Capitalist Political Economy

Thinkers and Theories

Heather Whiteside

• Publisher: Routledge
• Year: 2020
• eBook ISBN: 9780429888038
• Edition: 1
• Topic: Economía
• Subtopic: Historia económica

Winner of the Rik Davidson/Studies in Political Economy 2022 Book Prize

A key text, Capitalist Political Economy: Thinkers and Theories analyses the field-forming theoretical contributions to political economy that have defined, debated, critiqued, and defended capitalism for more than three centuries.

Political economy recognizes and celebrates the many and varied interconnections between politics and economics in society, together with the economic implications of public policy and the political impact of market and property relations. As such, political economy is both an approach to understanding capitalism and a reflection of the forms and features of capitalism at particular moments. Grounded in primary and secondary literature including theorists' original writings and leading literary biographies, this text explores principal themes in the development of capitalism and political economic thought. It relates these to markets, property, profits, labour, investment, innovation, the state, growth and crises, gender, the ecological limits of capital accumulation, and rival economic practices. The book contextualizes the legacy of foundational political economists by exploring their life and times and putting them in conversation with other highly influential theorists. Equally, it also considers more contemporary views.

This book serves as an indispensable source for academic communities who are interested in the long arc of capitalist development, theories, and theorists.

1

Adam Smith

A wealth of notions

The Wealth of Nations is ‘probably the most important book ever written’.

(Buckle 1904, 315)

The full title of Adam Smith’s masterwork in economics is An Inquiry into the Nature and Causes of the Wealth of Nations. It was written just before the Industrial ­Revolution and identifies the roots of wealth as being not overwrought ­mercantilism but the division of labour (separation of tasks through specialization), productivity (getting more out of the production process than what was originally put in), and free markets (as opposed to the tyranny of government). It should be noted that Smith did not use the word ‘capitalism’ since this is a period of proto-­industrialization; and in the thousand-word detailed summary that opens the book, he does not mention markets or prices. He was principally concerned with issues of economic growth and development, namely how advances in per capita consumption and output are achieved through specialization and the division of labour, setting him apart from approximate contemporaries like Mandeville (1714) who emphasized ‘private vice and public benefit’ to capture the changing times. Smith equally provides important foundational concepts for liberal economics by conceptualizing capital, productive and unproductive labour, and value, specifying state economic policies, and delineating other concerns surrounding exchange, markets, and prices. His analysis is focused on commercial society, though more recent interpretations endow Smith with analyses of the market as organizing principle and price signals as socially determinative for distribution (Ingham 2008). Arrighi (2007) summarizes Smith’s contribution as uncovering how the market can be an instrument of government, identifying the forces of competition and the division of labour, the role of economic expansion within an established social framework, and how national wealth is a source of national power.

In The Wealth of Nations, Books I and II analyse the causes of economic growth and development (Book I: ‘On the Causes of Improvement in the Productive ­Powers. On Labour, and on the Order According to Which its Produce is Naturally Distributed Among the Different Ranks of the People’; Book II: ‘On the Nature, Accumulation, and Employment of Stock’). Books III, IV, and V discuss the actual and comparative economic development of Europe, provide a critique of mercantilism and engage with Physiocracy, speak of public finances and the economic role of the state (Book III: ‘On the Different Progress of Opulence in Different Nations’; Book IV: ‘On Systems of Political Economy’, and Book V: ‘On the Revenue of the Sovereign or Commonwealth’). Smith’s work, like all core texts discussed throughout this book, should be directly consulted for the intricate detail of each element. In this chapter, we look at whose nation and what wealth Smith is referring to (the British political economy context), mercantile and commercial society in Smith’s day (exploring the idea of the ‘nation of shopkeepers’), specialization in the division of what (labour for Smith and in Smith’s time), the interests and passions that form the invisible hand of the market and the visible fist of government in ­eighteenth-century Britain, and who gets what and who gets out of the way in commercial society (or, circular flow and the factors of production).

Whose nation and what wealth?

The Wealth of Nations is an ‘amusing book about old times’.

(Bagehot 1965, 101)

Born in Scotland in June 1723, Adam Smith published two major works in his lifetime: The Theory of Moral Sentiments (1759), and The Wealth of Nations (1776). He died in Edinburgh, in July 1790. The transformations taking place in ­seventeenth-century Britain, just prior to Smith’s life, were nothing short of ­revolutionary. Religious and civil wars shaped Scotland in the previous century; political unrest and social upheaval led to new forms of economic development. David Hume (1711–76), a leading figure in the Scottish Enlightenment and an early influence for Smith’s philosophical development, would come to describe the 1600s as a period when ‘commerce became a reason of state’ (On the Balance of Trade, 1752). Commerce in the British Isles was uneven and unequal, though evolving. Scottish commerce largely involved exporting cattle, linen, yarn, grain, and hides for English consumer goods (Smout 1964, 457). By 1660 the Register of the Privy Council of Scotland reported that ‘the trade with England [is] one of the most considerable now maintained by this kingdome with aney other natione’ and Scottish commercial interests were thus increasingly reliant upon English production (Smout 1964, 457).

Britain similarly faced no shortage of politically momentous events, from the English Civil War (1642–51) to the Glorious Revolution (1688), which saw tremendous transformation in the relative power of the Parliament, church, and monarchy. Smith’s moment in history would be furthermore deeply influenced by the 1707 Acts of Union introduced by both Scottish and English Parliaments to abolish the Scottish Parliament and create an economic union through common policy on trade, currency, and taxation between the two under the label of ‘Great Britain’. The 1707 Union would formalize legislatively what had begun monarchically over a hundred years earlier when Scotland’s King James VI inherited the English throne in 1603; however, this earlier event did not include the economic customs union that was accomplished in the eighteenth century, and royal power had effectively collapsed with the Glorious Revolution. Scotland did not gain much direct political power with the Union (less than 10 percent of the Commons and only 16 Lords), but the Scots did retain their own legal system and church administration, both of which enhanced the status and significance of Scottish lawyers, Adam Smith Sr among them.

Economic historian T.C. Smout has concluded that:

to most Scotsmen this Treaty of Union is still the central pivot in the history of their country; to most Englishmen it is perhaps merely a formal episode in the transformation of their northern neighbours from barbarism to citizenship. To the economic historian it is both a case-study in interregional relations between a large and wealthy political unit and a small relatively poor one, and also a major event in the long-drawn-out but enormously fruitful phenomenon of the economic integration of this island.

(1964, 455)

An important postscript today would have to include the Brexit debate and push for contemporary Scottish independence centred around political-economic relations with the European Union.

The Acts of Union fulfilled many political-economic interests, not least of which was, from the Scottish commercial perspective, access to English colonial holdings and an enlarged domestic free trade zone or home market for aspiring and increasingly affluent Scottish merchants. Throughout the 1600s, English tariffs and other forms of trade protection limited or prohibited Scotland’s access to English overseas markets in the West Indies and American colonies and made close ties with the English home market difficult, if only because cloth and other industries duplicated English production. Prior to 1707,

The rivalry of kings involved the two nations in savage, if periodic, warfare, with the imprisonment of merchants, the looting of towns and the confiscation of ships: it also involved Scotland in a series of continental alliances of which those with France in particular gave the Scots extraordinary commercial privileges and encouragement to look beyond Britain for their cultural and economic ties.

(Smout 1964, 456)

Through the Union, Scotland would gain privileged access to English trade routes in luxuries (wine, silk, spices, and dyes), along with items of agricultural and ­proto-industrial significance (linen, wool, coal, salt, fish, and hides).

Union with England also brought fiscal relief. Not only were the late 1600s a time of starvation for many in the Highlands who were suffering through several years of famine from bad harvests, but the Parliament was debt burdened by a failed attempt to set up a colony in Panama through the Company of Scotland (granted a royal charter in 1695) as an attempt to monopolize trade with India, America, and Africa. The colony of New Caledonia on the Isthmus of Darien followed in the tradition of mixed success as witnessed by England’s Virginia Company (which in 1607 attempted to establish the Jamestown Colony in present-day Virginia but soon foundered) and Plymouth Company (which achieved much success with its 1620 Plymouth Colony and the Mayflower pilgrims of American fame). ­Further north, the Hudson’s Bay Company was granted a monopoly over the English fur trade through a royal charter in 1670 and a build-up of trading posts across ­present-day Canada. Without exaggeration, the Company of Scotland was a dismal failure. Upon landing in Darien, the colonists were besieged by the Spanish and most would soon die of hunger and disease, the few survivors heading home in 1700. Formed as a joint-stock public-private partnership, its failure implicated not only the capital of wealthy Scottish merchants and landlords, and the liquidity of the recently created Bank of Scotland, but also the savings of those of more humble means. Through the Acts of Union in 1707, England agreed to pay the costs of the defunct Company of Scotland.

Improvements in transportation routes linking Britain were slow to follow. Smith famously rode from Scotland to Oxford in 1740 on horseback and would not return to visit for six years once graduated from Oxford, despite a life-long devotion to his mother back home in Kirkcaldy, because this journey was a “serious and expensive undertaking” with a return trip likely to cost over half of his annual Snell exhibition stipend (Rae 1895, 63). Urbanization in Glasgow began in Smith’s lifetime but it, along with the development of heavy industry like chemicals, mining, and smelting, and associated capital and physical infrastructure like canals and large-scale banking, would become significant only after his death. Thus during Smith’s lifetime, industry was small-scale. Aside from agriculture, textile production (linen in particular) was the main Scottish industry (Berry 2013, 7).

In the international realm, the eighteenth century begins with Britain as a rich, but by no means singularly dominant, economy in Europe with ‘productive if unscientific agriculture, busy if unmechanised industry, and vigorous if narrow commerce’ (Crafts 1981, 1). As Thomas and McCloskey summarize,

Britain experienced a commercial revolution before an industrial revolution. The inconsiderable little island of the sixteenth century, a mere dwarf beside the Spanish and Portuguese giants, had become by the last third of the eighteenth century the most powerful empire in the world.

(1981, 102)

Domestic statistics on the 1700s are sketchy at best but indicate a population of roughly 7 million (1 million in Scotland, 6 million in England and Wales), with population growth accelerating in the latter portion of the century (Lee and Schofield 1981, 17). Real output grew slowly with a notable ‘take-off’ of particular industries like cotton and iron, and industrialization in general, by 1780; agriculture saw its proportional share of the total national product fall from 45 percent in 1700 to 33 percent in 1800 (Crafts 1981, 3). Changes in the composition of capital stock also reflect this trend, with 22 percent devoted to industry and commerce in 1800, compared with only 12 percent in 1760 (Crafts 1981, 4).

Pre-industrial late seventeenth-century England and Wales had a relatively even distribution of income amongst the factors of production identified later by Smith, with approximately one-third going equally to employment, rents, and profits. By 1801, ‘best guess estimates’ have employment and profits at around 40 percent each, with rent having fallen to 20 percent (Crafts 1981, 7–8). An island that began the 1700s as predominantly agricultural thus entered the 1800s as proto-industrial. As go empirics, so goes theory. The Physiocrats’ focus on land as the source of economic value would soon seem antiquated, anticipating Smith’s labour theory of value in a commercial, though non-industrial, era: ‘In 1780 the factory system was still in embryo, the improved steam engine scarcely diffused at all, iron output in absolute terms not much above 1720, and cotton still a small activity relative to the economy as a whole’ (Crafts 1981, 5). Smith’s England was certainly not yet the ‘workshop of the world’ that it soon would become. Describing the period just after Smith’s death, Crafts (1981, 3) writes that

by the end of the eighteenth century industrial employment was much more a full time occupation than the supplementary activity for rural workers it had often been in earlier times. The economy was adopting a factory system of enterprise and the old rural by-employments in cottage industry were declining in relative importance as specialisation gathered pace.

The Industrial Revolution thus cannot be found in Smith’s writing because, subject to some minor historical quibbles, Smith’s The Wealth of Nations is about commercial society, not industrial society. This point is key to understanding why Smith is both a founding father of capitalist political economy and also at odds with the discipline of economics that would crystallize in the late nineteenth century. We will explore the Industrial Revolution, along with changes in capitalism and economic theory, in subsequent chapters of this book. For now, suffice it to say that economic historians have long debated: was it home demand or overseas demand that underpinned this revolution? Hobsbawm’s Industry and Empire, for example, asks the beguiling, if unresolvable, question:

How did entrepreneurs come to see before them, not the modest if solid expansion of demand which could be filled in the traditional manner, or by a little extension and improvement of the old ways, but the rapid and limitless expansion which required revolution?

(1968, 6)

The drive toward capitalist industrialism, was, as Hobsbawm says, ‘a leap into the dark’ (1968, 7). But unlike the technological innovations that underpin it, capitalism was equally telegraphed through centuries of change at home and abroad. Foreign trade grew faster than the economy as a whole in the eighteenth century; however, domestic demand grew faster than foreign demand during the period of rapid commercial expansion (Cole 1981, 38, 44). Trade in woollen cloth was the key English export since the late Middle Ages, and this continued to be most important at the beginning of Smith’s life in the 1700s, constituting 70 percent of total English exports (Cole 1981, 39). Cole (1981, 45) concludes that ‘in the long run both home and overseas demand were essential to the growth process.’ This growth process would upend a thousand-year-old social order by the 1800s with the Industrial Revolution and onset of early modern capitalism. England in the eighteenth century no longer had its peasantry, though Scotland did, as did most of Europe. The 1700s were thus coloured by various tensions and struggles over the shift from feudalism (with its monarchy and mercantilism) to commercial society (ruled by Parliament and liberalism) and its proto-capitalist requirements. Prosperity for Scotland would follow from the Union, impressing the benefits of politically enabled commercial society and trade.

Mercantile and commercial society: nations of shopkeepers?

To found a great empire for the sole purpose of raising up a people of customers, may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by its shopkeepers.

(Smith 1776, Book IV, Chapter VII, part III)

Mercantilism captures state commercial policy from roughly the 1500s through the 1700s, thus overlapping with Smith but also preceding his lifetime by several centuries. Less a system of thought than a reaction to changing domestic and international dynamics, ‘mercantilism’ continually evolved. If a clear body of scholarship is found to exist, it is mainly in retrospect. Generally speaking, mercantilism advocated for economic power through economic self-sufficiency. Principal British legislative examples include the Elizabethan era (1558–1603) Trade and Navigation Acts and sundry sumptuary laws, efforts to protect domestic industry, discoura...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Introduction: theory and debate in political economy – antecedents and developments
• 1. Adam Smith: a wealth of notions
• 2. Karl Marx: a capital idea
• 3. William Stanley Jevons: the new margins of economics and the economy
• 4. John Maynard Keynes: a general’s theory
• 5. Thorstein Veblen, Joseph Alois Schumpeter, Karl Polanyi: emigrants and iconoclasts
• 6. Fernand Braudel, Immanuel Wallerstein, Giovanni Arrighi: world economy and national crises
• 7. Feminist political economy and ecological economics: home and away
• Bibliography
• Index