The Origins of Capitalism as a Social System

The Prevalence of an Aleatory Encounter

John Milios

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781138036703
• eBook ISBN: 9781351713238
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Economists, historians and social scientists have offered a variety of conflicting answers to the issue of the beginnings of capitalism and these deviating answers imply different conceptualizations of what capitalism actually is. This book provides a simultaneous inquiry into the origins of capitalism as well as provides a theoretical treatise on capitalism.

The Origins of Capitalism as a Social System explores the line between what is and is not capitalism, (re)producing a theory of capitalism as a system of class domination and exploitation. Part I of the book focuses on the monetary theory of value and capital developed by Karl Marx, while at the same time critically reviews an array of economic and historical literature, both Marxist and non-Marxist. Following this, Part II expounds the first emergence of capitalism in Venice. It highlights the historical contingencies that made capitalism in the Venetian society possible, as well as the structural elements of the capitalist system and their interconnectedness. Finally, Part III discusses the capitalist character of the Venetian social formation from the end of the fourteenth century until the fall of the republic to Napoleon in 1797. As part of this, the author investigates the significance of forms of governmentality beyond national cohesion and territorialization.

Of great interest to economists, historians and both undergraduate and postgraduate students, this book gives special emphasis to a critical evaluation of the tensions and controversies between historians, economists and other social scientists with regard to the character and role that money and trade played in societies and economies.

Part I

Capitalism and its origins

The theoretical context

1 Marx’s notion of capitalism

A synoptic account

The terms ‘capital’, ‘capitalist’ and ‘capitalism’ were coined many centuries ago. Outside Western Europe, the word ‘capital’ (kefalaion) appeared in Ecloga, the compilation of laws formulated during the reign of the Byzantine Emperor Leo III, 717–741. Later, the word ‘capital’ (al-māl) appeared in the works of the Muslim jurist al-Shāfiʿī (727–820) in the year 820 (Udovitch 1970: 81; Pryor 1977: 25; Banaji 2010: 262. See also Chapter 7).

According to Fernand Braudel,

Capitale (a late Latin word based on caput = head) emerged in the twelfth to thirteenth centuries in the sense of funds, stock of merchandise, sum of money, or money carrying interest. […] Italy, the forerunner of modernity in this respect, was at the centre […]. It was here that the word was first coined, made familiar and to some extent matured. It appears incontestably in 1211 and is found from 1283 in the sense of the capital assets of a trading firm.

(Braudel 1982: 232)

It was the analysis of Karl Marx, however, that coloured the term ‘capital’ with its contemporary notional contents and distinguished it from the conventional definition of ‘property that is expected to yield an income’, or the neoclassical conception of capital as a ‘factor of production’ along with ‘labour’ and natural resources.

As Marxist historian R. H. Hilton noted in 1952,

‘The subject of capitalism’, wrote Professor M. M. Postan, ‘owes its present place in political and scientific discussion to the work of Marx and the Marxians.’ Many historians substantially follow him. Mr. E. Lipson in his Economic History of England on the whole adopts Marx’s definition of capitalism. He agrees that its essential feature is the division of classes between propertyless wage-earners and entrepreneurs who own capital, in contrast to the characteristic medieval organisation of industry and agriculture on the basis of the small producer who owned his own means of production.

(Hilton 1952: 32)¹

Marx’s theory of capitalism as a social system is, of course, more complex and more often expounded than the definitions just mentioned. In his major work, Capital, he highlights six fundamental characteristics which, in their interconnectedness, distinguish capitalism from all other social systems: (i) wage labour; (ii) monetization of the whole economy (money-begetting money); (iii) concentration of the means of production and dissociation of the capitalist from the labour process as such; (iv) free competition and the fusion of individual capitals into aggregate-social capital; (v) the financial mode of existence of capital; (vi) the formation of a specific juridical–political–ideological structure and a corresponding state form.

The prevalence of wage labour differentiates capitalism from previous social systems. It is a relation between the owner of the means of production (the capitalist) and the worker who has been freed from all personal forms of servitude, but who is also deprived of any direct access to the means of production, except through selling his/her labour power to the capitalist on the basis of a wage contract. The worker is unable to produce without subsuming himself/herself under capital, labouring under the command of the capitalist, who has full control of the production process.

The wage relation is therefore the first fundamental characteristic of capitalism.

Labour power becomes a commodity in a fully commercialized economy; generalized commodity ownership and commodity production are the discernible features of capitalism: the market economy. The first volume of Marx’s Capital begins with the following phrase:

The wealth of those societies in which the capitalist mode of production prevails, presents itself as an ‘immense accumulation of commodities’.

(Marx 1887: 27)

A commodity is not simply a useful thing (a ‘use value’); it is a (useful) thing for exchange, a thing carrying a price and produced as a price-carrying thing and a thing that aims at expressing itself in monetary units on the market; it is an exchange value. Generalized commodity production is at the same time generalized money circulation. Capitalist production expresses itself as a money circuit.

The capitalist appears in the market as the owner of money (M) buying commodities (C), which consist of means of production (Mp) and labour power (Lp). In the process of production (P), these commodities (C) are productively used up (consumed) so as to generate an output of other commodities, a product (C′) whose value exceeds that of (C). Finally, he/she sells that output to recover a sum of money (M′), which is higher than (M).

A comprehensive introductory definition of capital could, therefore, be the following: a historically specific social relation that expresses itself (i), on the one hand, in free labour (the labourer as wage earner), and (ii) as ‘money as an end in itself’ or ‘money that creates more money’, on the other. Capital appears as self-valorizing money, in accordance with the formula M-C-M′.

Marx has shown that this formula of money circulation can actually be regarded as an expression of capitalist economic and social relations, incorporating as it does the process of direct production, which now becomes production-for-exchange and production-for-profit. A historically specific form of exploitation then emerges: capitalist exploitation of the labouring classes. Money has now become the most general form of appearance of value, and thus of capital. “Capital is not a thing, but a social relation between persons, established by the instrumentality of things” (Marx 1887: 543).

In the context of capitalist economic and social relations, the movement of money as capital binds the production process to the circulation process: commodity production becomes a phase or moment (and indeed, for the whole valorization process, the decisive moment) of the circuit of social capital:

1. M – C [= Lp + Mp]...P...C’ – M’[=M + ΔM]

In Marx’s own words:

Capital is money: Capital is commodities. In truth, however, value is here the active factor in a process, in which, while constantly assuming the form in turn of money and commodities, it at the same time changes in magnitude, […] expands spontaneously. […] The circulation of money as capital […] is an end in itself. The circulation of capital has therefore no limits.

(Marx 1887: 107, emphasis added)

The full monetization of the economy (money-begetting money) is therefore the second fundamental characteristic of capitalism, according to Marx’s analysis.

However, a capitalist, as the personification of capital, is not every entrepreneur or owner of the means of production. For the owner of the means of production to be ‘capital’, the scale of production and the number of wage earners employed by the entrepreneur must be such that the capitalist is disengaged from actual labour, and thereby focused on the supervision and direction of the production process. The capitalist’s income (i.e. profit) depends on the magnitude of the capital advanced, and not on their labour. This precondition differentiates the capitalist class from the class of small entrepreneurs, who employ wage labour, and whom we refer to as the ‘middle bourgeoisie’ (see Milios and Economakis 2011).

Capitalist production only then really begins […] when each individual capital employs simultaneously a comparatively large number of labourers […] A certain stage of capitalist production necessitates that the capitalist be able to devote the whole of the time during which he functions as a capitalist, i.e. as personified capital, to the appropriation and therefore the control of the labour of others, and to the selling of the products of this labour.

(Marx 1887: 227, 216)

The concentration of the means of production and the dissociation of the capitalist from the labour process as such thus constitute the third fundamental characteristic of capitalism, according to Marx’s analysis.

Each individual capital, motivated by the sole driving force of “appropriation of ever more and more wealth in the abstract” (Marx 1887: 107), competes with other individual capitals, also motivated by the same driving force. Through free competition, they all become constituent elements of aggregate-social capital (Gesamtkapital).

In Marx’s conception, free competition ensures the reciprocal engagement, peculiar to the capitalist system, of institutionally independent production units, imposing the laws of capitalist production on the respective capitals. Through their structural interdependence, that is to say their organization as aggregate-social capital, the individual capitals proclaim themselves a social class: they function as a uniform social force counter-posing themselves against, and dominating, labour.

As individual capitals, enterprises are supposed to maximize their profit. However, this tendency, through free competition, is subject to the laws inherent in the concept of aggregate-social capital, and more specifically to the process of equalization of the rate of profit: convergence of their profit rate towards the average profit rate. The tendency towards equalization of the rate of profit is thus a structural characteristic of the capitalist relation as such.

This tendency is related to two processes:

1. Competition within each branch or sector of production, which in principle ensures for each commodity the “establishment of a uniform market value and market price” (Marx 1991: 281). Competition within each branch of production therefore tends in every instance to impose on all individual capitals more productive manufacturing techniques and in this way tends to equalize the rate of profit within each branch.
2. Competition at the level of overall capitalist production, which ensures such sufficient mobility of capital from one branch to another that a uniform rate of profit tends to emerge for the entire capitalist economy (the general rate of profit). The shaping of the uniform general rate of profit is achieved on the basis of production prices. These are, in other words, precisely those prices for the product of each individual capital that guarantee it a rate of profit (= ratio of the total profit for a certain period of production to the total capital advanced) equal to (tending towards equality with) the general rate of profit in the economy.

The freedom of capital, its concentration and centralization and its capacity to move from one sphere of production to another, serves to secure the predominance of this tendency towards equalization of the rate of profit. As Marx puts it:

Free competition is the relation of capital to itself as another capital, i.e. the real conduct of capital as capital. The inner laws of capital – which appear merely as tendencies in the preliminary historic stages of its development – are for the first time posited as laws; production founded on capital for the first time posits itself in the forms adequate to it only in so far as and to the extent that free competition develops, for it is the free development of the mode of production founded on capital.

(Marx 1993: 650–651)

Free competition and the ‘fusion’ of individual capitals into ‘aggregate-social capital’ is thus the fourth fundamental characteristic of capitalism, according to Marx’s theory.

Marx’s notion of capital is not derived from an analysis of the actions of the capitalist. It is not a response to the striving, the decisions or the actions of a subject. On the contrary, it is the movement of total-social capital (often mentioned by Marx as the ‘laws of capital’) that imparts ‘consciousness’ to the individual capitalist. The power of capital is impersonal; in reality, it is the power of money as such (Balibar 1984; Marx 1887: 107–108).

Proceeding to a more concrete level of analysis, Marx acknowledges that the place of capital is occupied by two distinct albeit complementary roles: a money capitalist and a functioning capitalist. This means that a detailed description of capitalism cannot ignore the circulation of interest-bearing capital, which depicts the structure of the financial system. Marx’s argumentation might be represented in the following schema (Sotiropoulos et al. 2013: 52 ff.) (Figure 1.1).

In the course of the lending process, money capitalist Α becomes the recipient and proprietor of a security S, that is to say a written promise of payment from functioning capitalist Β. This promise certifies that A remains owner of money capital M. He does not transfer his capital to B but cedes to him the right to make use of it for a specified period. Two general types of securities enter into this process: bonds S_B and shares S_S. In the case of the former, the enterprise undertakes to return fixed and prearranged sums of money irrespective of the profitability of its own operations. In the latter case, it secures lo...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Acknowledgements
• Introduction
• PART I Capitalism and its origins: the theoretical context
• 1 Marx’s notion of capitalism: a synoptic account
• 2 Marx’s two approaches to the genesis of capitalism: the ‘productive forces – relations of production dialectic’ vs. ‘so-called original accumulation’
• 3 Early forms of capitalism and wage labour: Lenin’s polemic against the Narodniks
• 4 Capitalism and the agrarian sector: Karl Kautsky’s theoretical intervention
• 5 Post-Second World War Marxist approaches to the ‘transition to capitalism’ question
• 6 Non-Marxist approaches to the origins of capitalism
• 7 Modes of production and the pre-capitalist money-owner
• PART II Venice and the Mediterranean: a discourse on the birth of capitalism
• 8 From a Byzantine exarchate to a major colonial power in the Mediterranean: a historical sketch of the rise of Venice up to
• 9 The Venetian social formation until the end of the thirteenth century: an unconsummated process of original accumulation
• 10 War economics and the ascent of capitalism in the fourteenth century
• PART III After the encounter took hold: the reproduction of capitalism on an expanded scale
• 11 Venice alongside the new capitalist powers
• 12 Political power and social cohesion
• Bibliography
• Index