Capitalizing on Change
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Capitalizing on Change

A Social History of American Business

Stanley Buder

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Capitalizing on Change

A Social History of American Business

Stanley Buder

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About This Book

Americans love "this year's model, " relying on the "new" to be always "improved." Enthusiasm for the new, says Stanley Buder, is essential to American business, where innovation and change stoke the engines of economic energy. To really understand the history of business in America, he argues, we must understand the intertwining dynamics of social and business values. In a history spanning over three hundred years, Buder examines the enveloping expansion of the market economy, the laggardly use of government to modify or control market forces, the rise of consumerism, the shifting role of small business, and much more. He concludes with the explosive development of business in the 1990s and its aftermath of crises and scandals. Along the way, he analyzes the ways American social values foster an entrepreneurial ethos and why the identification of change with progress provides a distinctive and provocative theme in American life. Buder studies American business as not only an engine of wealth accumulation but also an important generator and reflector of American values. Capitalizing on Change is the first full-length business history in recent years to make this relationship clear.

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Part One. Foundations of a Modern Economy

Chapter One. Early Capitalism and the Rise of a Market Economy

[Capitalism is] the endless disturbance of all social conditions. It is everlasting uncertainty. Everything fixed and frozen is swept away, and all that is solid melts into air.—KARL MARX AND FRIEDRICH ENGELS, Communist Manifesto (1848)
Edmund Burke, reflecting in 1790 on the French Revolution, blamed the bourgeois gentilhomme and the nouveau riche, the men of commerce and finance, for what he saw as a catastrophe threatening civilization. In the view of this eminent conservative, they had undermined the established order of king and Church. “The money interest,” Burke wrote, “is in its nature more ready for any adventure, and its possessors more disposed to new enterprises of any kind. Being of a recent acquisition, it falls in more naturally with any novelties. It is therefore the kind of wealth which will be resorted to by all who wish for change.”1
The history of capitalism properly begins at the point where the profit motive imbues the commercial classes of the society in question with a transformative energy—a relentless quest for wealth as capital—capable of a sustained challenge to traditional values and institutions. More than scholars, scientists, or even statesmen, risk-taking entrepreneurs have shaped the modern world by greatly expanding the realms of choice in human vocations and goods. They have done this—generally without intending to and often heedless of the consequences—through the competitive and unrelenting pursuit of profitable uses of material resources and human energy. Yet the businessperson’s role as the critical catalyst of broad change is a relatively recent historical occurrence that is only about five centuries old.2

CAPITALISM AS A CATALYST OF CHANGE

Adam Smith, in The Wealth of Nations (1776), confidently assumed “a certain propensity in human nature … to truck, barter, and exchange one thing for another … [that] is common to all men.”3 Even if one does not accept Smith’s belief in an immutable and universal human nature—a capitalist instinct built into our dna—one must concede that men and women have long sought to profit from commercial activities. Archaeological findings from all continents offer evidence of prehistoric markets based on far-flung trading networks and specialization of crafts, while excavated Sumerian cities of the third millennium B.C. reveal gold coins from the Indus Valley, silver from southeast Turkey, and copper from the shores of the Arabian Sea. The market is an invention of very early civilization. Yet commercial activity alone is not sufficient to invite escalating social change. It is obvious that the principal systemic reason for this in the modern world has been the rise of what is called capitalism.
“Capitalism” as a term and concept to describe a particular type of economy is of relatively recent origin. Its origins as an intellectual construct can be traced to the ideological conflicts of the nineteenth century and the writings, among others, of Karl Marx, who, however, never employed the term. Indeed, it was the work of two German sociologists in the first decade of the twentieth century, Max Weber and Werner Sombart, that initiated its general usage. Considerable controversy over what constitutes a capitalist system exists, but there is a consensus that it rests on individuals relatively free to pursue self-interest in a market-oriented economy that offers protection to private property and contract and allows for unequal distribution of wealth. It is useful to regard capitalism as not only an economic system but also as a complex of legal, social, and cultural values and institutions. These begin to emerge in fifteenth-century Europe and then over time evolve toward what has been noted above as the features of a capitalist society.
A major way capitalism differs from other economic systems is in bringing about changes of great breadth and magnitude. Economic life for most of history changed at a shuffling gait, the tools and techniques of production remaining the same from generation to generation. The ways of the merchant and the marketplace were never as absolutely essential, or central, to the economies of precapitalist societies as they have been since. In a society with a circumscribed mental universe that neither needs nor desires change, individuals interested in or able to generate innovation rarely occur.
Indeed, only within the last several centuries has the pace of economic change developed exponentially, accompanied inevitably by other changes. Those associated with economic growth in finance, commerce, and manufacturing increasingly pursued political dominance. Their activities required the development of laws and practices supportive of a market economy, which often conflicted with traditional values and practices. New attitudes emerged with the triumph of materialistic self-interest over spiritual and conventional restraints. Individuals increasingly adopted novel ways of thinking and acting related to the increasing reach of a market economy.
Much of modern history can be interpreted as a struggle between the material values associated with capitalism and other and often antithetical cultural and religious values for precedence in human life. Developments of such historic importance necessarily emerge from a propitious confluence of events. Capitalism, with its attitudes, advantages, and risks, promoted flexibility and rationality from its earliest beginnings. The onset of capitalism signified the shifting of history into a gear of accelerating change.

THE RISE OF CAPITALISM

Midway through the fifteenth century, population growth in Western Europe combined with increasing economic activity to stimulate new types of trade. The fall of Constantinople to the Ottoman Turks in 1453 threatened to close off a major trade route between Europe and Asia. Europe, looking for ways to break out of its geographic isolation, searched for alternative sea routes to the East, sharpening an appetite for adventure and exploration. In 1498, Vasco da Gama, sailing under the flag of Portugal, rounded Africa’s Cape of Good Hope to reach India, completing the first direct sea voyage from Europe to Asia. Commercial activity increased both within Europe and between Europe and Asia, to surpass in importance the older traditional Orient trade in such luxuries as silks. To support this expansion, Europe’s commercial classes would develop new forms of commercial credit and far-flung trading networks. Within a century and a half of Vasco da Gama’s voyage, the European centers of power and commerce had shifted from Venice and Genoa to areas along the Atlantic Ocean, the Baltic Sea, and the North Sea. The ports of Portugal and Spain and then the Lowlands, France, and England became bustling commercial centers. Their maritime activity took them across formerly impenetrable oceans and seas to establish the first great corporations and trading posts or colonies in the Americas and along the rims of Africa and Asia.4
Economic developments joined with religious, political, and intellectual changes—the collapse of feudalism, the intellectual flowering known as the Renaissance, the Protestant Reformation, and the rise of the central state—to usher in that phase of history often referred to as the early modern period, an age of European expansion. The sixteenth and seventeenth centuries marked not only a decisive turn in Europe’s economy but also one of the great creative outbursts of human history. The seventeenth century has long been accepted as an age of revolution, one in which the foundations of modern science and philosophy were well and truly laid. Never before had Western civilization appeared more materialistic and work-driven. Its economic activity—increasingly preoccupied with the mechanisms of exchange, of loans, of commerce, and of extending markets—lubricated sweeping changes.
From roughly 1500 and the imperial colonizations ushered in by the voyages of Columbus, we can indeed think of world history for the next five centuries in terms of a gradually growing European presence and influence, for better or worse, throughout the globe. Having discovered the value of sea routes, England, France, Holland, Spain, and Portugal vied with one another to control them and to establish trade routes with Africa, Asia, and the Americas. After a millennium of slow change, an initial explosion of activity ushered in a chain reaction of technological and social change in the Western world, a reaction still accelerating. England and some other parts of Europe now managed a small but persistently positive rate of growth that nurtured probusiness values. By the eighteenth century, Western Europe had escaped what economists call the “Malthusian trap,” in which rising populations periodically offset temporary gains in living standards.5
It is from the outset of this Age of Exploration that economic historians trace the origins of modern capitalism. Merchants, in their restlessly anxious competition, had generated this unstoppable, wealth-creating, driving force of history. But the essential features of capitalism emerged slowly over time. These include an orientation that increasingly made economic activity and its control, rather than religious devotion or military means, the central concern of society and the individual. Wealth was being produced in great quantities. As they accumulated wealth, those who possessed it as a rule strove to acquire more, just as those without increasingly desired it.

THE NATURE OF CAPITALISM

Capitalism as an economic system promotes the production and exchange of goods by market factors of cost, price, and demand in which the resulting profit is largely reinvested; capitalism encourages the view that the individual should act in terms of self-interested choice. Its tendency is toward an emphasis on individual expediency, what political theorist C. B. Macpherson has called “possessive individualism.”6 Behavior, as well as material objects, are assigned a monetary value, and economic restlessness is welcomed, becoming a powerful force for change. The drive toward innovation is strongly expressed in the creation of new markets and in the lowering of product costs.7
Boundless eagerness to amass wealth for the purpose of creating even more wealth is the great engine of capitalism, and this force promotes economic and social change as new wants are created. In this view of capitalism, both the archconservative Burke and the two German revolutionaries, Marx and Engels, agreed; British Marxist historian Eric Hobsbawm has made this thesis more explicit in commenting that “it is often assumed that an economy of private enterprise has an automatic bias toward innovation, but this is not so. It has a bias only toward profit.”8 Acquisitiveness alone, however, is not sufficient to create capitalism. Money is eagerly sought not merely for immediate gratification (or the pleasure of hoarding) but to earn more money. Large sums of money are mobilized as capital to be used for longterm investments. Capitalism’s proponents have long praised the social utility of this profit motive and its ability to generate market-driven growth with concomitant social and political changes.
Wherever the capitalist spirit takes root, it acquires national characteristics that provide it with a legal and cultural context. There is no single, standard capitalist model; indeed, capitalism is compatible with a multitude of social and political arrangements. Yet it is often claimed that its purest form is an unrestrained market and a laissez-faire state. Capitalism’s diversity does not exclude the strong probability of strife among a society’s values, often resting on precapitalist assumptions. This tension helps explains why capitalism in its putative ideal form—of laissez-faire state and completely free market—has never existed and doubtless never can exist.
The utilitarian view that there is a Homo oeconomicus, motivated solely by the desire to achieve material goals and acting rationally to that end, is clearly a caricature: people do not always behave selfishly or, as economists would phrase it, according to “utility-maximizing norms.” Cultural expectations profoundly influence behavior, as do biology and personality. Karl Polanyi has indeed suggested that it is actually the desire to be competent and influential that drives our actions: “Man’s economy as a rule is submerged to his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, and his social assets. He values material goods only so far as they serve this end.”9
Yet the demands of competitive markets oblige capitalists to act in particular ways if they are to survive in business. Without a dialectic between social values constituting a moral order and the self-seeking economic drive, the result of the capitalist impulse must be a Hobbesian war of all against all. It is true that economic self-interest and market imperatives often combine to produce highly immoral and destructive relationships, as evidenced by the history of New World slavery and the early factory system. Nevertheless, the twenty-first-century Western world, despite, or perhaps because of, its individualistic ethos, has created the ideal of a moral universalism never before so fully expressed. Responsible and compassionate concerns about the evils of the world, such as environmental pollution and abuse of human rights, coexist with selfishness and egoism in advanced capitalist nations. Idealism and capitalism are not incompatible; rather one challenges the other.
A struggle between forces resisting sweeping change, such as community norms and religious values, and the economic self-interest seeking the free expression of acquisitive individualism appears to exist in capitalist economies regardless of their cultural core. Societies have an innate need for social equilibrium and tend to seek to modify or redirect the unbridled greed that otherwise must lead to amoral behavior. Almost everyone recognizes that on some level narrow economic self-interest must give way on occasion to a more general good. This general good is moreover often regarded as inseparable from the individual’s own sense of identity and well-being and thus represents a broader self-interest, based on a goodwill that prescribes altruistic, cooperative, and often self-sacrificing behavior.10
Yet over time capitalism pushes toward the concept of acquisitive or “possessive individualism.” This may even be rationalized by the belief, as it indeed was by Adam Smith, that an individual freely—even selfishly—engaged in maximizing his own profit also meets societal needs through market mechanisms that ensure society’s economic efficiency. In practice, the materialistic and individualistic ethos of capitalism, or in the economist Joseph Schumpeter’s phrase, “the cost-price calculus,” requires taming by means of extensive concessions to older values. Societies deeply imbued with collectivist or communitarian concepts of social solidarity, for example, modern Japan and other Asian nations, still resist the thrust of capitalism’s individualistic ethos. However, even such a highly individualistic capitalistic culture as the United States encourages altruistic behaviors in which individuals are encouraged to sacrifice economic self-interest for the greater good.
Some scholars and others have hypothesized that political democracy cannot exist without capitalism. Woodrow Wilson, for example, observed in his 1912 acceptance speech for the Democratic nomination for the presidency that without “freedom of enterprise there can be no freedom whatsoever.”11 But certainly capitalism can, and often does, persist without political democracy. Despite the claims of Marxists, there is as yet no systematic way to correlate economic development with comprehensive social or political change. Yet it does appear safe to assert that capitalism, to be effective, requires at a minimum a stable government of known and enforced laws.12

CAPITALISM AND THE RISE OF MARKETS

Historians have provided useful insights into the origins of that process of economic and other changes we call capitalism. The history of civilization can be largely written in terms of the appearance and disappearance of trading routes and the related experience of encountering and learning from strangers that often proved at least as important as acquiring their goods or diseases. As commerce expands, ignorance and isolation rooted in a parochial economy and limited trade yields to a broader outlook.
In the sixteenth and seventeenth centuries, however, it was less the development of new routes that led to profound change than the quantitative transformation of trade. Trade expanded from a limited business in high-cost, low-bulk luxury items (such as spices, silks, and fine textiles purchased by Italian merchants from Muslim traders) to a commerce between northwestern and northeastern Europe in relatively cheap goods for common consumption. Furs, salted fish, grain, timber, salt, woolen cloth, iron and iron products, wine, timber, and naval stores—articles with low-value-to-weight ratios—became staples of European trade. Seemingly small advances in technology acquired from the Muslims and then from European craftsmen and experimenters spawned ever-greater technical improvements, notably in seacraft, which in turn encouraged increased trade.
A European economy largely (and necessarily) oriented to self-sufficiency and the limited commerce of market fairs was greatly extended in scale and scope. This new trade in staples involved ordinary individuals for the first time in the goods of far-reaching markets. As more people moved into cities, the population became increasingly urban-minde...

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