Capitalism vs. The Market – A Braudelian Definition


by Sebastian AB
http://c4ss.org/content/21886

Capitalism vs. The Market – A Braudelian Definition

Fernand Braudel

“Need I comment that these capitalists, both in Islam and in Christendom, were friends of the prince and helpers or exploiters of the state? […]”

“Thus, the modern state, which did not create capitalism but only inherited it, sometimes acts in its favor and at other times acts against it; it sometimes allows capitalism to expand and at other times destroys its mainspring. Capitalism only triumphs when it becomes identified with the state, when it is the state.

In the first great phase, that of the Italian city-states of Venice, Genoa, and Florence, power lay in the hands of the moneyed elite. In seventeenth century Holland the aristocracy of the Regents governed for the benefit and even according to the directives of the businessmen, merchants, and moneylenders […].”

- Fernand Braudel, (1977) Afterthoughts on Material Civilization and Capitalism, (pp. 92-3).

The job of the capitalist is to allocate capital for the generation of profit. However, this motivation does not always result in an optimal outcome for the majority of people, and, for some, its consequences are so egregious that the utility of state-backed capitalist profit-seeking should be reconsidered and replaced with another, voluntary model.

One reason people are willing to accept opulence in the face of destitution, the destruction of the environment, a manufactured consumerist culture, and the existence of a permanently impoverished, hard-working class that labors for a permanently wealthy, capital monopolizing leisure and power-wielding class is this: They think these are the prices we must pay for market relations and the wonders of modernity and efficiency – that is, they conflate the market, or agora, with the system of corporation-state capitalism.

They believe that from markets and trade follows Exxon, Halliburton, Lockheed Martin, McDonalds, Monsanto and Goldman Sachs. But, on the contrary, these multinational corporations would be unlikely to thrive without the protection and privileges granted by the monopoly on violence known as the state.

Before we can critique capitalism, we should solidify our definition of the functional unit of capitalism, the capitalist. The liberal economic theory of Adam Smith, David Ricardo and Joseph Schumpeter holds that capitalists are entrepreneurs, who take the risk of starting a business and are appropriately compensated with profit (though certainly these thinkers were not as sanguine about capitalism as depicted by the Right of today, particularly regarding rents and monopoly). The risk-reward definition of the capitalist is specious, because capitalists are much more than mere entrepreneurs.

Capitalists, often using the state, mould the economy to their will. They, unlike our notion of the small-time or innovative entrepreneur, are not subject to the whims of shifting economic forces. Compare the large capitalist merchant or financier’s power over the market to the humble shopkeeper, craftsman or inventor. All participate in the market as risk-takers, but there is something unique about the capitalist. In order to interrogate the legitimacy of capitalism, we need a historically informed definition of the capitalist.

I will draw upon the work of the Anneles School historian Fernand Braudel, considered by many to be the greatest historian of the twentieth century, founder of cliometrics, and author of the foundational three volume Civilization and Capitalism, 15th-18th Century. A student of Lucien Febvre, Braudel held no illusions about the inequality inherent in capitalism and the extra-entrepreneurial role of the capitalist in the early modern period.

Braudel distinguishes between capitalism and the market, and if anyone is qualified to do so, it is the historian who actually established the empirical study of the emergence of capitalism. Braudel asserted three defining features of the capitalist versus the entrepreneur: 1. The refusal to specialize, 2. avaricious speculation in financial markets, and 3. monopoly control of the market rather than simply filling in a niche demanded by consumers.

Tripartite model

In Capitalism and Material Life 1400-1800, Braudel defined three levels of oikonomia: material life, economic life, and capitalism.

Material life consists of “very old routines, inheritances and successes, and is there at the root of everything.” [1] Agriculture and tool use, animal domestication and basic cookery are all part of this basic material life. The term denotes “repeated actions, empirical processes, old methods and solutions handed down from time immemorial, like money or the separation of town from country.” [2]

Economic life is,

“A higher and more privileged level of daily life, with a wider radius involving constant care and calculation. It is born of trade, transport, differentiated market structures, and of contract between already industrialized countries and those still primitive or underdeveloped, between rich and poor, creditors and borrowers, monetary and pre-monetary economies. It is, in fact, almost a system in itself.” [3]

Capitalism is a more “sophisticated” mechanism, “with its rules, attitudes, advantages and risks, [and] has betokened modernity, flexibility and rationality from its earliest beginnings.” Capitalism “encroaches on all forms of life whether economic or material, however little they lend themselves to its maneuvers,” [4] and, “once achieved, was only to the advantage of a privileged few.” [5] Using the modern, controversial term “capitalism,” a historian ventures dangerously close to anachronism, Braudel says, but,

“Certain mechanisms occurring between the fifteenth and eighteenth centuries are crying out for a name of their own. When we look at them closely, we see that fitting them into a slot in the ordinary market economy would be almost absurd. One word does come spontaneously to mind: capitalism. Irritated, one shoos it out the door, and almost immediately it climbs in through the window.” [6]

Braudel provides two useful, early definitions of capital and capitalist. “Capital is a tangible realty, a congeries of easily identifiable financial resources, constantly at work; a capitalist is a man who presides or attempts to preside over the insertion of capital into the ceaseless process of production into which every society is destined.” Capitalism is a process carried on “generally for not very altruistic reasons.” [7]

“Capitalism is still based upon exploiting international resources and opportunities […] Capitalism still obstinately relies upon legal or de facto monopolies, despite the anathemas heaped upon it on this score. […] Capitalism is the perfect term for designating economic activities carried on at the summit, or that are striving for the summit.” [8]

Lenin wrote, “Old capitalism, where free competition reigned, was characterized by the exportation of merchandise. Present-day capitalism, in which monopolies reign supreme, is characterized by the exportation of capital.” [9] Braudel questions this assertion, stating that:

“Capitalism has always been monopolistic, and merchandise and capital have always circulated simultaneously, for capital and credit have always been the surest way of capturing and controlling a foreign market. Long before the twentieth century the exportation of capital was a fact of daily life, for Florence as early as the thirteenth century, and for Augsburg, Antwerp, and Genoa during the sixteenth century.” [10]

Modern fanfare conflates capitalism with innovation, which granted humanity its material comforts. It appears that capitalism was a mere tag-along, capitalizing on pre-existent hierarchy.

“Capitalism needs a hierarchy. […] Capitalism does not invent hierarchies, any more than it invented the market, or production, or consumption; it merely uses them. In the long procession of history, capitalism is the latecomer. It arrives when everything is ready. In other words, the specific problem of the hierarchy goes beyond capitalism, transcends it, controls it a priori. […] For this is indubitably the key problem, the problem of problems. Must the hierarchy, the dependence of one man upon another, be destroyed? ‘Yes,’ said Jean-Paul Sartre in 1968. But is such a thing really possible?” [11]

Short of ascending into sheer anarchy, perhaps not. Nonetheless, legislatures attempt to dull the blade of exploitation, whether they are sixteenth century German communes [12] or the modern political parties of the Left. The left-right, labor vs. capital battle is used to excuse failings of both perspectives. The underlying flaw in both systems is coercion—by state or capitalist alike.

Market Versus Capitalism

“What I personally regret, not so much as a historian but as a man of my time, is the refusal in both the capitalist world and socialist world to draw a distinction between capitalism and the market economy. To those in the West who attack the misdeeds of capitalism, politicians and economists reply that these wrongdoings are a lesser evil, the indispensible reverse side of the free-enterprise-and-market economy coin. I do not believe that.

To those who, as part of a movement of ideas that is noticeable even in the U.S.S.R., worry about the ponderousness of the socialist economy and would like it to be more ‘spontaneous’ (I construe that word to mean ‘more free’), the reply is that this lack of spontaneity is a lesser evil, the indispensible reverse side of the destruction-of-the-capitalist-scourge coin. I do not believe that either.

But is my concept of the ideal society realizable? In any event, I don’t think it has many partisans around the globe.” [13]

The market economy and capitalism are not the same. The market economy is composed of daily, local exchanges such as “wheat and wood being sent to a nearby city.” Braudel would “even include trade on a broader scale, as long as it is regular, predictable, routine, and open to both small and large merchants; for example, the shipping of Baltic grain from Danzig to Amsterdam during the seventeenth century, or the oil and wine trade between southern and northern Europe.” [14]

The market is defined by “transparent exchanges, which involve no surprises, in which each party knows in advance the rules and the outcome, and for which the always moderate profits can be roughly calculated beforehand.” Trades only involve two or three people: Self-employed producers, clients, and perhaps an intermediary. The transactions are said to have been “eye to eye and hand to hand.”

“John Kenneth Galbraith talks about ‘the two parts of the economy’ the world of the ‘thousands of small and traditional proprietors,’ (the market system) and that of the ‘few hundred highly organized corporations’ (the industrial system).

Lenin wrote in very similar terms about the coexistence of what he called ‘imperialism’ (or the new monopoly capitalism of the early twentieth century) and ordinary capitalism, based on competition, which had, he thought, its uses. […] Then alongside, or rather above this layer, comes the zone of the anti-market, where the great predators roam and the law of the jungle operates.”[15]

Speculation

The capitalist appeared wherever exorbitant profits were to be made.

“The capitalist’s proper sphere is the international world of long-distance trade and banking, the sphere of historical grandeur and of grand profits where kingdoms and fortunes are made and unmade by virtue of the ability of the capitalist to cross frontiers and to profit from regional and national differentials in supply and demand.”[16]

Opportunistic profit seeking could benefit those in need. “Let a famine break out in the Mediterranean—a famine such as that in the 1590s—and international merchants representing major clients would divert entire ships from their usual routes […].” [17]

“This type of exchange replaced the normal collective market and substituted for it individual transactions based on arbitrary financial arrangements that varied according to the respective situation of the individuals involved. This fact is clearly established by the frequent lawsuits in England over the interpretation of notes signed by sellers.

It is obvious that here we are dealing with unequal exchanges in which competition—the basic law of the so-called market economy—had little place and in which the dealer had two trump cards: he had broken off relations between the producer and the person who eventually received the merchandise (only the dealer knew the market conditions at both ends of the chain and hence the profit to be expected); and he had ready cash, which serves as his chief ally.” [18]

This process was elaborated in the Fernhandel, a zone of free operation that traversed great distances (from Amsterdam to retailers in Persia, China or Japan). The Fernhandel necessitated and “resulted in sizable accumulations of capital, especially since long-distance trade was carried on by a mere handful of individuals. Not just anyone could join the group.” [19]

Capitalists were engaged in speculative ventures, with high risk (unless guaranteed by the state) and high reward (unless done for glory, like the Medici acting as Papal creditors despite knowingly enduring losses for the honor, i.e., a bailout). This was quite unlike small-time producers who had modest profits and little opportunity to make lucrative investments, or to allocate funds for prestige rather than maximizing return on capital to society.

Refusal to Specialize

Unlike the shopkeeper, scholar, or craftsman, the capitalist refused to specialize. This refusal was not to avoid putting all his eggs in one basket, rather it was because one sector was not economically developed or deep enough yet to absorb the capitalist’s energies. Furthermore, Braudel viewed the capitalist as having an unfair advantage, enjoyed at the expense of the majority.

“Specialization and division of labour usually operated from the bottom up. If modernization or rationalization consists of the process whereby different tasks are distinguished and functions subdivided, such modernization began in the bottom layer of the economy. Every boom in trade led to increased specialization of shops and the appearance of new professions among the many hangers-on of trade.

Curiously enough, the wholesaler did not in fact observe this rule, and only specialized very occasionally. Even a shopkeeper who made his fortune, and became a merchant, immediately moved out of specialization into non-specialization.” [20]

“The characteristic advantage of standing at the commanding heights of the economy, today just as much as in the days of Jacques Coeur (the fourteenth-century tycoon) consisted precisely of not having to confine oneself to a single choice, of being eminently adaptable, hence non-specialized.” [21]

The defining characteristic of capitalism is its chameleon-esque adaptability:

“Faced with inflexible structures, [capitalism] is able to choose the areas where it wants and is able to meddle, and the areas it will leave to their fate, incessantly reconstructing its own structures from those components, and thereby little by little transforming those of others.

This is why all the economic creativeness of the world stems from pre-capitalism, and why it is the source or characteristic of all great material progress and of all the most burdensome exploitation of man by man. Not only because of the appropriation of the surplus value of man’s labor. But also because of that disproportion in strength and position, on a nation-wide as well as a world-wise scale, which means that at the whim of circumstance there will always be one position more advantageous to adopt than the rest, one sector more profitable to exploit. The choice may be limited, but what an immense privilege to be able to choose!” [22]

Monopoly

Braudel argued that capitalists are often monopolists, working closely with the state, their guarantor. They do not operate in competitive “free markets,” but rather in the antimarket, where exclusivity and privileged access to information are key.

“Need I comment that these capitalists, both in Islam and in Christendom, were friends of the prince and helpers or exploiters of the state? […]”

“Thus, the modern state, which did not create capitalism but only inherited it, sometimes acts in its favor and at other times acts against it; it sometimes allows capitalism to expand and at other times destroys its mainspring. Capitalism only triumphs when it becomes identified with the state, when it is the state.

In the first great phase, that of the Italian city-states of Venice, Genoa, and Florence, power lay in the hands of the moneyed elite. In seventeenth century Holland the aristocracy of the Regents governed for the benefit and even according to the directives of the businessmen, merchants, and moneylenders […].” [23]

As then, so today; the business of government is business. However, according to Braudel, the elite didn’t need the state in order to come out on top, because their trade is opaque (zones d’opacité) and exclusionary.

“[Capitalists] possessed superior knowledge, intelligence, and culture. And they grabbed up everything worth taking–land, real estate, and land rents. Who would doubt that these capitalists had monopolies at their disposal or that they simply had the power needed to eliminate competition nine times out of ten?

When writing to one of his confederates at Bordeaux, a Dutch merchant advised that their planned be kept secret; otherwise, he added, ‘this affair will turn out like so many others in which, once competition comes into play, there is no chance to make a profit.’ Finally, the sheer size of their capital enabled capitalists to preserve their privileged position and to reserve for themselves the big international transactions of the day.” [24]

Secrecy and monopoly are the enemies of fair exchange and the price mechanism. This strategy appears endemic to the capitalist mode of exchange. Therefore, capitalism can not be relied upon to establish or move toward an authentic equilibrium of prices.

So in the end, people believed, rightly or wrongly, that exchanges play a decisive role as a balancing force, that through competition they smooth our uneven spots and adjust supply and demand, and that the market is a hidden and benevolent god, Adam Smith’s ‘invisible hand,’ the self-regulating market of the nineteenth century and the keystone of the economy, as long as one sticks to laissez faire, laissez passer.

In this there is an element of truth, an element of bad faith, and also some self-deception. Can we forget how many times the market was diverted or distorted and prices were arbitrarily fixed by a de facto or legal monopolies? [25]

[…] But such manipulations were as foreign to ordinary mortals as the super-secret deliberations of the Bank for International Settlements in Basel are to the man on the street today.” [26]

Nascent Capitalism in the Middle Kingdom

Successful capitalists were aligned with the state, but the state could not be so powerful as to overpower the capitalist class.

“The growth and success of capitalism required certain social conditions. They require a certain tranquility in the social order and a certain neutrality, or weakness, or permissiveness by the state.” The Chinese state tolerated capitalist trade, but the system was slow to take hold because local trade networks were sufficient at the time.

In China, villages were organized roughly equidistant around small trade centers, not more than a day’s walk away. This allowed peddlers to travel the countryside and prevented the establishment of major trade centers.

“The most astonishing organization of the elementary-market was surely that of China, where it was strictly, almost mathematically, based on geography. […] A few fairs did exist, but they were of secondary importance and were held on the borders of Mongolia or at Canton for the benefit of foreign traders, who were in this way kept under surveillance.

Thus one of two factors must have been involved: either the Chinese government was hostile to these higher forms of exchange, or else the capillary system of the elementary market was adequate, and the Chinese economy did not need veins or arteries. For either of these two reasons, or for both of them, the exchange in China was virtually decapitated, sawed off, and I shall indicate in a subsequent chatter that this was an extremely important factor in the non-development of Chinese capitalism.” [27]

European state leniency regarding wealthy, powerful dynasties and individuals was the seed from which capitalist hierarchy bloomed.

“The basic inequality of partners that underlies the capitalistic process is visible on every level of social life. But in the end, it was at the very summit of society that capitalism unfolded first, asserted its strength, and revealed itself. It is on the level of the Bardis, the Jacques Coeurs, the Jakob Fuggers, the John Laws, or the Neckers that we must conduct our search, that we have a chance of discovering capitalism.

There are two types of exchanges. One is down-to-earth, is based on competition, and is almost transparent the other, a higher form, is sophisticated and domineering. […] I am not denying the possible existence of a clever and ruthless village capitalist in wooden shoes. […] Lenin stated that even within the socialist world, the village market, having once regained its freedom, might well reconstitute the whole tree of capitalism. […]” [28]

European capitalism thrived during the Columbian Exchange, which was predicated upon labor exploitation and influx of commodities. Bruadel outlines Dependency Theory to describe this process:

“After all, Western Europe transferred—virtually reinvented—the ancient practice of slavery to the New World and ‘induced’ the new serfdom in Eastern Europe as a result of economic imperatives. This lends weight to Wallerstein’s assertion that capitalism is a creation of world inequality; in order to develop, it needed the connivance of the international economy. It was born of the authoritarian organization of a region that was simply too vast. It would not have grown to be as sturdy in a restricted economic area, and it might not have grown at all if cheap labor had not been available.” [29]

Wallerstein on Braudel

World-Systems Theory historian Immanuel Wallerstein summarizes Braudel’s perspective:

‘Here, then, is our picture. Economic life is regular, capitalism unusual. Economic life is a sphere where one knows in advance; capitalism is speculative. Economic life is transparent, capitalism shadowy or opaque. Economic life involves small profits, capitalism exceptional profits.

Economic life is liberation, capitalism the jungle. Economic life is the automatic pricing of true supply and demand, capitalism the prices imposed by power and cunning. Economic life involves controlled competition, capitalism involves eliminating both control and competition. Economic life is the domain of ordinary people; capitalism is guaranteed by, incarnated in, the hegemonic power.

Finally, the policy implications for the contemporary world are massive. If real capitalism is monopoly and not the market, then what is to be done is a question that may be answered very differently from the ways in which anti-systemic movements have been answering it for the past one hundred years. In this effort at “liberation,” [workers] have sought the support of the state as regulator, as protector of “competition,” but they have repeatedly encountered the role of the state as “guarantor” of the very monopolies against which they are struggling.’ [30]

Braudel critiqued the modern notion of the capitalist benefactor on three fronts: Refusal to specialize, avaricious speculation, and monopoly control. He also questioned the supposed antagonism between the “public” state and private market—they actually work in concert to privilege the elite. Capitalism itself is not good or evil, rather a system with costs and benefits; enabling immense value to be squeezed out of people and resources while distorting prices, creating scarcity, and entrenching an exploitative, domineering state-capitalist class.

Free-market anti-capitalists assert that the good associated with exchange within the agora can be preserved in spite of the abolishment of the slave-master relationship between the MBA-wielding executive and the third world sweatshop worker, the poisoned consumer and those millions killed in resource wars, sacrificed upon the altar of Mammon.

One response to “Capitalism vs. The Market – A Braudelian Definition

  1. Very large enterprises existed long before the state became large and subversive of Civil Society.

    Nor were capitalists always held in high favour by the state – such people as Wedgewood were held in deep suspicion because of their dissenting opinions (for example on slavery)

    One general rule applies

    When a person (or private association – a Church, a trading company, whatever) asks for a subsidy or a regulation hitting their rivals they should be told NO.

    It does not matter if they are large or small, rich or poor – the answer should be the same, NO.

    If they can prosper without such aid (employing many thousands of people and so on) that is fine – after all only a pig hates a rich man because they are rich, or hates an employer of thousands of people because they are an employer of thousands of people.

    However, if a large enterprise can not endure without subsidies (for example the big banks) that is also fine – let them go bankrupt.