By Glenn Stehle
The events of the 1590s had suddenly brought home to more thoughtful Castilians the harsh truth about their native land – its poverty in the midst of riches, its power that had shown itself impotent… For this was not only a time of crisis, but a time also of the awareness of crisis – of a bitter realization that things had gone wrong. It was under the influence of the arbitristas that early seventeenth-century Castile surrendered itself to an orgy of national introspection, desperately attempting to discover at what point reality had been exchanged for illusion….
The arbitristas proposed that Government expenditure should be slashed…
Most of the arbitristas recommended the reduction of schools and convents and the clearing of the Court as the solution to the problem. Yet this was really to mistake the symptoms for the cause. MartínGonzález de Cellorigo was almost alone in appreciating that the fundamental problem lay not so much in heavy spending by Crown and upper classes – since this spending itself created a valuable demand for goods and services – as in the disproportion between expenditure and investment. ‘Money is not true wealth,’ he wrote, and his concern was to increase the national wealth by increasing the nation’s productive capacity rather than its stock of precious metals. This could only be achieved by investing more money in agricultural and industrial development. At present, surplus wealth was being unproductively invested – ‘dissipated on thin air – on papers, contracts, censos, and letters of exchange, on cash, and silver, and gold – instead of being expended on things that yield profits and attract riches from outside to augment the riches within. And thus there is no money, gold, or silver in Spain because there is so much; and it is not rich, because of all its riches….’
The Castile of González de Cellorigo was…a society in which both money and labour were misapplied; an unbalanced, top-heavy society, in which, according to González, there were thirty parasites for every one man who did an honestday’s work; a society with a false sense of values, which mistook the shadow for substance, and substance for the shadow.
J.H. Elliott, Imperial Spain: 1469-1716
Austerianism is predicated on the belief that money, and not production, is true wealth. But if we look at the four great hegemonic empires to arise since the advent of capitalism – Spain, Holland, England and the United States – what their histories tell us is something very different.
In 16th-century and early 17th-century imperial Spain money was conceived predominately in the form of specie — silver and gold bullion. But by the time Holland had risen to preeminence in the 17th century and had “transition[ed] from a merchant oligarchy to a rentier oligarchy,” money began taking on a different meaning: “houses, lands, and money at interest” And of that, Holland’s oligarchs had plenty: “Amsterdam was the money-market of the Western World” (C.R. Boxer, The Dutch Seaborne Empire 1600-1800).
From whence did this money come from? To put it quite bluntly, it came out of the hides of either conquered foreign peoples or of domestic workers. C.R. Boxer, for instance, describes the condition of the latter in imperial Holland:
Although adequate unemployment statistics and other relevant materials are lacking, it is clear from numerous contemporary accounts of the Dutch Republic in its ‘Golden Century’ that economic expansion and national prosperity were accompanied by great poverty among many groups of workers, as happened later in England during the Industrial Revolution…. As early as 1566 a Leeuwarden chronicler noted that, in sharp contrast with the wealthy regents and merchants, stood the mass of the ‘humble, distressed, and hungry common people’…. The poor houses and workhouses also supplied women and children for industrial labour, and here again there is an obvious parallel with England during the Industrial Revolution. It is true that some steps were taken to check these abuses, such as fixing the textile operatives’ working day at a maximum of fourteen hours (!) in 1646; but thirteen years later a leading Leiden industrialist noted that many workers were living in overcrowded slums, and that some were forced to burn their beds and furniture to keep themselves warm in winter!
Out of 41,561 households in Amsterdam in 1747, some 19,000 were living in squalid back premises, cellars, and basements.
State mercantilism was the dominant paradigm of the 17th and most of the 18th centuries, and the great thinkers of the time went to great lengths to craft ideologies which justified the austere conditions of the workers. Here’s how Carroll Quigley puts it in The Evolution of Civilizations:
Economic aims and economic values were distorted and frequently reversed so that consumption was condemned as an evil, abundance abhorred, work praised as an end in itself, exporting encouraged, and poverty regarded as a good because it was the only way to keep people working. The esteemed Sir William Petty (1662) believed that a country could get richer and richer by exporting more and more and that it would be a good thing “if the products of the labor of a thousand men could be burned” since these men could then keep their skills by having to make the goods over again. Charles Davenant in 1698 wrote, “By what is consumed at home one loseth only what another gets and the nation in general is not all the richer, but all foreign consumption is a clear and certain profit.” More briefly in 1673 Becker wrote, “All selling is good, all buying bad,” while in 1677 John Houghton drew a logical conclusion from these ideas by suggesting that England could get richer by inviting foreigners to come in to “consume our corn, cattle, cloths, coals, and other things.
The demise of state mercantilism and the rise of liberal imperialism (also known as liberal internationalism) towards the end of the 18th century brought about many changes which revolutionized and greatly increased production. Money in the form of specie was replaced by the use of banknotes backed to only a fractional part of their value by specie reserves, the medieval three-field fallow system was replaced with the newer enclosed leguminous rotation systems, the craft system of manufacture was replaced by the industrial system, and man- and animal-power were replaced by water power or coal-fueled steam engines.
But one thing did not change. And that was the abiding faith in the appropriateness of austerity for the working class. Just like those who came before them in the state mercantilist era, all the great thinkers of the liberal imperialist age – e.g. Adam Smith, David Ricardo, and Thomas Malthus – labored long and hard to lend moral and intellectual legitimacy to the austere condition of the workers. As Robert Heilbroner explains of the early 19th century, it was
a world that was not only harsh and cruel but that rationalized its cruelty under the guise of economic law. Necker, the French financier and statesman, said at the turn of the century, “Were it possible to discover a kind of food less agreeable than bread but having double its substance, people would be reduced to eating only once in two days.” Harsh as such a sentiment might have sounded, it did ring with a kind of logic. It was the world that was cruel, not the people in it. For the world was run by economic laws, and economic laws were nothing with which one could or should trifle; they were simply there, and to rail about whatever injustices might be tossed up as an unfortunate consequence of their working was as foolish as to lament the ebb and flow of the tides.
The laws were few but final. We have seen how Adam Smith, Malthus, and Ricardo elaborated the laws of economic distribution. These laws seemed to explain not only how the produce of society tended to be distributed but how it should be distributed. The laws showed that profits were evened out and controlled by competition, that wages were always under pressure from population, and that rent accrued to the landlord as society expanded. And that was that. One might not necessarily like the result, but it was apparent that this result was the natural outcome of society’s dynamics: there was no personal ill-will involved nor any personal manipulation. Economic laws were like the laws of gravitation, and it seemed as nonsensical to challenge one as the other. (Robert Heilbroner, The Worldly Philosophers).
But why the solitary focus of the liberal imperialists on increasing production if austerity meant increased production was not to bring about a general rise of domestic prosperity? The increased production, as Hannah Arendt explains, was not to enhance domestic consumption, but to create a surplus of goods and money for export. The imperialist expansion of the 19th century had
been touched off by a curious kind of economic crisis, the overproduction of capital and the emergence of “superfluous” money, the result of oversaving, which could no longer find productive investment within the national borders….
After the financiers had opened the channels of capital export to the superfluous wealth, which had been condemned to idleness within the narrow framework of national production, it quickly became apparent that the absentee shareholders did not care to take the tremendous risks which corresponded to their tremendously enlarged profits. Against these risks, the commission-earning financiers, even with the benevolent assistance of the state, did not have enough power to insure them: only the material power of a state could do that. (Hannah Arendt, The Origins of Totalitarianism).
And thus the age of liberal imperialism was born. Britain, France, Germany, Belgium and the United States would come to rule over vast empires, either by direct rule or by establishing client states, and by the time of the Versailles Treaty it was possible for Thorstein Veblen to assert that “the present economic and political order rests on absentee ownership.” Absentee ownership could take two forms, either as loans to the colonies and neo-colonies or as direct investment in these faraway places. “The imperialist policies of the Great Powers, including America,” Veblen explains, “look to the maintenance and extension of absentee ownership as the major and abiding purpose of all their political traffic.” In “all these civilized nations,” he adds, “the security of property rights has become virtually the sole concern of the constituted authorities,” who “at any cost” will strive to make the world safe for “that Democracy of Property Rights on which the existing political and civil order is founded.” (Thorstein Veblen, “Review of John Maynard Keynes, The Economic Consequences of the Peace”).
Making the world safe for the “Democracy of Property Rights,” as Arendt pointed out, requires extensive use of the state’s instruments of violence: the police and the military. In liberal imperialism, however, this is never openly admitted. The result is that, as Reinhold Niebuhr explains, the “moral attitudes of dominant and privileged groups” are thus “characterized by universal self deception and hypocrisy” (Reinhold Niebuhr, Moral Man and Immoral Society). And since “inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold.” Classical and neoclassical economics are perfect examples of this. As Niebuhr goes on to explain:
Practically every moral theory, whether utilitarian or intuitional, insists on the goodness of benevolence, justice, kindness and unselfishness. Even when economic self-seeking is approved, as in the political morality of Adam Smith, the criterion of judgment is the good of the whole…
Rationalism in morals may persuade men…[to] condone their egoism as a necessary and inevitable element in the total social harmony. The egoistic impulses are so powerful and insistent that they will be quick to take advantage of any such justifications. The utilitarian movement of the nineteenth century had the laudable purpose of persuading men to achieve by diverting egoistic impulse to the most inclusive possible social objectives. It was significant that it merely provided the rising middle class with a nice moral justification for following its own interests.
Thus, for instance, laissez faire economic theory is maintained in an industrial era through the ignorant belief that the general welfare is best served by placing the least possible political restraints upon economic activity….
When economic power desires to be left alone it uses the philosophy of laissez faire to discourage political restraint upon economic freedom. When it wants to make use of the police power of the state to subdue rebellion and discontent in the ranks of its helots, it justifies the use of political coercion and the resulting suppression of liberties by insisting that peace is more precious than freedom and that its only desire is social peace.
The “universal self-deception and hypocrisy” manifest themselves in foreign relations as well as domestic relations. As Kevin Phillips explains in Wealth and Democracy, the
openness of the world economy from 1870-1913 – reexamined with interest as the debate over the next great globalization heated in 2000 – was less a phenomenon of global fraternity than a projection of British power and its demand that investment and export opportunities remain open….
The notion that Britain did this through laissez-faire rather than government activism is a Victorian fairy tale. From 1845 to 1870, laissez-faire dominated British domestic policy in the sense of denying any role for government in aiding the masses in ameliorating poverty. Globally, however, Britain spent huge sums on the principal supervisory force that watched its world commerce – the Royal Navy. Steel development had more than a little to do with the navy; India was run by mercantilist precepts; the Bank of England was charged with maintaining the pound sterling; and the British government subsidized transatlantic steamers and telegraph cables and bought half the shares in the Suez Canal Company. With that kind of laissez-faire, Britain built an empire and projected the globalization regime of open sea-lanes, open ports, and (relatively) free movement of investment.
After WWII the baton of liberal imperialism was passed from Great Britain to the United States, and the US became the senior partner, with the other “civilized nations” playing the role of junior partners, in keeping the globe safe for “that Democracy of Property Rights.”
The quest of privileged groups for absolute domination and control over not just domestic affairs, but also the planet, runs like a thread through the capitalistic era, which began about 500 years ago. In the successive installments of this series, I would like to explore how the belief that money is true wealth came to dominate elite thinking in Holland, Great Britain and now the United States, and how this belief undermines the very success of the imperial projects undertaken by the privileged groups in these countries.