informed me, not economists, therefore, their opinion was apparently not valid. This was an odd stance to take, given that economists are trained exclusively to analyze modern capitalist economies and are not trained as historians. In fact, data suggests that economic history has largely been purged from the modern economics curriculum. Such is the nature of internet "discussions," where facts don't matter.

But the cake is taken by someone at a later time who was arguing with me that, not only has capitalism always existed, but that it predates humanity! This argument was so breathtakingly, unfathomably stupid, that I had to take a screenshot for posterity:

Yup, Homo erectus exchanging hand axes on the African savanna is exactly the same as Bill Gates and Jeff Bezos, if you think about it. Presumably, when researchers teach parrots or monkeys to exchange tokens for food, those animals instantly become capitalists.

Good lord!

And while this level of ignorance is astounding, it's par for the course on the internet, especially in the United States where extreme inequality relies on keeping people stupid and brainwashed.

Of course, there is a political aspect to all this. If capitalism is just people voluntarily trading things with one another, then it must have existed forever because that's just what people do. You can't question it or assail it. You can't speculate about an end to capitalism, or propose a different system, because it has existed since the dawn of time and always will. It's just basic human nature, after all.

By casting capitalism as simply human nature, you naturalize it. You also foreclose any possibility of an alternative. You can't reform or adjust capitalism, according to this logic, because it's simply letting people follow their natural evolved instincts to “truck, barter and exchange.” When people follow their natural inclinations the argument goes, you create capitalism, by definition. Therefore, any alternative to capitalism as we know it must override people's preordained natural behaviors and be imposed by force. This is the common argument against socialism.

These arguments are wrong and disingenuous, but it's easy to see how they follow from the set of assumptions outlined above. The fact is, capitalism is not simply people following their evolved instincts to trade but a very specific set of interlocking institutions and learned behaviors with a distinct historical origin.

Anyway, to help us sort out what's wrong with the argument that capitalism has always existed, I've enlisted the help of several economists. They will help us understand what makes our modern economic system different from previous ones, why it is not simply human nature, and why it's not just people exchanging stuff with one another in “free and open” markets (and how often do you do that anyway—for must of us, we exchange dollars earned by our labor in return for goods and services provided by huge corporations which are basically command economies).

First up is Yanis Varoufakis:

[1:19:01] Q: “What constitutes capitalism for you if markets do not?”

A: “Oh, it's private ownership of tradable shares. It's really very simple. The fact that most people who work for a company do not own any part of the company, and most people who actually own the company do not work for the company. That separation is the height of irrationality. It generates—it begets—the cruelty of the British East India Company to what's going on today.”

“Imagine if we broke down that separation for Facebook. For Google. For J.P. Morgan. Suddenly you have a complete transformation. You don't do away with markets, but you do away with capitalism.”

Yanis Varoufakis: From an Economics without Capitalism to Markets without Capitalism | DiEM25

Earlier in the lecture, Varoufakis touches on another distinction which was made by historian Karl Polanyi. This was the idea that markets became untethered from the fabric of society to function independently of society. Things that were formerly part of the social fabric became alienable "fictitious commodities" to be distributed by impersonal market forces rather than by the community at large as they had been in previous economic systems. These "fictitious commodities" according to Polanyi were land, labor and capital, all of which would be distributed by artificially-created markets in Northwestern Europe. As he noted, “laissez-faire was planned, planning was not.”

[44:38] “I want to begin with a distinction I've already made, and I want to make once more—capitalism is not markets. Societies always had markets. The Phoenicians had markets, the ancient Greeks had markets, but they were not capitalist societies. They were societies with markets.”

“Something happened towards the end of the Middle Ages and was elevated to a higher echelon towards the end of the eighteenth century in Amsterdam and in Britain that transformed society from being a society with markets to a market society. And by that what I mean was to start the process where almost everything was commodified.”

“Before that, land was not for sale. You either inherited land, or you were a landless peasant, or sometimes—if you raised an army—you conquered land. There was no real estate market—the classifieds. There was no labor market. Either you worked for some baron, and if you opposed that social arrangement and your head was removed from your shoulders, or you never worked because you were the baron. There was no labor market. You couldn't quit and say, 'Look, I don't want to be your peasant; I'll be someone else's peasant.' So the creation of labor markets, of real state markets, of capital markets, is a very recent phenomenon, and that's capitalism.”

So, we now have two distinct features which distinguish capitalism from previous economic systems:

1. Corporations with tradable shares, where ownership of the enterprise is divorced from management, purpose, and operation of the enterprise.

2. Commodification of land and labor, and the creation of artificial markets for land, labor, and capital. Labor can simply be purchased from the market, used and disposed of, with no requisite ownership or further obligation.

Let's now turn the mic over to degrowth economist Jason Hickel, who was asked this same question. Hickel notes the same thing I did—people tend to conflate capitalism with commerce, and therefore, they assume that capitalism has been around since the dawn of time—it's simply basic human nature.

[13:40] “What's interesting to me is that when I engage in public conversations about these issues, it becomes clear that people's assumption about capitalism is that basically it's a system of markets and trade. And this is, of course, why it seems so natural and obvious. Why could you ever disagree with capitalism—it's just what humans obviously do.”

“In reality this is not true. Markets and trade have been around for thousands of years, and were around for thousands of years before capitalism. Capitalism is a recent phenomenon in world history. It's only 500 years old. It's a system that's fundamentally distinguished by enclosure and appropriation. By enclosure what I mean is the enclosure of commons and the commodification of the means of survival so as to create a desperate labor force—a mass pool of exploitable labor.”

“And the second key thing about capitalism is that it's a system that's organized around, and dependent upon, perpetual expansion. It is the first and only economic system in all of history to be organized in that way. And this important to distinguish what we mean when we say ‘capitalism’ so that we can have a conversation about what we're actually dealing with here without assuming that this is just about markets and trade. No—you can have markets and trade without capitalism and that's exactly what we have to pursue...”¹

So now we have two additional features that distinguish capitalism from earlier economic systems:

1. Enclosure and appropriation of the commons which turned things like land and labor into commodities for sale. Formerly, land was owned in common or embedded in webs of mutual obligation. Labor was often based on family ties. Under capitalism, these things become alienated and transformed into private property rights. Marx called this primitive accumulation. As the system expands, it turns more and more things into commodities for sale in order to make greater profits.

2. A built-in obligation to grow and expand. Growth became a requirement baked into the system rather than just a potential. Previous economic systems waxed and waned without threatening the fundamental stability of society or its means of subsistence. Polanyi called this “habitation versus improvement”.

Finally, we turn to Marxist economist Richard Wolff. Wolff wrote a piece a while back where he acknowledged that, in order to adequately critique capitalism, you needed to accurately define what it was.

Wolff also dismisses the idea that capitalism is simply people trading with one another in markets, since people have done that for thousands of years. And he dismisses the idea that it is free enterprise or money or competition, all of which existed in prior economic systems as well.

Because capitalism is so regularly defined as "a market system," we may consider first the actual nonequivalence of capitalism and markets...capitalism was neither the first nor the only system to utilize markets as its means of distributing resources and products. In the slave economic systems that prevailed in various times and places across human history, markets were often the means of distributing resources (including slaves themselves) and the products of slaves' labor...The same logic applies to feudalism. In many times and places across European feudalism...products of feudal enterprises (called "manors") were sold in markets to serfs and lords of other manors. During the 20th century, for example, feudal latifundias in Latin America sold their products on world markets. The presence of a "market system" does not distinguish capitalism from feudalism...

A parallel argument applies to "free enterprise." The capitalist enterprise is more or less "free" to set the prices, quantities and qualities of its outputs; organize its labor processes; choose among available technologies; and distribute its profits. But much the same has often applied to slave plantations and feudal manors...Likewise, capitalism has persisted when markets were subordinated to other mechanisms of distribution. For example, during World War 2, ration cards distributed by the US government fundamentally displaced the market system for distributing many goods...

Whatever distinguishes capitalism from such other systems as slavery and feudalism, markets and free enterprises are not it. Nor will competition or the extent of government intervention serve to differentiate capitalism from other systems.

The competition among capitalist enterprises had its parallels in competitions among slave plantations, feudal manors, feudal guild workers and so on. Competition varies in its forms and intensities among capitalist enterprises depending on the context and conditions of each industry across time and space. ...Finally, government intervention into an otherwise "private" sector of the economy has also been a variable feature of all economic systems.

This is a very good rundown of how the things we associate uniquely with capitalism—private ownership, free exchange, competition, markets, prices, regulations, and so forth—existed under previous economic systems that we refer to by other names. In fact, competition was often more pronounced in previous economic systems which lacked capitalist coordination mechanisms. And, as he points out, many aspects of capitalism are suspended during wartime, yet the system remains. Government intervention also does not distinguish capitalism from other economic systems—in fact, there was much less state intervention in pre-capitalist economies.

So, then, how should we distinguish capitalism from these alternative systems? The answer, according to Wolff, is in terms of how the surplus produced and generated by society is appropriated and distributed:

So then how should we define capitalism to differentiate it from alternative economic systems such as slavery, feudalism and a post-capitalist socialism? The answer is "in terms of the organization of the surplus." How an economic system organizes the production, appropriation and distribution of its surplus neatly and clearly differentiates capitalism from other systems.

While the capitalist, feudal and slave organizations of the surplus differ as described above, they also share one crucial feature. In each system, the individuals who produce surpluses are not identical to the individuals who appropriate and then distribute those surpluses. Each system shares a basic alienation - of producers from their products - located at the core of production. That alienation provokes parallel class struggles: slaves versus masters, serfs versus lords, and workers versus capitalists. Marx used the word "exploitation" to focus analytical attention on what capitalism shared with feudalism and slavery, something that capitalist revolutions against slavery and feudalism never overcame.

The concept of exploitation serves also to differentiate socialism clearly from capitalism, feudalism and slavery. In a socialism defined in terms of surplus organization, the producers and the appropriators/distributors of the surplus are identical; they are the same people. In such socialist enterprises, the workers collectively appropriate and distribute the surplus they produce. They perform functions parallel to those of boards of directors in capitalist corporations. Such "workers' self-directed enterprises" (WSDEs) are unlike slave, feudal and/or capitalist enterprises. WSDEs represent the end of exploitation.

Critics of Capitalism Must Include Its Definition (Truthout)

So now we have another distinguishing feature of capitalism:

1. The socially-produced surplus is directed and appropriated by the owners of productive capital. Capital is privately owned and separate from the workers who produce the surplus.

Wolff disagrees with Hickel that the growth imperative is built into capitalism:

Marx is often quoted - wrongly in my view - as affirming that growth was a necessity for capitalism. I [don't] read Marx that way; in fact Marx's analysis shows quite clearly and explicitly how capitalism can and often does go through periods of no growth or contraction (business cycles or crises). Not only do these not end capitalism, they often function to prepare the ground for the next phase of capitalist growth and expansion.

In my view, the reason why the idea developed that capitalism needs growth is more political and ideological than economic. Capitalism tends to increase the gaps between rich and poor and this can create a systemic vulnerability unless the poor have at least an absolute improvement in their standards of living even as they fall further behind the rich. Economic growth allows that to happen: the poor get an ever-smaller share of an ever larger pie. So if growth stops, that offset to capitalism's growing inequality is unavailable and that is what worries capitalist's defenders and emboldens its critic to hope that the frustrated poor undermine capitalism.

However, I would argue that this misunderstands Hickel's point. If capitalism does not grow—if the line does not go up—then the system is seen as malfunctioning or not working at it should. People lose their livelihoods and become immiserated. It threatens the stability of the whole system, putting pressure on the politicians. Eternal growth may be temporarily interrupted, but it must always ultimately be restored. This distinguishes capitalism from previous economic systems which did not face the same imperative.

He is absolutely correct, though, to point out that growth is what allows the staggering inequality generated by capitalism to persist without calls for reform or replacement. As long as living standards for the bottom are growing even slightly, the system is validated even as elites funnel more and more of socially-generated surplus into their own pockets and inequality becomes ever more pronounced.

I think that each of these economists focuses on a different aspect, but taken together they give us an accurate picture of what capitalism is, and what makes it different from previous economic systems.

I myself would point to the institutions of capitalism, each of which has an origin, and without which capitalism as a coherent economic system would be impossible. Among these are money lending at interest, central (national) banks, stock markets, capital markets, currency exchanges, multinational corporations, government regulations, and securities. Before all of these were invented, I would argue that you could not have such a thing as capitalism.

While many of these have precursors in previous economic systems, they were always in the background. It was only in Northwestern Europe that all of these things came together to form the system which we know today as capitalism. Certainly Marx—who coined the term capitalism in his book Capital—thought so, which is why so much of Volume I is dedicated to documenting how this process unfolded.

The reason they came together in Northwest Europe was to fund complex, long-distance trade and to fund mercenary armies, both of which required large investments of money and significant manpower and organization to accomplish. This, in turn, was an outcome of Western European expansion and imperialism after 1500. Later, when the Industrial Revolution gathered steam, these same institutions were used to fund and deploy technological innovations at scale.

In brief:

A.) Banking has a long and complex history, but at it’s heart, it’s about bringing future value into the present. Advances were given to merchants in early agrarian states like Babylonia and ancient China. Market exchange spread throughout the Mediterranean during the Bronze Age facilitated by Levantine traders like the Phoenicians, who also spread the alphabet. The Greeks invented standardized coinage and the Romans developed sophisticated banking methods such as giro banking. In the Middle Ages, Lombard banking spread throughout Northern Europe. Due to usury restrictions, Jews became heavily involved in money lending using their diaspora as a way to move money and wealth around the continent.

B.) In the early Middle Ages, the greatest money-lenders and money-changers were military orders such as the Knights Templar, who helped fund the Crusades. The Templars could advance large sums to kings and transfer money anywhere in Europe by issuing checks (cheques). Nobody knows exactly how they did it, but they did it. This probably helped bring about their demise, as one sure way to get rid of your debts is to kill off the lenders.

C.) The merchant republics of Northern Italy were ground zero for a lot of this stuff. City-states borrowed money to fund wars by dedicating a portion of their future tax revenue to paying back the loans. As long as city-states kept paying their debts, people everywhere were happy to lend to them because it was better than keeping your excess money under a mattress or burying it in the backyard.

The Venetians did it first in 1107, establishing the first “national debt” to fund a war against the Byzantines. This technique of state borrowing spread throughout Northern Italy and beyond. The Banco di San Giorgio, founded in Genoa in 1407, was the first bank dedicated to consolidating and managing the national debt and was arguably the first official state bank. Later, it helped finance Columbus's voyage to America.

D.) Leonardo of Pisa—Fibonacci—introduced Arabic numerals into Europe in 1202. At this time the Arabic World had established a vast trading sphere across the Indian Ocean, bringing spices and other exotic goods into the eastern Mediterranean where Crusaders developed a taste for them. In the 1400s, Franciscan friar Luca Pacioli developed double-entry bookkeeping and popularized the technique in Italy. With the fall of Constantinople in 1453, Europeans sought out new ways to keep the spice flowing and started venturing further out into the Atlantic developing new maritime technology.

E.) The Vatican especially needed money changing services because it received money from all over Western Europe. One particular family—the Medici—made a fortune doing this and became one of the most powerful dynasties in Europe. To sooth their guilty conscience, they helped bankroll the Renaissance.

F.) The increasing use of paper—a Chinese invention—helped propel the use of debt instruments—i.e. securities. Bills of exchange greased the wheels of commerce and facilitated international trade throughout northern Europe, especially in the cloth industry. Debt instruments were bought and sold, which became the precursors to paper money. These paper debts far exceeded the amount of coinage minted by states to facilitate spot trades and pay mercenaries. Sweden became the first European country to issue banknotes in 1661.

G.) While corporations had precursors such as the societas publicanorum of ancient Rome and the commenda of medieval Europe (as well as in China), the first true multinational corporations were the joint-stock companies chartered in Europe to facilitate trade and exploration—the British East India Company in 1600 and the Dutch East India Company (VOC) in 1602. In the Dutch case, shares became alienable and transferable and investors had limited liability—they couldn't lose more than they staked. These were essentially states within states with their own armies and administration.

H.) Holland was a relatively small country in Northwestern Europe with few resources, meaning that the Dutch needed to raise large sums of money to build their merchant fleet and hire mercenaries for their war of independence from Spain. This led them to develop the most sophisticated finance and banking systems in Europe. The Amsterdam stock exchange allowed corporate shares to be traded in open markets. European merchants deposited thousands of different types coins in the Amsterdam Wisselbank whose bank balances became the world’s first central bank money which facilitated transactions. The Bank also lent against the coins it kept in its vaults creating fractional reserve banking.

Age of Invention: How the Dutch Did it Better

I.) “Dutch Finance” crossed the English channel with the Glorious Revolution of 1689—a bloodless coup financed by English Whigs and Tories. The loan extended to William of Orange by the merchants backed the banknotes issued by the newly-chartered Bank of England. The Bank of England eventually became Britain’s state bank and its notes became Britain’s currency—privately issued currency backed by sovereign debt. This effectively combined private banking and sovereign debt which forms the basis of all money systems today. The British Empire ruled a quarter of the world and established London as the epicenter of global finance. The Pound—anchored to gold— became the world's first reserve currency.

J.) This system was implemented in France by Scottish professional gambler John Law in the early 1700s. Law’s banknotes were backed by precious metals, and later by shares in the Mississippi Company—a joint stock company created by Law to exploit French Louisiana—and could be used to pay taxes. Then it all came crashing down.

Historians think that it was because the central bank, the treasury, and the joint stock companies were all owned and managed by the same man in France—Law—but by different people in England. The popping of the South Sea Bubble didn't take down Britain's national bank, for example. In the late 1700s, paper money was issued by French revolutionaries backed by land seized from the Catholic Church. Paper money also helped fund the U.S. Revolutionary War.

K.) The Industrial Revolution supercharged economic growth to unprecedented levels. Investors poured money into plantations, shipyards, canals, mines, and factories; and later telegraphs, telephones, railroads, pharmaceuticals, armaments, and so forth. From 1870 to 1914, the world globalized to such an extent that every corner of the globe was linked in webs of exchange facilitated by European imperialism. Commodities were traded in global markets using bills of exchange. Banks lent at enormous scales and central banks issued bonds. Corporations grew and expanded. States all over the world established stock markets and central banks. This knitted the entire world together into one giant economic system we now know as capitalism.

So that is a potted history of some of the institutions which made modern capitalism.

Now, I'm going to go out on a limb here, but I'm pretty sure none of this stuff predates humanity, lol.

1. This interview appears to have succumbed to link rot, but this PDF from Hickel gives the same story and goes into more detail: https://blackbooksdotpub.files.wordpress.com/2021/08/jason-hickel-less-is-more-random-house-2020.pdf