The Creation of Capitalism

 

( Part 1: The Communist Manifesto | Part 2: Capital, volume 1 | Part 3: Capital in the Twenty-First Century | Part 4: The Conquest of Bread | Part 5: In Defense of Capitalism | Part 6: The Creation of Capitalism )

 

I’m reading Steuart because he was heavily criticized not only by Michael Perelman but by Marx himself. From the onset I wondered why he’s writing this at all. In an early chapter he writes than people are weaving, trapping, tailoring, serving one another’s needs, and the government receives no benefit from all of this activity.

Can any change be greater among free men, than from a state of absolute liberty and independency to become subject to constraint in the most trivial actions? This change has however taken place over all Europe within these three hundred years, and yet we think ourselves more free than ever our fathers were. Formerly a gentleman who enjoyed a bit of land knew not what it was to have any demand made upon him, but in virtue of obligations by himself contracted. He disposed of the fruits of the earth, and of the labour of his servants or vassals, as he thought fit. Every thing was bought, sold, transferred, transported, modified, and composed, for private consumption, or for public use, without ever the state’s being once found interested in what was doing. This, I say, was formerly the general situation of Europe, among free nations under a regular administration; and the only impositions commonly known to affect landed men were made in consequence of a contract of subordination, feudal or other, which had certain limitations; and the impositions were appropriated for certain purposes.

—Book 1, chapter 2

The Inquiry is into the question: under what circumstances will a person work for some purpose other than their own subsistence, and how can the labor of the country be directed into this greater purpose? How can a government encourage population expansion of productive citizens rather than unproductive ones?

Slavery was then as necessary towards multiplication, as it would now be destructive of it. The reason is plain. If mankind be not forced to labour, they will only labour for themselves; and if they have few wants, there will be little labour. But when states come to be formed, and have occasion for idle hands to defend them against the violence of their enemies, food at any rate must be procured for those who do not labour; and as, by the supposition, the wants of the labourers are small, a method must be found to increase their labour above the proportion of their wants.

—Book 1, ch 7

In prior generations, the government would simply have enslaved people, but in our modern times, that is an inappropriate means to benefit from the labor of a country’s population, so what policies can a State create which will ensure the populace works in a such a way a government can benefit from? How can a modern State direct the labor of a people without forcing them to?

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In treating every question of political oeconomy, I constantly suppose a statesman at the head of government, systematically conducting every part of it, so as to prevent the vicissitudes of manners, and innovations, from hurting any interest within the commonwealth, by their natural and immediate effects or consequences. When a house within a city becomes crazy, it is taken down; this I call systematical ruin: were it allowed to fall, the consequences might be fatal in many respects. In like manner, if a number of machines are all at once introduced into the manufactures of an industrious nation, (in consequence of that freedom which must necessarily be indulged to all sorts of improvement, and without which a state cannot thrive) it becomes the business of the statesman to interest himself so far in the consequences, as to provide a remedy for the inconveniencies resulting from the sudden alteration. It is farther his duty to make every exercise even of liberty and refinement an object of government and administration; not so as to discourage or to check them, but to prevent the revolution from affecting the interests of the different classes of the people, whose welfare he is particularly bound to take care of. The introduction of machines can, I think, in no other way prove hurtful by making people idle, than by the suddenness of it: and I have frequently observed, that all sudden revolutions, let them be ever so advantageous, must be accompanied with inconveniencies.

A safe, honourable, and lasting peace, after a long, dangerous, and expensive war, forces a number of hands to be idle, and deprives them of bread. Peace then may be considered as a machine for defending a nation, at the political loss of making an army idle; yet no body, I believe, will alledge that in order to give bread to soldiers, sutlers, and undertakers, the war should be continued. But here I must observe, that it seems to be a palpable defect in policy, if a statesman shall neglect to find out a proper expedient (at whatever first expence it may be procured) for giving bread to those who, at the risk of their lives, have gone through so many fatigues for the service of their country.

—Book 1, ch 19

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As agriculture, exercised as a trade, purges the land of idle mouths, and pushes them to a new industry which the state may turn to her own advantage; so does a machine introduced into a manufacture, purge off hands which then become superfluous in that branch, and which may quickly be employed in another.

If therefore the machine proves hurtful, it can only be because it presents the state with an additional number of hands bred to labour; consequently, if these are afterwards found without bread, it must proceed from a want of attention in the statesman: for an industrious man made idle, may constantly be employed to advantage, and with profit to him who employs him. What could an act of naturalization do more, than furnish industrious hands forced to be idle, and demanding employment? Machines therefore I consider as a method of augmenting (virtually) the number of the industrious, without the expence of feeding an additional number: this by no means obstructs natural and useful population, for the most obvious reasons.

—Book 1, ch 19

The author acknowledges that machines will replace the work of human beings, leaving them with no means to provide for themselves. Steuart proposes that the government must take charge and direct the labor of the masses; a glut of laborers in one sector can be moved to a shortage in another. Yes, the statesman shall direct labor to the most productive areas. He writes frequently for the need of a “statesman” creating incentives and moving people around as interchangeable parts. In fact, the government has a duty to do this because the labor force of a country must be managed for the benefit of the country.

Upon the whole, daily experience shews the advantage and improvement acquired by the introduction of machines. Let the inconveniencies complained of be ever so sensibly felt, let a statesman be ever so careless in relieving those who are forced to be idle, all these inconveniencies are only temporary; the advantage is permanent, and the necessity of introducing every method of abridging labour and expence, in order to supply the wants of luxurious mankind, is absolutely indispensable, according to modern policy, according to experience, and according to reason.

—Book 1, ch 19

The author encourages the introduction of machines because they will interrupt family professions and replace craftsmen, throwing them out of work and making them superfluous. These are people the State can use for its own purpose.

Another expedient found to operate most admirable effects in reducing the price of manufactures (in those countries where living is rendred dear, by a hurtful competition among the inhabitants for the subsistence produced) is the invention and introduction of machines. We have, in a former chapter, answered the principal objections which have been made against them, in countries where the numbers of the idle, or trifling industrious, are so great, that every expedient which can abridge labour, is looked upon as a scheme for starving the poor. There is no solidity in this objection; and if there were, we are not at present in quest of plans for feeding the poor; but for accumulating the wealth of a trading nation, by enabling the industrious to feed themselves at the expence of foreigners. The introduction of machines is found to reduce prices in a surprizing manner. And if they have the effect of taking bread from hundreds, formerly employed in performing their simple operations, they have that also of giving bread to thousands, by extending numberless branches of ingenuity, which, without the machines, would have remained circumscribed within very narrow limits. What progress has not building made within these hundred years? Who doubts that the conveniency of great iron works, and saw mills, prompts many to build? And this taste has greatly contributed to increase, not diminish, the number both of smiths and carpenters, as well as to extend navigation. I shall only add in favour of such expedients, that experience shews the advantage gained by certain machines, is more than enough to compensate every inconvenience arising from consolidated profits, and expensive living; and that the first inventors gain thereby a superiority which nothing but adopting the same invention can counterbalance.

—Book 2, ch 18

...a State directing the economy and moving the labor of the masses around to where they are needed in order to produce things to export for the good of the State... This is everything we were told to fear about communism, and yet here is one of the intellectual fathers of capitalism proposing it!

Marx’s refutation could be summarized with “that is not the point! People were once independent and self-sufficient, and now they are at the mercy of someone else to give them what they need to survive. What right does anyone have to take away a person’s family profession? What right does anyone have to push someone to work for a purpose other than their own benefit?

According to Marx, communism is, ironically, a return to individual liberty in which the people displaced by machines should determine how those machines are implemented. He showed that factories do not raise all boats, so to speak, rather they drive one group of people under so another can be elevated.

 

 

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Let any man make an experiment of this nature upon himself, by entring into the first shop. He will no where so quickly discover his wants as there. Every thing he sees appears either necessary, or at least highly convenient; and he begins to wonder (especially if he be rich) how he could have been so long without that which the ingenuity of the workman alone had invented, in order that from the novelty it might excite his desire; for perhaps when it is bought, he will never once think of it more, nor ever apply it to the use for which it at first appeared so necessary.

Here then is a reason why mankind labour though not in want. They become desirous of possessing the very instruments of luxury, which their avarice or ambition prompted them to invent for the use of others.

What has been said represents trade in its infancy, or rather the materials with which that great fabric is built.

—Book 2, ch 3

The author supposes all laborers to be freehands with nothing for them to do in agriculture. Stepping into a store for the first time and seeing all the goods they can buy if they get money entices them to enter the workforce. This is how intellectuals imagined commerce to work, and this idea is something Marx would later refute: people do not enter the workforce by choice but because they have no other way to earn money to survive, since the factory took away their self-sufficiency, and the monarchy stole their land.

Having deduced the effects of modern policy, in assembling so large a proportion of inhabitants into cities, it is proper to point out the principles which should direct the statesman to the proper means of providing, supporting, and employing them. Without this they neither can live nor multiply. Their parent, Earth, has in a manner banished them from her bosom; they have her no more to suckle them in idleness; industry has gathered them together, labour must support them, and that must produce a surplus for bringing up children. If this resource should fail, misery will ensue: the depopulation of the cities will be followed by the ruin of the lands, and all will go to wreck together.

We have already laid down the principles which appear the most natural to engage mankind to labour, supposing all to be free; and we have observed how slavery, in former times, might work the same effect, as to peopling the world, that trade and industry do now; men were then forced to labour because they were slaves to others, men are forced to labour now because they are slaves to their own wants: provided man be made to labour, and make the earth produce abundantly, and providing that either authority, industry or charity, can make the produce circulate for the nourishment of the free hands, the principle of a great population is brought to a full activity.

—Book 1, ch 11

 

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Later in the text, he says this about the laboring class:

The methods of lowering the price of manufactures, so as to render them exportable, are of two kinds.

The first, such as proceed from a good administration, and which bring down prices within the country, in consequence of natural causes.

The second, such as operate only upon that part which comes to be exported, in consequence of a proper application of public money.

[...]

The very progress here laid down, points out the remedy. The number of hands employed in these particular branches must be multiplied; and if the luxurious taste and wealth of the country prevent any one who can do better, from betaking himself to a species of industry lucrative to the nation, but ungrateful to those who exercise it, the statesman must collect the children of the wretched into workhouses, and breed them to this employment, under the best regulations possible for saving every article of unnecessary expence; here likewise may be employed occasionally those above mentioned, whom the change of modes may have cast out of employment, until they can be better provided for. This is also an outlet for foundlings, since many of those who work for foreign exportation, are justly to be ranked in the lowest classes of the people; and in the first book we proposed, that every one brought up at the expence of public charity, should be thrown in for recruiting these classes, which can with greatest difficulty support their own propagation.

—Book 2, ch 18

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The state must encourage these new undertakings, numbers of children must be taken in, in order to be bred early to industry and frugality; this again will encourage people to marry and propagate, as it will contribute towards discharging them of the load of a numerous family. If such a plan as this be followed, how inconsiderable will the number of poor people become in a little time; and as it will insensibly multiply the useful inhabitants, out of that youth which recruited and supported the numbers of the poor, so the taxes appropriated for the relief of poverty may be wholly applied, in order to prevent it.

—Book 2, ch 18

The breakup of the community and the family is both encouraged and necessary for a strong economy.

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This might be why we remember Adam Smith but not James Steuart.

I’ll give him a little credit though. At least Steuart acknowledges that machines will replace the work of men and women, so someone should alleviate the social consequences of the industrial revolution. His suggestion is to introduce machines into the economy for the express purpose of throwing tailors, smiths, bakers and so forth out of their independent crafts so the State can redirect their labor as necessary. Forget freedom. Use them.

The word “statesman” appears 404 times in the text. Counting all the pronouns referring to this hypothetical, selfless public servant, I figure the author refers to him more than a thousand times.

Steuart really is in favor of pushing people out of their inherited crafts and placing them at the mercy of the government to direct their labor toward something beneficial to the country. If people are unemployed, it’s the statesman’s task to find work for them. If people are self-sufficient, they are of no use to the State. To make them useful, the State must break them of their skilled crafts by forcing them to compete with machines producing en masse what they once produced as a profession. This will push them to seek employment in the factory. It’s astonishing to read this view of machines replacing the work of human beings.

 

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Also astonishing to realize that, in Steuart’s view of things, profit is not the motive:

But if the scale of demand remains preponderating, and so keeps profits high, the consequence will be, that, in a little time, not only the immediate seller of the goods, but also every one who has contributed to the manufacture, will insist upon sharing these new profits. Now the evil is not, that every one should share, or that the profits should swell, as long as they are supported by demand, and as long as they can truly be considered as precarious; but the mischief is, that, in consequence of this wide repartition, and by such profits subsisting for a long time, they insensibly become consolidated, or, as it were, transformed into the intrinsic value of the goods. This, I say, is brought about by time; because the habitual extraordinary gains of every one employed induce the more luxurious among them to change their way of life insensibly, and fall into the habit of making greater consumptions, and engage the more slothful to remain idle, till they are exhausted. When therefore it happens, that large profits have been made for a considerable time, and that they have had the effect of forming a taste for a more expensive way of living among the industrious, it will not be the cessation of the demand, nor the swelling of the supply, which will engage them to part with their gains. Nothing will operate this effect but sharp necessity; and the bringing down of their profits, and the throwing the workmen into distress, are then simultaneous; which proves the truth of what I have said, that these profits become, by long habit, virtually consolidated with the real value of the merchandize. These are the consequences of a neglected simple competition, which raises the profits upon industry, and keeps the balance overturned for a considerable time.

—Book 2, ch 10

The manufacture itself is the goal, providing a product for export or consumption at home, not the profit for an individual but the prosperity of the country. If the profit becomes expected, part of the price of the good, it distorts the market, so it’s up to the statesman to force manufacturers to endure less profit for the good of the economy, if necessary.

The method therefore of reducing consolidated profits, whether upon articles of exportation, or home consumption, is to increase the number of hands employed in supplying them; and the more gradually this revolution is made to take place, the fewer inconveniencies will result to those who will thereby be forced to renounce them.

[...]

This will occasion great complaints among all sorts of tradesmen. The cry will be, that trade is ruined, manufacturers are starving, and the state is undone: but the truth will be, that manufacturers will, by their labour, begin to enrich their own nation, at the expence of all those who trade with her, instead of being enriched at the expence of their own countrymen; and only by a revolution in the balance of wealth at home.

It will prove very discouraging to any statesman to attempt a sudden reform of this abuse of consolidated profits, when he is obliged to attack the luxury of his own people. The best way therefore is to prevent matters from coming to such a pass, as to demand so dangerous and difficult a remedy.

—Book 2, ch 18

Can you imagine a government having the power to tell a corporation it must be happy with less profit? That their profits are too high and they must reduce them so as not to harm global markets or consumers at home?

 

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The author is also keen to point out another interference:

From these principles of competition, the forestalling of markets is made a crime, because it diminishes the competition which ought to take place between different people, who have the same merchandize to offer to sale. The forestaller buys all up, with an intention to sell with more profit, as he has by that means taken other competitors out of the way, and appears with a single interest on one side of the contract, in the face of many competitors on the other. This person is punished by the state, because he has prevented the price of the merchandize from becoming justly proportioned to the real value; he has robbed the public, and enriched himself; and in the punishment, he makes restitution. Here occur two questions to be resolved, for the sake of illustration.

—Book 2, ch 7

Even in the 1700s, it was recognized that profit-seeking harms markets. It contributes nothing to the economy, produces nothing, and enriches an individual at the expense of consumers and, by extension, the country. A statesman must be watchful of such things. I agree with him on this point, and it betrays a critical assumption of economic theory: everyone is supposed to be acting independently, without knowledge or care for what others are doing. No cooperation between businessmen, no buyouts, no mergers, no shareholders pushing a company to increase profits more and more. No trade associations between corporations. No lobbying the government for favorable laws. No price manipulation to drive competitors out of business in order to buy up their assets and corner the market. Profit is not the goal. The good of the country is.

 

 

 

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Government bailouts are a part of Capitalism. They’ve been there from the inception, but they were meant to relieve the populace, not the corporation:

when a statesman finds, that the natural taste of his people does not lead them to profit of the surplus of commodities which lie upon hand, and which were usually exported, he should interpose his authority and management in such a way as to prevent the distress of the workmen, and when, by a sudden fall in a foreign demand, this distress becomes unavoidable, without a more powerful interposition, he should then himself become the purchaser, if others will not; or, by premiums or bounties on the surplus which lies upon hand, promote the sale of it at any rate, until the supernumerary hands can be otherwise provided for. And although I allow that the rich people of a state are not naturally led, from a principle either of public spirit or self-denial, to render such political operations effectual to promote the end proposed, yet we cannot deny, that it is in the power of a good governor, by exposing the political state of certain classes of the people, to gain upon men of substance to concur in schemes for their relief; and this is all I intend to recommend in practice.

—Book 2, ch 16

The silver lining is that the author places responsibility not only on the government but on the wealthy to keep money circulating. Steuart is very clear that hoarded money is just as dangerous to the economy as excessive profits. The rich are obligated to keep money circulating, and buying stock in a company is not the same as direct employment of the people, or the direct purchase of the goods they create.

Steuart acknowledges that economies can and will stagnate if anything changes regarding foreign trade, and it’s up to the State to find relief and remedy for this one way or another. He is in favor of the Statesman collecting taxes and building a public fund to help the people through such shocks, and the rich should be subject to such taxes.

Steuart dislikes the idle aristocracy as much as he dislikes self-sufficiency among the laboring class. He is nothing if not an advocate for the entire country participating in the economy.

 

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The net prosperity gained by throwing people out of their family professions and into the factory depends on a buyer somewhere else. If there is no buyer, what then? What happens when there is no foreign country to buy your goods? Ideally, the public fund will support the populace until the honorable Statesman finds a new market for the country’s goods. As the USA has demonstrated, the best way to accomplish this is to force some other country to buy your goods. Surely this will raise all boats, won’t it? After a century of doing this to Africa and South America and parts of Asia and Oceania, those countries are now prosperous and happy, aren’t they?

Nah, Steuart outright says this is meant to extract wealth from foreign countries in order to support the people at home. It deliberately keeps others poor so someone else can become rich; if the buyer were allowed to build up their own industries and become the seller, then your country loses its national income. Not everyone can become a seller, so competitors must be kept down. Buyers must remain buyers so sellers can remain sellers. This explains much of US foreign policy, and why the USA demonized the Soviet Union: it was moving from buyer to seller, and that simply wouldn’t do.

Capitalism was envisioned to utilize the last untapped resource of the country: its population of self-sufficient inhabitants. In prior centuries, waging war was a country’s economy, subjugating a people and forcing them to pay taxes and supply troops with food and such. War was a machine to extract wealth from the weak, and now the same thing can be accomplished with machines. Industry, Steuart writes, is the new way countries can strengthen themselves at the expense of foreigners. The net gain is worth it for all—workers are more productive and everyone has more stuff.

...is it? Is this really how the machines should be used or is there another way?

An unbelievably boring read, and I only made it up to book 3, but from there he leaves the subject of industrialization and turns his attention to coinage and banking. Books 1 and 2 are insightful enough. What we have in the 21st century is nothing close to how markets were imagined in the 18th century, but Steuart does outline some basic principles we can see at work all around us today.

A text like Inquiry shows that Capitalism did not happen naturally. It was a deliberate seizure of a citizen’s self-determination for the sake of producing goods for global markets. It’s what the Soviets did, and we called that Communism, but it is in fact Capitalism’s goal. This is why the author wrote the book: it is a proposal to enslave the populace for the benefit of the State by economics instead of chains.

___other notable passages___

As to the state, it is, I think, very plain, that, without such a distribution of inhabitants, it would be impossible to levy taxes. For as long as the earth nourishes directly those who are upon her surface, as long as she delivers her fruits into the very hand of him who consumes them, there is no alienation, no occasion for money, consequently no possibility of establishing an extensive taxation, as shall in its place be fully explained.

—Book 1, ch 10

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No problems of political oeconomy seem more obscure than those which influence the multiplication of the human species, and which determine the distribution and employment of them, so as best to advance the prosperity of each particular society.

—Book 1, ch 12

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The political oeconomy of government is brought to perfection, when every class in general, and every individual in particular, is made to be aiding and assisting to the community, in proportion to the assistance he receives from it. This conveys my idea of a free and perfect society, which is, a general tacit contract, from which reciprocal and proportional services result universally between all those who compose

it.

—Book 1, ch 14

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We have said, that the rise of demand for manufactures naturally increases the value of work: now I must add, that under such circumstances, the augmentation of riches, in a country, either not capable of improvement as to the soil, or where precautions have not been taken for facilitating a multiplication of inhabitants, by the importation of subsistence, will be productive of the most calamitous consequences.

—Book 2, ch 9

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It is quite impossible to go methodically through the subject of political oeconomy, without being led into anticipations. We have frequently mentioned this balance of work and demand, and shewed how important a matter it is for a statesman to attend to it. The thing, therefore, in general is well understood; and all that remains to be done, is to render our ideas more determined concerning it, and more adequate, if possible, to the principles we have been laying down.

—Book 2, ch 10

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Whatever therefore be the consequence of the actual preponderancy of the scale of demand; that is, whether it tend to raise profits, or to discredit the market; the statesman’s care should be directed immediately towards making the balance come even of itself, without any shock, and that as soon as possible, by increasing the supply. For if it be allowed to stand long in this overturned state, natural consequences will operate a forced restitution; that is, the rise in the price, or the call of a foreign market, will effectually cut off a proportional part of the demand, and leave the balance in an equilibrium, disadvantageous to trade and industry.

—Book 2, ch 10

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In order therefore to preserve a trading state from decline, the greatest care must be taken, to support a perfect balance between the hands employed in work and the demand for their labour. That is to say, according to former definitions, to prevent demand from ever standing long at an immoderate height, by providing at all times a supply, sufficient to answer the greatest that ever can be made: or, in other words, still, in order to accustom my readers to certain expressions, to encourage the great, and to discourage the high demand. In this case, competition will never be found too strong on either side of the contract, and profits will be moderate, but sure, on both. If, on the contrary, there be found too many hands for the demand, work will fall too low for workmen to be able to live; or, if there be too few, work will rise, and manufactures will not be exported. For want of this just balance, no trading state has ever been of long duration, after arriving at a certain height of prosperity.

—Book 2, ch 10

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We have traced the progress of industry, and shewn how it goes hand in hand with the augmentation of subsistence, which is the principal allurement to labour. Now the augmentation of food is relative to the soil, and as long as this can be brought to produce, at an expence proportioned to the value of the returns, agriculture, without any doubt, will go forward in every country of industry. But so soon as the progress of agriculture demands an additional expence, which the natural return, at the stated prices of subsistence, will not defray, agriculture comes to a stop, and so would numbers, did not the consequences of industry push them forward, in spite of small difficulties. The industrious then, I say, continue to multiply, and the consequence is, that food becomes scarce, and that the inhabitants enter into competition for it.

—Book 2, ch 11

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When once a state begins to subsist by the consequences of industry, there is less danger to be apprehended from the power of the sovereign. The mechanism of his administration becomes more complex, and, as was observed in the introduction to the first book, he finds himself so bound up by the laws of his political oeconomy, that every transgression of them runs him into new difficulties.

—Book 2, ch 13

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Let us now fix our attention upon the interests of a people entirely taken up in the prosecution of foreign trade. So long as this spirit prevails, I say, it is the duty of a statesman to encourage frugality, sobriety, and an application to labour in his own people, and to excite in foreign nations a taste for superfluities as much as possible.

[...]

Trade, therefore, and foreign communications, form a new kind of society among nations; and consequently render the occupation of a statesman more complex. He must, as before, be attentive to provide food, other necessaries and employment for all his people; but as the foreign connections make these very circumstances depend upon the entertaining a good correspondence with neighbouring nations, he must acquire a proper knowledge of their domestic situation

—Book 2, ch 15

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but that the statesman should be constantly on his guard to prevent the subversion of the balance, or the smallest consolidation of extraordinary profits with the real value. This he will accomplish, as has been observed, by multiplying hands in those branches of exportation, upon which profits have risen. This will increase the supply, and even frustrate his own people of extraordinary gains, which would otherwise terminate in a prejudice to foreign trade.

—Book 2, ch 16

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Therefore I was in the right, when I observed above, Chap. 22. that war in antient times, had the effect that industry has now: it was the only means of making wealth circulate. But peace producing a general stagnation of circulation, people returned to the antient simplicity of their manners, and the prices of subsistence remained on the former footing; because there was no increase of appetite, or rising of demand upon any necessary article. So much for the state of wealth during the days of frugality.

—Book 2, ch 30