This work is an economic historian's contribution to world affairs in a period of perilous transformation. Its aim is simple: to enlarge our freedom of creative adjustment, and thereby improve our chances of survival, the problem of man's material livelihood should be subjected to total reconsideration.
No more than a beginning can be made in this book. An attempt will be made, however, to remove some deeply rooted misconceptions that underlie the social philosophy of our time concerning the place occupied by the economy in society. This effort will center on the study of trade, money, and market institutions so familiar to our age and yet, perhaps for that very reason, sources of a grievously incomplete understanding of the nature of the human economy.
If occasionally a personal note has intruded into the analysis of the cold facts, it is because the historian can no longer remain aloof from the needs of the age. True, by responding to their call he may introduce unwonted tensions into the traditional fabric of an academic discipline. Still, the perspective of the undertaking does not spring from an individually held view. The nature of the dangers cited can be gauged objectively, and the briefest survey of the present reveals some of the permanent factors in the oncoming period of history. Nevertheless, the approach to the task may well be deemed personal. Perforce there are subjective sources to the belief that even so academic and peripheral a figure as the student of economic history should be able to discover a definite use for himself in this secular process. That, for instance, he may help to disencumber our minds of obsolete notions and, to the extent to which he rightly discerns the ills of the age, he might even venture to offer a view of how to judge long-run policy problems.
The bare facts of the situation in which we find ourselves are, indeed, seen to be alike by many. About a generation ago, the demise of the system of world economy became apparent. After World War I, the international gold standard, world markets for commodities and raw materials, and the universal distribution of credits and investments were engulfed by changes, some sudden, some more gradual. At the same time, the political organization of the peoples of the planet started to disintegrate. The balance of power that had prevented major wars for a century ceased to work. New dictatorial forms of government arose and passed again. New organizations of the economy were tried, with varying success. Following World War II, the continents of Asia and North Africa became fluid at their borders. For a time, World War III seemed imminent. Despite the odds, however, the chances of life appear to be winning over the chances of death. But whatever the outcome, one conclusion can already be drawn with certainty: that further readjustments in the institutional setting of national and international life are inevitable. This may sound trite, for history never stands still. Actually, it is meant in this context to forecast changes affecting vital aspects of our collective existence even if, as now seems possible, no spectacular events like those of the decade from which we have just emerged break in upon us. For the crucial circumstance that needs to be emphasized, since it is easily overlooked, is precisely the obvious one that the contending political and ideological forces that have already entered the international scene will of necessity either clash destructively or harmonize constructively or, perhaps, both; yet such is the institutional nature of these forces that, even for nothing dramatic to happen, important step-by-step adaptation will have to occur. Of this we may be sure, therefore: that whatever else be in store, at least some degree of creative adjustment to these new permanent features of the human environment is inevitable. Mere coexistence, if it is to operate at all, logically requires as much.
But beyond the institutional devices that mere coexistence must involve, another kind of unspectacular change in the human world is possible, more comprehensive, in its undramatic way, than imagination has hitherto encompassed. Nuclear energy, once released, will never cease to haunt us. Those dominant concerns in which we have our being may alter their direction, changing from their present economic axis to one that may best be called the moral and political. No longer economic progress and welfare, but peace and freedom become man's supreme aims. Fear, that architect of power, is already quietly producing totalitarian tendencies of a magnitude hitherto unknown. For better or worse, the very framework of change is changing.
As for the hope of contributing his mite an economic historian may secretly nourish, it must be, as it were, esoteric. Indeed, to select the timeless question of man's livelihood and urge its reconsideration in the light of practical necessities must appear as a strange objective. The place occupied by various economies in different societies is a forbidding subject at best. Although an economy of some kind or other is essential to every society, it may be linked with the rest of that society in very different ways. Under the same technology, such far-reaching changes in economic organization may be encountered as transitions from capitalism to socialism. Again, the same organization of the economy seems compatible with sharp changes in the political system, e.g., when a market-organized society changes from a liberal democracy to fascism or vice versa. This phenomenon is all the more likely if change has been induced by an external force such as conquest, a common occurrence in world history. Under pressure from outside, or in the wake of acculturation, any major sphere of life – whether political religious, or cultural, so it seems – may gain ascendancy over the other spheres and retain it over a stretch too long to be called merely temporary. Yet even though the economy may take only second or third place, it can never fail to complicate the issues in unforeseeable ways.
If, nevertheless, the unwieldy subject of the livelihood of man was elected for inquiry here, it was done in the conviction that it is not beyond the scope of intellectual effort to eliminate at least some of the most intractable biases under which the problem of the economy presents itself to the men of our century.
This belief, amounting almost to a personal engagement, stems from a compelling insight of many years’ standing. It is my conviction that the largely unconscious weakness under which Western civilization labors springs precisely from the peculiar conditions under which it is shaping its economic fate. In all its singularity, this argument can be set out as follows.
Our social thinking, focused as it is on the economic sphere, is for that very reason ill equipped to deal with the economic requirements of this age of adjustment. A market-centered society such as ours must find it hard, if not impossible, justly to gauge the limitations of the significance of the economic. For once man's everyday activities have been organized through markets of various kinds, based on profit motives, determined by competitive attitudes, and governed by a utilitarian value scale, his society becomes an organism that is, in all essential regards, subservient to gainful purposes. Having thus absolutized the motive of economic gain in practice, he loses the capacity of mentally relativizing it again. His imagination is bounded by stultifying limits. The very word economy evokes in him not the picture of man's livelihood and the technology that helps to secure it, but recalls instead a set of particular motives, peculiar attitudes, and highly specific purposes, all of which he is used to calling economic, even though they are mere accessories to the actual economy, owing their existence to an ephemeral interplay of cultural traits. Not the permanent and abiding features of all human economies but the merely transitory and contingent ones appear to him as the essentials. He is bound to create difficulties for himself where otherwise there are none and stumble over easily avoided obstacles whose very existence is unknown to him. In his ignorance, he can grasp neither the true preconditions of survival nor the less obvious ways of attaining the possible. This obsolete market-mentality is, as I see it, the chief impediment to a realistic approach to the economic problems of the oncoming era.
On the face of it, such a proposition must appear almost self-contradictory. It may seem to imply that very overestimation of the importance of the economy against which it ostensibly wishes to forewarn. However, this is by no means the case. To assert that market-centered habits tend to be accompanied by a certain kind of economic rationale is entirely compatible with an outright rejection of the fallacious view of a timeless predominance of the economic factor in human affairs. The nineteenth century, which universalized the market, would naturally experience economic determinism in its daily life and incline to assume that such determinism was timeless and general. Its materialistic dogmatism in regard to men and society simply mirrored the institutions that happened to shape the environment. And to assert that such obsessive economy-centered notions, reflecting time-bound conditions, must prove a hindrance to the solution of wider problems, including those of the adjustment of the economy to new social surroundings, is merely to point out the obvious.
It is, then, precisely on account of the disproportionate influence exerted by the market system on the society of our own personal experience that we must find it difficult to understand the limited and subordinate character of the economy as it presents itself outside such a system. But hence also the reasonable expectation that, once our deep seated bias has been recognized for what it is, it should not be beyond our capacity to rid ourselves of its deleterious effects. A wider knowledge of fact is the corrective to restrictive prejudice. To reduce to their true proportions the emergent questions of economic adjustment we must learn to see with the eyes of the historian.
Sloganized versions of history, however, would prove as fatal to our generation as a false map to a general on the eve of battle. First of all, world history is emphatically not economic history. The physical existence of a group, its safety of life and limb, the totality of its way of life transcend anything that can be reasonably presented as an economic interest. But to stress the opposite also has its danger. Whoever can offer economic solutions will always be at an advantage in the pure power game over one who cannot. Again, mere business practices, however fondly cherished, cannot present themselves as the only embodiments of such transcendent values as personality and freedom. This would be to substitute credit for creed, and fatefully to underestimate the impetus of a secular religion that happens not to put its faith in bank accounts. Nor should technological progress be made into an idol to which morality and human happiness are blindly sacrificed. Yet again, to elevate primitivism to a morality and seek shelter from the machine age in the Neolithic cave is a counsel of despair that ignores the irreversibility of progress.
Discordant generalizations such as these need not leave us in an agnostic mood. The varied, vivid experiences concerning man's livelihood will naturally carry false emphasis as their epigraph. Rather let us beware of the abstract generalizations in things economic that tend to obscure and oversimplify the intricacies of actual situations, for these actualities alone are our concern. Our task is to divest them of generalities and grasp them in their concrete aspect. No lengthy regression in time is needed to find the historical origin of our present entanglements.
The nineteenth century gave birth to two sets of events of a very different order of magnitude: the machine age, a development of millennial range; and the market system, an initial adjustment to that development.
In the machine age we see the beginning of one of those rare mutations that mark the lifetime of the human race in terms of which the history of man since the Old Stone Age counts no more than three periods: first, the Neolithic; second, the period of plough agriculture in which almost all history happened; third, the brand-new machine age. All along, technology provided the criterion. Neolithic man never passed much beyond the stage of food gathering and hoe agriculture. The growing of grain required a plough with a large beast to pull it; and its introduction started civilization some seven or eight thousand years ago. The use of machines powered by strength other than that of man or beast is of quite recent occurrence. It launched us on a new sea. By all counts, this new civilization that has already doubled the population of the globe should be expected to continue over a long period. It has come to stay. It is our fate. We must learn to live with it, if we are to live at all.
The fundamental fact is, then, that the machine created a new civilization. If plough agriculture is credited with giving rise to the first civilization, the machine gave rise to the second, the industrial. It spread over the planet, creating the perspective of the ages to come. Such an event transcends by far the economic field; only time will unfold its powers and perils and spell out its implications for the existence of man. Machine civilization has invested the frail frame of man with the effectiveness of lightning and earthquake; it has moved the center of his being from the internal to the external; it has added hitherto unknown dimensions to the scope, structure, and frequency of communication; it has changed the feel of our contacts with nature; and, more important than all else, it has created novel interpersonal relations reflecting forces, physical and mental, that still may cause the self-destruction of the human race.
The beginnings were unspectacular. At the end of the eighteenth century (a few rare spirits apart), no one suspected as yet that a new civilization was about to begin. Not many machines had yet been invented, and of those invented some, like the power loom, were still not in use. Nevertheless, by privilege of first sight a few recognized the signs and anticipated changes of unimaginable depth, subtlety, and pervasiveness. Some of their notions caused much merriment; yet, as we have since learned to see, not the tough realists but the childlike prophets were closer to the truth. Indeed, the grim questions of our day, as well as the hopes of centuries to come, are mere derivatives of that inconspicuous mechanical start.
Robert Owen was the first to perceive that a new world was engulfing the old. The machine would demand alterations in the details of everyday life, as in communal existence. He sensed not only the boon inherent in an explosive growth of the capacity to produce but also its potential to become an invidious gift unless the shock of a machine-made life was absorbed by new patterns of settlement and habitation, new sites of work, new relations between the sexes, new forms of relaxation and even attire – to all of which he devoted his attention. He advocated a root-and-branch reform of Christianity. Almost as an afterthought he referred to the economy, advocating a reformed currency and cooperative forms of economic life (no concept of capitalism yet existed). In France, Fourier's grotesque imagination engendered blueprints of phalanstères where the industrial division of labor would be geared, by virtue of psychological gadgets, to the spontaneity of men, women, and children. Saint-Simon proclaimed that his New Christianity would bring salvation to an “industrial society.” Thus did the “utopian socialists” anticipate the menace of a cultural development which a century later became familiar to all the world as the fragmentation of man, the standardization of effort, the supremacy of mechanism over organism and of organization over spontaneity. Even the threat to personality and freedom was there from the start. By the close of the century, Henry Adams foretold the very date of the atom bomb.1
However, for a long time those early fears of what would follow in the wake of the machine remained latent. They were eclipsed by the manifest changes in economic organization proper urgently required to allow play for the technological miracles of the day. Adam Smith had discovered the answer in the market. The factory system, which at first seemed to involve little more than some additional overseas trading stations of the usual kind, soon induced a process of institutional change of a very different magnitude. The outcome was the approximation of a self-regulating system of markets that revolutionized Western society in the early decades of the nineteenth century.
As we now know, this was only a first vigorous attempt at adjustment. Tremendously successful as the initiative proved, in spite of the bitter sufferings that it brought to a whole generation, the adaptation to the machine was neither complete nor final. The more comprehensive the market system became, the more it revealed its incapacity to satisfy the requirements of a stable society. Millions experienced recurrent unemployment and the employed suffered permanent uncertainty of tenure – scourges unknown to former societies – while continued dislocations provided a harassing accompaniment, all of which made the process of industrialization a burden almost too great to be borne. Socialist movements at home and a worldwide growth of tariffs on imports were manifestations of a societal tendency toward self-protection set in motion by the ravages of uncontrolled market forces.
Thus in our own days another phase of economic change set in. It followed logically from the earlier one, yet it pointed in a quite different direction. The breakdown of the most ambitious of all market institutions, the international gold standard, only half a century after its establishment ushered in the end of the market utopia. Roughly analogous economic reforms were now introduced under politically different regimes in all advanced countries of the West. Regular employment for all, regulated trading abroad, planned development of national resources at home were the postulates. Even in countries where the market system largely continued in the traditional way, there was a significant turn in the everyday motives of economic life. Social security and a more just taxation diluted the incentives of profit for the owner and fear of destitution for the worker, replacing them with the mixed motives of status, security of income, teamwork, and a creative role in industry.
The strains and stresses that accompany this second adaptation of the economy to the machine are strangely different from those of the technology that imperilled civilized life in the wake of the Industrial Revolution. If a century ago the inexorable working of interlinked markets for labor, land, and capital had to be countered so that the human shape of life could continue, the dangers now come from an unexpected quarter. They are, however, by no means less formidable. And the new threat forms as much a part of an industrial civilization as the unhealthy factory, the mushroom town, or the scientific cruelty of the poorhouse did in nineteenth-century England, its birthplace. But today the underlying concern is not for equality, justice, charity, and a humane life for the laborer, but rather for the freedom and survival of all. Industrial technology is showing itself wholly capable of generating suicidal tendencies that strike at the roots of liberty and life itself. Outside Europe there is fear of foreign domination and a determined insistence on independence and autarchy as means of controlling a process of industrialization that is universally both desired and dreaded. The apparent contradiction should not be surprising. Industrialism was an uneasy compromise between man and machine in which man lost out and the machine had its way. At the beginning of the nineteenth century, the market system may well have been the only means of employing expensive, elaborate machinery for the purposes of production. When machines were invented, neither the readiness and the capacity for risk bearing nor the knowledge of products and consumers was available except in that merchant class which for generations had been “putting-out” raw materials for finishing by home industry. The self-protection of society, partly by means of factory laws but mainly through the trade union movement, for a long time lagged far behind the impact of the machine. In the present spread of industrialization, the order is reversed. Asians, Latin Americans, and Africans have learned the lesson. The new economic organization puts the safety of society above the requirement of maximum technological efficiency. The emphasis has shifted from machine to man.
So great a shift in the place of the economy in society must divest the economy of its traditional associations. Gain, competition, and utilitarian advantage are no longer the points of reference. The more familiar we are with the picture of the world as it presented itself in the nineteenth century, the less well will we be prepared for the realities of the twentieth. For an orientation in the emerging new conditions, a different map is required.
For an up-to-date frame of reference, a strategic point is required. The earlier and later maps contrast perhaps most sharply in the position assigned on them to the institutions of trade, money, and market. Under the dominance of the market, trade is no more than a function of the market, and money merely a means of facilitating trade, both appearing as adjuncts of the market. Actually, some forms of trade and various uses of money gain great importance in economic life independent of, and precedent to, markets; and even where market elements are present, they do not necessarily involve the existence of a supply-demand-price mechanism. Prices are originally set by tradition or authority, and their alternation, when it occurs, is again brought about by institutional, not by market methods. Contrary to all current assumptions, the origin of fluctuating prices, not of fixed prices, is the problem for the historian of antiquity.
The notion that individual acts of exchange were at the root of trade, money, and even of market institutions, is hardly tenable. Foreign trade, as a rule, preceded domestic trade, the exchange use of money originated in the foreign trade sphere, and organized markets were developed first in external trade; in all three cases, action was more of the collective than of the individual kind. In the light of these recognitions, it stands to question how, in the absence of price-making markets, trade, money, and market elements were integrated into the economy.
Such problems were left outside the scope of inquiry by the traditional assumption of the inseparable unity of trade, money, and markets. Where trade was seen, markets were assumed; and where money was in evidence, trade was assumed, and therefore markets. In point of fact, over the greater part of economic history trade, the various money uses, and market elements should be regarded as separate occurrences. But how does an economy function unless trade becomes market trade and money becomes exchange money? How, for instance, can money objects be in use for payment and other money objects be in use as a “standard” while no appreciable amount of exchange is carried on? Even more searching questions arise in regard to the large-scale functioning of trade and money in so-called primitive, marketless economies – questions which could, of course, not even have been formulated so long as the existence of such conditions was ignored, or their significance denied, in the name of a dogmatic notion of progress. We were thus apt to misjudge the general character of economic development in regard to both the sequence of facts and the facts themselves.
It is mere prejudice to assume that in every development the smaller-sized specimen was necessarily anterior to the larger-sized. To postulate such a sequence in history is no more than an uncritical extension of the law of organic evolution. Trade over the longest distances generally preceded that over shorter distances, just as the farthest colonies were usually founded first, and vast empires arose earlier in history than smaller kingdoms. A similar mistake is to regard phenomena such as credit and finance as “late” developments only because, in the short perspective of the last few centuries, they happen to have come into prominence again following the emergence of the modern market system. This particular fallacy was epitomized in one of the more popular “stages” theories, which insisted upon the sequence, “natural economy, money economy, credit economy,” as a supposed law of development. As a matter of fact, debts and obligations are primitive phenomena that antedate the existence of markets, and the storage economies of antiquity practised large-scale financial planning and accountancy long before the use of money as a means of exchange gained importance.
The predilection for continuity from which nineteenth-century historiography suffered often made us misread not only the sequence of the facts but also the facts themselves. The continuity taken to be implied in organic processes is only one mode of happening, alongside of which run the inherent discontinuities of development (the total process being a combination of the two). Besides continuous growth from small beginnings, there is also a very different pattern, that of discontinuous development from previously unconnected elements. The “field,” in which such sudden change as the emergence of a new, complex whole occurs, is the social group under definite conditions. These discontinuities broadly determine both what ideas and concepts gain currency with the members of a group and at what rate. But once disseminated, these ideas and concepts permit change at an enormously accelerated rate, since the patterns of individual behavior can now simply fall into line with the new general pattern preformed by those ideas and concepts. Formerly unconnected elements of behavior thus link directly up in a new, complex whole, without any transition. In this light, the so-called idealistic and materialistic approaches to history appear not so much as opposites but rather as outcomes of two different phases in the total process. The idealist expresses, although in a mystificatory form, the fact that human thoughts and ideas play a decisive part in the emergence of institutions and the turns of history. The materialist stresses that objective factors condition the spread of those thoughts and ideas, which are not therefore, as the Hegelian idealists assumed, born of an abstract dialectic.
The history of mankind and the place of the economy in it, is not, as the evolutionists would have it, an account of unconscious growth and organic continuity. Such an approach would necessarily obscure some aspects of economic development vital to men in the present phase of transition. For the dogma of organic continuity must, in the last resort, weaken man's power of shaping his own history. Discounting the role of deliberate change in human institutions must enfeeble his reliance on the forces of the mind and spirit just as a mystic belief in the wisdom of unconscious growth must sap his confidence in his powers to re-embody the ideals of justice, law, and freedom in his changing institutions.
The scholar's endeavor must be, first to give clarity and precision to our concepts, so that we be enabled to formulate the problems of livelihood in terms fitted as closely as possible to the actual features of the situation in which we operate; and second to widen the range of principles and policies at our disposal through a study of the shifting place of the economy in human society and the methods by which civilizations of the past successfully engineered their great transitions.
Accordingly, the theoretical task is to establish the study of man's livelihood on broad institutional and historical foundations. The method to be used is given by the interdependence of thought and experience. Terms and definitions constructed without reference to data are hollow, while a mere collecting of facts without a readjustment of our perspective is barren. To break this vicious circle, conceptual and empirical research must be carried forward pari passu. Our efforts shall be sustained by the awareness that there are no short cuts on this trail of inquiry.
To contribute to such an approach to the questions of the human economy is the aim of this book.