Capitalism-and-Its-Critics-A-History-From-the

In the United States, the East India Company, the subject of my first chapter, is perhaps best known for the role its ships played in the Boston Tea Party. But the company’s monopoly on the import of tea to the American colonies, which so infuriated the patriots, was only a small element of its trading operations, which extended across four continents. Another large-scale profit-driven enterprise that spanned the oceans during the era of colonial capitalism and features early in my narrative is the infamous triangular trade, in which millions of Africans were transported to the Americas as enslaved workers to labor on plantations that grew sugar, cotton, and tobacco. One of the first writers to point out that colonialism and the slave trade helped create the material basis for the rise of industrial capitalism was Eric Williams in his 1942 book, Capitalism and Slavery. I devote much of Chapter 20 to Williams and the heated debates his work has engendered. This follows a chapter about another critic of colonialism, the Indian economist J. C. Kumarappa, a longtime associate of Mahatma Gandhi who is increasingly recognized as a pioneer of ecological economics. Williams and Kumarappa were both deeply interested in the relationship between the core and the periphery of the global capitalist system, as were the postwar dependency theorists in Latin America, who are the subjects of Chapter 21. Another thinker who always thought in global terms was Samir Amin, a Marxist French Egyptian economist who spent much of his working life in sub-Saharan Africa and whose critique of globalization I discuss in Chapter 26.

Although my narrative ranges across the globe, most of my subjects are from Europe and the United States. To that extent, this is a Eurocentric book, or, equivalently, a book centered on the global capitalist core. The reasons for this focus are straightforward. The first three industrial nations were Britain, Germany, and the United States, and it was in these countries, and also France, that the new economic system was first subjected to systematic critical analysis. Given this focus, some readers may ask: Where is Max Weber? Or Emma Goldman? Or John Kenneth Galbraith? I didn’t have space to include everybody. Some of my choices were dictated by a desire for subjects who capture an entire epoch, others by a wish to highlight lesser-known figures who made interesting contributions.

In other words, this is a history of the system and its critics, not the history. Of necessity, it covers a lot of ground. Capitalism by its very nature is a process of change, and over the centuries the critiques of it have moved with the times. One recurring theme, though, has been capitalism in crisis. From its earliest days, industrial capitalism has zigzagged between periods of prosperity, when it seems all-conquering, and episodes of panic and contraction. Indeed, it is barely hyperbole to say that capitalism is always in crisis, recovering from crisis, or heading toward the next crisis.

In the late summer of 1857, the New York branch of the Ohio Life Insurance and Trust Company, a chartered institution that held a banking license and was widely regarded as a model of midwestern stolidity, suddenly collapsed, sparking a financial panic on Wall Street.9 As depositors rushed to get their money out of banks, the stampede spread to other cities, more financial firms failed, and the prices of financial securities and commodities plunged. The panic reached across the Atlantic to Paris and London, where interest rates increased sharply as credit dried up. From his regular seat in the reading room of the British Museum, in Bloomsbury, Karl Marx followed these developments with rising excitement. In October 1857 he wrote to Engels, who was staying in the Channel Islands for health reasons: “The American crisis—its outbreak in New York was forecast by us in the November 1850 Revue—is BEAUTIFUL and has had IMMEDIATE repercussions on French industry, since silk goods are now being sold in New York more cheaply than they are produced in Lyons.”10 On October 26 a bank in Liverpool collapsed. A couple of days later, two banks in Glasgow went under. “The AMERICAN CRASH is superb and not yet over by a long chalk,” Engels wrote in his reply to Marx. He also noted that credit was starting to dry up on the European continent: “That means that, for the next 3 or 4 years, commerce will again be in a bad way. Nous avons maintenant de la chance.”11

But the hopes that Marx and Engels harbored for an imminent collapse of international capitalism were to be disappointed. As the financial crisis deepened, the authorities on both sides of the Atlantic intervened. In the United States, the Treasury Department announced it would use some of its gold stocks to recapitalize banks and keep money and credit flowing. In Britain, the government suspended the Bank Charter Act of 1844, a move that made it easier for the Bank of England to print money. These steps didn’t prevent an economic slump from developing, but they did help avert a wholesale financial disintegration. Eventually the banking system stabilized, confidence revived, and the economy started growing again.

Over the past two centuries, variations of this story have played out many times, demonstrating capitalism’s powers of recuperation and governments’ ability to act as its crisis manager. Some economists have even argued that capitalism’s recurrent crises are the way the system resolves some of its inner contradictions. Two adherents of this view appear in this book. Nikolai Kondratiev, a Russian economist who theorized that capitalism evolved in “long waves” of roughly fifty years’ duration, is treated at length. The Austrian bon vivant Joseph Schumpeter, whose theory of “creative destruction” is beloved of Silicon Valley disrupters, makes several cameo appearances.

Many of my other subjects highlighted capitalism’s inability to resolve some of its perennial challenges, such as generating sufficient demand for all the goods and services that it produces, and creating enough investment opportunities to soak up all the profits and savings it generates. Marx, Hobson, Luxemburg, Keynes, and Robinson all explored these tendencies. To four of the five (Keynes is the exception), the basic problem is the division of the economy into capitalists and workers, which creates one class of people who struggle to pay for everything they need to live a decent life, and another class who have so much money that they struggle to spend it all. Marx and his followers believed that this division would eventually generate so much inequality, and such huge social chasms, that the workers would rise up and overthrow the system.

So far, history has falsified this prediction, partly because of something that few foresaw in the nineteenth century: the rise of big government. The modern state’s role as a constraining and a supportive force for industrial capitalism is another central theme in this narrative, beginning with the chapter on Keynes. The rise and fall of Keynesian social democracy, which I also refer to as “managed capitalism,” occupies much of the second half of the book. When managed capitalism was in the ascendancy, during the decades after the Second World War, some of the most influential criticisms of the system came from the right. That is why Friedrich Hayek and Milton Friedman, the two patron saints of neoliberalism, find their way into a tome about critics of capitalism. In discussing the neoliberal counter-revolution, I trace its origins to the crisis of Keynesianism that two of my other subjects, Michał Kalecki and Paul Sweezy, intuited back in the 1940s.

By the first decades of the twenty-first century, the challenges facing global capitalism were proliferating, and, as mentioned above, the basic legitimacy of the system was being questioned. The accelerating impact of climate change spurred the rise of radical environmentalism and the “degrowth” movement, the origins of which can be traced to yet another of my subjects, the Romanian-American economist Nicholas Georgescu-Roegen, who argued in the 1970s that the earth had reached its economic carrying capacity. Other alarming developments included rising inequality, financial instability, the emergence of giant tech monopolies that seemed to operate by their own rules, and the threat of massive job displacements with AI. To some observers, these challenges portended an intensifying crisis, perhaps even a terminal one. To other commentators, they presented a historic opportunity to create a new economic paradigm, one that was more sustainable, egalitarian, and inclusive. In my final chapter, I discuss some of the arguments raised in this debate.

Finally, a few comments on terminology and sourcing. Although the word capital has been in use for hundreds of years to describe various forms of money and wealth, the term capitalism emerged only in the middle of the nineteenth century, when it was often used pejoratively. In 1850 the French socialist leader Louis Blanc described capitalism as “the appropriation of capital by some to the exclusion of others.”12 In writing about the “capitalist mode of production,” Marx emphasized the appropriation of “surplus value” that workers had created, but the general idea was the same. Eventually the term “capitalism” was applied to any market-based economic system in which “the means of production were owned by private proprietors” who hired managers and workers.13 Debates continue about when capitalism itself, rather than the moniker applied to it, came into existence. I follow the lead of the German historian Jürgen Kocka, the author of an invaluable short history of capitalism, in treating merchant capitalism, plantation economies, and industrial capitalism as variants of the same genus—one characterized by widespread mobilization of capital and production for profit in an environment of secure property rights.14 Following convention, I date the birth of industrial capitalism to the 1770s in England.

My primary source is the writings of my subjects, which I have quoted from and paraphrased extensively. For biographical details and historical context, I consulted memoirs, interviews, and published letters. I also relied extensively on secondary works, such as biographies and histories of economic thought. Wherever possible, I have tried to credit these sources, either in the text or in the endnotes. In writing about broader economic history, I have drawn from official sources for data on things like unemployment rates, GDP growth, and the distribution of wealth. But I have also tried to synthesize a very large amount of information from secondary materials, including books, official or semiofficial reports, and academic studies. Here, too, I have tried wherever possible to make my sourcing clear.

Researching and writing this book was a mammoth task but also a very rewarding one: I learned a great deal. Still, I am reminded of Marx’s famous remark: “The philosophers have hitherto only interpreted the world in various ways. The point, however, is to change it.” Regardless of what view one takes of Marx’s politics, it’s easy to sympathize with these sentiments, but history demonstrates that the challenge of putting them into practice is formidable and enduring. If any readers of this book are inspired to come up with new ideas for reforming the economy and making it work better for everybody, including generations to come, writing it will have been doubly worthwhile.

“The roguery practised in this department is beyond imagination”

William Bolts and the East India Company

On August 1, 1771, Richard Arkwright, an inventor who hailed from Preston, Lancashire, rented, along with four business partners, a piece of land in the Derbyshire village of Cromford. On a lease that the partners signed, they recorded their intention “to Erect and Build one or more Mill or Mills for Spinning, Winding, or throwing Silk Worsted Linen Cotton or other Materials.”1 Originally a wigmaker, Arkwright had, two years earlier, patented a spinning frame, a hefty contraption that used wooden and metal rollers to stretch and twist cotton threads into yarn. There is still controversy over whether Arkwright invented his frame or stole the design from others. In any case, after experimenting with horses to power his new machine, he decided that a waterwheel would be more effective. Running through the land he leased at Cromford, there was a river, Bonsall Brook, as well as an underground channel, or sough, that drained water from some nearby lead mines.

Arkwright and his partners built a five-story mill and a large waterwheel. In a local newspaper, they posted a job listing for skilled artisans—clockmakers, wood turners, a blacksmith—and unskilled workers. When Cromford Mill started production in 1772, it employed about two hundred people. Many of them were women and children, who were willing to work for lower wages than adult men.

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Cromford Mill wasn’t the world’s first mechanized textile factory. The nearby Lombe’s silk mill was also water-powered: it had been operating since 1721. Nonetheless, Arkwright and his partners were true pioneers of the factory system. Their mill set new standards for technology, productivity, and employee discipline. It operated around the clock, with two twelve-hour shifts, and its workers were required to keep strict time. If they were late or left their posts early, their pay was docked. As the business expanded, the mill owners constructed small housing units nearby, so their employees could walk to work. In 1776 they built a second mill on the same site.2

Today Cromford is part of a UNESCO World Heritage Site. It is commonly associated with the start of the industrial revolution, a term popularized by the English historian Arnold Toynbee in the late nineteenth century. During the decades after the mill opened, other British entrepreneurs would copy it, building dozens of spinning mills, particularly in the Lancashire city of Manchester and its surrounding towns. The factory system—based on mechanization, nonanimate power, and wage labor hired by capitalists—would gradually spread to other British industries, including woolen textiles, and to other countries, including the newly independent United States. Pointing to the vertiginous rise in output, productivity, and trade that this system unleashed, the historian Eric Hobsbawm described its emergence as “probably the most important event in world history, at any rate since the invention of agriculture and cities.”3

Hobsbawm issued this judgment in 1962. Subsequent historical research has qualified it somewhat. Cotton-led industrialization didn’t transform the rest of the British economy as rapidly as was once thought. Between 1780 and 1820, overall GDP growth remained relatively slow— less than 1.5 percent a year.4 If we take a longer-term view, however, Hobsbawm’s basic point surely stands, as the chart of world GDP over the past two millennia on the next page shows.5 It looks like a hockey stick. For nearly eighteen hundred years, GDP was flat. In the early 1800s, it took off, slowly at first, then more steeply, eventually almost vertically. As output and productivity rose year by year, planet Earth was able to support many more people. The world’s population rose from about 790 million in 1750 to roughly 8 billion in 2023.6 Without sustained economic growth, this more than tenfold increase simply wouldn’t have been possible.

The activities of Arkwright and his associates went largely unheralded by metropolitan writers and journalists. Derbyshire and Lancashire were remote from London, and few of the city’s inhabitants took notice of what was happening there. Capitalism was already thriving in Britain, but it was mercantile capitalism rather than industrial capitalism. Britain had firmly established property rights, extensive trading links, and a stock market in London’s financial district, which is known as the City. The British capital, with a population of about three-quarters of a million, had surpassed Paris as Europe’s biggest metropolis.

The mercantile system revolved around the British Empire, which was largely a commercial enterprise, and its crown jewel was the lucrative trade with India. Many members of Britain’s ruling class were involved, directly or indirectly, with the Indian trade, and they monitored it closely. Indeed, as Arkwright was busy getting Cromford Mill up and running, the metropolitan elites were consumed with a scandal involving the East India Company, a royally chartered trading monopoly that controlled key parts of the subcontinent.7 The Company was criticized in Parliament and became the subject of a tell-all book by a longtime employee named William Bolts, who claimed it was impoverishing Indian producers by forcing the Indians to accept ultralow prices for their products. The British presence, far from benefiting Indians, as defenders of the Company claimed, had been “rendered hateful to the natives by oppressions, has occasioned desertions of many of the people, [and] is in general odious in India,”8 Bolts wrote.

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Bolts was an unlikely corporate whistleblower. Little is known about his early life except that he was born in 1735 in Amsterdam, moved to England when he was fourteen, and spent some time working in Lisbon. By early adulthood, then, he had lived in three countries that established great trading empires: Holland, Britain, and Portugal.9 In 1759 Bolts obtained a job as a “factor,” or junior manager, at the East India Company, and he moved to Bengal, a vast state in northeastern India that encompassed much of modern-day West Bengal, Bangladesh, Jharkhand, and Odisha. As a major producer of cotton fabrics and many agricultural products, Bengal was the Company’s source of business and profits.

The East India Company was founded on December 31, 1600 under a charter issued by Queen Elizabeth I that granted it a monopoly on all British trade east of the Cape of Good Hope. Initially, it was an informal alliance of “merchant adventurers” who pooled their money to finance individual trading voyages. Nothing much distinguished it from other British trading ventures established in the same era, including the Muscovy Company, the Levant Company, and two enterprises that helped to establish Britain’s American colonies: the Virginia Company and the Plymouth Company. For a long time, the British East India Company was dwarfed by its Dutch rival, the United East India Company, known as the VOC, which was established in 1602. The Dutch company was another state-chartered enterprise, and it was also the world’s first publicly traded, joint-stock corporation: rather than being owned by a single proprietor or a group of partners, it issued shares that traded on the newly created Amsterdam Stock Exchange. Issuing stock was a revolutionary invention, because it allowed investors to diversify their risks. Rather than staking their money on a single trading voyage that might end in disaster, a wealthy individual could buy stock in the VOC and spread the bet across all its operations.

In 1619, the VOC established an Asian headquarters in what is now Jakarta, the capital of Indonesia. It cornered the trade in nutmeg, mace, cloves, and other spices that gave the Maluku Islands their European name, the Spice Islands, but its dominance didn’t last. During the seventeenth and eighteenth centuries, Britain spent heavily on its military, particularly its navy, which enabled it to expand its commercial activities in areas previously controlled by the Dutch. In those days, there was no conception of commercial enterprise and state activity as strictly separate entities. The British state was effectively an arm of a landed oligarchy, many members of which invested in the Company and other imperial ventures. The Royal Navy protected the company’s ships and enforced its trading monopolies by excluding foreign competitors and, where necessary, by going to war with them. The Company also had its own sizable military force made up largely of British officers and Indian soldiers. Together, the Company and the British state constituted a formidable military-commercial complex, which established a lucrative form of monopoly capitalism. Following the lead of the VOC, the Company evolved into a joint-stock business with an elaborate corporate structure. Its stockholders elected a Court of Directors that met weekly and served as the Company’s ruling body. The directors chose a chairman, who ran the company. Under him there were ten executive committees, including treasury, accounts, legal, and shipping. From the company’s headquarters on Leadenhall Street, its officials issued orders to its far-flung trading posts, telling them what goods to buy and keeping a sharp eye on costs.

During the early eighteenth century, the company shifted its focus from Indonesia to India, where it began buying cotton fabrics and other goods, then shipping them to Britain. At that time, Bengal was the world’s biggest manufacturer of cotton. Its products ranged from inexpensive white calicoes to the finest soft muslins. These cloths proved enormously popular with Britons, who were happy to cast off the itchy woolen undergarments they had worn for centuries. By 1740, Bengal was producing about two-thirds of all the goods that the company shipped to Britain.10 Some of these items were then reexported to non-British destinations, including slave-trading ports on the west coast of Africa.

As a trading enterprise, the Company looked to “buy cheap and sell dear.” Until the middle of the eighteenth century, it operated from fortified coastal trading posts, known as “factories.” Although its soldiers protected these forts, the Company operated under the sufferance of India’s rulers, principally the Mughal monarchs, who hailed from central Asia. The Mughals made foreigners trade through Indian intermediaries, and they prohibited practices that would damage the interests of local producers, such as colluding to keep down prices.