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Global Problems and the Culture of Capitalism

Global Problems and the Culture of Capitalism




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Global Problems and the Culture of Capitalism

Sixth Edition

Richard H. Robbins State University of New York at Plattsburgh

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Library of Congress Cataloging-in-Publication Data Robbins, Richard H. (Richard Howard) Global problems and the culture of capitalism / Richard H. Robbins.—6th ed. p. cm. ISBN-13: 978-0-205-91765-5 (alk. paper) ISBN-10: 0-205-91765-8 (alk. paper) 1. Economic history—1990– 2. Social problems. 3. Capitalism. 4. Consumption (Economics) 5. Poverty. 6. Financial crises. I. Title. HC59.15.R63 2014 330.12’2—dc22


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Brief Contents

Part 1 Introduction: The Consumer, the Laborer, the Capitalist, and the Nation-State in the Society of Perpetual Growth 1

Chapter 1 Constructing the Consumer 12 Chapter 2 The Laborer in the Culture of Capitalism 35 Chapter 3 The Rise and Fall of the Merchant, Industrialist,

and Financier 57 Chapter 4 The Nation-State in the Culture of Capitalism 99

Part 2 The Global Impact of the Culture of Capitalism: Introduction 127

Chapter 5 Population Growth, Migration, and Urbanization 133 Chapter 6 Hunger, Poverty, and Economic Development 168 Chapter 7 Environment and Consumption 197 Chapter 8 Health and Disease 220 Chapter 9 Indigenous Groups and Ethnic Conflict 248

Part 3 Resistance and Rebellion: Introduction 275

Chapter 10 Peasant Protest, Rebellion, and Resistance 282 Chapter 11 Anti-Systemic Protest 306 Chapter 12 Religion and Anti-Systemic Protest 329 Chapter 13 Solving Global Problems: Some Solutions and Courses

of Action 353



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Preface xiii

Part 1 Introduction: The Consumer, the Laborer, the Capitalist, and the Nation-State in the Society of Perpetual Growth 1

A Primer on Money: The Philosopher’s Stone 3

The Development of Commodity Money 5

The Shift from Commodity to Fiat or Debt Money 7

The Consequences of a System of Debt Money 8

Chapter 1 Constructing the Consumer 12 Remaking Consumption 14

Marketing and Advertising 15

The Transformation of Institutions 17

The Transformation of Spiritual and Intellectual Values 19

The Reconfiguration of Time, Space, and Class 21

Kinderculture in America: The Child as Consumer 23

The Role of Children in Capitalism 23

The Social Construction of Childhood 25

Exporting the Consumer 31

Conclusion 34

Chapter 2 The Laborer in the Culture of Capitalism 35 A Primer on the Elements of Capitalism 36

The Baptism of Money 39

The Construction and Anatomy of the Working Class 40

Characteristics of the Working Class 40

The Growth of Overseas Assembly Plants 45

The Creation of Free Labor 48

The Segmentation of the Workforce 49

Control and Discipline 52

Resistance and Rebellion 54

Conclusion 55

Chapter 3 The Rise and Fall of the Merchant, Industrialist, and Financier 57 The Era of the Global Trader 60

A Trader’s Tour of the World in 1400 60

The Economic Rise of Europe and Its Impact on Africa and the Americas 65

The Birth of Finance and the Tulip Bubble of 1636–1637 70



viii Contents

The Era of the Industrialist 74

Textiles and the Rise of the Factory System 77

The Age of Imperialism 78

The Era of the Corporation, the Multilateral Institution, and the Capital Speculator 83

The Rise of the Corporation 83

Bretton Woods and the World Debt 86

The “Second Great Contraction” 92

Conclusion 97

Chapter 4 The Nation-State in the Culture of Capitalism 99 The Origin and History of the State 101

The Evolution of the State 101

The History and Function of the Nation-State 102

Constructing the Nation-State 104

Creating the Other 105

Language, Bureaucracy, and Education 106

Violence and Genocide 109

Spin, Free Trade, and the Role of Energy in the Global Economy 113

Manufacturing Consent: Spin 114

Markets and Free Trade 118

Energy and Technology 120

Conclusion 124

Part 2 The Global Impact of the Culture of Capitalism: Introduction 127

A Primer on Market Externalities: Polanyi’s Paradox 129

Chapter 5 Population Growth, Migration, and Urbanization 133 The Malthusians Versus the Revisionists 135

The Case of India and China 136

The Issue of Carrying Capacity 138

The Ideology of Malthusian Concerns 138

Demographic Transition Theory 141

A Primer on the Determinants of Population Growth and Decline 143

Some Examples of Demographic Change 145

Population Growth in the Periphery 148

Wealth Flows Theory 149

The Social Implications of Wealth Flows Theory 151

The Question of Gender and Power 152

Issues of Immigration 154



Contents ix

History of Migration 156

The Economics of Immigration 158

Understanding Illegal Immigration 160

Urbanization and the Growth of Slums 162

Conclusion 167

Chapter 6 Hunger, Poverty, and Economic Development 168 The Evolution of Food Production: From the Neolithic

to the Neocaloric 169

From Gathering and Hunting to the Neolithic 170

Capitalism and Agriculture 171

The Neocaloric and the Green Revolution 173

The Politics of Hunger 176

The Anatomy of Famine 177

The Anatomy of Endemic Hunger 179

Solutions and Adaptations to Poverty and Hunger 184

Economic Development 184

The Nature and Growth of the Informal Economy 188

The Nature and Scope of the Informal Economy of Drugs 191

Conclusion 196

Chapter 7 Environment and Consumption 197 The Case of Sugar 202

Sugar Origins and Production 202

Uses of Sugar 202

The Development of the Sugar Complex 203

The Expansion of Sugar Production 203

The Mass Consumption of Sugar 204

Modern Sugar 205

The Story of Beef 206

Creating a Taste for Beef 207

The Emergence of the American Beef Industry 208

Modern Beef 212

The Impact of Production on the Environment: The Effects of Climate Change 213

The Environment, Sustainability, and the Nation-State 217

Conclusion 219

Chapter 8 Health and Disease 220 A Primer on How to Die from an Infectious Disease 225

The Relationship between Culture and Disease 229

Gathering and Hunting to Early Agriculture 229

Cities: “Graveyards of Mankind” 230



x Contents

Diseases of Environmental Change 233

Diseases of Human Ecology: Chickens, Pigs, and Wild Birds 235

The Origin of Influenza: Avian Flu and H1N1 235

Aids and the Culture of Capitalism 238

How Did the Disease Spread? 240

Who Gets Infected with AIDS? 243

Who Gets Blamed? 245

Conclusion 246

Chapter 9 Indigenous Groups and Ethnic Conflict 248 The Fate of Indigenous Peoples 251

Some Characteristics of Indigenous Peoples 251

The Process of Ethnocide 252

The Guaraní: The Economics of Ethnocide 259

History and Background 260

Contemporary Development and Guaraní Communities 262

Disadvantaged Majorities and Their Revenge 264

Leveling Crowds 266

Genocide as an Externality of the Market 267

Conclusion 273

Part 3 Resistance and Rebellion: Introduction 275

A Primer on Terrorism 277

Chapter 10 Peasant Protest, Rebellion, and Resistance 282 Malaysia and the Weapons of the Weak 283

Malaysian Peasants and the Green Revolution 284

Fighting Back 286

Obstacles to Resistance 287

Protest and Change 288

Kikuyu and the Mau Mau Rebellion 289

The British in East Africa 289

The White Highlands 291

The Roots of the Rebellion 292

The Rebellion 294

“State of Emergency” 295

The Oath and the Detention Camps 297

Independence 298

The Rebellion in Chiapas 299

Poverty and Inequality in Chiapas 301

The Rebellion and the Global Economy 302



Contents xi

The Revolt and the Reactions of the Mexican Government 303

The Future of Peasants 304

Conclusion 305

Chapter 11 Anti-Systemic Protest 306 Protest as Anti-Systemic: The Two World Revolutions 307

The Revolution of 1848 308

The Revolution of 1968 310

The Protests of Labor: Coal Miners in Nineteenth-Century Pennsylvania 311

The Coal Industry and the Worker’s Life 311

Worker Resistance and Protest 314

Destroying Worker Resistance 316

Global Feminist Resistance 317

Gender Relations in the Culture of Capitalism 319

Strategies of Protest 321

Direct Action and Occupy Wall Street 323

Anarchism and Direct Action 325

Conclusion 328

Chapter 12 Religion and Anti-Systemic Protest 329 Indigenous Religious Movements as Anti-Systemic Protest 331

The Ghost Dance 331

The Cargo Cults 332

Zionism in South Africa 334

The Global Challenge of Anti-Systemic Religious Protest 336

Islamic Fundamentalism 338

Islamic Fundamentalism in Iran 339

Protestant Fundamentalism in North America 340

“Terror in the Mind of God” 345

Some Examples of Religious Violence 346

Understanding Religious Violence 351

Conclusion 351

Chapter 13 Solving Global Problems: Some Solutions and Courses of Action 353 The Central Dilemma of Growth 354

The Depletion of Natural Capital/Wealth 357

The Depletion of Political Capital/Wealth 358

The Depletion of Social Capital/Wealth 363

Things We Could Do 372

The Debt Strike 375

Conclusion 376



xii Contents

References 379

Name Index 392

Place and Culture Index 398

Subject Index 401





Over the past 400 to 600 years, a culture and society, originating for the most part in Europe and dedicated to the idea of trade and consumption as the ultimate source of well-being, began to expand to all parts of the globe. In many ways it is the most successful culture and society the world has ever seen, and its technology, wealth, and power stand as monuments to its suc- cess; however, accompanying its expansion have been problems—growing social and economic inequality, environmental destruction, mass starvation, and social unrest. Most members of this society and culture perceive these problems as distant from themselves or as challenges for them to meet. However, there is the possibility that these problems, which threaten to negate every- thing this culture has accomplished, are intrinsic to the culture itself. That is the possibility to be explored in this book.

The outline of this book emerged when, a few years ago, my colleagues at the State University of New York at Plattsburgh, James Armstrong and Mark Cohen, and I began developing a course on global problems. We wanted to create a course that would help students understand the major global issues that they confront in the mass media—problems such as the so-called population explosion, famine and hunger, global environmental destruction, the emergence and spread of new diseases, so-called ethnic conflict and genocides, terrorism, and social protest. We learned quickly that to make the course successful, we had to overcome the often-ethnocentric perspectives of the students, perspectives that were often reinforced by media coverage of global affairs. We needed also to compensate for the students’ lack of backgrounds in anthropology, history, and economics, all crucial for understanding the roots of the problems we were to examine. Finally, we needed to illustrate that the problems we examined were relevant to them, that the problems would affect them either directly or indirectly, and that their actions now or in the future would determine the extent to which the origins of these problems could be acknowledged, let alone ever addressed. The form of this book emerged from our efforts at deal- ing with these pedagogical issues and the classroom interactions that these efforts stimulated.

The Focus oF This Book

We can summarize our approach in this book as follows: There has emerged over the past five to six centuries a distinctive culture or way of life dominated by a belief in trade and commod- ity consumption as the source of well-being. This culture flowered in Western Europe, reached fruition in the United States, and spread to much of the rest of the world, creating what some anthropologists, sociologists, and historians call the world system. People disagree on the critical factors in the development of this system and even whether it was unique historically, although most agree on certain basic ideas. Among the most important are the assumptions that the driving force behind the spread of the contemporary world system was industrial and corporate capital- ism, and that the spread of the world system is related in some way to the resulting division of the world into wealthy nations and poor nations or into wealthy core, developed, or industrialized areas and dependent peripheral, undeveloped, or nonindustrialized areas.

The spread of the capitalist world system has been accompanied by the creation of distinctive patterns of social relations, ways of viewing the world, methods of food production, distinctive diets, patterns of health and disease, relationships to the environment, and so on. However, the spread of this culture has not gone uncontested; there has been resistance in the form of direct and indirect actions—political, religious, and social protest and revolution. How and why capitalist culture developed and the reasons why some groups resisted and continue to resist its development are among the questions posed in this book.

The answers to these questions are based on specific assumptions. First, a central tenet of anthropology is that personal, social, cultural, and historical factors determine the point of view



xiv Preface

any person might have regarding a certain phenomenon. No less is true of those participating in the culture of capitalism who have created a view of global events that we share. Consequently, these views tend to be, to one extent or another, ethnocentric; that is, they describe, evaluate, and judge events solely from a specific cultural perspective. Among the major purposes of anthro- pology is to teach ways to avoid ethnocentrism and appreciate the importance of understanding the beliefs and behaviors of others from their perspectives rather than from our own, a view anthropologists refer to as cultural relativism. To some extent ethnocentrism is unavoidable, and the job of the person who interprets global events—whether a journalist, economist, sociologist, or anthropologist—is to make the event comprehensible to those people for whom that person is writing. Our assumption is that to minimize cultural bias we must recognize that our views of events are partially influenced by our culture and, for that reason, we must make our own culture an object of analysis.

Second, we assume that an understanding of global events requires us to recognize that no contemporary culture or society exists independent of what anthropologists refer to as the world system, and that each falls within either the core or the periphery of that system. Using this terminology to refer to different parts of the world permits us to avoid the more value-laden distinctions implicit in the use of terms such as developed or undeveloped, modern or traditional, and First, Second, or Third World. World system theorists often include a third category, semi- periphery, to denote those nation-states or regions that are moving toward the core or that have moved out of the core. These distinctions recognize that countries can move from one category to another. For example, the three nation-states that world system theorists consider to have been dominant in the past four centuries—the Netherlands, the United Kingdom, and the United States—all began as semiperipheral to the world system.

Third, we assume that global events and actions cannot be adequately understood with- out considering the events that preceded them; we must develop a historical perspective. For example, we live in a period of human history largely defined by a sequence of events that began some four to five hundred years ago, loosely termed the Industrial Revolution. Because each of us has lived during only a particular phase of that history, we tend to take it for granted that the world has always been as it is today. Yet the modern industrial world order is, in historical terms, a very recent event. We are deceived by our biology, by our limited life span, into think- ing of sixty, seventy, or eighty years as a long time, but in the perspective of human history it is a fleeting moment. Human beings have for most of their existence lived as bands of gatherers and hunters, for a shorter time as agriculturists and farmers, and only recently as industrialists and wage laborers. Yet the Industrial Revolution has transformed the world and human societies as has no other event in history. We cannot understand the events, issues, and problems of today’s world without understanding the how’s and why’s of the Industrial Revolution.

It will be clear that the emergence of capitalism represents a culture that is in many ways the most successful that has ever been developed in terms of accommodating large numbers of individuals in relative and absolute comfort and luxury. It has not been as successful, however, in integrating all in equal measure, and its failure here remains one of its major problems. It has solved the problems of feeding large numbers of people (although certainly not all), and it has provided unprecedented advances in health and medicine (but, again, not for all). It has pro- moted the development of amazingly complex technological instruments and fostered a level of global communication without precedent. It has united people in common pursuits as no other culture has. Yet it remains to be seen when the balance sheet is tallied whether capitalism repre- sents the epitome of “progress” that some claim.

NeW To The sixTh ediTioN

Since the publication of the fifth edition of Global Problems and the Culture of Capitalism, we have experienced significant global upheaval as well as heightened concerns over global immigration, urbanization, climate change, and regional conflict, as well as levels of protest,



Preface xv

all of which are addressed in this, the sixth, edition of the book. Specific changes include the following:

• Additional discussion of money as debt, the movement of money, and the consequences and the importance of perpetual growth.

• Material on advertising targeted to children and the scope of the practice. • Coverage of immigration, its history, and its social, political, and economic impact. • Coverage of urbanization and its impacts • Discussion of climate change and its impact on the economy and society as a whole. • Timely information on Occupy Wall Street and the philosophy and techniques of Direct Action. • A new, comprehensive Chapter 13 discussing how to address many of the issues raised in

the book.

Throughout this edition, I have tried to make the nature and origin of complex problems acces- sible to general readers and undergraduates without oversimplifying the gravity of the problems.

As always, I welcome comments and communications from readers and can be reached by email at richard.robbins@plattsburgh.edu. In addition, readers are encouraged to use the Web resources, including readings, online videos, and references created especially for the book, at http://www.plattsburgh.edu/legacy.

This text is available in a variety of formats—digital and print. To learn more about our programs, pricing options, and customization, visit www.pearsonhighered.com.


Many people have contributed to the writing of this book. I have already mentioned my colleagues James Armstrong and Mark Cohen. Others include Alfred Robbins, Michael Robbins, Rachel Dowty, Tom Moran, Philip Devita, Gloria Bobbie, Douglas Skopp, Edward Champagne, Vincent Carey, Larry Soroka, Ellen Fitzpatrick, Ann Kimmage, Michael Miranda, John Hess, Jan Rinaldi, Tina Charland, Tim Harnett, Daphne Kutzer, Monica van Beusekom, Russell Kleinbach, Peggy Lindsey, Dan and Mary Abel, Amy Weisz Predmore, Mark White, Barbara Harris, Art Orme, Sam Baldwin, and Mary Turner, along with the many students who helped me better articu- late important issues. I also thank members of the email list H-World, particularly its moderator Patrick Manning; Richard Winkel, moderator of the email list Activ-L (aml@webmap.missouri. edu), and its many contributors; and many of the students who used one or another version of this book and who provided invaluable feedback. I would also like to thank the book’s reviewers.

Reviewers of the first edition were John L. Aguilar, Charles O. Ellenbaum, Cynthia Mahmood, Richard Moore, Jon Olson, and Dave Winther. Reviewers of the second edition were Elliot Fratkin, Smith College; James Loucky, Western Washington University; Luis A. Vivanco, University of Vermont; and Vaughn Bryant, Texas A&M University. Reviewers of the third edition were Eric Mielants, Fairfield University; William Leggett, Middle Tennessee; Nancy McDowell, Beloit College; and Benjamin Brewer, James Madison University. Reviewers of the fifth edition were George Esber, Miami University, Middletown; Suzanne Scheld, California State University, Northridge; James Sewastynowicz, Jacksonville State University; and Miguel Vasquez, Northern Arizona University.

I owe a special debt of gratitude to Sylvia Shephard for her initial support of the project; to Sarah Kelbaugh, Dave Repetto, Nancy Roberts, and Barbara Reiley of Pearson and Jennifer Jacobson and Dan Vest of Ohlinger Publishing Services for guiding the project through to its present edition; as well as to Shiny Rajesh, who managed the latest edition, and Sayed Zakaullah, whose copyediting will make reading the book far easier than it would have been otherwise. And special thanks go to Amy, Rebecca, and Zoey, who tolerated with unusual understanding my periods of self-imposed isolation. Needless to say, the final form of the book, for better or worse, is the result of my own decisions.



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[W]hat difference it would make to our understanding if we looked at the world as a whole, a totality, a system, instead of as a sum of self-contained societies and cultures; if we understood better how this totality developed over time; if

we took seriously the admonition to think of human aggregates as “inextricably involved with other aggregates, near and far, in weblike, netlike, connections.”

—Eric Wolf, Europe and the People without History

On or about December 1910, wrote novelist Virginia Woolf, human character changed.1 On his repeated visits to the United States, Frenchman André Siegfried (1928; see also Leach 1993:266) noted much the same thing: “A new society has come to life in America,” he said. “It was not clear in 1901 or 1904; it was noticeable in 1914, and patent in 1919 and 1925.” Samuel Strauss (1924, 1927; see also Leach 1993:266), a journalist and philosopher writing in the 1920s, suggested the term consumptionism to characterize this new way of life that, he said, created a person with

a philosophy of life that committed human beings to the production of more and more things—“more this year than last year, more next year than this”— and that emphasized the “standard of living” above all other values.

It is obvious, he continued,

that Americans have come to consider their standard of living as a somewhat sacred acquisition, which they will defend at any price. This means that they would be ready to make many an intellectual or even moral concession in order to maintain that standard.

Introduction: The Consumer, the Laborer, the Capitalist, and the Nation-State in the Society of Perpetual Growth

P a r t O n e

1 The quote, which has been widely used (see, e.g., Fjellman 1992:5; Lears 1983), appeared in an essay, “Mr.  Bennett and Mrs. Brown,” in The Captain’s Death Bed and Other Essays, but was originally part of a paper Woolf read to the Heretics, Cambridge, on May 18, 1924. “On or about December 1910 human character changed … The change was not sudden and definite … But a change there was nevertheless, and since one must be arbitrary, let us date it about the year 1910” (Woolf 1950).



2 Part I • Introduction

There is no question that in America, the half-century from 1880 to 1930 marked a major tran- sition in the rate and level of commodity consumption—the purchase, use, and waste of what comedian George Carlin called “stuff.” Food production grew by almost 40 percent from 1899 to 1905; the production of men’s and women’s ready-made clothing, along with the produc- tion of costume jewelry, doubled between 1890 and 1900; and glassware and lamp production went from 84,000 tons in 1890 to 250,563 tons in 1914. In 1890, 32,000 pianos were sold in the United States; by 1904, the number sold increased to 374,000 (Leach 1993:16).

During this period, the perfume industry became the country’s tenth largest; at one depart- ment store, sale of toiletries rose from $84,000 to $522,000 between 1914 and 1926. The manufacture of clocks and watches went from 34 million to 82 million in ten years. By the late 1920s, one of every six Americans owned an automobile.

Of course, these figures are dwarfed by what Americans and others around the world consume today. World and national consumption expanded at an unprecedented pace during the twentieth century, with household consumption expenditures reaching $37 trillion in 2010, three times the level of 1975 and six times that of 1950. In 1900, real consumption expenditure was barely $1.5 trillion (United Nations Development Programme 1997). Today there are as many cars in the United States as the number of people with drivers’ licenses, and the rest of the world is doing everything that it can to catch up. China and India, alone, have added at least half-a-billion middle-class consumers in the new century demanding everything that consumers in the West desire.

However, although consumption rates were not nearly as high as they are today, the early twentieth century is notable because it marked the early phase of what Ernest Gellner (1983:24) called the society of perpetual growth and the creation of a new type of culture: consumer capitalism.

The emergence of the society of perpetual growth and the culture of capitalism marked a new stage in an ongoing global historical process that began (to the extent that it can be said to have a beginning) anytime from the fifteenth to the early nineteenth centuries. The creation of the human type that characterizes this stage, the consumer, followed soon after the emer- gence of two other historically unique categories of human types: the capitalist and the laborer. Merchants had existed, of course, for thousands of years, and people had always labored to produce goods and liked to consume what they’d produced. But never before in history has there existed a society founded on three categories of people: the capitalist, whose sole purpose is to invest money to earn more; the laborer, whose sole means of support comes from the sale of his or her labor; and the consumer, whose sole purpose is to purchase and consume ever-increasing quantities of goods and services.

At some point in their lives, virtually everyone plays the roles of consumer, laborer, or capitalist: as consumers, they buy goods and services; as laborers, they work for wages; and as capitalists, they invest money in banks, insurance policies, pension plans, stocks (slightly more than half of American families participate in the stock market, either directly or through investment accounts), education, or other enterprises from which they expect to profit. What ties together these roles, and indeed the entire culture, is money.

Thus, we can perhaps best conceptualize the working of the culture of capitalism as sets of relations between capitalists, laborers, and consumers, tied together by the pursuit of money, each depend- ing on the other, yet each placing demands on, and often conflicting with, the others. Regulating these relationships is the fourth element in our scheme, the nation-state. In this cultural scheme, the nation- state serves as, among its other functions, a mediator, controlling the creation and flow of money and setting and enforcing the rules of interaction. (Figure I.1 is a highly simplified model, but it serves to underline the key features and unique style of the culture of capitalism.)

Nation-State Nation-State


$ $



Figure i.1 Patterns of Relations in the Culture of Capitalism



Part I • Introduction 3

However, money is, obviously, the key to understanding this culture. Jacob Needleman (1991:40–41) wrote that, in another time and place, not everyone has wanted money above all else. People, he said,

have desired salvation, beauty, power, strength, pleasure, prosperity, explanations, food, adventure, conquest, comfort. But now and here, money—not necessarily even the things money can buy, but money—is what everyone wants.… Therefore, if one wished to understand life, one must understand money in this present phase of his- tory and civilization.

People require money as a means of exchange and, for the modern capitalist system to function, money must constantly increase in supply—that is, it must perpetually grow. Why this is so is not immediately apparent, even to many economists, but should the money supply fail to expand, the whole system could collapse in economic, political, and social ruin. Thus, virtually all of the issues discussed in this book relate in one way or the other to money and people’s efforts to acquire it or compensate for the lack of it.

Part I of the book describes the emergence of the consumer, the capitalist, the laborer, and the nation-state and outlines how each must function for our society to work. In Part II, we examine what economists call market externalities—that is, some of the mostly unintended consequences that follow from the interaction between the consumer, the laborer, the capitalist, and the nation-state. Finally, in Part III we explore the range of resistance to these externalities.

But first, given its central role in the working of the entire society, let’s begin with a brief primer on the nature of money and an exploration of how money has assumed its importance and how it determines how we live our lives.

A Primer on money: The PhilosoPher’s sTone

Commonly we consider money simply as a standardized means of exchange—that is, as a sub- stance with which the value of goods and services can be compared and traded, a tool, so to speak. But to view money only in that way is to misunderstand its true importance. To better explain, think, instead, of the philosopher’s stone. Magicians or alchemists sought the philoso- pher’s stone because it was thought to have the magical power to transmute base metals into gold, which implies taking something that was considered worthless and converting it into something of value. Money is the modern-day equivalent of the philosopher’s stone.

To appreciate the magic of money, the most important thing to consider is that the prime directive of the culture of capitalism is that it must maintain economic growth. People must buy, produce, invest, and profit more this year than the last and more next year than this in perpetuity. Failure to maintain growth would threaten the economic, social, and political foundations and stability of our entire society. People would be unable to repay debts, banks would fail, millions would lose their jobs, and millions of businesses would go bankrupt, to name only a few of the obvious consequences. Aside from a few notable periods of economic contraction, such as the periodic depressions

Alchemists believed that the philosopher’s stone could convert something worthless into something of value, namely, worthless metal into gold. By adopting paper money as a medium of exchange, the culture of capitalism has invented a new philosopher’s stone—one every bit as powerful as that sought by magicians of another time. (Mary Evans Picture Library/ Alamy.)



4 Part I • Introduction

of the nineteenth century, the great worldwide depression of the 1930s, the recession of the early 1980s, the Asian financial collapse of 1997, and the economic crisis of 2007–2008, the economy has grown reasonably well worldwide, although some parts of the world have historically done a better job than others.

Economic growth is traditionally measured by the growth of gross domestic product (GDP)—a measure of the money value of all goods and services produced and sold in a given time period. Table I.1 and Figure I.2 portray the yearly growth of global GDP during the past two millennia.

Over the long term, but particularly over the past two centuries, the growth of GDP in the global economy, especially among European offshoots (e.g., the United States and Australia)

TAble i.1 Level and Rate of Growth of GDP per Capita: World and Major Regions, a.d. 1–1998

1 1000 1820 1998 1–1000 1000–1820 1820–1998


Level of Growth (1990 International

Dollars) Annual Average Compound

Growth Rate

Western Europe 450 400 1,232 17,921 -0.01 0.14 1.51 Western Offshoots (e.g., United States, Australia)

400 400 1,201 26,146 0.00 0.13 1.75

Japan 400 425 669 20,413 0.01 0.06 1.93

Latin America 400 400 665 5,795 0.00 0.06 1.22

Eastern Europe and Former USSR

400 400 667 4,354 0.00 0.06 1.06

Asia (excluding Japan) 450 450 575 2,936 0.00 0.03 0.92

Africa 425 416 418 1,368 -0.00 0.00 0.67 World 444 435 667 5,709 -0.00 0.03 0.95

Source: Adapted from Maddison (2003:28)








1 1000 1820 1998

Western Europe

Western Europe Offshoots


Latin America

Eastern Europe and Former USSR

Asia (excluding Japan)



Figure i.2 Rate of per Capita GDP Growth by Region from a.d. 1 to 1998



Part I • Introduction 5

and Japan, has been spectacular: a 300-fold increase in the amount of goods consumed, the num- ber of goods produced, and the fortunes that have been made. A global citizen of today is almost nine times as wealthy as his or her counterpart some 200 years ago; in some parts of the world, the average citizen has increased his or her wealth almost 25 times over the same period.

To put perpetual growth into perspective, imagine that in the year 2010 you earned and spent $30,000 a year (or that some corporation earned $300,000,000). A growth rate of about 3 percent a year is necessary to maintain a healthy economy. Consequently, by 2015, you (or the corporation in this case) must earn and spend $34,855 (or $348,550,000) and by 2035, earn and spend $63,507 (or $635,070,000). If we factor in an inflation rate of 3 percent on top of our neces- sary growth rate, the figures are even higher (see Table I.2).

These increases, of course, could occur only with a steady increase in the money supply. Without the increase, people would not have the means to buy more, employers would not have the means to pay more, and capitalists would not be able to profit more. But how does the money supply increase? Where does money come from and what or who provides its magical power?

The Development of Commodity money

The use of objects as a medium of exchange is likely as old as trade. Thus the use of shells, furs, and other items of value as money are known in small-scale societies throughout the world (see Graeber 2011). The use of precious metals as a medium of exchange can be traced back 5,000 years to Mesopotamia and coins to the seventh century b.c. These are examples of com- modity money. Commodity money is money that has some value in itself beyond its exchange value. Thus, precious metals used for making coins can be used for making jewelry or other objects of art. Generally, the value of the coins is equal to the value of the metals used. As such, the use of coins for trade involves the exchange of one thing of value (e.g., a shirt) for another thing of equivalent value (e.g., an equal amount of gold).

But coins had a big disadvantage: They were difficult to store and to transport. Furthermore, it was not uncommon for people to melt the coins and use them for some other purpose, thus preventing them from circulation. This is where the first bit of magic comes in; people began to substitute paper for coins. “Exchange” or “demand” notes—paper certificates that could be exchanged for a valuable commodity, generally gold or silver—were first used in China in the twelfth century and became common in Europe in the fourteenth and fifteenth centuries (Williams 1997). Thus, a trader in Milan might buy textiles from someone in Bruges and pay with a paper note backed by gold that the seller could retrieve from a third party. Generally, banks or governments issued exchange notes or paper money, but virtually anyone could do it.

TAble i.2 Required Growth in Income and Spending over a Twenty-Five-Year Period

Required Income Growth 3 Percent (with 0% inflation)

Required Income Growth at 6 Percent (with 0% inflation) or Income Growth at 3 Percent

and Inflation at 3 Percent

Year Individual Corporate Individual Corporate

2010 $30,000 $300,000,000 $ 30,000 $ 300,000,000

2015 34,855 348,550,000 40,494 404,940,000

2020 40,495 404,950,000 54,661 546,661,000

2025 47,048 470,048,000 73,783 737,830,000

2035 63,507 635,070,000 134,434 1,344,340,000



6 Part I • Introduction

Theoretically, these notes represented a specific amount of some valuable metal—usually gold or silver—that could be retrieved on demand by the holder of the note.

The issuing of paper money was a huge step in helping to accelerate economic growth because there was potentially no limit to the amount of money that could be created. This was the first step in money magic: Paper, which was essentially worthless, now had the same value as gold, silver, or other precious metals. In a wonderful book, Money and Magic: A Critique of the Modern Economy in the Light of Goethe’s Faust, economist Hans Binswanger (1994) describes how Johann Wolfgang von Goethe, who served as finance minister at the Weimar court, used his classic work Faust (published in two parts in 1808 and 1832) for a commentary on the industrial economy, and, more specifically, on the nature of money. The original Faust, on whom the story is based, was a magician, an alchemist. In Goethe’s book, Faust makes a bargain with Mephistopheles—a devil—and together they create a new society based on paper money. Binswanger suggests the alchemist’s attempts to convert lead into gold were abandoned

not because they were futile, but because alchemy in another form has proved so suc- cessful that the arduous production of gold in the laboratory is no longer necessary. It is not vital to alchemy’s aim, in the sense of increasing wealth, that lead actually be transmuted into gold. It will suffice if a substance of no value is transformed into one of value: paper, for example, into money. (Binswanger 1994:9)

There was, however, a big loophole with commodity money. Banks or other entities that issued money were under no legal obligation to have on hand an amount of gold or silver equiva- lent to the deposits they held or the amount of paper money they issued. Banks practiced what is called fractional reserve banking; this means simply that they had to keep on hand only a fraction of the money or gold deposited assuming that not everyone would demand their gold deposits at the same time. They settled on about a 1:10 ratio; that is, for every dollar deposited, they could lend out ten paper dollars, even though they did not have on hand the gold on which the money was based. This gave to banks, and other private financial institutions, the power to literally create money out of thin air. On the one hand, banks profited from the interest on the

The issuing of paper money was a huge step in helping to accelerate

economic growth. (Rafael Ben-Ari/Fotolia.)



Part I • Introduction 7

loans, and people had more money to spend. On the other hand, problems occurred when, after an economic boom, the economy slowed down and depositors demanded their gold. Unable to pay all their depositors because they had issued notes in excess of the amount of gold they had on hand, banks failed and people lost their savings.

In 1913, the U.S. government tried to address some of these problems by creating the Federal Reserve Bank to control and stabilize the money supply. The Federal Reserve Bank, a private corporation, creates money by lending it to the federal government. The debt assumed by the government becomes an asset (i.e., money owed to the Federal Reserve) that the Federal Reserve then distributes to member banks who, following the fractional reserve requirement, can lend it out or invest it at a 10:1 ratio to earn interest and/or dividends. Money simply represents debt. It is lent into existence (see Brown 2010; Hallsmith and Lietaer 2012). Paper money was still tied to gold, and a person could retrieve paper for gold, but the Federal Reserve could ensure that banks had enough money on hand, or could quickly acquire it, to honor withdrawals. In that way, banks could honor requests for gold but be able to create new money by making loans. But the Federal Reserve could still not address the limitations imposed on economic growth by tying money to a fixed commodity. Solving that problem required another bit of magic in the form of another government decree.

The shift from Commodity to Fiat or Debt money

The next stage in the evolution of money occurred in 1931 when the United States stopped allowing people in the country to convert paper money into gold. The value of money was still tied to the value of gold, and exchanges with foreign governments still occurred in gold. Then in 1971, the U.S. government declared that its currency would no longer be backed by gold, or anything else for that matter. This marked the final shift from commodity to fiat or debt money—paper that was used as evidence of a claim to economic value but that, legally, was not redeemable for anything.

As might be expected, with dollars backed by nothing, the money supply could rap- idly grow, and theoretically could then match or exceed the growth or potential growth of the economy. More importantly, the Federal Reserve in the United States (which serves as the U.S. central bank) and central banks in other countries could develop ways to control the money supply, ensuring that it grew fast enough to keep up with economic growth but not so fast that inflation resulted. Inflation would occur when the amount of money exceeded the value of goods and services that people demanded, thus driving up the prices as buyers competed for scarce resources. If, however, the supply of goods and services exceeded the money supply, prices would decline as sellers competed for limited dollars, which would lead to deflation. Thus, bal- ancing the amount of money in circulation with the goods and services that could be purchased was a major challenge for central banks, such as the U.S. Federal Reserve.

When we think of money, we think of bills and coins. But that is only a small part (5 percent to 10 percent) of the money supply. The rest exists only as figures on paper (or in computers) in banks and in the records of other financial institutions. Debt money, for example, simply repre- sents a promise by the borrower of money to repay it at some future date.

Table I.3 and Figure I.3 show the kinds of money, or money stocks, in circulation in the United States along with their growth since 1959.

In sum, the money supply in 2007 was more than forty-six times larger than it was in 1959. You can perhaps begin to see why money represents a magical process. Because fiat or debt money is backed by nothing other than the legal power of the nation-state, but can be converted into all kinds of goods and services, we have further succeeded in the alchemist’s goal of taking something that is essentially worthless (paper) and turning it into objects of value (whatever we can obtain with this paper).

But, as Faust learned in his bargain with the devil, there is often a price to pay for access to the philosopher’s stone.



8 Part I • Introduction

The Consequences of a system of Debt money

The key thing to remember about debt money is that every dollar that is created is someone’s debt. Money is lent into existence. Consequently every dollar, euro, or pound must earn inter- est. The interest it earns goes to the bank and the people who buy the debt. This is not the only way to create money; money can be distributed, or given as a reward for some action. Think about airline miles; when people travel they get bonus miles that they can use to purchase airline tickets, or a host of other things such as gas gift certificates. Lending money into existence has advantages—theoretically only people who are capable of paying it back will get it; and, lending money with a requirement that it be repaid with interest disciplines people to work. However, debt money also concentrates wealth in the hands of a few, and, perhaps most importantly, it also exerts constant pressure for economic growth at any cost in order to maintain the interest payments on the money lent. Put another way, the money supply can grow, and continue to do so only if there is a corresponding amount of economic activity. That is, when money is lent into existence it must earn itself and the interest. But, how does the money continue to grow?

D o

ll a rs

( in

b il li o

n s )


1 9 5 9








1 9 6 2

1 9 6 5

1 9 6 8

1 9 7 1

1 9 7 4

1 9 7 7

1 9 8 0

1 9 8 3

1 9 8 6

1 9 8 9

1 9 9 2

1 9 9 5

1 9 9 8

2 0 0 1

2 0 0 4

2 0 0 7

Total Supply—M3




Figure i.3 U.S. Money Supply by Type, 1959 to 2008

TAble i.3 Increase in U.S. Money Supply from 1959 to 2009 (in billions)

Years Currency M1 M2 M3 Non-M2 M3 Percentage of Change in M3

1959–1970 416.1 1,959.1 5,074.2 5,256.1 202.0 —

1971–1980 731.6 2,910.3 10,252.8 11,905.2 1,652.6 127

1981–1990 1,661.3 6,102.2 24,088.3 31,002.9 6,916.4 160

1991–2000 3,681.8 10,550.1 37,696.1 49,151.9 11,428.7 59

2001–2009 6,175.0 11,896 58,268.5 140,701.31 31,993.32 186

M1 = Currency, traveler’s checks, demand deposits, and other checkable deposits

M2 = M1, retail MMMFs, savings, and small-time deposits

M3 = M1, M2, large time deposits, RPS, Eurodollars and institutional money funds, available at http://www.federalreserve.gov/releases/h6/hist/h6histb.txt 1 The Federal Reserve stopped publishing M3 data in 2006. The data from 2006 to 2009 is estimated with information available at http://www.shadowstats.com/alternate_data 2 This includes estimated data from 2006 to 2009.



Part I • Introduction 9

To answer this question economist Barbara Garson deposited $50,000 (a publisher’s advance on the book she was writing) in a small rural bank, the Bank of Millbrook, New York, and asked them to help her trace what happened to her money. The bank couldn’t just hold it, because they had to pay interest on the deposit. The money had to keep moving and growing. So while giving Garson 2½ percent interest, they immediately sold it to Chase Bank at 4½ percent; but Chase, of course, had to move it out at a still higher rate. As Garson said,

I thought of my money as the raw material that banks need and want in order to make more money. But I was beginning to sense, however fuzzily, that it could also be a hot potato that Millbrook passed to Chase and Chase had to pass quickly to the next guy. Whoever held it, even for a second, had to pay interest. Which means he had to be able to collect interest. If he couldn’t, he got burned. (Garson 2001:39–40 emphasis added)

Thus Chase lent money to a Brooklyn fish company, among others, which, Garson discovered, got much of its fish from East Asia, and to an oil company in Malaysia that was building a new refinery. Marveling at the power of money to mobilize people and resources, Garson traveled to Malaysia to see how her money was at work and discovered that thousands of people were getting jobs directly and indirectly through the money invested in the refinery. She also spoke to the fishermen in the area, some of whose catch may have been going to the Brooklyn fish market and discovered that the oil refinery polluted coastal waters and forced the fishermen to go farther out to sea for their catch. They talked to Garson about the good old days and the catches they used to bring home and the amount of work they have to do today to succeed.

“Some fisherman are lazy,” one of the fishermen commented, “If they caught a lot today, they don’t go out tomorrow. But I think differently. If we catch a lot today we go out tomorrow, catch more.”

But another man, says Garson, politely disagreed. “You’re free to do what you want. You can go out three day a week or twenty days a month. You stop when you have enough.”

While she says that she didn’t realize it at the time, she later thought it was the most sub- versive thing she heard in all her travels: “The one thing my money could not do,” she says, “was stop”(Garson 2001:105–106).

Thus for economic system to work, the money that is lent into existence must keep work- ing, in perpetuity, to earn more. But, as Garson found out, it continues to grow only at a cost, in this case to coastal environments. And this highlights another problem with debt money—the limit on things into which money can be converted. Although the money supply might be unlim- ited, the goods and services that people can buy with their money are not. But if economic growth (and the supply of money) must increase every year (and must increase at a rate of at least 3 per- cent to maintain a healthy economy), then so must the things that money can buy. When money was tied to and limited by a commodity such as gold, the money supply was constantly trying to keep up with the goods and services available. However, once money was uncoupled from any- thing of value and could infinitely grow, the situation was reversed and goods and services began to chase the money supply. Thus, where we used to have a situation where we needed more and more gold to grow, now we simply need more and more stuff. In other words, the money supply must grow if the economy is to remain healthy, and for the money supply to grow, there must be a steady increase in the goods or services that money can buy. It is from this simple fact that many of the problems we discuss in this book derive.

Consequently, for the economy to grow, there must be a constant conversion of things that have no monetary value into things that do—that is, there must be constant commodification, because money can only grow through a process whereby nonmonetary wealth, goods, or values are converted into things of monetary worth (see, e.g., Bourdieu 1986:243). In this conversion process lies the genius of capitalism. In it also lies the secret of our Faustian bargain. Through the operation of a myriad of rules, regulations, values, and laws, the culture of capitalism encourages



10 Part I • Introduction

the conversion of items and activities that have no intrinsic monetary worth—but that are never- theless valuable and even necessary in other ways—into items and activities that can be bought and sold in the marketplace. Thus, trees, lakes, and mountains must be converted into things that can be sold in the marketplace; activities once associated with family life and given freely, such as child care, food preparation, and education, must be converted into monetary activities; and freedom itself can be exchanged for money as powerful corporations use their money to gain political access and power (see Figure I.4).

We discuss this process of capital conversion in more detail in Chapter 13, but for now it is sufficient to appreciate why this conversion is necessary to fulfill the prime directive of per- petual economic growth.

In sum, then, our culture works largely on a magical principle in which money, an item of no intrinsic value, perpetually increases in quantity by being lent into existence while we work to convert more and more nonmonetary capital into goods and services that this money can buy. Of course, this is a simplification of everything that must be done to keep the system working. In the next four chapters, we describe how the consumer, the laborer, the capitalist, and the nation-state operate to maintain this magic act. In Part II we’ll examine what economists term the externalities of the working of the market, such as the environmental damage witnessed by Barbara Garson, and in Part III we’ll explore the ways that groups of people have found to resist the sometimes-negative consequences on their lives from these externalities. The final chapter will propose some of the actions that are necessary to remedy the problems we will explore.

Natural CapitalSocial Capital

• Reciprocity

• Social Networks

• Community and Family Functions (e.g., education, child care, entertainment)

Political Capital

Economic Capital (Money)

• Access to Information

• Access to Government

• Freedom of Expression

• Forests

• Water

• Minerals

• Air

Figure i.4 The Conversion of Natural, Political, and Social Capital into Money



Part I • Introduction 11

This book does suggest that what we term capitalism has been distorted by a financial sys- tem that requires perpetual growth, and that this growth is unsustainable. Not everyone agrees; some, including most mainstream economists, argue that sustained economic growth can solve many of the problems that we’ll be examining. Consequently much of this book is designed to explain how we got where we are and weigh the evidence of whether the harms done by a com- mitment to perpetual economic growth are greater or lesser than the good. For example, there seems to be a split globally of how to respond to the economic collapse of 2007–2008 and the debt problems faced by many countries. On the one side are those who want to cut govern- ment spending, and on the other those who look to government to compensate for the decline in consumption. There is also a split between those who think that government debt is the major problem, and others who feel that growing economic inequality is the major issue. One thing this book will attempt to do is put those sentiments in perspective and show how each side has a point; nevertheless, the problems stem from the distortions that have arisen in our economy.




T he culture of capitalism is devoted to encouraging the production and sale of commodi- ties. For capitalists, the culture encourages the accumulation of profit; for laborers, it encourages the accumulation of wages; and for consumers, it encourages the accumula-

tion of goods. In other words, capitalism defines sets of people who, behaving according to a set of learned rules, act as they must act.

There is nothing natural about this behavior. People are not naturally driven to accumulate wealth. There are societies in which such accumulation is discouraged. Human beings do not have an innate drive to accumulate commodities; again, there are plenty of societies in which such accumulation is discouraged. People are not driven to work; in fact, contrary to popular notions, members of capitalist culture work far more than, say, people who live by gathering and hunting (see, e.g., Schor 1999). How does culture, as anthropologists use the term, encourage

The consumer revolution is a strange chapter in the ethnographic history of the species. For what may have been the first time in its

history, a human community willingly harbored a nonreligious agent of social change, and permitted it to transform on a continual

and systematic basis virtually every feature of social life.

—Grant McCracken, Culture and Consumption

The … metamessage of our time is that the commodity form is natural and inescapable. Our lives can only be well lived (or lived at all) through the purchase of particular commodities. Thus our

major existential interest consists of maneuvering for eligibility to buy such commodities in the market. Further, we have been taught that it is right and just—ordained by history, human nature, and God—that the means of life in all its forms be available only as

commodities.… Americans live in an overcommodified world, with needs that are generated in the interests of the market and that can

be met only through the market.

—Stephen Fjellman, Vinyl Leaves

Constructing the Consumer1 C h a p t e r



Chapter 1 • Constructing the Consumer 13

people to behave in some ways and not in others? Specifically, how does the culture of capitalism encourage the accumulation of profit, wages, and commodities? How does it, in effect, encour- age perpetual growth and what amounts to perpetual change?

It is not easy to describe the effects of culture on people’s lives; anthropologists have noted that culture consists of all learned beliefs and behaviors, the rules by which we order our lives, and the meanings that human beings construct to interpret their universes and their places in them. Yet, using these abstract descriptions, it is difficult to understand how pervasive our culture can be in determining our view of the world. It may help, therefore, to provide a meta- phor for culture in the form of a practice of another culture: the sandpaintings of the Navajo of the American Southwest.

Among the Navajo people there is a healing practice in which a curer, using colored sand, cornmeal, or other bits of material, draws on the ground a miniature representation of the universe. Although there are perhaps a thousand versions of these drawings, each contains vital elements of what, for the Navajo, define the general conditions of existence. Navajo con- ceptions of space are indicated by symbols of the world’s directions and that of social life by the distribution of Navajo houses (hogans) and mythic beings; values are represented in the stories and chants associated with each sandpainting. Material items critical to Navajo existence (e.g., horses or ritual items) are also portrayed. Once the work is completed, the patient sits on or in the sandpainting, and a curing ceremony, accompanied by chanting and prayer, proceeds. Illness, the Navajo claim, is the result of persons’ losing their proper place in the world; the aim of the ceremony is to restore the patient to that place. When the ceremony is completed and harmony restored, the sandpainter destroys the painting.

Navajo sandpaintings serve as therapeutic stages on which a person’s place in the universe is defined and ritually enacted. (Chuck Place/Alamy.)



14 Part I • The Society of Perpetual Growth

Navajo sandpainting contains all the elements of what anthropologists often mean by the term culture. Like the sandpainting, a culture serves to define the universe as it is supposed to exist for a people. The sandpainting contains the key elements and symbols that people use to locate themselves in physical and social space. It affirms the place of the person in the cre- ated world and the values that govern people’s lives. Like the sandpainting, particular cultural representations serve as therapeutic frames that communicate to us who and what we are and how we figure in the larger order of things. These representations are therapeutic because they help people resolve the contradictions and ambiguities that are inherent in any cultural definition of reality and self.

Furthermore, every society has its sandpainters, those individuals who are given or who take responsibility for representing the universe to others and who have the power to define those elements that are essential for others in locating and defining their identities. In some societies, as among the Navajo, it is the curer, shaman, mythmaker, or storyteller; in others, it is the priest, poet, writer, artist, singer, or dancer. In capitalism, the sandpainter works in churches, synagogues, or mosques; in theaters; through television sets; at sporting events; or in the shopping malls that reaffirm the vision of abundance central to the consumers’ view of the world. Contemporary sandpainters, who include marketing specialists, advertisers, government agents, corporate public relations specialists, entertainers, and journalists, create a vision of the world designed to maxi- mize the production and consumption of goods. They have helped to create a culture in which the prime elements are commodities and in which the consumer’s first duty is to buy (or “Shop till you drop,” as a popular bumper sticker advises). It is a culture in which virtually all our everyday activities—work, leisure, the fulfillment of social responsibilities, and so on—take place in the context of commodities, and in which shopping, like the sandpainting cure, serves as a therapeu- tic activity. These contemporary sandpainters construct for us a culture in which at one time or another every individual assumes the identity of consumer. The question we need to explore first is, How was the universe of the consumer and the consumer her- or himself created?

Remaking Consumption

The consumer did not, of course, appear full blown in the early twentieth-century United States. Mass consumption of certain goods—notably addictive substances such as tobacco, opium, rum, gin, coffee, and tea—arguably fueled the Industrial Revolution and even Europe’s colonial domination of Asia, Latin America, and Africa. This consumption also defined the methods by which later commodities were produced, distributed, and consumed (see, e.g., Trocki 1999). But, since these items were physically addictive and required little marketing, merchants generally paid little attention to how these and other goods were marketed or displayed, assuming that when people needed their products, they would buy them. It was this attitude in the United States of a century ago that was to undergo a profound change.

The change did not occur naturally. In fact, the culture of nineteenth-century America emphasized moderation and self-denial, not unlimited consumption. People, workers in particu- lar, were expected to be frugal and save their money; spending, particularly on luxuries, was seen as “wasteful.” People purchased only necessities—basic foodstuffs, clothing, household utensils, and appliances—or shared basic items when they could. If we look at a typical inventory of the possessions of an American family of 1870–1880, we find a pattern very different from that of today. In 1870, 53 percent of the population lived and worked on farms and produced much of what they consumed. One Vermont farmwife recorded making 421 pies, 152  cakes, 2,140 doughnuts, and 1,038 loaves of bread in one year (Sutherland 1989:71). Household items were relatively simple—a dinner table, wooden chairs, beds, and perhaps a carpet or rug. There were a few appliances to aid housework—cookstoves, eggbeaters, apple parers, pea shellers, and coffee mills—but most other housework required muscle; even hand-cranked washing machines were not available until the late 1870s. Although most people, except the poorest or most iso- lated families, did buy some ready-made clothing, most of the items people wore were made



Chapter 1 • Constructing the Consumer 15

at home and were largely functional. Furthermore, because the vast majority of American families lived on farms, most of the family capital was invested in farming tools and implements. There were, of course, exceptions. The wealthy members of society competed with each other in the ostentatious display of wealth and luxury, as they had for centuries. But they repre- sented a small percentage of the population.

Of course, Americans did not yet have electricity, the automobile had yet to be invented, and the money supply was far more limited than it is today. Nevertheless, to transform buying habits, luxuries had to be transformed into necessities. In America, this was accomplished largely in four ways: a rev- olution in marketing and advertising, a restructuring of major societal institutions, a revolution in spiritual and intellectual values, and a reconfiguration of space and class.

marketing and advertising

First, there was a major transformation of the meaning of goods and how they were pre- sented and displayed. For most of the eighteenth and nineteenth centuries, retailers paid little attention to how goods were displayed. The first department store—Bon Marché—opened in Paris in 1852, allowing people to wander through the store with no expectations that they make a purchase. Enterprises such as Bon Marché were devoted to “the arousal of free-floating desire,” as Rosalind Williams put it (McCracken 1988:25). The display of commodities helped define bourgeois culture, converting the culture, values, attitudes, tastes, and aspirations of the bourgeoisie into goods, thus shaping and transforming them (Miller 1994).

But Bon Marché was an exception. In stores in the United States, most products were displayed in bulk, and little care was taken to arrange them in any special way. Prepackaged items with company labels did not even exist until the 1870s, when Ivory Soap and Quaker Oats appeared (Carrier 1995:102). Shop windows, if they existed, were simply filled with items that had been languishing in back rooms or warehouses for years. Even the few large depart- ment stores of the mid-nineteenth century, such as that of Alexander Turney Stewart, the Marble Palace in New York, paid little attention to display. It was not until the 1890s and the emergence of the department store in the United States as a major retail establishment that retailers began to pay attention to how products were presented to the public.

The department store evolved into a place to display goods as objects in themselves. When Marshall Field’s opened in Chicago in 1902, six string orchestras filled the various floors with music, and American Beauty roses, along with other cut flowers and potted palms, bedecked all the counters. Nothing was permitted to be sold on the first day, and merchants in the district closed so that their employees could visit Field’s. Later, elaborate theatrical productions were put on in the stores, artworks were exhibited, and some of the most creative minds in America designed displays that were intended to present goods in ways that inspired people to buy them. The department store became a cultural primer telling people how they should dress, furnish their homes, and spend their leisure time (Leach 1993).

Advertising was another revolutionary development that influenced the creation of the consumer. The goal of advertisers was to aggressively shape consumer desires and create value in commodities by imbuing them with the power to transform the consumer into a more desirable person. Before the late 1880s, advertising was looked down on and associated with P. T. Barnum–style hokum. In 1880, only $30 million was invested in advertising in the United States; however, by 1910, new businesses, such as oil, food, electricity, and rubber, were spend- ing $600 million, or 4 percent of the national income, on advertising. By 1929, advertising was an $11 billion enterprise, and by 1998, the amount spent globally on advertising reached











The United States



16 Part I • The Society of Perpetual Growth

$437 billion. By 2012, global advertising expenditures reached $498 billion (Lee 2012), or more than the GDP of Sweden.

By the early twentieth century, national advertising campaigns were being initiated and celebrities were being hired to offer testimonials to their favorite commodities. Advertising cards, catalogs, and newspaper ads became a regular feature of American life. Outdoor adver- tising—billboards, signs, and posters—appeared everywhere. Electrical advertising—neon and flashing signs—were marketed, and Broadway became famous as the “Great White Way.” Today, advertising plays such a ubiquitous part in our lives that we scarcely notice it, even when it is engraved or embroidered on our clothing.

Another boon to merchandising was the idea of fashion: the stirring up of anxiety and restlessness over the possession of things that were not “new” or “up-to-date.” Fashion pressured people to buy not out of need but for style—from a desire to conform to what others defined as “fashionable.”

It is hardly surprising, then, that the garment industry in America led the way in the creation of fashion; its growth in the early 1900s was two or three times as great as any other industry. By 1915, it ranked only behind steel and oil in the United States. Fashion output in 1915 was in excess of $1 billion; in New York alone, 15,000 establishments made women’s clothes. New fashion magazines—Vogue, Cosmopolitan, and the Delineator—set fashion stan- dards and defined what the socially conscious woman should wear, often using royalty, the wealthy, and celebrities as models. In 1903, the fashion show was introduced in the United States by Ehrich Brothers in New York City; by 1915, it was an event in virtually every U.S. city and town. Relying on this popularity, the first modeling agency was founded in New York by John Powers in 1923 (Leach 1993:309). The entertainment industry contributed by making its own major fashion statements as American women of the 1920s sought to imitate stars such as Clara Bow.

The importance of fashion hasn’t changed, and fashion magazines remain, as film critic Manohla Dargis (2009) put it, “temples of consumption.” Reviewing the documentary, The September Issue, about the creation of a single issue of Vogue, she notes that the glossy images, expensive clothes, and accessories displayed in its pages are about creating desires and trans- forming wants into needs. The magazine, of course, wants to sell the stuff that adorns its pages; but, more than that, it wants to instill in the reader sets of aspirations. It seeks to define tastes using attractive models and celebrities to define what the well-dressed woman is supposed to wear.

Another addition to the marketing strategy was service, which included not only consumer credit (charge accounts and installment buying) but also a workforce to fawn over customers. Customers became guests.

William Leach suggested that service may have been one of the most important features of the new consumer society. It helped, he said, mask the inequality, poverty, and labor con- flicts that were very much a part of the United States at this point in its history. If one wanted to understand how consumer society developed, Leach said, one could look at the rise of service. As economic inequality rose in America, and as labor conflict increased, Americans associated service with the “promise of America.” Service conveyed to people the idea that everything was all right, that they had nothing to worry about, and that security and service awaited them. Service expressed what economists then and now would refer to as

the “benevolent side” of capitalism, that is, the side of capitalism that gave to people in exchange for a dependable flow of profits—a better, more comfortable way of life. In this view, capitalism did not merely “strive for profits” but also sought “the satisfaction of the needs of others, by performing service efficiently.” “Capital,” said one turn-of-the-century economist, “reigns because it serves.” (Leach 1993:146–147)



Chapter 1 • Constructing the Consumer 17

the transformation of institutions

The second way in which American buying habits were changed was through a transformation of the major institutions of American society, each redefining its function to include the promotion of consumption. Educational and cultural institutions, governmental agencies, financial institu- tions, and even the family itself changed their meaning and function to promote the consumption of commodities.

Before 1900, the contributions of universities to the capitalist economy largely dealt with how to “make” things—that is, with the production of commodities. Virtually no attention was paid to selling or keeping track of what was sold. For example, there was no systematic examina- tion of mass retailing, credit systems, or banking offered by America’s schools or universities. In the twentieth century, however, that began to change. For example, in New York City there was the good-design or arts-in-industry movement; schools, such as the Pratt Institute and the New York School of Fine and Applied Arts (now Parsons School of Design), developed and began to prepare students to work in the emerging sales and design industries and in the large department stores. The University of Pennsylvania’s Wharton School for Business and the Harvard School for Business introduced programs in accounting (virtually nonexistent before then), marketing, and sales. In 1919, New York University’s School of Retailing opened; in the mid-1920s, Harvard and Stanford established graduate business schools as did such schools as Northwestern and other universities in Michigan, California, and Wisconsin soon after. Today, there are virtu- ally no two-year or four-year colleges that do not offer some sort of business curriculum.

Museums also redefined their missions to accommodate the growth of the consumer culture. The American Museum of Natural History and the Metropolitan Museum of Art in Manhattan, the Brooklyn Museum, and the Newark Museum—all heavily endowed by wealthy patrons such as J. P. Morgan—began to make alliances with business. Curators lectured to designers on Peruvian textiles or primitive decorative art. The head of the American Museum of Natural History, Morris D’Camp Crawford, assisted by the head of the anthropology department, Clark Wissler, urged businesspeople and designers to visit the museum. Special exhibits on the history of fashion and clothing were arranged, and Wissler even borrowed the window-display techniques of New York department stores for his exhibits (just as window-display designers had borrowed the idea of the mannequin from anthropologist Franz Boas’s exhibit of foreign cultures at the 1893 World’s Columbian Exposition in Chicago). The editor of Women’s Wear magazine praised the museum for being “the most progressive force in the development of the designer” (Leach 1993:166).

The second set of institutions to aid in the development of consumer culture comprised agencies of the local and federal governments. The state, as an entity, had long taken a lively interest in commerce within its borders (as we’ll see when we examine the history of global capitalist expansion in Chapter 3). But prior to the twentieth century, the state’s concerns focused largely on the manufacture of commodities, the organization of business, the control of labor, and the movement of goods. It wasn’t until the twentieth century that state agencies began to concern themselves with the consumption end of the business cycle. In fact, it may not be an exaggeration to say that the government did more to create the consumer than did any other institution.

Nothing better represents the increasing role of the federal government in the promotion of consumption than the growth of the Commerce Department under Herbert Hoover, who served as its head from 1921 until his election as president in 1928. When the Commerce Building opened in Washington in 1932, it was the biggest office structure in the world (and was not surpassed in size until the Pentagon was built a decade later). At the time, it brought together in one building virtually all the government departments that had anything to do with business, from the Patent Office to the Bureau of Foreign and Domestic Commerce (BFDC), then the most important agency of the department. From 1921 to 1930, the congressional appropriation for the BFDC rose from $100,000 to more than $8 million, an increase of 8,000 percent. The number of BFDC staff increased from 100 to 2,500.



18 Part I • The Society of Perpetual Growth

Hoover clearly intended the Department of Commerce to serve as the handmaiden of American business, and its main goal was to help encourage the consumption of commodities. For example, between 1926 and 1928, the BFDC, under Hoover’s direction, initiated the Census of Distribution (or “Census of Consumption,” as it was sometimes called) to be carried out every ten years. (It was unique at that time; Britain and other countries did not initiate government- sponsored consumer research until the 1950s.) It detailed where the consumers were and what quantities of goods they would consume; it pointed out areas where goods were “overdeveloped” and which goods were best carried by which stores. The Commerce Department endorsed retail and cooperative advertising and advised merchants on service devices, fashion, style, and display methods of all kinds. The agency advised retail establishments on the best ways to deliver goods to consumers, redevelop streets, build parking lots and underground transportation systems to attract consumers, use colored lights, and display merchandise in “tempting ways.” The goal was to break down “all barriers between the consumers and commodities” (Leach 1993:366).

Hoover also emphasized individual home ownership. In his memoirs, he wrote that “a primary right of every American family is the right to build a new house of its heart’s desire at least once. Moreover, there is the instinct to own one’s own house with one’s own arrange- ment of gadgets, rooms, and surroundings” (Nash 1988:7). The Commerce Department flooded the country with public relations materials on “homebuying” ideas, producing a leaflet entitled Own Your Own Home, along with the film Home Sweet Home. They advocated single-dwelling homes over multiunit dwellings and suburban over urban housing. The leaflet recommended a separate bedroom for each child, saying it was “undesirable for two children to occupy the same bed—whatever their age.” Regardless of the reasons for these recommendations, the materials produced by the Commerce Department all promoted maximum consumption. Thus, the govern- ment responded, as much as did educational institutions, to the need to promote the consumption of commodities.

Another step in creating a consumer economy was to give the worker more buying power. The advantage of this from an economic perspective is not easy to see. From the point of view of an industrialist or an employer, the ideal situation would be to pay as low a wage as possible to keep production costs down and increase profits. However, each producer of goods would prefer other producers to pay high wages, which would allow the other producers’ workers to buy more products. The idea that higher wages would serve as an incentive for laborers to work harder or that higher wages might allow the worker to become a consumer occurred relatively late to factory owners and investors. The working class, they assumed, would work only as hard as they needed to get their basic subsistence, and to pay them more would only result in their working less. And when an occasional economic boom gave workers the spending power to consume at a higher level, the middle and upper classes would condemn them for their lack of thrift.

The economic power derived from turning workers into consumers was realized almost by accident. As industry attempted to increase efficiency, it developed new methods. Henry Ford introduced the assembly line, one of the apparently great innovations, to the manufacturing of automobiles. Workers occupied positions on the line from which they did not move (“Walking,” Ford said, “is not a remunerative activity”) and from which they would perform a single task. It was a process that required almost no training and that “the most stupid man could learn within two days,” as Ford said. In essence, each worker had to repeat the same motion every ten seconds in a nine-hour workday.

Workers resisted this mind-numbing process. When Ford introduced his assembly line, absenteeism increased and worker turnover surged. In 1913, Ford required 13,000 to 14,000 workers to operate his plant, and in that year 50,000 quit. But Ford solved the problem: He raised wages from the industry standard of two to three dollars per day to five dollars, and he reduced the working day to eight hours. Soon labor turnover fell to 5 percent, and waiting lines appeared at Ford hiring offices. Furthermore, production costs for Ford’s Model T fell from $1,950 to $290, reducing the price to consumers. Most importantly, the rise in wages made Ford workers consumers of Ford automobiles, and, as other manufacturers followed suit, the automobile



Chapter 1 • Constructing the Consumer 19

industry grew. By 1929, there were 23 million automobiles in the United States; by 1950, there were more than 40 million. Today, including light trucks, there are 1.3 cars for every individual.

In addition to the money coming from higher wages, buying power was increased by the expansion of credit. Credit, of course, is essential for economic growth and consumerism, because it means that people, corporations, and governments can purchase goods and services with only a promise to pay for them at some future date. Buying things on credit—that is, going into debt—has not always been acceptable in the United States. It was highly frowned upon in the nineteenth century. It was not fully socially acceptable until the 1920s (Calder 1999), at which time it promoted the boom in both automobile and home buying.

The increased ease of obtaining home mortgages was a key to the home-building boom of the 1940s, 1950s, and 1960s, a boom that in turn fueled subsidiary industries—appliances, home furnishings, and road construction. By 1960, 62 percent of all Americans could claim to own their own home—up from 44 percent in 1940. By 2008, U.S. homeowners owed more than $10 trillion in mortgages. Home mortgages had the further function of disciplining the workforce by forcing it to work to make credit payments. At the same time, homeowners gained a capital asset that served as a hedge against inflation. Automobile loans also added to consumer debt and, similarly, fueled subsidiary economic growth—malls, highways, vacation travel, and so on. Credit cards gave holders a revolving line of credit with which to finance purchases. U.S. house- hold debt reached over $13 trillion in 2008, before falling to $11½ trillion in 2012 as a result of the 2007–2008 recession, while 20 percent of American households have more debt than assets, or 40 percent when real estate is factored out. This debt represents enormous confidence in the future of the economy because this money does not exist. Lenders in our economy simply assume that the money will exist when it comes time for people to repay their debts.

None of this would have been possible without a government financial policy that put limits on interest rates (“usury ceilings”), passed “truth-in-lending” laws, made it easier for cer- tain groups (women and minorities) to borrow, and offered subsidized student loans. Thus, credit increased consumer debt while creating a “mass market” for consumer goods, which served further to stimulate economic growth (see Guttmann 1994).

In addition to changes in the way workers were viewed and the expansion of credit, there had to be a change in the way retail establishments were organized. The emergence of the con- sumer was accompanied by an enormous growth in retail chain stores. Until this point, people shopped in small stores or large family-owned department stores. The 1920s saw the rise of the large retail conglomerates. In 1886, only two chains operated more than five stores; in 1912, 177 companies operated 2,235 stores; by 1929, nearly 1,500 companies were doing business in 70,000 outlets. In 2012, Wal-Mart alone had over 8500 stores worldwide, and, with over 2 million employees, is the largest employer in the world (Copeland and Labuski 2013).

the transformation of spiritual and intellectual Values

In addition to changing marketing techniques and modifying societal institutions to stimulate consumption, there had to be a change in spiritual and intellectual values from an emphasis on such values as thrift, modesty, and moderation toward a value system that encouraged spending and ostentatious display. T. J. Jackson Lears argued that, from 1880 to 1930, the United States underwent a transformation of values from those that emphasized frugality and self-denial to those that sanctioned periodic leisure, compulsive spending, and individual fulfillment (Lears 1983). This shift in values, said Lears, was facilitated in American life by a new therapeutic ethos, an emphasis on physical and psychological health. This shift was promoted in part by the growth of the health professions and the popularity of psychology, along with the increas- ing autonomy and alienation felt by individuals as America ceased being a land of small towns and became increasingly urban. Advertisers capitalized on these changes by altering the way products were advertised; rather than emphasizing the nature of the product itself, they began to emphasize the alleged effects of the product and its promise of a richer, fuller life. Instead of



20 Part I • The Society of Perpetual Growth

simply being good soap, shoes, or deodorant, a product would contribute to the buyer’s psycho- logical, physical, or social well-being (Lears 1983:19).

Clothing, perfumes, deodorant, and so on, would provide the means of achieving love; alcoholic beverages would provide the route to friendship; and the proper automobile tires or insurance policy would provide the means of meeting family responsibilities. Commodities would be the source of satisfaction and a vital means of self-expression. Ponder, for example, the following description by a forty-year-old man of the relationship between himself and his expensive Porsche:

Sometimes I test myself. We have an ancient, battered Peugeot, and I drive it for a week. It rarely breaks, and it gets great mileage. But when I pull up next to a beautiful woman, I am still the geek with glasses. Then I get back into my Porsche. It roars and tugs to get moving. It accelerates even going uphill at 80. It leadeth trashy women … to make pouting looks at me at stoplights. It makes me feel like a tomcat on the prowl.… Nothing in my life compares—except driving along Sunset at night in the 928, with the sodium vapor lamps reflecting off the wine-red finish, with the air inside reeking of tan glove-leather upholstery and the … Blaupunkt playing the Shirelles so loud that it makes my hairs vibrate. And with the girls I will never see again pulling up next to me, giving the car a once-over and looking at me as if I was a cool guy, not worried, instead of a 40-year-old schnook writer. (Belk 1988:148)

In the late nineteenth century, a series of religious movements emerged that became known as mind-cure religions. William James, in his classic 1902 book Varieties of Religious Experience, drew attention to the mind-cure movements, although he was not the first to use the term. These movements—New Thought, Unity, Christian Science, and Theosophy, among others—maintained that people could simply, by an act of will and conviction, cure their own illnesses and create heaven on earth. These movements were, as William Leach (1993:225) phrased it, “wish-oriented, optimistic, sunny, the epitome of cheer and self-confidence, and completely lacking in anything resembling a tragic view of life.” There was no sin, no evil, no darkness, only, as one mind curer said, “the sunlight of health.”

These movements held that salvation would occur in this life and not in the afterlife. Mind cure dismissed the ideas of sin and guilt. God became a divine force, a healing power. Proponents argued that Americans should banish ideas of duty and self-denial. As one early twentieth-century advocate said,

If you want to get the most out of life, just make up your mind that you were made to be happy, that you are a happiness machine, as well as a work machine. Cut off the past, and do not touch the morrow until it comes, but extract every possibility from the present. Think positive, creative, happy thoughts, and your harvest of good things will be abundant. (Leach 1993:229)

These new religions made fashionable the idea that, in the world of goods, men and women could find a paradise free from pain and suffering; they could find, as one historian of religion put it, the “good” through “goods.”

Popular culture also promoted the mind-cure ideology. As examples, there were L. Frank Baum’s The Wonderful Wizard of Oz, which Leach characterized as “perhaps the best mind cure text ever written,” and the Billikens doll, a squat Buddha-like figure, sometimes male and some- times female, that represented the “god of things as they ought to be.” Its success was without parallel in the toy trade and helped incite the doll craze in America. Billikens, it was said, would drive away petty annoyances and cares. One contemporary put it this way: “An atmosphere of gorged content pervades Billikens. No one can look at him [or her] and worry.”



Chapter 1 • Constructing the Consumer 21

The popularity of the Billikens doll signaled change in spiritual values: It was now permissible to seek self-fulfillment in this life and find elements of satisfaction in manufactured commodities. The world was a good place: There was no misery; poverty, injustice, and inequities were only in the mind. There was enough for everyone.

These changes were not unique to America. Many of the same changes occurred in other nations, most notably Great Britain, Germany, and France (Carrier 1995), and are occurring now all over the world. The consumer revolution of the early twentieth century was not the first of its kind either—it evolved with great intensity and rapidity in America.

Thus, by the 1930s, the “consumer” as a category of person had, as Lizabeth Cohen (2003) points out, replaced the “citizen,” adopting a spiritual and intellectual framework that glorified the continued consumption of commodities as personally fulfilling and economi- cally desirable—a moral imperative that would end poverty and injustice.

the Reconfiguration of time, space, and Class

The creation of the consumer did not stop in 1930. Since that time, the institutions of our society, particularly those of corporate America, have become increasingly more adept at creating sandpaintings in which people inhabit worlds whose very nature requires the continuous con- sumption of goods. The need to consume has reordered our organization of time, reconstructed our living space, created new spaces for the encouragement of consumption, and altered the ways that we view one another.

Into the early nineteenth century in the United States, holiday celebrations—most reli- gious, but some secular—marked each year. Washington’s Birthday, for example, was one of the most important (see, e.g., Schmidt 1995:47). But holidays were not generally times for gift giving and consumption. In fact, most people, particularly merchants and trades people, viewed holidays and festivities as impediments to work discipline, and they made an effort to reduce their number.

By the late nineteenth century, however, retailers began to recognize the commercial potential of holidays. In 1897, the trade journal Dry Goods Economist mocked those who viewed holidays as “an interruption of business” instead of an opportunity for “special sales and attrac- tive displays.” The modern retailer, they said, knew that there was “never a holiday” that did not make for increased business. Thus, as Leigh Eric Schmidt observes, “holidays, rather than being impediments to disciplined economic advancement, were seen as critical for consumption and profit” (Schmidt 1995:37).

Valentine’s Day is a good example. Until the fourteenth century, St. Valentine was known largely for his “steadfastness in the face of torturous martyrdom.” English poet Geoffrey Chaucer is generally credited with laying the foundation for the pairing of St. Valentine with lovers when, in his Parliament of Fowls, he wrote that birds were said to choose their mates on St. Valentine’s Day (Schmidt 1995:40ff.). Thus, St. Valentine became the patron saint of lovers. On St. Valentine’s Day in Scotland, young women would try to divine their future mates, while among the elites it became a day for romantic poetry and gift giving, gloves being a popular item. By the 1840s and 1850s in the United States, the practice of exchanging cards became

Pillow Pets, the latest craze in stuffed toys, are a direct descendent of the Billikens doll, a figure designed to drive away worries and cares and convince people that the world is a good place with plenty for everyone. (Yumeto Yamazaki/AFLO/Newscom.)



22 Part I • The Society of Perpetual Growth

widespread. By the late nineteenth century, the meaning of the term valentine had changed. Instead of referring to a person’s sweetheart or betrothed, it came to refer to a commodity, a commercial product that could be consumed like any other. By the end of the nineteenth century, department stores were filling their windows with love missives, jewelry, and other sugges- tions for gifts. In 1910, a traveling salesman by the name of Joyce C. Hall began a postcard business specializing in Valentine missives that would evolve into Hallmark Cards. By the 1990s, Hallmark had 40 percent of the American greeting card business (Schmidt 1995:100). Of course, other holidays, such as Christmas, soon followed Valentine’s Day as occasions for mass consumption, and by the early 1920s, flowers for Mother’s Day became firmly fixed in the holiday firmament. Thus, our organization of time, our calendar of festivities, became redefined to promote consumption.

The need to create consumers also redefined our conception of space. Home ownership, for example, particularly of the product-greedy single-family home, cast people out from city centers into the sprawling suburbs, which necessitated new roads and more cars, and, in the end, virtually destroyed public transportation. Retailers and developers quickly realized the possibili- ties inherent in these new communities; people, they reasoned, had an endless desire to consume. “Our economy,” said Macy’s board chairman Jack Isodor Straus, “keeps on growing because our ability to consume is endless. The consumer goes on spending regardless of how many posses- sions he or she has. The luxuries of today are the necessities of tomorrow” (Cohen 2003:261). But it was also believed that suburbanites were growing reluctant to travel to urban centers to shop. The solution was to bring the market to the people, and retailers and developers relo- cated shopping areas from city centers to spacious shopping centers and malls. Consumers gave various reasons for shifting their shopping from downtown to shopping centers, but the most important issues seemed to involve convenience—easy accessibility (malls and shopping centers were always constructed adjacent to new highways), easy parking, improved store layouts, increased self-service, simplified credit with charge plates, and greater availability of products. Market researchers concluded that shoppers were attracted to the ease and “progressiveness” of mall shopping. Consumers seemed to share the developers’ sense that shopping centers were the modern way to consume (Cohen 2003:268).

The new ease of shopping, however, came with some costs. Shopping centers and malls were, unlike city centers, private spaces in which owners could control political activities. They were also easily accessible only to people with automobiles, thus removing from the suburban landscape those shoppers at the low end of the social ladder. In addition, they redefined the nature of social interaction; shopping malls. Bauman (1998:25)

are so constructed as to keep people moving, looking around, keep them diverted and entertained no end—but in no case looking too long—by any of the endless attractions; not to encourage them to stop, look at each other, think of, ponder, and debate something other than the objects on display—not to pass their time in a fashion devoid of commercial value.… Hence a territory stripped of public space provides little chance for norms being debated, for values to be confronted, to clash and to be negotiated.

In addition to defining the times and spaces in which we live and shop, marketers also redefined categories of people. In the early days of advertising, and up until the 1960s, manufacturers and retailers pitched their products and services to the mass market, continually stimulating demand by offering new products, changing styles, and so forth. But in the 1950s, a new theory of marketing gained acceptance; rather than marketing products and services to a vast, undifferentiated middle class, sellers would differentiate or segment the market, appeal- ing to the desires and needs of each special group. A new field, psychographics, emerged that became so sophisticated that the chief executive of Spiegel Company would boast that armed to the teeth with information, the marketer was “the friend who knows them [consumers] as



Chapter 1 • Constructing the Consumer 23

well as—perhaps better than—they know themselves” (Cohen 2003:299). Target marketing singled out children and minorities for pointed appeals; marketers used “lifestyle branding”— selling products by attracting consumers to a particular way of life rather than the good itself. Advertisers segmented by class and income, and then by gender and then age. They categorized consumers with statistical precision and gave them labels such as “blue blood estates,” “shoguns and pickups,” and “[H]ispanic mix residents,” singling these groups out for direct marketing, telemarketing, and Internet shopping solicitation. “Rather than sell commodities in as much volume as possible to the masses,” says Lizabeth Cohen (2003:299), “modern-day marketers, equipped with advanced psychographic tactics, identify clusters of customers with distinctive ways of life and then set out to sell them idealized lifestyles constructed around commodities.” Today, of course, there are companies that scour the internet for personal information that enable advertisers to customize the ads that appear on people’s Facebook pages (Tynan 2010).

Magazines probably represent the clearest example of segmentation—note the shift from the dominant magazines of the 1930s, 1940s, and 1950s (Life, Look, Saturday Evening Post) and examine a typical magazine rack today. We might ask ourselves to what extent has the market segmentation created or exaggerated social and cultural divisions that might otherwise not exist, leaving people with less and less to share.

As Lizabeth Cohen (2003:318) points out, if any kind of segmentation epitomized the goals of marketers and advertisers, it was segmenting by age. First targeting teenagers and then children, they succeeded, with the help of governments, schools, and other institutions, in rede- fining childhood itself.

kindeRCultuRe in ameRiCa: the Child as ConsumeR

the Role of Children in Capitalism

Anthropology teaches us that, much like the rest of our culture, childhood is socially created— that is, childhood and the ways it is defined vary from society to society and from era to era. Childhood in nineteenth-century America was very different from what it is today. Prior to the nineteenth century, the major role of children in a capitalist economy was as workers (Lasch 1977:14ff.). There were few industries that did not employ children at some level, and there were few families whose children did not contribute economically through either farm or factory labor. In twentieth-century America, this began to change. Social movements that for decades worked to restrict child labor finally convinced state and federal legislatures to pass laws making child labor illegal. These developments signaled a transformation of children from workers to consumers. Although this may not have been the intent of the reformers, children were to contribute far more to the national economy as consumers than they ever did as laborers.

It wasn’t until the beginning of the twentieth century that retailers began to target children as a discrete group of consumers. As late as 1890, there was not a children’s market worth con- sidering; children ate, wore, and played with what their parents made for them. Germany was by far the largest producer of children’s toys, and there were few, if any, factories in the United States producing children’s clothing. Nor was there any market for infants’ or children’s foods. Yet by 1915, the baby clothing industry was one of the largest in the United States, with seventy- five factories operating in New York State alone. Toy production increased by 1,300 percent between 1905 and 1920. One reason was the destruction of the German toy industry during World War I. Another was the development of new toys in the United States that became inter- national sensations, such as the racist Alabama Coon Jigger, a laughing, prancing, mechanical black male. But, most importantly, retailers were beginning to appreciate the profits that could be made from children’s commodities.

Retailers also began to take note of psychologists’ discovery of the “natural desire” of “little people” for goods and toys, heeding the psychologists’ advice that “every attention shown the child binds the mother to the store,” or the observation that if they cultivated consumers “as



24 Part I • The Society of Perpetual Growth

kids [they would] have them as customers for a lifetime.” Santa Claus became one of the major vehicles for selling toys; his commercialization hit its peak in the 1920s.

Child psychologists and home economists also advised parents that children needed toys for exercise and toys to relax; children, they said, should have their own playrooms. These same experts lectured at department stores, advising parents of the educational values of toys. With this new emphasis on the child as consumer, by 1926, America had become the greatest producer of toys and playthings in the world. There were toys for the backyard, camping, the beach, and the “little private room which every child desperately needs to fulfill his or her individuality.” Play, said the experts, “is the child’s business; toys the material with which he works” (Leach 1993:328).

The federal government played a major role in redefining childhood. In 1929, Herbert Hoover sponsored a White House Conference on Child Health and Protection. The conference report, The Home and the Child, concluded that children were independent beings with particu- lar concerns of their own. The child, the report said,

is often an alien in his home when it comes to any consideration of his special needs in the furnishings and equipment of the home. He belongs nowhere. He must accom- modate himself to an adult environment—chairs and tables are too big and too high for him; there is no suitable place for his books and his toys. He moves in a misfit world with nothing apportioned to his needs. Often this results in retarding his physi- cal, mental, and social development. (White House 1931)

The report advised parents to give their children their own “furniture and eating equip- ment” suitable to each child’s age and size; it further advised parents to provide playrooms inside the house and to fill the backyard with “toys, velocipedes, sawhorses, wagons, wheel- barrows, slides, and places to keep pets.” The report noted that “Generally a sleeping room for each person is desirable.” As a child grows “older and becomes more social he wants games and toys that he can share with his friends.” When the family decides on “the purchase of a piece of furniture or a musical instrument” of common interest, it is important to consult the children. Take them shopping for their own “things and let them pick them out by themselves.”

Through such experiences personality develops.… [These] experiences have the advantage also of creating in the child a sense of personal as well as family pride in ownership, and eventually teaching him that his personality can be expressed through things. (White House 1931 [emphasis added]; see also Leach 1993:371–372)

Thus, in the span of some thirty years, the role of children in American life changed dramatically; they became, and remain, pillars of the consumer economy, with economic power rivaling that of adults. Children have become a main target of advertisers; as one marketing specialist told the Wall Street Journal, “even two-year-olds are concerned about their brand of clothes, and by the age of six are full-out consumers” (Durning 1992:120). Marketing researchers estimate that children ages two to fourteen directly influence $188 billion of parental spending, indirectly influence another $300 billion, and spend themselves some $25 billion. Teen spending alone jumped from $63 billion in 1994 to $94 billion in 1998, to some $175 billion by 2003, and to over $200 billion in 2007 (see Market Research Portal 2006; McNeal 1999; Zollo 1999). Children see about 40,000 ads a year on TV alone, not to mention those delivered to them on their cell phones, music devices, instant messaging, and video games, and spend almost as much time on media as they do sleeping. (see Rideout, Roberts, and Foehr 2010:1).

Advertisers and marketing specialists, including anthropologists and psychologists, devise all sorts of campaigns to appeal to children and are often criticized for the messages they com- municate. But some advertising executives are quite candid in their objectives. As one said, “No one’s really worrying about what it’s teaching impressionable youth. Hey, I’m in the business



Chapter 1 • Constructing the Consumer 25

of convincing people to buy things they don’t need” (Business Week, August 11, 1997:35). Advertisers work on such things as the “nag factor,” explaining to clients that children’s nagging inspires about a third of a family’s trips to a fast-food restaurant, video store, or children’s clothing store (Ruskin 1999). Advertisers explicitly work on a child’s desire to be accepted and on their fear of being “losers.” As one ad agency president put it,

Kids are very sensitive to that. If you tell them to buy something, they are resistant. But if you tell them that they’ll be a dork if they don’t, you’ve got their attention. You open up emotional vulnerabilities, and it’s very easy to do with kids because they’re the most emotionally vulnerable. (Harris 1989)

As colleges and universities adapted to the need to persuade people to consume with new academic courses and programs, primary and secondary schools were adapting by providing marketers with access to children. Channel One is a marketing company that delivers ten minutes a day of TV news to some 8 million students in 12,000 schools, provided students also watch two minutes of advertising. “The biggest selling point to advertisers,” says Joel Babbit, former president of Channel One, lies in “forcing kids to watch two minutes of commercials.” As Babbit (Ruskin 1999) put it,

[T]he advertiser gets a group of kids who cannot go to the bathroom, who cannot change the station, who cannot listen to their mother yell in the background, who cannot be playing Nintendo, who cannot have their headsets on.

the social Construction of Childhood

In the early part of the twentieth century, retail establishments, particularly the new depart- ment stores, took the lead in redefining the world of children. They produced their own radio programs for children and put on elaborate shows. Macy’s, which by the late 1920s had the largest toy department in the world, put on playlets for children in makeshift theaters or in store auditoriums. The most popular department store show was The Wizard of Oz; when the show was put on at Field’s in Chicago, the children wore green-tinted glasses to better appreciate the “Emerald City.”

In this era, the event that most symbolized the reconstruction of childhood was Christmas. Christmas became a time of toy giving in America in the 1840s. By the 1870s, this holiday was appropriated by retail establishments as a way to sell goods; people at that time had already begun to complain that Christmas was becoming overcommercialized (Carrier 1995:189). But it wasn’t until the early twentieth century that retail establishments turned Christmas into a spectacle that appealed to children especially. By the mid-1920s, nearly every city in America had its own “radio” Santa Claus. Gimbel’s in New York received thousands of letters addressed to Santa Claus; each was carefully answered by staff and signed “Santa,” with the name of each child carefully indexed for future use (Leach 1993:330). In 1924, Macy’s inaugurated its Thanksgiving Day parade, which ran from 145th Street to West 34th Street and culminated with the appearance of Santa Claus standing on Macy’s 34th Street marquee waving to the throngs below.

Thanksgiving also came to mark the beginning of the Christmas buying season, a time when Americans spend some 4 percent of their income on Christmas gifts and when depart- ment stores sell 40 percent of their yearly total of toys and 25 percent of their candy, cosmetics, toiletries, stationery, greeting cards, and books. (By the early 1990s, Americans were spending about $37 billion on Christmas gifts, a sum greater than the gross national product [GNP] of all but forty-five countries in the world [see Restad 1995:160]. By 2006, Americans were spending over $700 a person, a total of $457.4 billion, during the “winter holidays,” including Christmas [Roysdon 2006].) The government did its part in defining the Christmas buying season when



26 Part I • The Society of Perpetual Growth

Fred Lazarus Jr., who was to become president of Ohio’s Federated Department Stores, per- suaded President Franklin Roosevelt in 1939 to move Thanksgiving Day from November 30, its traditional date, to November 23 to add one more week to the Christmas buying season. Congress made that official in 1941 when it moved the Thanksgiving celebration from the last Thursday in November to the fourth Thursday. The government thus assured that it could fall no later than November 28, guaranteeing a minimum four-week shopping spree (Restad 1995:162).

Santa Claus represents one of the more elaborate ways in which the culture of capital- ism shields its members, particularly children, from some of its less savory features. The story of Santa Claus represented a world in which consumer, capitalist, and laborer were idealized: Commodities (toys) were manufactured by happy elves working in Santa’s workshop (no factories at the North Pole, and certainly no Chinese assembly plants) and were distributed, free of charge, to good boys and girls by a corpulent, grandfatherly male in fur-trimmed clothes. It is perhaps ironic that when political cartoonist Thomas Nast created what has become the contem- porary image of Santa Claus in 1862, he modeled Santa’s costume after the fur-trimmed clothes worn by the wealthy Astor family (Carrier 1995:189).

Nast also created Santa’s workshop, perhaps in nostalgic remembrance of prefactory production. Writers as early as the 1870s recognized the irony of this idealized version of Christmas and toy production. One magazine editorial in 1873, commenting on a picture of Santa’s elves working gaily in some magical workplace, turning out dolls, boats, tops, and toy soldiers, compared it with the reality of the poor, working six days a week in factories (Restad 1995:149). William Waits, in his book The Modern Christmas in America (1992), suggested that Santa’s major role was to “decontaminate” Christmas gifts, removing the stigma of factory industry (Waits 1992:25).

Others, of course, played a major role in transforming childhood, but we can do no better than to trace the trajectory of this transformation from its beginning in the stories of L. Frank Baum and his Emerald City to its logical culmination in Walt Disney World.

Walt Disney World (Ian Dagnall/Alamy.)



Chapter 1 • Constructing the Consumer 27

the appRopRiation of Childhood, paRt i: Baum’s emeRald City Pre-1900 children’s stories were very different from those common today. The most famous were the stories of Jacob and Wilhelm Grimm. The Grimm brothers took traditional European folktales, most of which contained fairly gruesome and bizarre plots (cannibalism, incest, murder, etc.), and rewrote them so that they could be used as tools for the socialization of children. Each rewritten tale contained a moral lesson. But, as with nineteenth-century religion, government, and economic institutions, these stories lacked the power to produce the necessary mind-cure impulse to consume. Consequently, there emerged new kinds of stories in which the world was cleansed of the darkness of the Grimm’s stories and presented as a happy place full of desirable things. The leader in this reconstruction of the child’s universe was Baum.

Baum came from a well-to-do New York state family and had moved with his wife, Maud Gage (whose mother, Matilda Joslyn Gage, was a prominent nineteenth-century femi- nist leader), in the late 1880s to Aberdeen, South Dakota, where he opened a large retail store (Baum’s Bazaar). In 1891, economic depression hit Aberdeen, and Baum went broke. He moved his family to Chicago, where he began to write the stories that would make him famous. In addi- tion, he took a lively interest in the art of window display, becoming an advisor to some of the largest department stores in the city.

Baum had always loved the theater, and he combined that with his interest in business to make window displays into theatrical productions, showing off retail goods to their best advan- tage. The quality of the goods mattered little to Baum; how they looked, their “selling power,” was what mattered. He soon founded the National Association of Window Trimmers and devel- oped a manual and later a journal, The Show Window, devoted to window displays. (The journal changed its title to Display World in the 1920s; it exists today as Visual Merchandising.) Baum’s general message was to “use the best art to arouse in the observer the cupidity and longing to possess the goods” (Leach 1993:60).

Baum’s personal philosophy was compatible with the various mind-cure movements of the late nineteenth and early twentieth centuries. “People do not sin and should not feel guilt,” he wrote in 1890 in the Aberdeen Saturday Pioneer. “[T]he good things in life are given to be used.” The “rainy day” theory of saving was all right, according to Baum, as long as it wasn’t used as an excuse to deny oneself comforts. Who, he asked,

will be the gainer when Death calls him to the last account—the man who can say “I have lived!” or the man who can say “I have saved? … To gain all the meat from the nut of life is the essence of wisdom. Therefore, “eat, drink, and be merry— tomorrow you die.” (Leach 1993:247)

Baum’s books were filled with goods and mechanical inventions and landscapes of edible fruits, cakes, cookies, all intended to assure readers that the world was a good place. They were, said William Leach, affirmative, Americanized fairy tales. In fact, Baum’s explicit goal was to revolutionize children’s literature. In his introduction to the first edition of The Wonderful Wizard of Oz, Baum wrote,

The time has come for a series of newer “wonder tales” in which the stereotyped genie, dwarf and fairy are eliminated, together with all the horrible and blood- curdling incidents devised by their authors to point to a fearsome moral to each tale.… The Wonderful Wizard of Oz was written solely to please children of today. It aspires to being a modernized fairy tale, in which the wonderment and joy are retained and the heartaches and nightmares are left out. (Leach 1993:251)

The story of The Wizard of Oz can be interpreted as a tribute to our ability to create illusions and magic, to make people believe in spite of themselves. In Baum’s stories, the Wizard is exposed as a charlatan, a “common man” with no special powers; but he is powerful because he can make



28 Part I • The Society of Perpetual Growth

others do what he wants, make them believe in the unbelievable. He is a confidence man. People adored him even as he escaped from Oz in a balloon and was remembered as the man who “built for us this beautiful Emerald City.” Baum, said William Leach, created a benign trickster, consumer society’s version of the capitalist. The Wizard of Oz represented a new spiritual–ethical climate that modeled itself on a version of the child’s world in which dreams of self-fulfillment through consumption were legitimized and any negative consequences of consumption were banished. In brief, Baum’s work represented but one of the sandpaintings of capitalism, one that appropriates childhood to represent a world in which the purpose of life is to consume.

Yet, as sophisticated as Baum was in creating an ethos that encouraged people to buy, the master of the art was to be Walt Disney.

the appRopRiation of Childhood, paRt ii: Walt disney and the CReation of disney WoRld It is difficult to say when the child’s universe, created to turn children into consumers, began to be used to entice adults. Perhaps the glorification of “youth” in adver- tising and the upward extension of childhood to include the teens were manifestations of this phenomenon. Regardless, the appropriation of childhood as a vehicle to encourage consump- tion at all ages and rationalize capitalism culminated in the creation of Walt Disney World. Disney and other major American corporations have created what Shirley Steinberg and Joseph Kincheloe (see Kincheloe 1997) call kinderculture, the promotion of an ethos of pleasure for the purpose of enticing adults as well as children to consume.

Walt Disney World is the ultimate sandpainting of the culture of capitalism. Instead of a single sandpainter using bits of colored sand and grain to create a picture barely large enough to contain a single person, a corporation has used millions of tons of concrete, wood, plastic, and glass to create the “home of childhood,” a miniature universe that promotes innocence and trust, that allows people to leave the “real world” behind, and that encourages (in fact, insists) that par- ticipants put themselves in the hands of Disney. However, as Stephen Fjellman (1992:13) warned,

these hands bear watching, for in their shaping of things lies danger. It is not just that our movements are constrained with the promise, usually fulfilled, of rewards. What is important is that our thoughts are constrained. They are channeled not only in the interests of Disney itself, but also in the interests of the large corporations with which Disney has allied itself, the system of power they maintain, and the world of commodities that is their life’s blood.

If we look beyond the pleasantries, said Fjellman, we find that the environment is totally controlled and that there is a degree of discipline at work in this model world that rivals the discipline of a fascist state. And the control is real. In creating Walt Disney World, the Disney Corporation secretly bought forty square miles of Central Florida real estate (twice the size of Manhattan) and was granted almost feudal powers over the land by the state. Disney World has its own government, it sets the rules, and it controls the message. But what is the message of the Disney World sandpainting? To answer this question, let’s examine two aspects of Disney World: its depiction of American history and its representation of progress and the future.

History, or distory, as Mike Wallace (1985) called it, is everywhere at Walt Disney World, appropriated, like childhood, in the service of the Disney message. The history, of course, is highly idealized. At Disney World, historical figures such as Thomas Edison, Davy Crockett, Benjamin Franklin, and Mark Twain are used as spokespersons for Disney, lending their authority to the Disney message. Fragments of Abraham Lincoln’s speeches, most often taken out of context, are read to us by robots; and Leonardo Da Vinci, the Disney model of the prophetic visionary, is everywhere. At Disney World, there is a conscious attempt to pres- ent the history of capitalism without the warts. Disney World designers are quite forthright and unapologetic about their intent. As one Disney spokesperson explained, “We are not tell- ing history like it really was but as it should have been” (Fjellman 1992:31). Another Disney



Chapter 1 • Constructing the Consumer 29

“imagineer,” as the designers are called, explains “Disney realism” as a “sort of utopian nature, where we program out all the negative, unwanted elements and program in the positive ele- ments” (Wallace 1985:35).

The center of Disney World (and the original Disneyland in California) is Main Street, a highly idealized, turn-of-the-century remodeling of life as it should have been, a consumer’s para- dise, scaled down to five-eighths of actual size. The street or square is filled with shops and taverns; people are defined by what they sell. Main Street cultivates a nostalgia for an imagined past without classes, crime, or conflict—a time of continuous consumption, “a supermarket of fun.”

On one level, Disney World is an extension of the shop windows designed by L. Frank Baum in the 1890s; on another it serves as an explicit model for the modern shopping mall. Urban planner James Rouse based a number of his town designs and historical shopping malls (Faneuil Hall in Boston, Harborplace in Baltimore, and South Street Seaport in New York) on Disney’s Main Street (Wallace 1985:42; see also Kowinski 1985).

At the Hall of Presidents, Disney takes viewers through U.S. history in twenty-nine min- utes flat. Disney does recognize, in a fashion, that U.S. history was not all that perfect. After all, the average adult visitor to Disney World is a well-educated professional who could not have been ignorant of the historical injustices in the United States’ past. Consequently, Disney World provides Frederick Douglass to speak to the oppression of blacks, Chief Joseph represents indig- enous peoples, Susan B. Anthony speaks about the concerns of women, and John Muir serves to remind visitors that progress often came at the expense of the environment. However, each is a highly sanitized symbol of opposition to racism, sexism, and environmental devastation. In “distory,” these figures do not remind us of persistent problems in the social fabric; rather they are presented as opportunities to overcome barriers. This is also bad, if not outright false, history.

For example, Disney appropriates for its version of indigenous people in American history the story of Chief Joseph and the Nez Percé. In 1877, the U.S. government, largely at the insis- tence of settlers who wanted the land, unilaterally revised previous treaty commitments and attempted to resettle all Nez Percé in the Walla Walla Valley of Washington on smaller reserva- tions. One group, led by Chief Joseph and the war chief Looking Glass, refused and, after some young warriors killed a trader accused of selling bad whiskey to the Indians, fled the area, head- ing east into Idaho, Wyoming, and Montana in an attempt to reach Canada. They were pursued by the command of General Oliver O. Howard, whom Joseph’s band defeated in battle after battle or consistently outmaneuvered. The campaign, one of the most bloody and heroic of the Indian wars, ended when Joseph and the remnants of his band were finally surrounded by one of the three army commands that had set out to intercept them. In blizzard conditions on October 5, 1877, only forty miles from the Canadian border, Joseph met with the army’s commanders to surrender. His surrender speech, among the most famous speeches in American history, was written down by an army lieutenant. At Walt Disney World, Chief Joseph, in robot form, once again delivers his speech; the Disney version is as follows (Fjellman 1992:104):

Enough, enough of your words. Let your new dawn lead to the final sunset on my people’s suffering. When I think of our condition, my heart is sick. I see men of my own race treated as outlaws, or shot down like animals. I pray that all of us may be brothers, with one country around us, and one govern- ment for all. From where the sun now stands, I will fight no more forever.

However, except for the famous final line, that was not what Joseph said. Here is the origi- nal speech as recorded that day in 1877 (Beal 1963:229):

Tell General Howard I know his heart. What he told me before I have in my heart. I am tired of fighting. Our chiefs are killed. Looking Glass is dead. The old men are



30 Part I • The Society of Perpetual Growth

all killed. It is the young men who say yes or no. He who led the young men is dead. It is cold and we have no blankets. The little children are freezing to death. My peo- ple some of them have run away to the hills and have no blankets, no food; no one knows where they are, perhaps freezing to death. I want time to look for my children and see how many of them I can find. Maybe I will find them among the dead. Hear me my chiefs, I am tired; my heart is sick and sad. From where the sun now stands, I will fight no more forever.

There is a significant difference between the Disney version and the one recorded on the battlefield. Instead of freezing children, the death of the elderly, and a military campaign that ended only after the deaths of hundreds of American soldiers and Nez Percé warriors, Joseph’s surrender speech has been turned by Disney into a testimonial to brotherhood and the nation-state.

In telling history “as it should have been,” Disney paints a picture of an American past of which people can be proud, while subtly justifying whatever excesses may have been committed. As in the land of Oz, everything has happened for the better.

Epcot (Experimental Prototype Community of Tomorrow) is a more adult attraction than Fantasyland or some of the other venues of Disney World. Epcot was Walt Disney’s pet project at the time of his death in December 1966. It was to be a utopian city of 20,000-plus residents that would attract urban planners and experimenters from all over the world. But Walt Disney died, and corporate Disney turned the project into a gigantic, corporate advertisement, using the 1939 World’s Fair in New York as its guide and having pavilions depict the corporate version of the history of progress. Thus, at Epcot, Exxon presents the history of energy, while AT&T does communications. Transportation is presented by General Motors, the land by Kraft, the home by General Electric, and imagination by Kodak. Perhaps even more interesting, at the heart of each corporate pavilion is a ride, a setting much like a sandpainting, in which seated passengers travel through tunnels that open to huge dioramas filled with robots, videos, holograms, and other technological marvels.

Throughout the Epcot pavilions there is this message: Technology equals progress, and progress is natural—and perhaps even American. There have been some problems along the way, the corporate exhibits tell us. “We” have made mistakes—but “we” (corporations) are working to solve those problems. “We” polluted the air, “we” abused the environment. Thus, the imagineers admit that there were problems in the past but reject corporate responsibility for them, putting the corporations at the forefront of the ecology movement. History is defined for us as “a record of the invention of commodities which allow man to master his environ- ment” (Wallace 1985:44). Progress is defined as the availability of emancipatory consumer goods. The World of Tomorrow promotes capitalist development as inevitable, spreading the message that history was made by inventors and businesspeople and that the corporations are the legatees of this past. It tells us, as Mike Wallace (1985:47) observed, that “citizens can sit back and consume.”

But who is Disney World for? It is supposed to be for children, but it really represents the appropriation of childhood to encourage the consumption of commodities and, more impor- tantly, once again to shield the consumer from the negative side of corporate capitalism. Walt Disney World is now the single biggest tourist attraction in the entire world. Approximately one-tenth of the population of the United States travels there each year. But it is not a universal attraction. By and large, it attracts people of relatively high incomes, 75 percent of whom are professionals or managers. Only 3 percent are black and 2 percent Hispanic. Seventy-one per- cent are from outside Florida. As Wallace (1985:53) said,

A process of class self-affirmation seems to be at work. Certainly, Disney World seems intent on providing reassurance to this class, on presenting it with its own pedigree. EPCOT’s seventies-style liberal corporatism seems tailor-made for



Chapter 1 • Constructing the Consumer 31

professionals and technocrats. It’s calibrated to their concerns—nothing on labor, heavy on ecology, clean, well-managed, emphasis on individual solutions, good restaurants—and it provides just the right kind of past for their hippier sensibili- ties. Perhaps, therefore, professionals and managers (many of whom, after all, function as subalterns of capital) flock there because it ratifies their world. Perhaps they don’t want to know about reality—past or present—and prefer comforting and plausible stereotypes. [emphasis added]

Or as O’Toole Fintan (1998:21) put it,

Places like Disney World grapple with the problem of an audience that already knows about the exploitation and violence that its way of life requires for mainte- nance, but that needs, for its own well-being, to maintain a civilized distance from that knowledge.

Walt Disney World is only one manifestation of the tendency or necessity in capitalism to mask the unpleasant side effects of capitalist production and consumption. People may choose to do something that is harmful to others, but they do so according to a cultural logic that makes it the “right” choice. Our culture makes choosing even easier by masking the sometimes-devastat- ing consequences of our choices. Thus, the process of insulating the consumer from truths that might reduce consumption is built into the culture of capitalism; this denial determines in many ways how we view the world. Put another way, the world as seen from the consumer’s point of view is very different from the world as seen from the perspective of worker, capitalist, or people of other cultures around the world. One of the tasks of this book is to try to help the reader appre- ciate these other points of view.

expoRting the ConsumeR

The construction of the consumer in the Western industrial countries took a century to accom- plish. In the rest of the world it is taking less than a decade. According to recent studies, some 1.7  billion people, 27 percent of the world’s population, can be counted as members of the consumer society—270 million in the United States and Canada, some 350 million in Western Europe, and 120 million in Japan. The rest live in developing countries—240 million in China, and 120 million in India alone. In 2006, China became the world’s number two automobile market and in 2011 a total of 14.5 million sedans, sport utility vehicles, and multipurpose vehicles were shipped to dealers.

The Chinese government fully supports this development (as it bulldozes ancient city cen- ters to construct broad avenues to accommodate the automobile) and is planning a countrywide highway network. If growth continues at that pace, by 2015 China will have more automobiles on the road than the United States (Gallagher 2006; Halweil and Mastny 2004:xvii, 3).

Capitalism, writes William Leach (1993:388), “had achieved a new level of strength and world influence, especially in the wake of the collapse of communism.” It also, he concluded,

appears to have a nearly unchallenged hold over every aspect of American life, from politics to culture, so much so that the United States looks like a fashion bazaar to much of the rest of the world. For some Americans the continued power of con- sumerism has led to further degradation of what it means to be an American or of what America is all about. For others, this evolution has only enhanced the country’s appeal, making it appear more than ever an Emerald City, a feast, a department store to which everyone is invited and entitled. Just as cities in the United States once operated as generators of consumer desire for internal markets, today America func- tions similarly on a global scale.



32 Part I • The Society of Perpetual Growth

The phenomenon by which people around the world want to emulate consumer capitalism represents what Joseph Nye (2003) calls “soft power.” We see this power in Hollywood, which dominates the cultural industries. Countries such as India and Hong Kong try to emulate Hollywood’s style while modeling for their audiences’ lifestyles and values that they seek to acquire. Information industries around the world are dominated by Anglo- American news. People know what happens in the world because they get the news from AP or Reuters, CNN or NBC (Sisci 2002). We also see this power in the increasing popu- larity of American sports figures around the world: Michael Jordan, LeBron James, and Tiger Woods are often more familiar names to residents of China or Indonesia than are the countries’ leaders (see, e.g., LaFeber 1999).

The rapidity of this global consumer transformation is most evident in India and China, the two most populous countries in the world, with more than one-third of the total global population. Take the case of Rajesh Julka, a thirty- four-year-old resident of the Indian city of Kolkata. In 1996, Julka couldn’t afford to replace his ten-year-old television. His father had just retired, and his mother was trying to run a beauty parlor from one of the rooms in their congested ground-floor apartment. Julka was unemployed and trying to establish a sari-making operation. But by 2003, within the span of seven years, he had turned into what Indrajit Basu (2003) calls an “Indian yuppie.” He married, had a child, and

has since acquired a $100,000 condominium while replacing his cell phone every three months. He bought three new cars during the past four years and recently bought a $2,500 notebook PC during his July holiday to Singapore. “I can’t resist buying newer models of electronic goodies,” he says. He now also owns three televisions.

Rajesh Julka represents a burgeoning consumer-conscious Indian middle class that has grown to some 445 million people, larger than the entire population of the United States. This middle class is developing new spending patterns; from 1999 to 2002, they spent 4 percent less of their income on groceries and almost 5 percent more on eating out and taking vacations. Spending on personal care went up 2.5 percent during the same period, whereas saving and investing went down almost 7 percent. And because more than 45 percent of India’s population is under nineteen years of age, consumption levels are likely to increase at a far faster rate than in industrial countries. In 2011 consumer spending in India reached almost $1 trillion and is expected to increase to $3.6 trillion by 2020, and India’s share of global consumption will more than double to 5.8 percent (Bidwai 2003; FirstPost 2011).

And the most prominent symbols of consumer culture are the glitzy, air-conditioned, chrome-and-glass malls, replete with boutiques, restaurants, discos, bars, and theaters that are appearing in India. In addition to the twenty already existing, some 240 megamalls are under construction, forty-three of them in one of the wealthy suburbs of Delhi (Bidwai 2003).

The strategies that created the consumer in the United States were used to equal effect in India. Harold Wilhite (2008:148) notes that in Trivandrum, the capital of the Indian state of Kerala, almost every home is equipped with three things: a mixmaster (mixie), a designated place for prayer, and a television. Since 1995, when cable television became available in Trivandrum, everyone has taken to watching the evening soap operas. TV has replaced cinema as the most popular entertainment, and women, he notes, watch on average about four hours a day. In India

The Wonderful Wizard of Oz, similar to the

store display windows that Baum designed, was filled with all the

good things in life, assuring the reader

that the world is full of things to consume and

enjoy. (Bettmann/Corbis.)



Chapter 1 • Constructing the Consumer 33

in 2009, the court granted a woman a divorce on the grounds that her husband refused to let her watch her favorite soap opera (BBC 2009). And television, as it did in the United States, vastly increased the amount of advertising peopled watched.

Television may be one of the most important contributors to the export of consumption to countries in the periphery. In the United States, Juliet Schor’s (1999) research found that for every hour of television people watched, they spent an additional $200.

While it is difficult to measure the effect that television watching has in India, Wilhite notes that the principal sponsor of one soap opera saw its sales rise 300 percent in the two years the series was shown. And, says Wilhite, people watch and enjoy advertisements, citing them as reasons for buying products. As in the United States, television in India has targeted children, who claim to want 75 percent of what they see advertised on television.

What is happening in India is also happening to the most populous country in the world, China. China has averaged GDP growth from 8 percent to 10 percent for more than a decade. GDP for 2011 was US$7.2 trillion, slightly less than half of the United States’ $15 trillion economy. And growth and consumer spending continue to soar. Retails sales in 2008 totaled $1.59 trillion, almost 22 percent higher than the previous year, but have been declining slightly because of the global recession.

The same tools that functioned to construct the consumer in the United States are at work in China. In 2010, $120 billion was spent on advertising in China, up from $57 billion in 2006, and $11 billion in 2002 (Ng 2010). Chinese are becoming homeowners, as Americans did in the 1950s. Housing reforms turned over vast amounts of state-owned housing to the people who lived in them at discounts of up to 80 percent. Other laws ensured private property ownership. Home ownership is transforming asset-poor renters into homeowners and driving the purchases of refrigerators, stoves, air conditioners, and cars.

As in the United States, the Chinese consumer is being leveraged through mortgages, auto loans, credit cards, and consumer finance. Credit cards are in their absolute infancy. In 2003, about a million credit cards had been issued—one for every 1,300 people; in 2008, there were 140 million to 150 million credit cards and the rate was increasing at over 97 percent a year. Mortgages were made available only in 2000, auto loans in 2001. Auto ownership, fueled by credit, exploded upward: China had only two cars per 1,000 people in 1997; by 2010 it has reached forty cars per 1,000 persons (compared to 765 per 1,000 in the United States). And perhaps there is no better evidence of the spread of consumerism in China than the mushrooming of fast-food restaurants. There are almost 500 McDonald’s in China, and the company plans on doubling that number over the next few years. New restaurants will even have drive-throughs to accommodate the rapid growth of cars in China. The restaurants have become so ubiquitous in Asia that when Chinese, Korean, Japanese, or Taiwanese kids visit America and spot a McDonald’s they exclaim that “They have our kind of food here!” (Watson 2000:131).

In the cases of both China and India, one factor in the rising wave of consumption is the same baby boomers (people born at the end of World War II) who fueled consumption in the United States, except that in the case of Asia there are 1 billion of them. In addition, just as children began to move from their parents’ homes after 1950 in the United States, they are leav- ing their parents in Asia. These new households require refrigerators and stoves, pots and pans, and toasters and stereos (Berthelsen 2003; Wilhite 2008).

The responses to these trends are the same as they were in the United States; emerging economies have encouraged the growth of consumer spending and the spread of supermarkets, chain stores, and malls. Wal-Mart and the French Carrefour chain now have nearly fifty stores






























34 Part I • The Society of Perpetual Growth

in China, a phenomenon that is already beginning to wreak havoc on mom-and-pop operations across Asia. Thailand has begun to experience protests against big-box operators such as Wal-Mart, similar to the protests the United States experienced for a decade (Berthelsen 2003).


A couple of days after al Qaeda operatives crashed two planes into the World Trade Center and another into the Pentagon on September 11, 2001, U.S. congressional members met to plan a message to the stunned public. “We’ve got to give people confi- dence to go back out and go to work, buy things, go back to the

stores—get ready for Thanksgiving, get ready for Christmas,” said one member of Congress, echoing the message of the president. “Get out,” he said, “and be active, participate in our society” (CNN 2001). The fact that after one of the most shocking events in U.S. history, government officials were urging citizens, above all, to shop and work is ample testimony of the significance of consumption in the effective working of our economy, and, indeed, for our whole society. It is to the consumer that government and business look to supply the impetus for the continued expansion of the economy and the accumulation of capital.

We mentioned earlier that consumption on the scale evident in capitalist culture is unprec- edented and is not natural—that is, there is no innate desire in human beings to acquire an ever-greater quantity of stuff. In truth, not everyone agrees with this assumption. Scholars such

as James B. Twitchell (2002, 2004) argue that human beings, throughout history, have sought material luxury and that although overconsumption does indeed have its dark side, it has its light side as well—“getting and spending,” as he puts it (2004:17), “have been the most passionate, and often the most imaginative, endeavors of modern life.” By emulating the consumption-driven lifestyle of capitalist culture, he says, people around the world are being drawn closer together.

Twitchell’s defense of luxury is well argued and, insofar as luxury is attainable by all, perhaps something to be considered. But that is a problem: Can the level of wealth enjoyed by members of capitalist culture (remembering that it is twenty-five times greater, on average, than that enjoyed by citizens of two centuries ago) be attained by all but a very few? And if it can be attained, what is the cost of everything else that we must sacrifice? Francesco Sisci (2002) expresses the dilemma well:

The American victory in the soft war creates the desire of the citizens of the world to become American, with its values, wealth and security umbrella. However, it is impossible for America to grant the American dream to all people who dream it, either in the U.S. or abroad. The danger of creating a desire that cannot be satisfied— whether desire for a certain product or a certain civilization—is the backlash that will follow: waves of protest and dissatisfaction that will translate into a wish to return to one’s own history.


























T he consumer may drive the culture of capitalism, but without the laborer, there would be no commodities to consume. Yet the emergence of the laborer—the person who survives by selling his or her labor—is a recent historical phenomenon. In past centuries

most people had access to land on which to grow their own food, selling whatever surplus they produced, or they owned tools (implements for weaving or metalworking, for example) for pro- ducing other objects for sale or trade. Thus, to understand capitalism, it is necessary to examine why people choose or are forced to sell their labor. Before we examine this, it is essential to have a fundamental understanding of the workings of the capitalist economy.

Capitalism is not an easy term to define. Pierre Proudhon, who first used the term in 1861, called it “an economic and social regime in which capital, the source of income, does not generally belong to those who make it work through their labor” (Braudel 1982:237). The term capitalism does not appear in the writings of Karl Marx and did not gain currency until 1902, when the German economist Werner Sombart used it to denote the opposite of socialism. But

C h a p t e r

2 The Laborer in the Culture of Capitalism

I have read in E. P. Thompson’s The Making of the English Working Class that the first man who attempted to establish a labor union in England at the end of the 18th century was arrested, tried for

sedition, found guilty, drawn and quartered in a public square by attaching draft horses to each of his arms and legs and pulling him apart. He was then disemboweled and his guts were burned. Then they hanged what was left of him. One gathers from this that the

propertied classes were slow to accept the idea of organized labor.

—Robert Hass, Washington Post, September 5, 1999

The capitalist system makes it very much easier for people not to realize what they are doing, not to know about the danger and

hardship, the despair and humiliation, that their way of life implies for others.

—Edmund Wilson, The Shores of Light



36 Part I • The Society of Perpetual Growth

definitions alone won’t help us to understand fully the dynamics of something as complex as a capitalist econ- omy. We need to understand the major characteristics of capitalism to appreciate how it has permeated our lives as an economic and a cultural system.

Few people will deny that the genius of capital- ism lies in its ability to produce goods—commodities for people to buy and consume. Let’s start our excur- sion  into capitalism with a product, beginning with something  nearly all of us buy at one point or another—sneakers—and examine, briefly, the larg- est manufacturer of sneakers, Nike, Inc. Today most of the sneakers—and clothes—we wear are assembled overseas because large corporations, such as Nike, have increasingly relocated assembly factories from their home countries to countries on the periphery. Consequently, the clothes we wear; the TVs, stereos, and compact discs (CDs) we listen to; and the comput- ers we use are at least partly produced by a person in another part of the world. This situation creates a clash of cultures that can be illuminating for what it tells us

about other cultures and what it may tell us about ourselves. The effects that these factories have on other countries highlight the distinctive features of the capitalist economy and per- haps approximate the impact of early capitalism on our own society. But first let us digress briefly to an understanding of the economic logic of capitalism and, particularly, the role of labor within this economic system.

A Primer on the elements of CAPitAlism

Let’s run through a quick primer on the economics of capitalism and its development. Briefly stated, the economics of capitalism grew out of the interactions of the following five items:

1. Commodities (C). There are basically two types of commodities: capital goods and con- sumer goods. Capital goods, such as land, raw materials, tools, machines, and factories, are used to produce consumer goods (e.g., television sets, VCRs, computers, and houses) to be sold to others.

2. Money (M). Money is, among other things, a standardized means of exchange. It serves to reduce all goods and commodities to a standard value. By putting a monetary value on something (e.g., a forest), it can be compared with any other commodity (e.g., government bonds). Money, thus, greatly facilitates the exchange of commodities.

3. Labor power (lp). Labor power is the work that is needed to transform one type of com- modity into another (e.g., steel into an automobile).

4. Means of production (mp). Another term for capital goods—that is, the machines, land, and tools with which other commodities are produced.

5. Production (P). The combination of lp and mp to produce commodities.

In precapitalist societies or noncapitalist production, as in capitalist production, people either make or obtain commodities—food, clothing, shelter, and the like—to use. These com- modities have what economists call use value. If someone needs a shirt, they make it; if they need food, they gather, hunt, or grow it. Occasionally, they may trade for what they need or even buy it. Thus, a farmer might barter some corn (C) in exchange for a shirt (C=) or use money to

Part of the genius of the culture of capitalism is

its ability to produce vast quantities of

goods, such as these Nike products that

consumers all over the world clamor to buy.

(Hugh Threlfall/Alamy).



Chapter 2 • The Laborer in the Culture of Capitalism 37

purchase it, but the object is always to obtain something for use. We can diagram this type of exchange as follows:

C S C= or M S C=

In capitalism, people produce or obtain goods not for their use, but for the purpose of exchange—that is, their object is to produce or obtain commodities (C), not to obtain another commodity (C=) but to get capital or money (M). The goods have what is called exchange value. Thus, in a business transaction, when a person buys a commodity at one price and sells it at a higher price, the commodity is said to have an exchange value.

M S C S M=

Some people might argue that this exchange is capitalism, although most would call it mercantile exchange, suggesting that the formula for capitalism is incomplete. You still need one more development: to combine labor and the means of production in a unique way. From this perspective, fully developed capitalism looks like this:

M S C S P S C= S M=


M S C S mp

lp S C= S M=

Thus, a manufacturer or producer has money (M) to buy commodities (C; e.g., raw mate- rial, machines, and labor) that are then combined (mp/lp) to manufacture commodities that carry a value greater than C (C=). The sale of these commodities permits the producer to receive a sum of money greater than M (M=) that constitutes profit. Note that at this point, labor is considered a commodity to be purchased or rented, in the same way that raw materials, machines, factories, or land are purchased or rented. Labor becomes a factor of production in the same way that raw materials, land, or machines are factors of production. In addition, at this point the accumu- lation of wealth comes to consist increasingly of productive capital (raw materials, machines, and factories).

Let’s apply the formula to our sample capitalist enterprise, the Nike corporation. Nike invests money (M) to buy commodities (C) consisting of such things as leather, rubber, machines to make textiles, and factories (mp), which they combine with labor (lp) and the people who design, produce, and assemble the commodity—sneakers—[C=] that they then sell for money [M=]. The object of this entire process is to get M= to exceed M as much as possible. That consti- tutes the profit—the bottom line, so to speak.

Furthermore, Nike doesn’t simply keep M=—it reinvests it in commodities and recombines it with mp and lp in order to repeat the process and earn/accumulate still more money and profits. (Figure 2.1 is a diagram of the cyclical nature of capitalist production.)

However, in the real world of finance, there are other factors to consider. For example, producers of commodities do not often have the money (or capital) to start the production cycle on their own; they have to borrow money from banks or sell stock to investors to raise money to obtain the means of production and pay the labor power to produce goods. Consequently, some of the profits take the form of principal and interest to repay investors’ loans. The higher the rate of interest that the manufacturer offers investors, the easier it is to obtain loans. Moreover, the producer (Nike, for example) doesn’t have to put its profits back into producing more sneakers. It may invest that money elsewhere with the possibility of earning greater profits; in other words, the manufacture and sale of sneakers may produce a profit of 10 percent, but if those profits can be reinvested elsewhere at 12 percent, so much the better.

This reveals one dilemma that Nike and other producers of commodities face: Making a profit is not enough. They must give their investors (the banks, stockholders, and so on) who



38 Part I • The Society of Perpetual Growth

supplied the money or capital to start the cycle of production enough of a return on their money so that they do not take it elsewhere. If they go elsewhere (and investors in today’s world, as we shall see, have an enormous number of investment options), Nike may find it harder to locate investors and put together the money necessary to restart the cycle. Consequently, they may have to pay higher interest rates and charge more for their products. In that case, however, they might not sell as many units, especially if Adidas or Reebok can sell their sneakers for less.

In order to make a profit, it is imperative to keep the money spent on factories, machines (mp), and labor (lp) as low as possible. In fact, according to some economists, the ability to minimize the production costs of mp and lp will determine the success or failure of the company. (We will return to that in a moment.)

Parenthetically, it is noteworthy that corporations that do not issue stock, and, hence, don’t have to worry about satisfying investors, are able to offer workers better incomes, benefits, and working conditions than corporations that are more dependent on investors and banks for working capital. For example, among the present giants of the chocolate industry, only the Mars Company, though a formidable competitor in the market, has the most ethical standards in the business. It remains a family business and, despite having a turnover bigger than McDonald’s, has never been quoted on the stock exchange. The founder of the company, Forest Mars, insisted on generosity to the workforce and service to customers; Mars aims to make only a 3 percent return after taxes, and the salaries of employees, or “associates” as they are called, are higher than those in comparable firms, while directors earn less (Fernandez- Armesto 2002:199).

Regardless, it is clear that the capitalist production process is very much a money-making game: Investors and manufacturers put money in at one end of the production process and get more money out of the other end in the form of profits or interest. It is very much like a hypo- thetical device that engineers call a black box. Engineers assume that the black box produces something, but for the purposes of design and planning, they do not concern themselves with how things are produced—that is, with the internal functioning of the box. They simply assume that if they put something into it—fuel, electricity, and so on—they will get something out (e.g., power and movement).

For most capitalist producers or investors, capitalism or capitalist enterprises such as corporations, banks, bonds, or stocks are like black boxes: You put money in one end and get more money out the other (see Figure 2.2).

It is, of course, a highly complex business to know where to put the money, how much to invest, and so forth. But it is the amount of the return rather than the way it is generated that is of utmost importance.

C ( lp ) (Production)

C = Commodities (capital goods) C′ = Commodities (consumer goods) M = Money invested M′ = Money invested plus money earned (profit)

C′ (Product) M


M′ (Sale)


figure 2.1 Cycle of Capitalist Production



Chapter 2 • The Laborer in the Culture of Capitalism 39

Nevertheless, it is in the black box that commodities are produced and consumed. It is also in the black box that we find the patterns of social, political, economic, ecological, and ideologi- cal life that either promote or inhibit the conversion of money into more money.

Thus, capitalism is more than an economic system; its operation has far-reaching con- sequences for almost all aspects of our existence. Most of us order our lives in some way to produce and consume commodities that generate the profits and interest that make the capitalist system work. But although most people who invest money do not concern themselves with how it is produced, others who are affected by this almost magical transformation often conceptualize the process in profound ways. For example, peasant farmers in Colombia have a way of con- ceptualizing capitalist exchange that may help us understand its essential elements and its cost.

the Baptism of money

After losing their land to large farmers and being forced to supplement their farming activities with wage labor, peasants in the lowlands of Colombia developed the practice of illicitly baptiz- ing money in a Catholic Church—instead of baptizing a newborn child. When presenting a child to the priest to be baptized, a person would hold a peso note that he or she believed received the priest’s blessing instead of the child. The note, thus magically transformed and given the name of the child, would, it was believed, continually return to and enrich its owner by bringing with it other notes. In other words, the note would become interest-bearing capital that continued to generate more and more money. Peasants tell stories of such notes disappearing from cash reg- isters, carrying with them all the other notes, and of the store owner who saved his money only because he heard two baptized notes fighting for possession of the drawer’s contents.

The idea that money is animate, that it can magically bring back more money, may at first seem strange to us, but Michael Taussig (1977) argued that the Colombian view of money is very close to our own—the major difference having to do with their conception of the black box.

The major feature of capitalism is that money can be used to make more money. To do so, the money must be invested in goods that must be sold, or invested in factories in which people work to make goods to be sold, and so on. Yet, we often talk as if it is the money itself that makes the money, or as if money somehow has a life of its own. We speak of “the sagging dollar,” “cash flows,” or “putting our money to work.” The news will report that “earnings have surged ahead” or that we have “climbing interest rates.” Factories are even referred to as “plants” where our “money grows.”

In other words, our language conveys the notion that capital has an innate property of self-expansion. It is talked about as if it were a living being that reproduces itself (just as the Colombian peasant believes baptized money has a life of its own and can reproduce itself).

The belief that money has a life of its own is beautifully illustrated in Benjamin Franklin’s classic letter Advice to a Young Tradesman (1748). Here is Franklin’s advice:

Remember, that money is of the prolific, generating nature. Money can beget money, and its offspring can beget more, and so on. Five shillings turned is six, turned again it is seven and three pence and so on, till it becomes a hundred pounds. The more there is of it, the more it produces every turning, so that the profits rise quicker and quicker. He that kills a breeding-sow, destroys all her offspring to the thousandth generation. (Taussig 1977:140)

Money (M) More Money (M′)

The Black Box

Investments (Input) Profits (Output)

figure 2.2 The Black Box



40 Part I • The Society of Perpetual Growth

The attitude expressed by Benjamin Franklin and expressed daily in our own lives is one that Karl Marx called commodity fetishism. Fetishism attributes life, autonomy, and power to inanimate objects—dolls, sticks, places, or, in capitalism, money or other commodities. But commodity fetishism also performs another function. By attributing animate life to money, by speaking of it as if the money itself produces money, we mask and hide the actual manner in which money begets money—the exploitation of labor, land, and people. In this magical way of thinking, we begin to perceive money as being able to generate value and yield interest in the same way that pear trees bear fruit or pigs bear piglets. The whole process of capital investment, making a profit, finding the cheapest labor, and so on, comes to appear natural because the real source of profits and the noneconomic consequences of capitalism are largely hidden from view.

Money, however, does not produce money by itself. It requires other things, and this is where the Colombian peasant belief about the baptism of money is quite profound. Colombian peasants’ practice of baptizing money so that it brings back more money is a rational interpreta- tion of our own view of money but with one addition: For the Colombian peasant, the process is immoral. It is immoral because it is money rather than the child that is baptized; profit can come only at the cost of the child’s soul. In this way, the Colombian peasant is offering a critique of  the capitalism that has been imposed on his society in the past century by the expanding world system.

These peasants are also posing key questions: How does capitalism perform its magic, converting money into more money, and do we pay a price for that conversion?

the ConstruCtion And AnAtomy of the Working ClAss

As noted in the introduction to Part 1, capitalism involves interactions among three sets of people—consumers, laborers, and capitalists—each doing what it is supposed, indeed has, to do. The construction of the consumer took place largely in the twentieth century. The nine- teenth century witnessed the development of the working class. Although the flowering of the consumer occurred largely in the United States, the laborer was mainly a creation of the British economy, a creation that gradually migrated from Great Britain to the rest of the world.

Characteristics of the Working Class

The new working class was unlike any that had existed before. Four characteristics of this new category of persons stand out: (1) Members of this class were by necessity mobile, free to move to wherever workers were needed, unhampered by property or family connections; (2) they were segmented or divided by race and ethnicity, age, and gender; (3) they were subject to new kinds of discipline and control; and (4) they were militant, often protesting the conditions in which they were placed. Let’s examine each of these characteristics in turn.

lABor moBility First, the new laborers were remarkably geographically mobile, moving temporarily or permanently to sources of employment. Most were mobile because they had been forced off their land or because the products they produced were no longer in demand. Take the situation of the Italian worker, for example. Beginning in the 1870s, the sale of public domain and church lands created a situation that allowed large landholders to add to their land, whereas small landholders were squeezed out as prices for agricultural products declined, in part because of the importation of Russian wheat. A blight destroyed many vineyards, and cheap imported goods disrupted local handicrafts. In the 1860s, some 16,000 people emigrated permanently; in the 1870s, the number grew to 360,000; and between 1881 and 1901, the number rose to 2 million, 80 percent of whom had been agricultural laborers.

The countries to which these Italian migrants scattered, including Australia, Canada, and most often the United States, quickly utilized the cheap labor in factories, railroads, mines, stock- yards, and oil fields. In the period between 1820 and 1860, the main contingents of immigrants



Chapter 2 • The Laborer in the Culture of Capitalism 41

came from Ireland (2 million), southwestern Germany (1.5 million), and the British Isles (750,000). More English, Swedes, and Germans arrived between 1860 and 1890; again they were mainly displaced agriculturists driven off their land by the importation of cheap American and Russian wheat (as Mexican farmers are currently being displaced by the importation of cheap American corn).

In 1890, the source of the new immigration shifted to southern and eastern Europe and consisted largely of dis- placed peasants from Italy, the Austro-Hungarian Empire, the Balkans, and Poland, along with Jews from Russia.

Coal miners in Pennsylvania had been British, Irish, and German prior to 1890, but after that time they were increasingly Polish, Slovakian, Italian, and Hungarian. After 1890, the textile mills of New England that had been run by French Canadians, English, and Irish were run by Portuguese, Greeks, Poles, and Syrians. In the garment trades, Russians, Jews, and Italians replaced Germans, Czechs, and Irish.

Some 90,000 indentured Chinese laborers were sent to Peru between 1849 and 1874; more than 200,000 were sent to the United States between 1852 and 1875, where they were employed in fruit growing, processing and panning for gold, and railroad construction. Some 10,000 to 14,000 Chinese were used in the construction of the Central Pacific Railroad of California. Thus the nineteenth century saw the greatest migration of human beings that the world had ever seen as millions, no longer able to support themselves, relocated in an effort to sell their labor.

segmentAtion A second characteristic of the working class was that they were divided, or segmented, by race, religion, ethnicity, age, and gender. The new working class split into two broader categories: a labor aristocracy better able to defend its prerequisites through union organization and political influence, and workers who had to accept lower wages and less secure jobs. These divisions were often reinforced by the use of gender, racial, or ethnic distinctions that relegated certain groups such as blacks and, earlier in the century, the Irish to only the lowest-paying jobs. Capitalism did not create these racial and ethnic distinctions, but it did help in defining and reinforcing them and their economic consequences (Wolf 1982:380).

Ironically, the ethnic identities of new immigrants rarely coincided with their self- identification. They first thought of themselves as Hanoverians or Bavarians rather than Germans; as members of a village parish (okolica) rather than Poles; as Sicilians, Neapolitans, and Genoans rather than Italians; and as Tonga or Yao rather than “Nyasalanders.” In effect, migrants had to be socialized to see themselves as members of particular ethnic groups. They were, as Wolf (1982:381) said, “historical products of labor market segmentation under the capitalistic mode.”

The ethnic or racial groupings created or reinforced by capitalist culture often came into conflict with each other as they competed for scarce jobs and resources. The case of the Irish in England and the United States is telling. In the mid-nineteenth century, Karl Marx (1972:293–294) made the following observation about the relationship between English workers and newly arrived Irish laborers:

Every industrial and commercial center in England now possesses a working class divided into two hostile camps, English proletarians and Irish proletarians. The ordi- nary English worker hates the Irish as a competitor who lowers his standard of life. In relation to the Irish worker he feels himself a member of the ruling nation and so

Geographic mobility is one characteristic of the laborer in the culture of capitalism. Here, Chinese boys await medical examinations at Angel Island immigration station in San Francisco around 1910. (The Granger Collection, NYC.)



42 Part I • The Society of Perpetual Growth

turns himself into a tool of the aristocrats and capitalists of his own country against Ireland, thus strengthening their domination over himself. He cherishes religious, social, and national prejudices against the Irish worker. His attitude towards him is much the same as “poor whites” to the “niggers” of the former slave states of the USA. The Irishman pays him back with interest in his own money. He sees the English worker at once the accomplice and the stupid tool of the English domination in Ireland.… This antagonism is the secret of the impotence of the English working class, despite their organization.

In the United States, the same degree of ethnic antagonism developed, particularly between the Irish and blacks. Irish leaders in the early nineteenth century generally were strong crit- ics of slavery and supporters of its abolition. However, once the Irish emigrated to the United States, they, who in their own country were treated almost as badly by British rulers as African Americans were in the United States by whites, became strongly proslavery and antiblack. What accounted for this change in attitude?

Noel Ignatiev (1995), in his book How the Irish Became White, maintained that during the first half of the nineteenth century in America, free African Americans competed successfully in the North for relatively good jobs. Before the Irish arrived in large numbers in the United States, the distinction between freedom and slavery was blurred by such intermediate conditions as chattel slavery, indentured servitude, and imprisonment for debt. But the American Revolution had eliminated these intermediate economic categories and reinforced the tendency to equate slavery with blackness and freedom with whiteness. If blacks, then, were allowed to work in the same jobs as the Irish, the Irish would be assigned to the same social category as blacks. In fact, the Irish risked being considered lower in status than blacks, largely because as slaves, blacks had value that the Irish did not. As one official of an Alabama stevedoring company put it, “The niggers are worth too much to be risked here; if the Paddies are knocked overboard, or get their backs broke, nobody loses anything” (Ignatiev 1995:109). Consequently, the Irish did all they could to distance themselves from blacks, including supporting slavery. But the major task of the Irish was to ensure that blacks did not have access to the same jobs that they did.

Gradually, by taking the menial jobs that had been done by blacks, as they were encouraged to do by priests, the Irish began to dominate the ranks of the unskilled laborer—by 1855, the Irish made up 87 percent of New York City’s 23,000 unskilled laborers. In 1851, The African Repository, a magazine devoted to African American concerns, wrote (Ignatiev 1995:111) that

in New York and other Eastern cities, the influx of white laborers has expelled the Negro almost en masse from the exercise of the ordinary branches of labor. You no longer see him work upon buildings, and rarely is he allowed to drive a cart or public conveyance. White men will not work with him.

“White men will not work with him,” became the rallying cry of labor in elbowing out blacks from jobs that were then taken over by Irish; as Frederick Douglass said, “In assuming our avocation [the Irishman] has assumed our degradation.”

The key to the distinction between white and black became work; white meant doing “white man’s work,” whereas black meant doing “black man’s work.” The distinction was arbitrary because many jobs that became white man’s work when reserved for the Irish had been performed by blacks earlier. “White,” Ignatiev pointed out, was not a physical description, but rather a term of social relations. This distinction resulted, then, in a situation in which to be “white” the Irish had to work in the jobs from which blacks were excluded (Ignatiev 1995:111). Thus, a division of labor was hardened into a distinction of race and ethnicity.

Of course, the workforce was segmented in other ways, most notably by gender and age, with women and children assigned to the lowest-paying and most menial jobs, a development we will explore below.



Chapter 2 • The Laborer in the Culture of Capitalism 43

disCiPline The new working class was mobile and divided by race, ethnicity, gender, and age. In addition, it had to be disciplined. Central to this process was the factory. The factory is a relatively recent historical phenomenon, having developed largely in the late eighteenth and early nineteenth centuries in Europe (although factory production in textiles may have existed as early as the fifteenth century). Prior to its development, most work (e.g., weaving, spinning, and pottery making) was done in homes or small shops. But with the work scattered from town to town and house to house, manufacturers had difficulty maintaining product standards and supplying the workers with raw materials. Factories solved these problems.

The first factories were modeled on penal workhouses and prisons. Spinning mills were built and installed in brick buildings four or five stories high and employed several hundred workers. The iron and cast-iron mills of the metal industry brought together several blast furnaces and forges and a large workforce (Beaud 1983:66). These settings may have increased the efficiency of production, but the new job discipline required of workers also created tensions between workers and their employers that, at various points in the years to follow, would result in situations approaching civil war.

The factory setting, for example, necessitated workers being disciplined to accept a new conception of time. Time, another of the things we take for granted, is subject to cultural definition. Our time is dictated, by and large, by our means of measuring it—clocks and watches. Time in other societies tends to be task oriented or dictated by natural phenomena: In Madagascar, it might be measured by rice cooking (about one-half hour); in seventeenth- century Chile, the time needed to cook an egg was the time it took to say an Ave Maria aloud; in Burma, monks rose when there was enough light to see the veins in their hands; in oceanside communities, the social patterning of time depended on the ebb and flow of tides. In his classic account of the life of the Nuer of the Sudan, British anthropologist E. E. Evans-Pritchard (1940:103) noted that

the Nuer have no expression equivalent to “time” in our language, and they cannot, therefore, as we can, speak of time as though it were something actual, which passes, can be wasted, can be saved, and so forth. I don’t think they ever experience the same feeling of fighting against time because their points of reference are mainly the activities themselves, which are generally of a leisurely character. Events follow a logical order, but they are not controlled by an abstract system, there being no autonomous points of reference to which activities have to conform with precision. Nuer are fortunate.

Historian E. P. Thompson (1967) noted that until the emergence of modern notions of time, work patterns were characterized by alternating bouts of intense labor and idleness, at least whenever people were in control of their own working lives. He has even suggested that this pattern persists today but only among some self-employed professionals, such as artists, writers, small-farm owners, and college students.

This is not to say that preindustrial work was easy. Thompson (1967:58) described the typical day of a farm laborer in 1636: He rose at 4:00 a.m. and cared for the horses, ate break- fast at 6:00 a.m., plowed until 2:00 or 3:00 p.m., ate lunch, attended to the horses until 6:00 in the evening, ate supper, did other chores till 8:00 p.m., cared for the cattle, and then retired. However, this was during the height of the laboring year on the farm, and it was probably the laborer’s wife, says Thompson, who labored the hardest.

It is difficult to say precisely when the Western concept of time and work began to change. Clocks were not widespread in Europe until the seventeenth century, although most towns prob- ably had a church clock. But by the early 1800s, our present sense of time was well established.

Time was an entity that should not be wasted. “Time,” as Benjamin Franklin wrote in Poor Richard’s Almanac, “is money.” At about the same period, the idea that idleness was wicked began to gain currency. As Youth’s Monitor phrased it in 1689, time “is too precious



44 Part I • The Society of Perpetual Growth

a commodity to be undervalued.… This is the golden chain on which hangs a massy eternity; the loss of time is insufferable, because irrecoverable” (Thompson 1967:58). Leisure time, in general, was attacked; in some religious circles, seeking amusement was considered to be sinful. Anything that did not contribute to production was discouraged.

At about the same time, the school was being used to teach a new time and work discipline. Social reformers in the late eighteenth century suggested that poor children be sent at the age of four to workhouses where they would work and be given two hours schooling each day. As one person said,

There is considerable use in their being somehow or other, constantly employed at least twelve hours a day, whether they can earn their living or not; for by these means, we hope that the rising generation will be so habituated to constant employ- ment that it would at length prove agreeable and entertaining to them. (Thompson 1967:84)

Thus, by the middle of the nineteenth century, through the supervision of labor, fines, bells and clocks, money incentives, preaching, and schooling, a new time discipline was imposed on society at large and on the laborer in particular.

resistAnCe Finally, in addition to its mobility, segmentation, and discipline, the new working class was characterized by a new militancy that would lead to the closest thing the world has seen to a “world revolution.” Early in 1848, the French political thinker and chroni- cler of American democracy Alexis de Tocqueville addressed the French Chamber of Deputies, saying what many Europeans feared. “We are sleeping,” he said, “on a volcano.… Do you not see that the earth trembles anew? A wind of revolution blows, the storm is on the horizon” (Hobsbawm 1975:9).

At about the same time, the thirty-year-old Karl Marx and his twenty-eight-year-old friend Friedrich Engels were drafting the Manifesto of the Communist Party, which appeared in London in February 1848. Perhaps within days, revolutionaries in France declared the estab- lishment of a new republic; by March, the revolution had moved into Germany, Hungary, and Italy; within weeks, the governments of an area today encompassing France, Germany, Austria, Italy, Czechoslovakia, Hungary, part of Poland, Belgium, Switzerland, Denmark, and the old Yugoslavia were all overthrown. However, within six months of the outbreak, the movement faltered, and within eighteen months, only the new government of France remained, and it was trying to put distance between itself and the insurrectionists. The only long-lasting change was the abolition of serfdom in what had been the Hapsburg Empire.

Although the rebels had the support of moderates and liberals in the various countries, their movements were, nevertheless, “social revolutions of the labouring poor,” as Hobsbawm (1975:15) put it. The revolutions were an expression of developing patterns of conflict between the rich and poor, each group developing its spokespersons. On the one side were people such as Jean-Baptiste Say in France and David Ricardo and Thomas Robert Malthus in England who argued that the poor had only themselves to blame for their condition. On the other side were those such as Karl Marx, Friedrich Engels, Robert Owen, Henri Saint-Simon, and Charles Fourier who blamed the exploitation of labor for poverty. The debate is not unlike the ones still being argued over such issues as welfare and the role of the state in alleviating poverty. Malthus argued, for example, that

it is not in the power of the rich to supply the poor with an occupation and with bread, and consequently, the poor, by the very nature of things have no right to demand these things from the rich.… No possible contributions of sacrifices of the rich, particularly in money, could for any time prevent the recurrence of distress among the lower members of society. (Beaud 1983:78)



Chapter 2 • The Laborer in the Culture of Capitalism 45

It is a matter of morality, said Malthus, that those who are poor must not produce children until they can adequately provide for them. To those who violate this rule, there should be no pity:

To the punishment, therefore of nature he should be left, to the punishment of want. He has erred in the face of a most clear and precise warning, and can have no just reason to complain of any person but himself when he feels the consequences of his error. All parish assistance should be denied him; and he should be left to the uncertain support of private charity. He should be taught to know that the laws of nature, which are the laws of God, had doomed him and his family to suffer for disobeying their repeated admonitions.… It may appear to be hard that a mother and her children, who have been guilty of no particular crime themselves, should suffer for the ill conduct of the father; but this is one of the invariable laws of nature. (Malthus 1826:343)

One French industrialist wrote matter-of-factly that “the fate of the workers is not that bad: their labor is not excessive since it does not go beyond thirteen hours.… The manufacturer whose profits are poor is the one to be pitied” (Beaud 1983:101).

Of course, those arguing against supplying the poor with necessities were concerned also that if they were given food and shelter, they would have no reason to labor.

For others, such as Karl Marx and Friedrich Engels, society was being divided into two hostile camps and classes—the bourgeoisie and the proletariat:

Masses of laborers, crowded into the factory, are organized like soldiers. As privates of the industrial army, they are placed under the command of a perfect hierarchy of officers and sergeants. Not only are they the slaves of the bourgeoisie class, and of the bourgeoisie State, they are daily and hourly enslaved by the machine, by the overlooker, and above all, by the individual bourgeoisie manufacturer himself. The more openly this despotism proclaims gain to be its end and aim, the more petty, the more hateful and the more embittering it is. (Marx and Engels 1848/1941:14)

The proletariat must, said Marx and Engels, embody the suffering, rise against it, and produce a society free from the exploitation of one class by another. It must free itself but only by transcending the inhumane conditions of present-day society. Marx had attempted in his writ- ings to create a scientific theory of the fall of capitalism, in the same way that Adam Smith and David Ricardo had tried to create a scientific theory of the rise of capitalism. The results were not only a blueprint to be used by union organizers and revolutionaries but also the creation of two utopian ideologies—that of capitalism and of socialism—which would do battle into the twentieth century.

These, then, are some of the characteristics of the laborer and the relationship between labor and capital as established in the nineteenth century. There were other features as well, such as the increased vulnerability of the laborer to hardship and the greater likelihood of impoverishment. To understand better how the laborer was constructed, let’s turn to the contem- porary world. In countries all over the world, the nineteenth-century processes through which the laborer was constructed are being repeated. We see this most clearly in the growth of overseas assembly plants.

the growth of overseas Assembly Plants

In capitalism, profits and interest depend on the difference between the cost of producing a product and the price at which it is sold. If someone has a monopoly on a product, and if people need it, producers can charge as much as necessary to maintain or increase profits. But if other companies produce the same merchandise, it is likely that the price a company can charge will



46 Part I • The Society of Perpetual Growth

be determined by what others charge. Thus, Nike can charge 200 dollars for its sneakers, but if its competitors are charging only fifty dollars for the same product, Nike had better lower its price, convince people that its product is worth the difference, or face bankruptcy. Consequently, profit must come, not from increasing the price that people pay, but from controlling the cost of producing the product. Cost increase can be contained by controlling the cost of raw materials and machines—the means of production—or by controlling the price of labor.

The activity of work is common to all societies. In gathering and hunting societies, women and men spend a portion of their time gathering wild foods and hunting game; in pastoral societ- ies, people spend time herding and caring for animals; and in agricultural societies, they work at tending fields, harvesting and storing crops, and so on. But work in the black box of capitalism takes a different form. In fact, some economists believe the key to understanding the way money creates more money is understanding the way labor figures in the production process. For them, profit comes directly from what they call the surplus value of labor.

As we noted earlier, to produce commodities for sale, labor must be purchased and com- bined with the means of production. For example, I might buy cloth and make shirts to sell. I  may pay two dollars for the cloth and sell the shirt for ten, thereby making a profit of eight dollars. Where does that profit come from? One obvious place is the labor that went to convert the cloth into a shirt. In this case we might say the labor was worth eight dollars. But what if, instead of making the shirt myself, I paid someone else to do it but paid him or her only two dollars and still sold the shirt for ten. The value of the labor that went into making the shirt is still eight dollars, but the worker I hired received only two; I get to keep the other six dollars. It is this money that constitutes the surplus value of labor.

Obviously, then, one way for a company to maximize profits is to maximize the surplus value of labor and pay workers as little as possible. Another way to increase profits is to get the laborer to produce more in the same period of time. Thus, if I paid my shirtmakers an hourly or daily wage, I could double my profits by getting them to produce two shirts in the time that they used to produce one shirt. This I could do by getting them to work faster or by improving the technology or process of shirt-making to make it more efficient.

Companies that produce commodities such as textiles, electronic goods, and toys are labor intensive—that is, they require human labor more than improved technology to manu- facture their products and are, consequently, always trying to minimize what they pay workers. Given the economic logic of capitalism, this makes perfectly good sense: The more they save on labor costs and the less they charge for their product, the more they will attract consumers. Furthermore, the more they sell, the greater their profits and greater the return for investors and stock owners. Thus, the role of labor in the black box is critical to our understanding of the amount of profit the box can generate.

There are various ways that producers can keep labor costs down. For example, they can import labor from peripheral areas, particularly for low-paying jobs. In 2011, there were 24.4 million foreign-born persons in the U.S. labor force, comprising 15.9 percent of the total (Bureau of Labor Statistics 2012). Many of these people worked as poultry plant workers, meat- packers, gardeners, hotel maids, seamstresses, restaurant workers, building demolition workers, and fruit and vegetable pickers (Greenhouse 2000). Corporations are also making use of the growing prison population; in the United States there are more than 2 million inmates, more than any other country in the world. Presently, thirty states have enacted laws allowing the use of convict labor by private enterprise who now employ more than 80,000 prisoners. Then there is slave labor. Kevin Bales (1999:8) estimates that there are 27 million slaves in the world today, largely in the form of bonded labor in India, Pakistan, Bangladesh, and Nepal. Bonded laborers give themselves into slavery as security for a loan or when they inherit a debt from a family member. Clearly, the greatest source of cheap labor exists in the periphery where, offi- cially, more than 189.9 million people were unemployed in 2007 and that figure is expected to increase by 5 million or more in response to the economic crisis of 2008 (Blankenburg and Palma 2009:532). It is there that corporations often go to reduce their labor costs.



Chapter 2 • The Laborer in the Culture of Capitalism 47

Corporations in core countries, such as the United States, made much use of foreign labor in the nineteenth century. However, as previously discussed, most of that labor moved to the source of employment, traveling largely from Europe and Asia to work in American mines, rail- road yards, and factories. By 1900, 14 percent of the population of the United States was foreign born (see Haugerud, Stone, and Little 2000). Once jobs were filled, however, the immigrants or their descendants who filled them were not anxious to see more immigrants arrive and com- pete for their jobs. Consequently, they lobbied through unions, churches, and political parties for the government to pass restrictive immigration laws. When Chinese laborers were brought over to help build the transcontinental railroad, groups such as the Knights of Labor protested, even demanding that the Chinese get out of the laundry business. As a result, the U.S. Congress passed the Chinese Exclusion Act of 1882, and anti-Chinese agitation broke out on the West Coast, marking one more stage in the emergence of racism in the United States.

Although importing laborers from overseas worked for a time, corporations soon found that they could more easily tap into pools of cheap labor by relocating their manufacturing pro- cesses, when possible, to countries on the periphery of the world system whose governments were committed to economic development through industrialization. For example, to facilitate the establishment of assembly plants, governments in Indonesia, Malaysia, Guatemala, and Mexico, among others, created in their countries free trade zones, areas in which large corpora- tions were permitted to deliver goods to be assembled—cut cloth for wearing apparel, electronic components, and so on—and for which they were not required to pay tariffs, provided that the items were not then sold in the country in which they were assembled. In exchange, the multi- national corporations, such as Nike, agreed to hire local workers. The home countries, such as the United States, contributed by passing legislation that allowed corporations to transfer the assembled goods back to the United States, paying an import tariff only on the labor cost of each product, rather than on the total value of the product. Thus, the sneakers you wear were probably cut by machines in the United States, shipped to Indonesia or Vietnam to be assembled, and then shipped back to the United States to be distributed and sold there and elsewhere in the world. As an economic arrangement, almost everyone seems to benefit from the growth of assembly plants:

• Nike and other companies are able to compete with other manufacturers by paying work- ers in Third World countries a fraction of what they would have to pay American workers.

• Workers in the Third World find employment. • Consumers pay less for their clothes, electronic devices, toys, and so on. • Investors get a higher return on their money.

It seems that the only ones who don’t benefit are the American workers who lose their jobs (over 5 million in the past twenty-five years).

As a result, the growth in assembly plants was dramatic. In 1970 there were an estimated 1,000 women working in manufacturing in Malaysia, for example; by 1980, there were 80,000 concentrated in textiles, electronics, and food processing. In Mexico, the number of maquila- doras, as assembly plants are called, grew from virtually none in the 1960s to 1,279 employing 329,413 people in 1988, to more than 3,000 employing more than 1 million workers in 2012 (Hodder 1999; Rosenberg 2012). However, there are some problems. Critics have cited assem- bly plant workers’ poor working conditions, their low pay, the actions of foreign governments in discouraging the formation of workers’ unions, and the loose environmental regulations that have in some cases resulted in considerable environmental degradation around free trade zones. Furthermore, as corporations seek out new areas of cheap labor, they abandon old sites, such as Mexico, in favor of new sites, such as China or Vietnam. Consequently, after hitting a peak in 1999, the number of maquiladora workers in Mexico is on the decline.

In 1995, in response to abuses, American labor and children’s rights groups called for a boycott of all garments assembled in Bangladesh to protest the estimated 25,000 to 30,000 children working in garment factories there. The United States is Bangladesh’s biggest apparel customer, with nearly 50 percent of Bangladesh’s $1.6 billion in garment exports arriving in



48 Part I • The Society of Perpetual Growth

the United States. In some assembly factories in El Salvador, where women earn $4.51 for the day, or 56 cents an hour, union organizers are often summarily dismissed, bathrooms are locked and can be used only with permission, and talking on the job is prohibited. In Guatemala, work- ers are required to work overtime at a moment’s notice and are dismissed if they refuse. There have been reports of systematic violence against union organizers in Mexico, El Salvador, and Guatemala. And, as we shall see, assembly plants have far-reaching consequences on the societ- ies and cultures of the cities and countries in which they are located.

the Creation of free labor

One defining feature of capitalism is the creation of a class of people who are willing to sell their labor. There must be a working class and, subsequently, a demand for jobs. A key question, then, is, Why do people, particularly the workers, play the game of capitalism? For example, if the pay is poor and working conditions harsh, why do people work in assembly plants? Aren’t these workers, as some argue, lucky to have their jobs?

Although the United States is and has been largely a wage economy in which the vast majority of people, in effect, sell their labor to companies, we sometimes forget, as mentioned earlier, that the existence of a so-called working class is a relatively recent development. In the United States, and particularly in countries such as Malaysia and Mexico until recently, most people earned their livings from the land or from what they themselves produced and sold. Thus, we need to ask, Why people exchanged a life of relative independence as farmers and crafts- people for a life of dependent wage labor?

In Malaysia and Mexico, countries trying to industrialize and attract foreign manufactur- ers such as Nike, political developments in the nineteenth and early twentieth centuries led to the systematic dispossession of peasants from their land and to the increased importation of cheap products (e.g., textiles and iron implements) that put local artisans out of business. For example, up to the nineteenth century, Malaysia consisted of small states ruled over by sultans and so-called big men who extracted tribute from peasants. Peasants held use-rights to land and could pass on to children whatever land they worked but no more than that. The center of life was the kampung, or village. However, British colonialists took over the land and converted its use to the production of cash crops, leaving the unlanded population to seek labor on large plan- tations or migrate to cities in search of jobs. There was still more than enough land in Malaysia for everyone to farm, but it was used instead to produce crops, such as palm oil, for export rather than to produce food for the local population.

In Mexico a similar history has left most of the population without land to produce food. In the early nineteenth century, the vast majority of the Mexican population lived in villages. The land was divided among the residents but owned collectively. People were given the right to use land but not the right to sell it. Then, in the mid-nineteenth century, legislation was passed in Mexico declaring communally held lands to be illegal, giving peasants legal rights to their own land, which they could then also sell or mortgage to repay debts. The result was that wealthy persons—largely Americans—bought up huge tracts of land. By 1910, the year of the beginning of the Mexican Revolution, more than 90 percent of the population was landless and forced to work on large agricultural estates or migrate to the cities in search of jobs. In the course of half a century, the vast majority of the Mexican population was transformed from an autonomous peasantry working their own land to a population of dependent wage laborers.

The process of land dispossession has continued to the present time (as will be discussed later), not only in Mexico and Malaysia but also in many other parts of the world. This has resulted in a large population of landless people with only their labor to sell. Furthermore, as so-called free trade opens countries to goods from the United States and other wealthy countries, local farmers and craftspeople who cannot compete with large multinationals lose their liveli- hoods and are forced onto the labor market. As a result, the governments of these countries are under great pressure to facilitate the growth of jobs for the population. It is into these situations



Chapter 2 • The Laborer in the Culture of Capitalism 49

that American, Japanese, German, and British corporations, among others, have come to build assembly plants.

Assembly factories, however, involve a paradox. In countries such as Malaysia and Mexico, the men traditionally were the wage laborers, but women are sought by corporations, such as Nike, as employees. The women, for some reason, are willing to accept a wage level less than that needed for subsistence. Thus, we need to ask, Why are there jobs that pay less than a living wage, and why do certain categories of people seem relegated to them?

the segmentation of the Workforce

One consequence of the growth of offshore assembly plants was the entrance into the labor market of a new working population of young, single women between the ages of sixteen and twenty-four. Why do the assembly plants choose to employ young women, and why is it that women choose to work under sometimes unpleasant conditions? The answer to this question requires us to understand how and why labor is segmented into different levels.

Take, for example, the case of Malaysia. Aihwa Ong (1987) spent two years studying assembly plants in Malaysia owned by Japanese and American corporations. One of the first questions she asked was this: Why did the plants prefer to hire young women? Plant managers that she interviewed gave a number of reasons. One Japanese manager told Ong (1990:396–397) that “females [are] better able to concentrate on routine work” and “young girls [are] preferable than older persons, that is because of eyesight.” Another explained, “You cannot expect a man to do very fine work for eight hours [at a stretch]. Our work is designed for females…. [I]f we employ men, within one or two months they would have run away…. Girls [sic] below thirty are easier to train and easier to adapt to the job function.”

The idea that women are somehow more suited biologically for assembly plant work is widespread in developing countries. For example, a brochure designed to bring foreign invest- ments into Malaysia says this about its female workforce:

Her hands are small and she works fast with extreme care. Who, therefore, could be better qualified by nature and inheritance to contribute to the efficiency of a bench assembly production line than the oriental girl? (Ong 1987:152 [emphasis added])

Young women, such as these uniformed workers at a Nike assembly plant in Vietnam, comprise the vast majority of workers at overseas assembly plants. (AP Photo/Richard Vogel.)



50 Part I • The Society of Perpetual Growth

In Mexican maquiladoras the situation is much the same. María Patricia Fernández-Kelly (1983) was also interested in the effects of the assembly plants on women. To study these effects, she found a job in a maquiladora to share the experiences of the workers and to meet the women and learn about their lives. She, too, found that companies preferred to hire young females because managers believed that women have higher skill levels; are more docile; and are more willing to comply to the monotonous, repetitive, and exhausting assignments. Men are described by managers as more restless or rebellious, less patient, more likely to unionize, and less tolerant of the working conditions. As one manager related to Fernández-Kelly (1983:181),

We hire mostly women because they are more reliable than men, they have finer fingers, smaller muscles and unsurpassed manual dexterity. Also, women don’t get tired of repeating the same operation nine hundred times a day.

Assembly plants in both Malaysia and Mexico also preferred single women because man- agers believed that older, married women had too many other obligations; were often unwilling to work night shifts; and may have accumulated enough wage increments to be paid more than a new, young, single woman would earn.

There is also a large population of unemployed women that assembly factories can choose from. In Malaysia and Mexico, there are three applicants for every available position. Thus one maquiladora manager could announce to a conference organized by the American Chamber of Commerce that the 30 percent unemployment rate in Ciudad Juárez allows for high employee selectivity. Moreover, village elders in Malaysia and family heads in Mexico are eager to send otherwise non-wage-earning women to work in the assembly plants.

There is another reason, however, for the employment practices of assembly plants, one that tells us even more about the black box of capitalism: You don’t have to pay women and children as much as you have to pay men. Nor do you have to pay foreign workers as much as domestic workers. By extension, you do not have to pay people of color as much as you pay whites—that is, the contemporary labor force in peripheral countries, such as Mexico and Malaysia, is already segmented through various forms of social discrimination, as was the labor force in nineteenth-century North America and Europe. Whether or not a capitalist economy creates this type of discrimination, reinforces it, or simply takes advantage of it where it exists is arguable. Regardless, there is no question that, at least to some extent, social discrimination and prejudice—sexism, racism, and discrimination against immigrants—is profitable. It is an important part of the black box. But why?

Let’s return to basic economics. Modern industries can be loosely divided into two types. There are primary industries whose markets are well defined, whose profits are relatively certain, whose capital investment is high, and who are able to pay good wages and ensure decent working conditions. Primary industries have traditionally included automobile manufacturing, communications, and energy industries, to name a few. They require a well-paid, well-trained, and relatively content workforce.

Then there are secondary industries that include the fast-food industry; agriculture; elec- tronics; and, most notably, the clothing, garment, and/or textile industries. Within secondary industries there is intense competition, uncertain or changing demand, a lower profit margin, and a greater dependence on unskilled labor. Secondary industries are the least desirable for work- ers because to stay competitive, these companies must pay the lowest wages and yet maximize worker output. These are the industries most likely to expand operations to poorer countries. They are also the companies that are likely to hire the most vulnerable and the lowest-ranking members of a population. Traditionally, these people have been women, children, or members of subjugated groups. Thus, when corporations locate assembly factories abroad, they are, in effect, expanding the secondary labor market.

Of course, the hiring of women for low-paying, labor-intensive work has long been a feature of industrial capitalism. Women and children formed the bulk of the factory workforce at



Chapter 2 • The Laborer in the Culture of Capitalism 51

the beginning of the Industrial Revolution in the late eighteenth and early nineteenth centuries. In 1851, 31 percent of the labor force in England consisted of women, 45 percent of whom were in manufacturing. In the English textile industry of 1840, more than 75 percent of the workforce consisted of women and children. The locating of assembly plants overseas is simply the latest version of utilizing a socially vulnerable workforce to secure low-paid labor. This expansion of the secondary labor market abroad, however, has had the following economic consequences for workers and corporations at home and abroad:

• It has meant the transfer of jobs abroad and resulting unemployment at home. • It has widened the gap between primary and secondary labor in the United States. • From the perspective of workers in peripheral countries of the world system, it has meant

the development of poorly paid, unstable jobs with little opportunity for promotion.

The process of targeting the most vulnerable segment of the population for low-wage jobs also affects the meaning that societies give to specific tasks. For example, the division between skilled and unskilled jobs is often not based on the nature of the work, as one would suppose; instead, it is based on who is doing the work. In other words, the work that women do in assem- bly factories is not necessarily less skilled than other work; it is considered unskilled because it is performed by women. Fernández-Kelly discovered this when she tried to learn the sewing techniques of women in Mexican garment maquiladoras. She could barely keep up with them; it required a skill level equal to or greater than many jobs that we call “skilled.” In Brazil, women are hired to tend grapevines to produce the large, unblemished grape that consumers in industrial countries desire. The work is skilled (e.g., involving the grafting of vines), but because the work is done by women, it is described as requiring “manual dexterity, delicacy, and nimbleness of fingers” (Collins 2000:102). Thus, work that women do is defined as “unskilled” because it is done by women, just as work that blacks or the Irish did in the nineteenth century was defined as unskilled because it was done by blacks or Irish.

From the corporation’s standpoint, however, the transfer of secondary jobs to underde- veloped countries and the ensuing expansion of a cheap labor reserve pool afford corporate employers the greatest degree of political and economic control over workers. They are able to employ the most socially vulnerable sector of the working class, the people least likely to orga- nize, demand better wages, or press for better working conditions. As one Mexican maquiladora worker put it, men are unwilling to perform the monotonous labor; women are more shy and submissive and are more used to following orders. They are more easily intimidated and forced to obey. They are the easiest to discipline.

In sum, then, for corporations, women represent a major source of inexpensive, transient labor; thus, women, although making up the vast majority of assembly plant workers through- out the world, occupy few skilled or managerial positions. And because they occupy the lowest positions, women can be hired and fired, depending on the overseas demand for such things as textiles, shoes, plastics, electrical appliances, and, increasingly, electronics.

In spite of the often poor pay and harsh working conditions that women working in assembly plants endure, some economists and public policymakers argue that such employ- ment is necessary if women are ultimately to gain access to better positions and change their often subjugated positions in societies around the world. They argue that the money that women earn gives them control over resources that they would otherwise not have, that as families become dependent on the income that these women bring into their households, their positions in society will improve. Some also argue that the creation of this kind of work is a neces- sary stage of economic development and will eventually lead to better lives for all. We must remember, however, that if the labor market remains divided between primary and secondary industries, then someone must continue to do the low-paying work. Women may escape low- paying jobs, but only, as the Irish in the nineteenth century learned, if there is another group to take their place.



52 Part I • The Society of Perpetual Growth

Control and discipline

In nineteenth-century America, as young men and women sought work in the growing factory towns and cities, factory owners, as well as local citizens, faced a problem. These young peo- ple had been integrated into the social institutions of their hamlets and villages. As members of families and churches, they were expected to conform to certain standards of behavior; deviance from those standards could bring condemnation, punishment, and even social ostra- cism. But in the towns and cities to which they moved, migrant workers often were freed from such constraints, free to experiment with behaviors previously denied to them. Consequently, men  often gained reputations as “rowdies,” or “hoodlums,” whereas women were labeled “immoral” or “loose.” Thus the creation of free labor created a problem: How do you control the new labor force?

For example, in turn-of-the-twentieth-century New York City, thousands of young women found employment in factories and used their newfound freedom and the wages they earned for shopping, dating, dancing, or going on excursions to recreation areas such as Coney Island. However, their behavior alarmed some people who saw it as immoral; consequently, groups of social reformers organized and proposed ways to “protect” working women from these “temptations.” Some of their solutions to the problem resulted in the formation of social and religious clubs and associations for young women such as the Young Women’s Christian Association (YWCA).

These organizations also served another function: They relieved the fears of the parents of these young workers who otherwise might have been reluctant to allow the women to migrate to cities and factory towns.

As in nineteenth-century America and Great Britain, employment in the new assem- bly plants of such countries as Malaysia and Mexico often requires young men and women to leave their homes and move to cities, freeing them from the traditional constraints imposed by family and church, and, thus, freeing them to spend their leisure time in nontraditional activities. Take, for example, the situation of the largely female workforce in the new assembly plants of Malaysia. Most of the women are young, generally ranging from sixteen to twenty years old. In their villages, they would have lived at home, perhaps attended school, and been involved in vari- ous household chores under the direction of their mothers. Dating would have been rare and, when it occurred, would have been carefully supervised by parents. Marriages would have likely been arranged by parents. Factory work, however, allows these same young women to earn wages, a portion of which they control. Although most workers contribute one-half or more of their earn- ings to their families, they are free to spend the rest on themselves. Some use it for typing or academic classes to prepare for civil service jobs, in effect attempting to control their own job prospects and “careers.” Some become consumers, taking shopping trips to town or going to the movies, “making jolly with money,” as they say. They exchange traditional kampung garb for tight T-shirts, jeans, and Avon makeup, trying to achieve what they call the “electric look.”

Because Malaysian working women are now expected to save money to contribute to their own wedding expenses—money that had been traditionally supplied by their families—they feel justified in choosing potential spouses. Sexual freedom may be increasing, as indicated by an increase in abortions, and women are beginning to cross social boundaries, having “illicit” rela- tionships and marrying men of other ethnic groups (e.g., Chinese), something traditional family and church authorities would never have allowed.

One consequence of the growth of the number of working women in Malaysia is a stream of criticism about the loose morals of factory girls, especially from Islamic fundamentalists. The Malay media portrays factory women as pleasure seekers and spendthrifts engulfed in Western consumer culture. A story about prostitution might carry sensational headlines such as “Factory Girls in Sex Racket.”

All of this has resulted in a call for greater control of working women, in spite of the fact that similar behavior, such as dating and moviegoing, among upper-class college students has not



Chapter 2 • The Laborer in the Culture of Capitalism 53

received the same notice. Even the academic community and religious and state officials have claimed to recognize the problem of declining morals of young women and proposed measures, such as counseling and recreational activities, to arrest the decline. There have also been public calls for control of working women’s leisure time, despite the fact that they tend to work about three hours a day more than do women engaged primarily in traditional household chores.

In some ways, the newfound freedom of factory workers is as welcome by businesspeo- ple as it is by the young. Their new income—and their willingness to spend a portion of it on themselves—has turned young village men and women into consumers who buy many of the products they make. But the new freedoms create yet another problem. Capitalist enterprise requires a disciplined and reliable workforce; with old forms of discipline falling away, new forms must be developed to replace them. The question is this: How is that done?

Although family and church are largely absent from the lives of working young men and women, factory managers try to use these traditional institutions to control their workers. Malaysia is an Islamic country, and according to Islamic practice, parents are obligated to care for their children up to age fifteen, and traditional customs decree that children must also care for their parents. Thus, children, particularly women, are obligated to return to their parents the care that they gave them. One of the major appeals made to young women by factory owners and managers is that they use their wages to pay back part of what they owe their parents.

Factory managers also seek to maintain discipline by building relations with people in the women’s home villages, thus enlisting their help in controlling workers. For example, man- agers make donations to community organizations in the villages that supply workers. They also devise regulations to help parents monitor the activities of their daughters. When workers commute from their villages to the factories, the managers deliver workers to their homes by bus, or they allow parents to see overtime forms so they know how much time their daughters were spending at work and at other activities. These efforts enhance the prestige of managers in the eyes of village elders, whose moral support could then be obtained for the social control of working daughters.

Corporations also use traditional family values to encourage workers to comply with com- pany goals (Ong 1987:169). Thus, managers tell workers that they are part of “one big family.” One factory had posters proclaiming the company philosophy:

• To create one big family • To train workers • To increase loyalty to company, country, and fellow workers

Managers portray themselves as parent figures to the larger community from which women workers come, and although workers complain of too much control, parents rarely tell their daughters to quit.

Religion is also used as a means of discipline (Ong 1987:185). Because Malaysia is an Islamic country, the government includes special departments and agencies that have jurisdiction over the application of religious law. For example, under the current interpretation of religious law, Muslims may be arrested for khalwat, “proximity” between a man and a woman who are not immediate relatives or married to each other. Those caught in situations that simply suggest sexual intimacy but not necessarily in the sex act are fined or sentenced to jail for a few months. Muslims arrested for zinah—that is, illicit sexual intercourse—may be more severely punished. As a result of the increase in the number of young women working in assembly factories, there have been more raids by the government’s religious department on the poor lodgings and cheap hotels used by the workers.

Then there is the factory discipline itself. We mentioned earlier that eighteenth- and nineteenth-century factories were modeled after prisons. Modern assembly plants have much the same character. In Malaysian assembly plants, workers are sometimes watched through glass partitions. In one factory, for example, three supervisors and twelve foremen controlled



54 Part I • The Society of Perpetual Growth

530 operators. Discipline was verbally enforced as women workers were scolded by overvigilant foremen for wanting to go to the prayer room, the clinic, or the toilet. Some foremen would even question workers in a humiliating manner about their menstrual problems or nonwork activities. Others were reported to have forced women to run laps around the assembly plant as a form of punishment for reporting late to work or not meeting their production quotas.

As in prisons, clothing can be used to instill discipline. Malaysian workers are required to wear factory overalls that they complain are too tight and which they are not allowed to unbut- ton. They are also required to wear heavy rubber boots. These clothes are very different from the loose-fitting clothes and sandals Malaysians traditionally wear while working.

Assembly plants also bring with them a Western, factory-oriented sense of the relationship between work and time to which contemporary assembly workers must adapt. Traditionally, in Malaysia, for example, young girls carried out their household or farm tasks relatively free from modern time and work discipline; their activities were interspersed with social visits, usually free of female supervision and always free of male supervision. If there was anything to mark the passage of time, it was the cycle of daily Islamic prayer.

Female workers in the factories, however, are clocked in daily for eight consecutive hours with two fifteen-minute breaks and a half-hour lunch break. Every month their work schedules are changed. Women begin to divide their lives into “work time” and “leisure time.” They were watched over by overzealous foremen, screened before they could leave their work benches to go to the toilet, and fined if they were late for work (in spite of the fact that pay was based on piecework). This is in vivid contrast to the traditional work routine where there was no distinc- tion between work and life and no conflict between labor and “passing the time of day.”

People in Malaysia are aware of the shift from traditional social time to the capitalist clock time, and they have developed their own ways to critique it. Ong (1987:112) told the story of a married couple, Ahmad and Edah, who, say their neighbors, driven by the desire for wealth, carefully spend their time on capital accumulation at the expense of social obligations. Their neighbors said their obsession with time was the result of a toyal, a spirit helper that they raised to filch money from neighbors. The toyal, they concluded, turned the tables on the couple by driving them even harder to use all their time to accumulate wealth.

resistance and rebellion

Capitalism requires a disciplined working class—people willing to work for wages that allow enterprises to make their necessary profit. But herein lies a problem: In general, people do not readily accept discipline and control and will seek a way to resist, either directly or indirectly.

Resistance to capitalist discipline can take direct forms—worker protests, formation of unions, and even revolution (subjects examined in later chapters). Resistance may also take the form of a moral critique, such as that of Colombian peasants who see capital accumulation repre- sented in the baptism of money as the loss of a child’s soul. Such indirect forms of resistance are not unique to the peoples of the periphery of the world system. For example, one of the stories that comes down to us from early industrial Europe is that of Rumpelstilskin. Folktales are more than simply stories; they are statements about people’s beliefs. Often they are morality tales that dramatize the consequences of proper or improper behavior. Jane Schneider (1989), for example, suggested that the meaning of the Rumpelstilskin tale lies in the development of the linen indus- try in early modern Europe. In fact, in many ways, it offers a critique of capitalist production not unlike that of the Colombian peasants.

In one version of the Rumpelstilskin story, a father brags that his daughter is able to spin straw into gold. The king, hearing of this boast, offers to take the girl as his wife if she is able to spin the straw in his castle into gold. The girl tries, fails, then enters into a pact with a strange dwarf who promises to spin the straw into gold for her, but only if she promises to give him her firstborn child. The girl accepts, Rumpelstilskin spins the straw into gold, and she marries the king and has a child. The dwarf comes to claim his fee but is distressed by her tears and grief and



Chapter 2 • The Laborer in the Culture of Capitalism 55

offers her a way out. If she can guess his name, he will free her from the contract. She does, of course, much to Rumpelstilskin’s dismay.

We have forgotten much of what this tale meant to sixteenth- and seventeenth-century European peasants. For example, one of the main industries of the period was linen production. Linen was produced by spinning flax straw into linen thread that was woven into a fabric that was sold for gold coins. So straw, in effect, really was spun into gold. Moreover, the spinning process was performed largely by young women. A woman’s spinning skill was not only a source of money, but also a quality men sought in wives—as the king sought in his future wife. Furthermore, the story contains a pact with a demon, and the price is the firstborn. Thus, as in the Colombian baptism of money, we find the symbolic statement that the generation of wealth comes only with social and personal sacrifice, often of children’s souls.

Malaysian assembly plant workers have also found a subtle, generally symbolic means of expressing their resistance to capitalist discipline. It takes the form of spirit possession. Although Malaysia is a Muslim country, Islam exists side by side with indigenous beliefs about magic and spirits. Thus, in the 1980s, assembly plant managers in Malaysia—especially American and Japanese managers—were unexpectedly confronted with an epidemic of spirit possessions in their factories (Ong 1987:204). Forty Malaysian operators were possessed in one large American electronics plant; three years later, in another incident, 120 operators were possessed. The factory was shut down for three days while a spirit-healer (bomoh) was called in to sacrifice a goat to the possessing spirit on the premises.

Another American microelectronics factory was closed down when fifteen women were possessed. According to factory personnel officers, possessed girls began to sob and scream hysterically. When it looked as though the possession would spread, the other workers were immediately ushered out. The women explained that the factory was “dirty” and consequently haunted by a datuk.

The Malay universe is still full of spirits moving between the human and nonhuman domain. Spirit possession seemed to express themes of filth, anger, and fierce struggles. Particularly prom- inent in the possession episodes were spirits such as toyal, who help their masters gain wealth out of thin air, and the pontianak, who threaten the lives of newborn infants.

Aihwa Ong suggested that the women were not reacting to anything as abstract as indus- trial capitalism but against a sense of violation, of a dislocation in human relations, in much the same way the Colombian peasants reacted to wage labor with the notion of the baptism of money and the sacrifice of children’s souls.

Beliefs about the baptism of money in Colombia, sacrificing firstborns in sixteenth- and seventeenth-century Europe, and spirit possession of factory workers in Malaysia are examples of the widespread critiques of capitalism that we find among people confronting capitalist production for the first time. Such beliefs are ways that people find to express their sense that capitalist production brings a modicum of economic betterment at high social and personal costs.


A major assumption of this book is that it is impossible to understand the modern world and its problems—population growth, hunger, poverty, environmental degradation, health, war, religious upheaval, and so on—without understanding the capitalist economy that, with its goal of accumulating more and more wealth, has in the past four to five centuries redefined and created new social and cultural forms and altered traditional cultural institutions to serve its own purposes. Capitalism has been characterized here as a black box whose purpose is to convert money into more money, to take monetary investments and convert them into profits, dividends, and interest. For most people, this process is as magical as is the behavior of baptized money among Colombian peasants.



56 Part I • The Society of Perpetual Growth

We began to examine how the black box performs its conversion by looking at the growth of overseas assembly plants and the creation, segmentation, and disciplining of the labor force necessary for the box to function at its greatest efficiency. Historically, free labor has been created by removing people from the land or destroying the small-scale industry that allowed them to support themselves. In different countries this was done in different ways, but the over- all result has been the creation of populations whose sole means of support is in the sale of their labor. This is as true in industrialized countries as it is in developing or undeveloped countries. In fact, all of us who depend on wage employment—from nuclear physicists to garment workers—constitute the pool of “free” labor. This labor pool is further divided along a contin- uum comprising at one end relatively well-paid, desirable jobs in industries or enterprises that require a well-trained workforce, and at the other end relatively low-paying, undesirable jobs in industries that are highly competitive and dependent on the existence of a cheap labor supply. Industries and enterprises that depend on a cheap labor supply are able to take advantage of social divisions and discrimination that generally follow lines of gender, race, age, and country of origin to minimize labor costs and control the labor force.

In creating or taking advantage of the increasing supply of cheap labor, the capitalist econ- omy must also develop ways to maintain workforce discipline, which it does through the factory system, the redefinition of time, and the use of traditional institutions, such as the family and the church. Yet, in spite of the new forms of discipline, workers offer resistance in the indirect form of masked criticism—as in the baptism of money, spirit possession, or moral tales such as that of Rumpelstilskin—or through direct forms of protest and the organization of unions.

The mobility, segmentation, and disciplining of the workforce is, of course, only one feature of modern capitalism, and an examination of labor is only the beginning of an under- standing of how the black box is able to transform money into more money. It is necessary to examine additional components. In order to do so, let us turn to other major questions: How did the entire system develop historically? How did the black box evolve to where it is today? Most specifically, How and why did the capitalist evolve from the merchant trader?




A t no other time in human history has the world been a better place for capitalists. We live in a world full of investment opportunities—companies, banks, funds, bonds, securities, and even countries—into which we can put money and from which we can get more

back. These moneymaking machines, such as the Nike corporation, have a ready supply of cheap labor, capital, raw materials, and advanced technology to assist in making products that people

C h a p t e r

3 The Rise and Fall of the Merchant, Industrialist, and Financier

From the fifteenth century on, European soldiers and sailors carried the flags of their rulers to the four corners of the globe,

and European merchants established their storehouses from Vera Cruz to Nagasaki. Dominating the sealanes of the world, these

merchants invaded existing networks of exchange and linked one to the other. In the service of “God and profit” they located sources of products desired in Europe and developed coercive systems for their delivery. In response, European craft shops, either singly or aggregated into manufactories, began to produce goods to provi-

sion the wide-ranging military and naval efforts and to furnish commodities to overseas suppliers in exchange for goods to be

sold as commodities at home. The outcome was the creation of a commercial network of global scale.

—Eric Wolf, Europe and the People without History

When I think of Indonesia—a country on the Equator with 180 million people, a median age of 18, and a Moslem ban on alcohol—I feel

I know what heaven looks like.

—Donald R. Keough, President of Coca-Cola

Five years hence, commentators will look back to the birth of the credit derivative market as a watershed development.

—Blythe Masters, Derivatives Group of J. P. Morgan



58 Part I • The Society of Perpetual Growth

all over the world clamor to buy. Moreover, governments compete for their presence, passing laws and making treaties to open markets, while maintaining infrastructures (roads, airports, power utilities, monetary systems, communication networks, etc.) that enable them to manu- facture products or provide services cheaply and charge prices that remain competitive with other investments. Nation-states maintain armies to protect investments and ensure that markets remain open. Educational institutions devote themselves to producing knowledgeable, skilled, and disciplined workers, while researchers at colleges and universities develop new technolo- gies to make even better and cheaper products. Our governments, educational institutions, and mass media encourage people to consume more and more commodities. Citizens arrange their economic and social lives to accommodate work in the investment machines and to gain access to the commodities they produce. In return, the investment machines churn out profits that are reinvested to manufacture more of their particular products or that can be invested in other enterprises, producing yet more goods and services. Never before have people had so much opportunity to accumulate great wealth. Among the 400 richest Americans in 1999, 298 of them were worth a billion dollars or more, and the top 400 had a net worth of $1.2 trillion, about one- eighth of the total gross domestic product (GDP) of the United States (see Forbes 2000b).

But there are economic, environmental, and social consequences of doing business and making money. We live in a world in which the gap between the rich and poor is growing, a world that contains many wealthy and comfortable people and more than 1 billion people without enough to eat. Then there are the environmental consequences of doing business: Production uses up the earth’s energy resources and produces damaged environments in return. There are health consequences as well, not only from damaged environments but also because those too poor to afford health care often do without it. There are the political consequences of governments’ using their armed forces to maintain conditions that they believe are favorable for business and investors. And, finally, there are the occasional economic collapses in which the economies of whole countries suddenly decline, throwing millions of people out of work and wiping out vast wealth.

In the long view of human history, these conditions are very recent ones. For most of human history, people have lived in small, relatively isolated settlements that rarely exceeded 300 or 400 individuals. And until some 10,000 years ago, virtually all of these people lived by gathering and hunting. Then in some areas of the world, instead of depending on the natural growth of plant foods and the natural growth and movements of animals, people began to plant and harvest crops and raise animals themselves. This was not necessarily an advance in human societies—in fact, in terms of labor, it required human beings to do the work that had been done largely by nature. The sole advantage of working harder was that the additional labor supported denser populations. Settlements grew in size until thousands rather than hundreds lived together in towns and cities. Occupational specialization developed, necessitating trade and communica- tion between villages, towns, cities, and regions. Political complexity increased, chiefs became kings, and kings became emperors ruling over vast regions.

Then, approximately 400 or 500 years ago, patterns of travel and communication contrib- uted to the globalization of trade dominated by “a small peninsula off the landmass of Asia,” as Eric Wolf called Europe. The domination by one region over others was not new in the world. There had existed prior to this time civilizations whose influence had spread to influ- ence those around them—the Mayan civilization in Central America, Greek civilization of the fourth millennium b.c., Rome of the first and second centuries a.d., and Islamic civilization of the eighth and ninth centuries. But there was an important difference. The building of these empires was largely a political process of conquest and military domination, whereas the expan- sion of Europe, although certainly involving its share of militarism, was largely accomplished by economic means—by the expansion and control of trade.

Now let’s shift our focus to the development of the capitalist—the merchant, industrialist, and financier—the person who controls the capital, employs the laborers, and profits from the consumption of commodities. This will be a long-term, historical look at this development,



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 59

because if we are to understand the global distribution of power and money that exists today and the origins of the culture of capitalism, knowledge of its history is crucial.

Assume for a time the role of a businessperson, a global merchant, or merchant adventurer, as they used to be called,1 passing through the world of the past 600 years. We’ll begin search- ing the globe for ways to make money in the year 1400 and end our search in the year 2013, taking stock of the changes in the organization and distribution of capital that occurred in that time. Because we are looking at the world through the eyes of a merchant, there is much that we will miss—many political developments, religious wars, revolutions, natural catastrophes, and the like. Because we overlook these events does not mean they did not affect how business was conducted—in many cases, particularly in the case of war and war debts, they had profound effects. But our prime concern is with the events that most directly influenced the way in which business was conducted on a day-to-day basis and how the pursuit of profit by merchant adven- turers influenced the lives of people all over the world. Our historical tour will concentrate on five issues:

1. An understanding of how capital came to be concentrated in so few hands and how the world came to be divided into rich and poor. There were certainly rich people and poor people in 1400, but today’s vast global disparity between core and periphery did not exist then. How did the distribution of wealth change, and how did one area of the world come to dominate the others economically?

2. An understanding of the changes in business organizations and the organization of capital—that is, who controlled the money? In 1400, most business enterprises were small, generally family-organized institutions. Capital was controlled by these groups and state organizations. Today we live in an era of multinational corporations and financial institu- tions, many whose wealth exceeds that of most countries. We need to trace the evolution of the power of capital over our lives and the transformation of the merchant of 1400 into the industrialist of the eighteenth and nineteenth centuries, then into the investor and financier of the late twentieth and early twenty-first centuries. How and why did these transformations in the organization of capital come about?

3. The increase in the level of global economic integration. From your perspective as a merchant adventurer, you obviously want the fewest restraints possible on your ability to trade from one area of the world to another; the fewer the restrictions, the greater the opportunity for profit. Such things as a global currency, agreement among nations on import and export regulations, ease of passage of money and goods from area to area, and freedom to employ whom you want and to pay the lowest possible wage are all to your advantage; furthermore, you want few or no government restrictions regarding the consequences of your business activities. How did the level of global economic inte- gration increase, and what were the consequences for the merchant adventurer, as well as others?

4. Fourth, how do we explain the occasional collapse of national and global economies, such as the one that began in 2007 in the United States and spread to the rest of the world? Not only do such economic downturns force banks and businesses into bankruptcy, wipe out trillions of dollars of wealth, and throw millions of people out of work, they also threaten the stability of governments and the entire foundation of market economies.

5. Most importantly, where did the necessity for perpetual economic growth come from? That is, how did an economy arise in which people had to spend, earn, and produce more this year than last and more next year than this, in perpetuity?

With these questions in mind, let’s go back to the world of 1400 and start trading.

1 The name is taken from a sixteenth-century English trading company, The Merchant Adventurers, cloth wholesalers trading to Holland and Germany with bases of operation in Antwerp and Bergen-op-Zoom and later Hamburg. The company survived until 1809.



60 Part I • The Society of Perpetual Growth

The era of The Global Trader

a Trader’s Tour of the World in 1400

If, as global merchants in 1400, we were searching for ways to make money, the best opportuni- ties would be in long-distance trade, buying goods in one area of the world and selling them in another (see Braudel 1982:68). If we could choose which among the great cities of the world— Cairo, Malacca, Samarkand, Venice, and so on—to begin trading, our choice would probably be Hangchow, China. China in 1400 had a population of 100 million and was the most techno- logically developed country in the world. Paper was invented in China probably as early as a.d. 700 and block printing as early as 1050. China of 1400 had a thriving iron industry; enormous amounts of coal were burned to fuel the iron furnaces—the coal used in northern China alone was equal to 70 percent of what metalworkers in Great Britain used at the beginning of the eighteenth century. The explosive power of gunpowder was harnessed around a.d. 650 and by 1000 was used by Chinese armies for simple bombs and grenades. Cannons were in use by 1300, some mounted on the ships of the Chinese navy, and by the fourteenth century, the Chinese were using a metal-barreled gun that shot explosive pellets (Abu-Lughod 1989:322ff.).

If you were to tour the Chinese countryside, you would have been struck by the networks of canals and irrigation ditches that crisscrossed the landscape, maintained by wealthy landowners or the state. China was governed by a royal elite and administered largely by mandarins, people selected from the wealthy classes and who were exempt from paying taxes. State bureaucrats were also selected and promoted through civil service examinations open to all but those of the lowest rank of society (e.g., executioners, slaves, beggars, boat people, actors, and laborers [Hanson 1993:186]). China produced some of the most desired trade goods in the world, particu- larly silk, spices, and porcelain.

The economic conditions in China also favored traders. There were guilds and associ- ations of merchants, such as jewelers; gilders; antique dealers; dealers in honey, ginger, and boots; money changers; and doctors. China had its own currency system. In the Middle East and Europe, governments issued money in the form of coins of precious metals whose value depended on their weight. In China there was not only copper coin but also paper money (cotton paper stamped with a government seal) to provide merchants with a convenient means of exchange. Paper money also allowed the state to control the flow of money in and out of the country. Precious metals, such as gold and silver, could not be used by foreigners in trade, so foreign traders were forced to exchange their gold or silver for paper money, which they then exchanged for gold and silver when they left. Because they had usually purchased Chinese commodities to sell elsewhere, they usually left with less gold and silver than when they arrived (Abu-Lughod 1989:334).

China was also politically stable. The rulers, members of the Ming Dynasty, had success- fully rebelled against the Mongols in a.d. 1368. The Mongols, nomadic horsemen who roamed the vast steppes of Central Asia, conquered China in 1276 and set up their own dynasty, the Yuan. The Mongols, eager to establish trade with the rest of the world, had created relatively safe trade routes to the rest of Asia, the Middle East, and Europe. At least at first, the Ming appeared to want to maintain that trade, sending its impressive navy as emissaries to ports along the Indian Ocean.

The city of Hangchow was situated between the banks of the Che River leading to the sea and the shore of an enormous artificial lake. According to Ibn Battuta, an Arab trader who visited the city in the 1340s, the city extended more than six to seven square miles and was surrounded by walls with five gateways through which canals passed. Thirteen monumental gates, at which its great thoroughfares terminated, provided entry to the city. Situated on the hills overlooking the city were the imperial palace and homes of the wealthy state bureaucrats and merchants; at the opposite end of the city were the houses of the poor—crowded, narrow-fronted, three- to five-story houses with workshops on the ground floors. The main thoroughfare, the Imperial Way, was 3 miles long and 180 feet wide, crowded with carriages drawn by men or tiny horses.



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 61

The city was a trader’s paradise. Inside the city were ten markets as well as teahouses and restaurants where traders could meet and arrange their business. Outside the city were a fish market and wholesale markets. Ibn Battuta said it was “the largest city on the face of the earth.” Sections of the city contained concentrations of merchants from all over the world. Jewish and Christian traders from Europe were in one; Muslim traders were in another, with bazaars and mosques, and muezzins calling Muslims to noon prayer. The bazaars of Chinese merchants and artisans were in yet another section. In brief, Hangchow would have been an ideal place to sell merchandise from Europe, the Middle East, or other parts of Asia and to purchase goods, such as spices and silks, that were in demand in other parts of the world.

Silk was particularly desired by foreign traders because its light weight and compactness made it easy to transport and because China had a virtual monopoly in the silk trade. Syrian traders had smuggled silkworms out of China in the thirteenth century, and in 1400 one could purchase silk in India and Italy; but, the quality of Chinese silk was superior. Because the produc- tion of silk was likely in the hands of Chinese merchants, you would have purchased it directly from them. You might also purchase Chinese porcelain, especially if you planned to travel by ship because porcelain could be used as ballast by ships returning to the Middle East or Europe (see Figure 3.1).

Your next task would be to arrange to transport your goods to where you planned to sell them. Let’s assume you had orders from merchants in cities such as Venice, Cairo, and Bruges, where Chinese goods were in demand. Your first task is to get your goods to the Mediterranean. You could go overland through China, through central Asia to northern India, or to ports on the Black Sea, then travel to European ports such as Venice and Naples. The trip overland through Asia to Europe would take you at least 275 days using pack trains—camels over the deserts, mules through the mountains, ox carts where roads existed, human carriers, and boats. The overland route was popular in the thirteenth and fourteenth centuries, when the Mongols had, through their conquests, unified Central Asia and issued safe conduct passes to traders. In 1400, however, with the Empire fragmented, you may have risked raiding by nomadic bands of Mongol horsemen.

The splendor and wealth of fifteenth- and sixteenth-century China is portrayed in this engraving of a mandarin’s terrace and garden. (Fine Art/ Historical Picture Archive/ Corbis.)



62 Part I • The Society of Perpetual Growth

A safer route in 1400 would have been the sea route, down the east coast of China, through the Strait of Malacca to Southern India, and then either through the Persian Gulf to Iran and overland, through Baghdad to the Mediterranean, or through the Red Sea to Cairo, and finally by ship to Italy.

Traveling through the Strait of Malacca and into Southeast Asia, you would have found powerful elites ruling states from their royal palaces, surrounded by armed retainers, kin, artisans, and specialists. Beyond this was a peasantry producing rice to support themselves and the elites. These were the civilizations that built Angkor Thom and Angkor Wat in Cambodia. You would likely have been more at home, however, in the seaports that dotted the Strait of Malacca, which owed their existence to trade. Occasionally, these ports would merge with inland kingdoms such as Majapahit in Java. The main city of the area in 1400 was Malacca, founded by pirates led in rebellion twenty years earlier by a prince from Majapahit. The prince converted to Islam, attracting to Malacca wealthy Muslim merchants, and by 1400 Malacca was a city of 40,000 to 50,000 people containing traders from sixty-one nations. The Portuguese Tomé Pires, writing a century later, said, “Whoever is lord of Malacca has his hands on the throat of Venice” (Wolf 1982:58). While in Malacca, you likely would have obtained additional trade goods to take West. Spices, particularly cinnamon (at one time in Egypt considered more valuable than gold), were highly valued because they were easy to transport and brought high profits in the Middle East and Europe.

From Malacca you probably would have traveled along the coast of Southeast Asia and on to India, whose wealth in 1400 rivaled that of China. Southeast India had a thriving textile industry. Farmers grew cotton and passed it on to spinners, who made thread for the weavers. There is some evidence that merchants provided cotton and thread to spinners and weavers and paid the artisans for what they produced. There was a sophisticated technology: a vertical loom, block printing, and the spinning wheel, probably introduced from Turkey. But cotton and textiles were not the only items you might have obtained in India for trade; there were also dyes, tannins, spices, oil seed, narcotics, lumber, honey, and ivory (see Wolf 1982).








Woolens Linens Horses Wine Silk

Porcelain Spices Drugs Perfumes

Pepper Cotton Sugar

CALICUTGold Slaves Textiles

Gold Ivory Slaves

Cinnamon Ivory













fiGure 3.1 Major Trade Routes in 1400



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 63

From India you might travel to East Africa, where from Bantu-speaking peoples you might have obtained slaves, ivory, leopard skins, gold from Zimbabwe, and rhinoceros horns (still believed in some parts of the world to be an aphrodisiac).

Leaving East Africa, you would have journeyed up the coast through the Red Sea to Cairo or through the Persian Gulf, through Iraq to Baghdad, and on to Constantinople and the Eastern Mediterranean. You would have found the Islamic countries of the Middle East favorable to business, with a sophisticated body of law regulating trade, including rules for the formation of trading partnerships and the extension of credit. One law allowed people to pay for merchan- dise at a later date at a higher price, a convenient way around the Islamic prohibition of lending money at interest. Bags of gold coin whose value was printed on the outside, and whose contents were apparently never checked, served as money. There were bankers who changed money, took deposits, and issued promissory notes, another way of extending credit and making loans. Merchants kept their accounts by listing credits and debits. Thus, all the rudiments of a sophisti- cated economy—capital, credit, banking, money, and account keeping—were present in Islamic trade (Abu-Lughod 1989:216ff.).

From Cairo you could join a caravan to go south through the Sahara to West Africa, where textile goods were in demand and where you might obtain slaves or gold. Virtually two-thirds of the gold circulating in Europe and the Middle East came from West Africa. Or you might travel a short way to Alexandria, still a major city. From there you would travel by ship on the Mediterranean to one of the city-states of Italy, such as Venice or Genoa. Italy was the center of European and Mediterranean trade. At European fairs, Italian traders would set up a bench (banco, from which bank is derived) with their scales and coins, enabling traders to exchange currency from one area of the world for another. Italian bankers monopolized the international exchange of money and credit and pioneered the bill of exchange. This was a document in which a buyer agreed to deliver pay- ment to a seller at another time and place in the seller’s home currency. In the absence of any widely recognized currency, the bill of exchange greatly facilitated foreign trade (Abu-Lughod 1989:93).

You might then join other merchants from Genoa, Pisa, and Milan who formed caravans to take goods—such as silks and spices from the Orient or the Middle East; alum, wax, leather, and fur from Africa; dates, figs, and honey from Spain; and pepper, feathers, and brazilwood from the Middle East—over the Alps to the fairs and markets of western and northern Europe, a trip taking five weeks. Or you could send your goods by ship, through the Mediterranean and the North Sea to trading centers such as Bruges.

Once you reached northern or western Europe, you had already left the wealthiest part of the world. After the decline of the Roman Empire, western Europe was a backward area, exploited for its iron, lumber, and slaves. Urban areas had declined, and artisan activity retreated to rural areas. Moreover, Europe had been devastated in the fourteenth century by bubonic plague: In the mid-fourteenth century, Europe’s population was about 80 million (Abu-Lughod 1989:94). By 1400, plague had reduced it by 45 percent, to between 40 million and 50 mil- lion. The plague likely originated in Central Asia or China. It traveled the trade routes, striking Chinese cities as early as 1320 and first striking Europe in Caffa, on the Black Sea, in 1346. It arrived in Alexandria in 1347, probably from Italian ports on the Black Sea. At its height in Alexandria, it killed 10,000 people a day, finally killing 200,000 of the city’s half-million people. It struck Italy in 1348, appeared in France and Britain the same year, and reached Germany and Scandinavia a year later.

Feudalism was still the main form of political and economic organization in Europe. Kings bestowed lands, or fiefs, to subjects in return for their loyalty and service. Lords “rented” land to peasants, generally for a share of the produce, which they used to pay tribute to the kings and to finance their own expenses.

Woolen textiles were the most important products of northern and western Europe in 1400. Flanders (western Belgium and northwest France), the textile center of northern Europe, had virtually monopolized the purchase of raw wool from England, and woolen textiles from Flanders were in demand throughout Europe and in other parts of the world.



64 Part I • The Society of Perpetual Growth

Let’s assume you have sold the commodities you brought from China and realized a hand- some profit. The question is, What to do with your capital and profits? You might buy Flemish textiles in Bruges or, depending on the political circumstances, travel to England to buy textiles. You might buy land or finance other traders in return for a share of their profits. If, however, you decided to undergo another trade circuit, returning east would be your likely alternative. The Americas were probably unknown and certainly unreachable. You might have traveled down the European coast to West Africa, where European textiles were in great demand and where you could obtain slaves and gold. But while the wind patterns of the Eastern Atlantic would have carried your ship to West Africa, they made it impossible, given the sailing technology, to return by sea, and you would be forced to return overland across northern Africa. Your likely trade route, then, would have been back to Italy and east through the Mediterranean to India, the East Indies, and China.

What if you had been able to cross the sea to the Americas? What would you have found in 1400? No one left a written record of life in the New World just prior to the arrival of Europeans. Archaeologists, however, have created a record from what was left behind. You would have discovered elaborate trade routes extending from South America into North America and the remains of great civilizations in Central Mexico and the Yucatán Peninsula.

The Inca were just beginning their expansion, which would produce the Andean Empire confronted by Pizarro in 1532. Inca society in 1400 was dominated by the Inca dynasty, an aristocracy consisting of relatives of the ruling group, local rulers who submitted to Inca rule. Men of local rank headed endogamous patrilineal clans, or ayllus, groups who traced descent to a common male ancestor and who were required to marry within their clan. These groups paid tribute to the Inca aristocracy by working on public projects or in military service. Women spent much of their time weaving cloth used to repay faithful subjects and imbued with extraordinary ritual and ceremonial value. The state expanded by colonizing new agricultural lands to grow maize. It maintained irrigation systems, roads, and a postal service in which runners carried information from one end of the empire to another. Groups that rebelled against Inca rule were usually relocated far from their homeland (Wolf 1982:62–63).

If you had traveled into the Brazilian rain forests, you might have encountered peoples such as the Tupinambá, who lived on small garden plots while gathering and hunting in the forests. Sixteenth-century traveler Calvinist pastor Jean de Léry concluded that the Tupinambá lived more comfortably than ordinary people in France (Maybury-Lewis 1997:13).

In Mexico in 1400, the Aztecs were twenty years from establishing their vast empire with its capital at Tenochtitlán. In the Caribbean there were complex chieftainships with linkages to the civilizations of Mesoamerica and the Andes. A merchant of 1400 would have been able to follow trade routes that spread from Mexico into the southeastern and northeastern United States, encountering descendants of those who archaeologists called the Mississippians. In this society, goods and commodities were used to indicate status and rank. A trader would have encountered towns or ceremonial centers focused on great terraced, earthen platforms. The Mississippians relied on the cultivation of maize, beans, and squash, called “the three sisters” by the Iroquois. You might have met the Iroquois at the headwaters of the Ohio River, the Cherokee in the south- ern Appalachians, the Natchez on the lower Mississippi River, and the Pawnee and the Mandan on the Missouri River. On the surrounding prairies you would have encountered the peoples of the Northwest, the buffalo hunters of the plains (the horse, often associated with the Plains Indians, wouldn’t arrive for another century), and the Inuit hunters of the Arctic and subarctic. These civilizations and cultures might, in later centuries, have provided a lucrative market for the sale and purchase of goods had not other events led to their devastation.

As we complete our global tour, the barriers to commerce are striking. For example, most political rulers were not yet committed to encouraging trade. Although states might value trade for the taxes, tolls, and rents they could extract from traders, merchants were still looked down on. Rulers generally viewed trade only as a way to gain profit from traders and merchants, and some states even attempted to control some trade themselves. In China, for example, trade in



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 65

salt was monopolized by the government. Religious authori- ties in Europe, the Middle East, and China discouraged trade by extracting high taxes or forbidding loans at interest.

Geography was obviously a major barrier: Trade circuits might take years to complete. Roads were few and ships rela- tively small and at the mercy of winds and tides. Security was a problem: A merchants’ goods were liable to be seized or stolen, or merchants might be forced to pay tribute to rulers along the way.

Economically, there were various restrictions. We were a long way in 1400 from anything resembling a consumer economy. Most of the world’s population lived on a subsistence economy—that is, they produced themselves whatever they needed to exist. In Europe, for example, where 90 percent of the population was rural, people might buy an iron plow, some pots, and textile products, but that was all. Consumers tended to be the urban dwellers, largely the clergy, aristocracy, and the small middle class consisting of artisans, merchants, and bureaucrats. Furthermore, if people wanted to buy more, there was virtually no currency with which to do it; even if all the gold and silver of Europe had been in circulation, it would have amounted to only about two dollars per person (Weatherford 1988:14).

Thus, overall, the world of 1400 seemed little affected by trade. China and India were probably the richest countries in the world, and there is little doubt that royal rulers con- trolled most of the wealth, largely through the extraction of tribute from peasants, artisans, and traders. Much of this they redistributed in the form of gifts, feasts, and charity. Moreover, the people who worked the soil, as those who remained gathering and hunting at the fringes and out- side the world system, had ready access to food. Though there is evidence of periodic famine in which thousands perished, it is unlikely that, as now, close to one-fifth of the world’s population in 1400 was hungry. Thus, although a growing system of trade was beginning to link more of the world’s people together, there had yet to develop the worldwide inequities that exist today. This, however, would rapidly begin to change over the next one hundred years.

The economic rise of europe and its impact on africa and the americas

Two events dominate the story of the expansion of trade after 1400: the increased withdrawal of China from world trade networks and the voyage of Vasco da Gama around the southern tip of Africa. These events resulted in a shift in the balance of economic dominance from a country of 100 million occupying most of Asia to a country of 1 million occupying an area just slightly larger than the state of Maine.

The date and reason for China’s withdrawal from its position of commercial dominance is something of a mystery and subject to considerable academic debate (see, e.g., Frank 1998; Landes 1998). The ruling dynasty moved the capital of China inland and allowed its power- ful navy to gradually disintegrate. Regardless of the reasons for these actions, they resulted in a diminished role for China in global trade, and Portugal, with the most powerful navy in the world, was quick to fill the vacuum left by China in the East Indies. Portugal used its navy to dominate trade and supplemented trading activities with raiding (Abu-Lughod 1989:243).

Japan also took the opportunity after China’s withdrawal to expand its trading activity in Southeast Asia. In the fifteenth century, Japan, like England, was a feudal society divided into an upper nobility, the daimyo, or great lords; the samurai, vassals of the daimyo; and the chonin, or merchants, who were looked down on by the nobility. There was contact between Japan and Europe by the mid-sixteenth century, and Christian missionaries soon established themselves in Japan. But around 1500, Japan was involved in heavy trade with China, trading











66 Part I • The Society of Perpetual Growth

refined copper, sulfur, folding fans, painted scrolls, and, most important, swords. One trade expedition carried 10,000 swords to China and returned with strings of cash, raw silk, porcelains, paintings, medicines, and books. Thus, in the fifteenth century, Japan was beginning economic expansion to areas vacated by China (Sanderson 1995:154).

Technological advances in boat building were partially responsible for Portugal’s power. Around 1400, European boat builders combined the European square rigger with the lateen rig of the Arabs, the square rig giving ships speed when running and the lateen rig allowing the boat to sail closer to the wind. They also equipped their ships with cannons on the main and upper decks by cutting holes in the hull. The result was a speedy and maneuverable galleon, half warship and half merchantman (Wolf 1982:235).

Equally important for Portugal was location. Prior to the fifteenth century, Portugal was at the edge of the world system. The Mediterranean was controlled by the city-states of Italy and by Islamic powers. The Americas were seemingly out of reach, even if traders were aware of them. The west coast of Africa was inaccessible by boat unless one sailed south down the coast and returned overland. But once the route east to India and China was restricted, action shifted to the Atlantic, and as Africa and the Americas became readily accessible, Portugal was suddenly at the center of world trade.

It was the era of discovery and conquest, of the voyages of Columbus, of efforts to find alternative routes to China and the East Indies. Columbus believed he had discovered China or

Cipangu (Japan), and as late as 1638, the fur trader Jean Nicolet, on meeting Winnebago Indians on the shores of Lake Michigan, wore a Chinese robe he brought to wear when meeting the Great Kahn of China (Wolf 1982:232).

Much is made in popular culture and history books of the spirit of adventure of early “explorers” such as Marco Polo, Vasco da Gama, and Christopher Columbus. But they were less explorers than merchant sailors. Their motivation was largely economic; they were seek- ing alternative ways to the riches of China and the East Indies. One might say that European economic domination, to the extent it was fueled by the wealth of the Americas, was due to the accidental discovery of two continents that happened to be in the way of their attempts to find alternative routes to China, Japan, and India.

If you were a global trader in the sixteenth century whose starting point was Lisbon, Portugal, you had a choice of trade routes. You could go east to the Middle East, India, or Southeast Asia, all kept open to Portuguese traders by Portugal’s navy. You could go south along the African coast, or follow Columbus’s route to the New World. Or you could simply trade into the rest of Europe. All routes could prove profitable. In our reincarnation as a Portuguese trader, let’s first go south to Africa.

Let’s assume you have the capital to hire a ship to carry yourself and your goods to Africa. You would probably be carrying Mediterranean wine, iron weapons, perhaps horses (much in demand in Africa), and a consignment of textiles possibly consisting of Egyptian linen and cotton. What sort of commodities would you acquire in Africa for trade in Europe?

Africans were already producing the same things as Europeans—iron and steel (possibly the best in the world at the time), elaborate textiles, and other goods. As a trader, you would have been interested in the textiles made in Africa, which were in demand in Europe. You would also have been anxious to trade in gold mined in West Africa, the source until that time of most of the gold in Europe and the Middle East. But your real interest would likely have been slaves.

The institution of slavery goes back well into antiquity. The ancient Greeks kept slaves, and slave labor was used throughout the Middle East and Europe in 1500. Muslims enslaved Christians, Christians enslaved Muslims, and Europeans enslaved Slavs and Greeks. Coal



















Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 67

miners in Scotland were enslaved into the seventeenth and eigh- teenth centuries, and indentured servitude was widespread in Europe. However, there was about to be a huge surge in the demand for slave labor from the new colonies being established in the Americas.

The nature of the slave trade has long been a conten- tious issue among historians. Many believe the slave trade was forced on Africa, if not by direct military intervention, then by economic extortion, as Europeans offered guns and horses needed by rulers to maintain their authority in exchange for slaves. But there is increasing evidence that the slave trade was largely an African institution in which Europeans and others were only too happy to partake. Slavery in Africa was differ- ent from slavery in Europe, however, and different from what it was to become in the Americas.

Slaves were regarded traditionally in Africa as subordinate family members, as they were in Europe going back to Aristotle’s time. Thus, slaves in Africa could be found doing any duties a subordinate family member might do. To understand the African institution of slavery, it is also necessary to understand that among people in African states, there was little notion of private property; for example, land was owned by “corporate kinship groups,” net- works of related individuals who together owned land in common. People were given the right to use land but not to own it. Slaves comprised the only form of private, revenue-producing property recognized in African law. Slaves could produce revenue because if you had the labor in the form of family members, wives, or slaves, you could claim the use of more land. African conceptions of property are reflected also in the fact that, whereas in Europe taxes were paid on land, in Africa taxes were paid on people, “by the head” (Thornton 1992).

The size of African states may have reflected the lack of concern with land as property. John Thornton (1992:106) estimated that only 30 percent of Atlantic Africa contained states larger than 50,000 square kilometers (roughly the size of New York State), and more than half the total area contained states of 500 to 1,000 square kilometers. Africans generally went to war not to acquire land, as in Europe, but to acquire slaves, with which more land could be worked.

Given these attitudes toward land and labor, there existed in Africa at the time of European arrival a large slave population and a thriving slave market. Slaves were a major form of invest- ment; a wealthy African could not buy land but could acquire slaves and, as long as land was available, claim more land to use. Moreover, slaves, because they were property, could be inher- ited by individuals, whereas land, because it belonged to the corporate kin group, could not. Investing in slaves would have been the wealthy African’s equivalent of a European investing in land, and if you were not using slaves, you could sell them (Thornton 1992:87). Thus, European traders found ready sources of slaves, not because Africans were inveterate slave traders but because in Africa the legal basis for wealth revolved around the idea of transferring ownership of people (Thornton 1992:95).

Once you obtained the slaves, you might have obtained a special ship to transport them back to Europe or to one of the Atlantic Islands, where they were in demand as workers on the expanding sugar plantations. Sugar in the sixteenth century was still a luxury item, used by the wealthy to decorate food or as medicine. The primary areas of supply were around the Mediterranean—Egypt, Italy, Spain, and Greece. But with the opening of the Atlantic, sugar plantations were established first on the Canary Islands and the Azores and later in the Caribbean. Sugar production was a labor-intensive activity, and slaves from Africa supplied much of that labor. From 1451 to 1600, some 275,000 slaves were sent from West Africa to America and Europe. In the seventeenth and eighteenth centuries, sugar would begin to play a major role in the world economy; but in the sixteenth century, its possibilities were only begin- ning to be recognized.

















68 Part I • The Society of Perpetual Growth

Let’s assume that after buying slaves in Africa and selling them in the new sugar planta- tions of the Azores, you resume your journey and go west to the Americas. The opening of the Americas brought into Portugal and Spain vast amounts of gold and silver plundered from the Inca and Aztec empires and extracted from mines by slave and indentured labor. When Pizarro invaded Peru and seized Atahualpa in 1532, he demanded and received a ransom of a room- ful of gold but killed the emperor anyway. When Cortes conquered the Aztec, he demanded gold; after the Aztec’s counterattack, Cortes’s fleeing men carried so much loot that one-quarter drowned as they fell from a causeway into a lake, so burdened down were they by their cargo (Weatherford 1988:7).

At the time of the conquest of the Americas, there was approximately $200 million worth of gold and silver in Europe; by 1600, that had increased eight times. Some 180 to 200 tons of gold, with a contemporary value of $2.8 billion, flowed into Europe, much of it still visible in the robes, statuary, and sacred objects of European churches (Weatherford 1988:14).

Most of the silver came from San Luis Potosí. Cerro Rico (“rich hill” in Spanish), the mountain above Potosí in Bolivia, is the richest mountain ever discovered, virtually a mountain of silver. In 1545 slaves and indentured laborers recruited from the indigenous population began digging silver out of the mountain, forming it into bars and coins, and sending it to Spain. By 1603, there were 58,800 Indian workers in Potosí, 43,200 free day laborers, 10,500 contract laborers, and 5,100 labor draftees. By 1650, Potosí rivaled London and Paris in size, with a population of 160,000 (Wolf 1982:136).

The amount of currency in circulation worldwide increased enormously, enriching Europe but eroding the wealth of other areas and helping Europe expand into an international market system. China reopened its trading links to Europe and took in so much silver that by the mid-eighteenth century, its value had declined to one-fifth what it had been prior to the discovery of America. The gold from the Americas also had the effect of destroying the African gold trade (Weatherford 1988).

Gold and silver were not the only wealth extracted from the New World. Spain imported cochineal, a red dye made from insects (it took 70,000 dried insects to produce one pound of cochineal), indigo (blue dye), and cocoa. Portuguese traders established sugar plantations on the northeast coast of Brazil.

The cost of the European expansion of trade to the Americas, at least to the people of the Americas, was enormous. It resulted in the demographic collapse of the New World, what Eric Wolf called “the great dying” (1982:133).

There is broad disagreement about the population of the Americas at the time of the European conquest. Alfred E. Kroeber (1939), one of the founders of American anthropology, estimated that the total population of the Americas was about 8.4 million, of which 900,000 were in North America. Harold Herbert Spinden, relying on archaeological evidence, suggested there were 50 million to 75 million people in the Americas in a.d. 1200. Henry F. Dobyns (1983), working with archaeological evidence, estimates of the carrying capacity of given environments, and historical documents, estimated 90 million to 112 million in the hemisphere and 12.5 million in the area north of Mexico. The disagreement reflected in these numbers is not unimportant, for it involves an important legal question: Did the “discovery” of the New World permit Europeans to move on to unoccupied wilderness, or did they displace and destroy a settled indigenous population? If the latter is the case, then European claims of legal ownership of the land based on the doctrine of terra nullius—land belonging to no one—would be legally invalid.

There is little doubt, we think, that the higher estimates are closer to the actual population of the Americas. In 1500, Europe, a fraction of the size of the Americas, had a population of 45 million; France alone had a population of 20 million, and tiny Portugal 1 million. And this was after the bubonic plague epidemics. There seems little doubt that the environment and soci- eties of the Americas were capable of supporting large populations. The peoples of the Americas built empires, palisaded settlements, temples, great pyramids, and irrigation complexes. There was certainly an adequate supply of foodstuffs to support a large population; most of our diet



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 69

today comes from plants domesticated first in the New World, including corn, potatoes, sweet potatoes, tomatoes, squash, pumpkins, most varieties of beans, pepper (except black), amaranth, manioc, mustard, some types of rice, pecans, pineapples, bread fruit, passion fruit, melons, cranberries, blueberries, blackberries, vanilla, chocolate, and cocoa.

In 1496, Bartolomé Colón, Christopher’s brother, authorized a headcount of adults of Española, the present-day Haiti and Dominican Republic, then the most populous of the Caribbean Islands. The people of the island, the Tainos, created a culture that extended over most of the Caribbean. Colón arrived at a count of 1.1 million working adults; if we add children and the elderly, and consider that disease and murder had already diminished the population, there must have been at least 2 million and as many as 8 million on that island alone (Sale 1991:160–161). Thus, it is hardly unreasonable to suppose that the population of the Americas as a whole was upward of 50 million to 100 million people.

The scale of death after the arrival of the Europeans is difficult to conceive and rivals any estimate made for the demographic consequences of a nuclear holocaust today. When the Spanish surveyed Española in 1508, 1510, 1514, and 1518, they found a population of under 100,000. The most detailed of the surveys, taken in 1514, listed only 22,000 adults, which anthropologists Sherburne Cook and Woodrow Borah estimated to represent a total population of 27,800 (Cook and Borah 1960). Thus, in slightly more than twenty years, there was a decline from at least 2 million to 27,800 people. Bartolomé de Las Casas, the major chronicler of the effects of the Spanish invasion, said that by 1542 there were only 200 indigenous Tainos left, and within a decade they were extinct. Cook and Borah concluded that in Central America, an estimated population of 25.3 million was reduced by 97 percent in a little more than a century. In all, it is estimated that 95 percent to 98 percent of the indigenous population of the Americas died as a consequence of European contact.

Many died in battles with the invaders; others were murdered by European occupiers desperate to maintain control over a threatening population; and still others died as a result of slavery and forced labor. But the vast majority died of diseases introduced by Europeans to which the indigenous peoples had no immunity.

The most deadly of the diseases was smallpox. It arrived sometime between 1520 and 1524 with a European soldier or sailor and quickly spread across the continent, ahead of the advancing Europeans. When Pizarro reached the Incas in 1532, his defeat of a divided empire was made possible by the death from smallpox of the ruler and the crown prince. When a Spanish expedi- tion set out from Florida for the Pacific in 1535, they found evidence of the epidemic in West Texas. Dobyns (1983) assumed that virtually all the inhabitants of the hemisphere were exposed to smallpox during that one epidemic. What would the mortality rate have been from this one pathogen alone?

Dobyns (1983:13–14; see also Stiffarm and Lane 1992) estimated that in the epidemic of 1520–1524, virtually all indigenous peoples—certainly those in large population areas—would have been exposed to smallpox, and because there would have been no immunity, the death rate, judging by known death rates among other Native American populations, must have been at least 60 percent to 70 percent. Dobyns claimed that Spanish reports of the time that half of the native population died most certainly were underestimates.

This was not the only smallpox epidemic. Dobyns calculated that there were forty-one smallpox epidemics in North America from 1520 to 1899, seventeen measles epidemics from 1531 to 1892, ten major influenza epidemics from 1559 to 1918, and four plague epidemics from 1545 to 1707, to name a few. In all, he said, a serious epidemic invaded indigenous populations on average every four years and two and half months during the years 1520 to 1900.

Thus, the occupation of the New World by Europeans was not so much an act of conquest as it was an act of replacing a population ravaged by pathogens that Europeans carried with them. Depopulation was not the only consequence of the economic expansion of Europe into the Americas. The deaths of indigenous peoples proved a boon to the slave trade, as Europeans transported millions of Africans to the plantations and mines to replace the dying indigenous



70 Part I • The Society of Perpetual Growth

laborers. Much of the remaining native population gathered around mining communities and Spanish agricultural estates, providing a surplus labor supply, producing cheap crafts and agricultural products, and paying tribute and taxes to the colonizers (Wolf 1982:149). Their descendants today still suffer economic and social discrimination at the hands of descendants of European and indigenous unions.

In 1776, Adam Smith wrote in The Wealth of Nations that “the discovery of America, and that of a passage to the East Indies by the Cape of Good Hope, are the two greatest and most important events recorded in the history of mankind” (Crosby 1986:vii).

A decade later there was a debate among the savants of France over whether the discovery of the New World was a blessing or a curse. Abbé Guillaume Reynal, author of a four-volume study of trade between Europe and the East and West Indies, wrote a paper to answer this ques- tion. In it he listed the gains that Europe had received and discussed the costs to the peoples of Asia and the Americas. He concluded:

Let us stop here, and consider ourselves as existing at the time when America and India were unknown. Let me suppose that I address myself to the most cruel of the Europeans in the following terms. There exist regions which will furnish you with rich metals, agreeable clothing, and delicious food. But read this history, and behold at what price the discovery is promised to you. Do you wish or not that it should be made? Is it to be imagined that there exists a being infernal enough to answer this question in the affirmative! Let it be remembered that there will not be a single instant in futurity when my question will not have the same force. (Sale 1991:366–367)

The birth of finance and the Tulip bubble of 1636–1637

The next, and perhaps the most important, stage in the evolution of the capitalist was the birth of finance. Finance may be understood, as the third Lord Rothschild put it, as the “movement of money from point ‘A’, where it is, to point ‘B’, where it is needed” (see Ferguson 2008:62–63). It may also be properly understood as the art of making money with money, the major mark of a capitalist economy (see Hart 2000:10; Polanyi 1944:68–69). The easiest way to make money with money is to lend money at interest, an act probably as old as money itself. But lending implied certain preconditions that, until relatively recently in global history, were rarely met. First, it had to be permissible. Many religious texts, including the Old Testament, the New Testament, and the Koran, discourage or condemn loans at interest. It was not until the fifteenth and sixteenth centuries that such prohibitions were relaxed in Europe. Second, lending money requires that there be a pretty good chance that the lender gets his or her money back with inter- est. In other words, the lender had to be able to accurately assess the risk that the borrower would not default and set interest rates accordingly. Third, finance required the development of institu- tions to facilitate lending, borrowing, credit, investment, and the like. Banks, stock and bond markets, and bodies of financial law and the means to enforce it were prerequisites of a modern financial system.

Without finance and financiers, it would have been difficult, if not impossible, for nation- states to make war; finance large-scale trading voyages; establish trading companies; build canals, dams, and railroads; and so on. But the possibility of making money with money also assumed that at the close of a transaction—the loan, the investment, and so on—there was more money than at the beginning. And it is here that we begin to appreciate the requirement of our economy for perpetual economic growth. The more that is lent or invested (and the higher the interest rates), the more money has to be generated to meet the terms of the investment or loan. When people cannot repay their loans or when investors fail to profit from their investments, financial collapse can ensue. Without the necessary growth, borrowers, including nation-states, may default on their loans; banks may collapse; or currency may widely fluctuate in value. And



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 71

such crises are fairly frequent. In their study of global financial crises, Carmen M. Reinhart and Kenneth S. Rogoff (2009:34) note that since 1800, there have been at least 250 cases where whole countries have defaulted on their loan obligations. And over the course of the last 200 years, advanced economies have had, on average, 7.2 banking crises lasting an average of 7.2 years each.

Knowing that the process of making money with money involves some risk, let’s resume our time voyage as a merchant adventurer; how could we have made money with money? The place to have begun would have been the Netherlands of the sixteenth and seventeenth centuries. After Portugal, it was the Dutch that began to dominate the global economy of that period. The Dutch were initially best able to exploit the new developments in trade, partially because of their large merchant fleet and the development of the fluitschip, a light and slender vessel that carried heavy cargoes. But, more importantly, it was in the Netherlands that the first modern economy emerged, one in which making money with money, that is, moving it from where it was to where it was needed (or demanded) for a price, became accepted and normal (see de Vries and van der Woude 1997).

As in the case of Portugal, it is difficult to understand how a small country with virtually no natural resources other than a tiny fish (herring) could come to dominate the economic world. But it may not be too much to say that the Dutch were the first to realize the full poten- tial of money and to develop the whole field of finance. The Dutch did not invent finance, but they were the first to use it in a large-scale and public way. It would not be inaccurate to say that the Dutch were great investors, and, perhaps for that reason, the Netherlands is sometimes cited as the first modern economy to be characterized by sustained economic growth (see North and Thomas 1976).

The Dutch invested money in all sorts of things. In the period from 1610 to 1640, for example, Dutch citizens invested at least 10 million guilders (when annual average income was 200–400 guilders) in new capital-intensive technologies such as windmill pumping techniques to drain water and in increasing farmland for crops to feed the growing urban populations (see de Vries and van der Woude 1997:29). They also invested money in the building of canals to connect cities and towns and in draining peat bogs, their major energy source.

Dutch citizens also made money financing the public debt. In 1600, the state owed some 5  million guilders, and the public could buy state bonds paying some 8 percent to 16 percent interest (de Vries and van der Woude 1997:114). By 1660, some 65,000 people (out of some 220,000 households) had invested money in state bonds in order to gain the interest on the bonds, and, consequently, make money with money.

One of the most successful investments you might make at the time as a merchant adventurer would be in the United or Dutch East Indian Company (Vereenigde Oost-Indische Compagnie or VOC). The VOC was the first multinational corporation and the first to sell stock. It was also incredibly profitable, paying an average of 18 percent annual return on investments for almost 200 years.

Until that period, most investments in long-distance trading voyages involved one round- trip voyage only. But with increasing competition from Portugal and England, Dutch merchants with the help of the government set up the “United East Indies Company,” granting the company exclusive trading rights over Asian trade, along with the authority to build forts, raise armies, and negotiate treaties with Asian rulers. To finance the company, the board, made up of seven- teen lords and representing the first board of directors, issued stock in the company. The initial offering raised some 6.45 million guilders, and the shares were bought by everyone from the wealthiest members of society to their servants.












The Netherlands



72 Part I • The Society of Perpetual Growth

Initially the company was to function for twenty years, and an accounting to investors was to be provided only after that time. Consequently, the only way that investors could withdraw their investment was by selling their shares. Thus the joint-stock company and the stock market were established at about the same time. A considerable number of people wanted to buy and sell shares and therefore a special structure was built in Amsterdam for people to gather and buy and sell shares in the VOC.

Since a stock market cannot function effectively without banks, in 1609 the city of Amsterdam established the Amsterdam Exchange Bank to settle accounts between lenders and debtors and the bank soon began to accept VOC shares as collateral for loans, thus linking the stock market and the supply of credit. When banks began to lend money to buy shares, the outline of a new kind of economy based on investment, credit, and debt began to emerge (see Ferguson 2008:132).

Since much of the investment and debt was tied to the VOC, its success was essential to the maintenance of the economy. That is, if the investments in the VOC didn’t pay off, people would have been unable to settle their debts or recoup the money that they had invested. Thus, the VOC had to grow the economy. And this it did.

The VOC’s strategy was to establish “factories” in the areas it controlled, producing things (e.g., textiles and iron implements) to use to trade for local goods, such as spices, lumber, or handicrafts, which were shipped back and sold in Europe. In many cases, the successful work- ing of the factories required ruthless exploitation of indigenous communities as well as armed confrontation with competing companies. As Jan Pieterszoon Coen, governor-general of the VOC put it, “We cannot make war without trade, nor trade without war.”

Pieter van der Heyden’s sixteenth-century

painting The Battle about Money conveys the growing concerns

about making more money. The Dutch inscription on the

bottom warns that “It’s all for money and

goods, this fighting and quarreling.” (Heyden,

Pieter van der (c. 1530 – after 1572). After, Pieter Bruegel

the Elder (c. 1525–1569). The Battle of the Money

Bags and the Strong Boxes, 1570–1600. Engraving;

second state of four, sheet: 9 5⁄16 × 11

15⁄16 in. (23.6 × 30.4 cm). Harris Brisbane

Dick Fund, 1926 (26.72.40). The Metropolitan Museum

of Art, New York, NY, U.S.A. Image copyright

© The Metropolitan Museum of Art. Image

source: Art Resource, NY.)



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 73

With armies at their disposal, and fleets of fast-sailing ships available, the volume of trade controlled by the VOC increased yearly. In the 1620s, 50 VOC ships returned laden with goods from Asia; by the 1690s the num- ber was 156, and from 1700 to 1750 the tonnage of Dutch ships doubled.

As trade increased, so did the value of VOC stock. From 1602 to 1733 the value of VOC stock rose from par (100) to 786 guilders. In addition, the dividends paid to shareholders by 1650 were eight times the purchase price, yielding an annual return of 27 percent, rivaling that of the most profitable present-day hedge funds.

But not all Dutch investments of the period worked out as planned; the Dutch not only can be said to have invented finance, they were also responsible for the first financial bubble and collapse. As mentioned ear- lier, the Dutch were avid investors and financial speculators. For example, as early as the 1550s, they invested in futures contracts. There were agree- ments between buyers and sellers that a specific commodity, such as grain or herring, could be purchased at a specific price at some time in the future. A futures contract was a way to reduce financial risk; the buyer would be guaranteed the right to buy a commodity at a price they could predict, and the seller was guaranteed a price for his or her product that they estimated would be profitable, regardless of whether the market prices of these com- modities rose or fell.

By the seventeenth century, futures contracts were being written on such trade items as pepper, coffee, cacao, brandywine, whale bone, and whale oil. However, unlike the earlier futures market, many of the contracts in the seventeenth century represented speculation on prices; that is, purchasers had no intention of taking possession of the goods, just as sellers did not possess the goods. People essentially were betting that the prices of the goods would either rise or fall; if they won their bet, they prof- ited. If not, they lost. And if many people speculated or bet on a specific commodity, and enough lost their bet, the whole economy could be thrown into disarray. Thus, we have the Dutch tulip mania of 1636/1637.

Beginning in 1635, during a decade when shares in the VOC were doubling in value, tulips, to most Dutch, looked like a good thing. Tulips enjoyed great popularity among the Dutch, who appreciated their aesthetic quality and the many-colored patterns of the flowers. Since some patterns were more desirable than others, prices of tulip bulbs varied immensely.

Tulip bulbs can propagate through the formation of outgrowths on the mother bulb, and when the bulbs are invaded by a mosaic virus, it produces an effect called “breaking” that results in multicolored flower patterns that are highly desired. However, the presence of these patterns can be verified only between June, when the bulbs can be removed from the ground, and September, when they must be replanted. Single bulbs were sometimes worth modest fortunes. A single Semper Augustus bulb sold for 5,500 guilders at a time, again, when the average yearly income was 200 to 400 guilders.

In the fall of 1636, the trade in tulips began to accelerate as ordinary Dutch citizens began to purchase tulip futures, specifying the kind of tulip they wished to purchase and enter- ing into contracts with sellers. Most of the buyers had no intention of taking possession of the tulip bulbs, betting that the prices would rise and that they could then sell the rights to buy the tulips to people who wanted the bulbs. Often the sellers did not have any bulbs, but were bet- ting that they could get them at a price less than they were offered from the buyers. Thus, as de Vries and van der Woude (1997:150) put it, “citizens crowded into taverns to buy and sell bulbs they could not deliver and did not want to receive.” They were betting on the future price of bulbs.

Since there was no bank credit, payment was often promised in kind. In one case, for a pound of White Crown bulbs (a particularly common variety), one buyer offered FL 525 to be

In the attempt to make money with money, a single Semper Augustus bulb sold for 5,500 guilders at a time when the average yearly income was 200 to 400 guilders. (Edward Owen/Art Resource, NY.)



74 Part I • The Society of Perpetual Growth

paid on delivery of the bulbs (presumably the following June) and put four cows as a down payment. Other down payments consisted of “tracts of land, houses, furniture, silver and gold vessels, paintings, a suit and a coat, a coach and dapple-gray pair.” Another buyer of a single Viceroy bulb, valued at FL 2,500, paid “two lasts (a measure that varied by commodity and locality) of wheat, four of rye, eight pigs, a dozen sheep, two oxheads of wine, four tons of butter, a thousand pounds of cheese, a bed, some clothing and a silver beaker” (Kindleberger 1978:109).

Then in February of 1637, for reasons that are unclear, prices being offered began to col- lapse, and investors who had depended on the rise in prices faced economic ruin. Since they had given the sellers only a portion of the agreed-upon price, they had to somehow come up with the rest, which they often did not have. Furthermore, the sellers, who had used the contracts as collateral for loans, had to come up with additional collateral that they didn’t have. But since the futures contracts were, at the time, unenforceable in court, there was no incentive to honor the contracts. Thus investors lost large sums of money or the goods that they had used as down pay- ment on their bulb purchases, while sellers were often not able to collect anyway. Many amateur investors went bankrupt. In spite of this, in the seventeenth century, the Dutch remained devoted investors, continuing to put their money in VOC stock or canal building, paintings, and clocks.

The lessons of the VOC and the “tulip bubble” are that for investors to profit and for borrowers to pay their debts, there must be some form of economic growth, either as an increase in trade, as with the VOC, or as an increase in the value of assets, such as tulip bulbs. If growth occurs, profits are made and debt is repaid. If it doesn’t, investors experience losses and borrow- ers may default on their loans.

In addition, the period marked the increase in activities that required the gathering of large amounts of capital, usually through borrowing. Thus, states borrowed to wage war, merchants to engage in long-distance trade, and investors to speculate on commodities. And, as projects became larger and more expensive, greater sums of money had to be borrowed, lent, and repaid, all requiring perpetual economic growth.

Thus, the financial inventions of the Dutch Republic ushered in a new kind of economy, one in which making money with money became a significant feature of economic life, and in which economic growth became a necessity. There have also been repeated instances, as we will see, of speculative bubbles bursting and threatening to bring down whole economies, the most recent example being the collapse of housing values in the United States, as well as other coun- tries, in 2007, which we will examine in more detail shortly.

The era of The i ndusTrialisT

By 1800, England had militarily, politically, and economically subdued her closest rivals of the early eighteenth century—France and Holland. British commerce thrived, fueled largely by the growth of industry, particularly textiles, and the related increase in the availability of cheap labor. And although Britain lost her American colonies, politically if not economically, she gained in many ways a wealthier prize—India.

But the big news was the industrial development of England. From 1730 to 1760, iron production increased 50 percent; the first iron bridge was built in 1779 and the first iron boat in 1787. In 1783 Watt produced the double-effect steam engine. From 1740 to 1770, consumption of cotton rose 117 percent, and by 1800, mechanized factories were producing textiles at an unprecedented rate.

Social scientists often pose two related questions: What made England take off? And why was there an industrial revolution at all? These are more than academic questions. As planners in so-called economically undeveloped countries attempt to improve peoples’ lives through eco- nomic development, they often look to the history of Great Britain to discover the key ingredients to economic success. England became, to a great extent, the model for economic development, the epitome of progress, or so it was believed, particularly in Great Britain.



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 75

The reasons for the Industrial Revolution in England and the emergence of the capital- ist economy are varied, and although analysts disagree on which were the most important, there is general agreement on those that played some part. They include the following (see, e.g., Wallerstein 1989:22ff.):

1. An increase in demand for goods. This demand may have been foreign or domestic, supplemented by increased demands for largely military products from the state. The textile industry was revolutionary also in its organization of labor and its relationship to the foreign market, on which it depended for both raw materials (in the case of cotton) and markets. Historian Eric Hobsbawm argued that there was room for only one world supplier, and that ended up being England (Hobsbawm 1975).

2. An increase in the supply of capital. An increase in trade resulted in greater profits and more money, and these profits supplied the capital for investment in new technologies and businesses.

3. A growth in population. Population increased dramatically in England and Europe in the eighteenth century. From 1550 to 1680, the population of western Europe grew by 18 percent, and from 1680 to 1820, by 62 percent. From 1750 to 1850, England’s pop- ulation increased from 5.7 million to 16.5 million. Population increase was important because it increased the potential labor force and the number of potential consumers of commodities. But there is disagreement as to why population increased and on the effects it had on industrialization.

Some account for the increase with lower mortality rates attributable to smallpox inoculation and an improved diet related to the introduction of new foodstuffs, such as the potato. Life expectancy at birth rose from thirty-five to forty years (Guttmann 1988:130). Others attribute the rise in population to an increase in fertility. Indeed, families were larger in the eighteenth century. In England between 1680 and 1820, the gross reproduction rate (number of females born to each woman) went from two to nearly three and the average number of children per family from four to almost six. Later we examine the relationship of population growth to industrialization because it is key to understanding the rapid growth of population today.

4. An expansion of agriculture. There was an expansion of agricultural production in England in the eighteenth century that some attribute to enclosure laws. These laws drove squatters and peasants from common lands and forests from which they had drawn a livelihood. The rationale was to turn those lands over to the gentry to make them more productive, but this also had the effect of producing a larger landless and propertyless population, dependent on whatever wage labor they might find. Regardless, some argue that the increased agri- cultural yields allowed the maintenance of a larger urban workforce.

5. A unique English culture or spirit. Some, notably sociologist Max Weber, attribute the rise of England to the development of an entrepreneurial spirit, such as the Protestant ethic, that motivated people to business success in the belief that it would reveal to them whether or not they were among God’s elect (Weber 1958).

6. State support for trade. Some claim that a more liberal state structure imposed fewer taxes and regulations on businesses, thus allowing them to thrive. The state did take action to support trade and industry. There was continued political and military support for extend- ing Britain’s economy overseas, along with domestic legislation to protect merchants from labor protest. A law of 1769 made the destruction of machines and the buildings that housed them a capital crime. Troops were sent to put down labor riots in Lancaster in 1779 and in Yorkshire in 1796, and a law passed in 1799 outlawed worker associations that sought wage increases, reduction in the working day, “or any other improvement in the conditions of employment or work” (Beaud 1983:67).

7. The ascendance of the merchant class. Stephen Sanderson (1995) attributed the develop- ment of capitalism to an increase in the power of the merchant class. There has always



76 Part I • The Society of Perpetual Growth

been, he suggested, competition between merchants and the ruling elites, and although elites needed merchants to supply desired goods and services, they nevertheless looked down on them. But gradually the economic power of the merchant class grew until, in the seventeenth and eighteenth centuries, the merchant emerged as the most powerful member of Western, capitalist society. Capitalism, said Sanderson (1995:175–176), “was born of a class struggle. However, it was not, as the Marxists would have it, a struggle between land- lords and peasants. Rather, it was a struggle between the landlord class and the merchants that was fundamental in the rise of capitalism.”

8. A revolution in consumption. Finally, some attribute the rapid economic growth in England to a revolution in the patterns of retailing and consumption. There was a growth in the number of stores and shops and the beginning of a marketing revolution, led by the pottery industry and the entrepreneurial genius of Josiah Wedgewood, who named his pottery styles after members of the Royal Family to appeal to the fashion consciousness of the rising middle class.

Regardless of the reasons for England’s rise and the so-called Industrial Revolution, there is little doubt that in addition to the traditional means of accumulating wealth—mercantile trade, extracting the surplus from peasant labor, pillage, forced labor, slavery, and taxes—a new form of capital formation increased in importance. It involved purchasing and combining the means of production and labor power to produce commodities, the form of wealth formation called capitalism that we diagramed earlier as follows:

M S C S mp/lp S C′ S M′

[Money is converted to commodities (capital goods) that are combined with the means of production and labor power to produce other commodities (consumer goods) that are then sold for a sum greater than the initial investment.] How did this mode of production differ from what went before?

Eric Wolf offered one of the more concise views. For capitalism to exist, he said, wealth or money must be able to purchase labor power. But as long as people have access to the means of production—land, raw materials, tools (e.g., weaving looms and mills)—there is no reason for them to sell their labor. They can still sell the product of their labor. For the capitalistic mode of production to exist, the tie between producers and the means of production must be cut; peasants must lose control of their land, artisans control of their tools. These people, once denied access to the means of production, must negotiate with those who control the means of production for permission to use the land and tools and receive a wage in return. Those who control the means of production also control the goods that are produced, and so those who labor to produce them must buy them back from those with the means of production. Thus the severing of persons from the means of production turns them not only into laborers but into consumers of the product of their labor as well. Here is how Wolf (1982:78–79) summarized it:

Wealth in the hands of holders of wealth is not capital until it controls means of production, buys labor power, and puts it to work continuously expanding surpluses by intensifying production through an ever-rising curve of technological inputs. To this end capitalism must lay hold of production, must invade the productive process and ceaselessly alter the conditions of production themselves.… Only where wealth has laid hold of the conditions of production in ways specified can we speak of the existence or dominance of a capitalistic mode. There is no such thing as mercantile of merchant capitalism, therefore. There is only mercantile wealth. Capitalism, to be capitalism, must be capitalism-in-production.

Wolf (1982:100) added that the state is central in developing the capitalist mode of pro- duction because it must use its power to maintain and guarantee the ownership of the means



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 77

of production by capitalists both at home and abroad and must support the organization and discipline of work. The state also has to provide the infrastructure, such as transportation, com- munication, judicial system, and education, required by capitalist production. Finally, the state must regulate conflicts between competing capitalists both at home and abroad, by diplomacy if possible, by war if necessary.

The major questions are, How did this industrially driven, capitalist mode of production evolve, and what consequences did it have in England, Europe, and the rest of the world?

Textiles and the rise of the factory system

Assume once again your role as a merchant; let’s examine the opportunities and problems con- fronting you as you conduct business. Typical textile merchants of the early eighteenth century purchased their wares from specialized weavers or part-time producers of cloth or from drapers, persons who organized the production of cloth but did not trade in it. The merchant then sold the cloth to a consumer or another merchant who sold it in other areas of Europe or elsewhere. The profit came from the difference between what the merchant paid the artisan or draper and what the customer paid. This is not a bad arrangement. It does not require a large capital outlay for the merchant because the artisan has the tools and material he or she needs, and as long as there is a demand for the cloth, there is someone who will buy it.

But as a merchant, you face a couple of problems. First, the people who make the cloth you buy may not produce the quantity or quality that you need, especially as an expanding population begins to require more textiles. Moreover, the artisan may have trouble acquiring raw materials, such as wool or cotton, further disrupting the supply. What can you do?

One thing to do is increase control over what is produced by “putting out”—supplying the drapers or weavers with the raw materials to produce the cloth—or, if you have the capi- tal, buy tools (looms, spinning wheels, and so on) and give them to people to make the cloth, paying them for what they produce. Cottage industry of this sort was widespread through- out Europe as merchants began to take advantage of the cheaper labor in rural areas, rather than purchasing products from artisans in towns and cities. In England of the mid-eighteenth century, there was probably plenty of labor, especially in rural areas, supplied by people who had been put off their land by enclosure legislation or because of failure to pay taxes or repay loans. In the land market of the eighteenth century, there were far more sellers than buyers (Guttmann 1988).

Another problem English textile merchants faced in the mid-eighteenth century was that the textile business, especially in cotton, faced stiff competition from India, whose calico cloth was extremely popular in England. How do you meet this competition? The first thing England did was to ban the import of Indian cloth and develop its own cotton industry to satisfy domestic demand. This not only helped protect the British textile industry, but it also virtually destroyed the Indian cotton industry; before long, India was buying British cotton textiles. The result was summed up in 1830 in testimony before the House of Commons by Charles Marjoribanks (Wallerstein 1989:150):

We have excluded the manufactures of India from England by high prohibitive duties and given every encouragement to the introduction of our own manufactures to India. By our selfish (I use the word invidiously) policy we have beat down the native manufactures of Dacca and other places and inundated their country with our goods.

And in 1840, the chairman of Britain’s East India and China association boasted that this Company has, in various ways, encouraged and assisted by our great manufacturing ingenuity and skill, succeeded in converting India from a manufacturing country into a country exporting raw materials. (Wallerstein 1989:150)



78 Part I • The Society of Perpetual Growth

The next, and to some extent inevitable, stage in textile production was to bring together in one place—the factory—as many of the textile production phases as possible: preparing the raw wool or cotton, spinning the cotton yarn and wool, weaving the cloth, and applying the finishing touches. This allowed the merchant or industrialist to control the quantity and quality of the product and control the use of materials and tools. The only drawback to the factory system is that it is capital intensive; the merchant was now responsible for financing the entire process, whereas the workers supplied only their labor. Most of the increase in cost was a consequence of increased mechanization.

Mechanization of the textile industry began with the invention by John Kay in 1733 of the flying shuttle, a device that allowed the weaver to strike the shuttle carrying the thread from one side of the loom to the other, rather than weaving it through by hand. This greatly speeded up the weaving process. However, when demand for textiles, particularly cotton, increased, the spinning of thread, still done on spinning wheels or spindles, could not keep up with weavers, and bottlenecks developed in production. To meet this need, James Hargreaves introduced the spinning jenny in 1770. Later, Arkwright introduced the water frame, and in 1779 Crompton introduced his “mule” that allowed a single operator to work more than 1,000 spindles at once. In 1790 steam power was supplied. These technological developments increased textile production enormously: The mechanical advantage of the earliest spinning jennies to hand spinning was twenty-four to one. The spinning wheel had become an antique in a decade (Landes 1969:85). The increase in the supply of yarn—twelve times as much cotton was consumed in 1800 than in 1770—required improvements in weaving, which then required more yarn, and so on.

The revolution in production, however, produced other problems: Who was going to buy the increasing quantity of goods that were being produced, and from where was the raw material for production to come?

The age of imperialism

The results of the Industrial Revolution in Europe were impressive. The period from 1800 to 1900 was perhaps one of the most dynamic in human history and, certainly until that time, the most favorable for accumulation of vast fortunes through trade and manufacture. Developments in transportation, such as railroads and steamships, revolutionized the transport of raw materi- als and finished commodities. The combination of new sources of power in water and steam,

Power loom weaving in a nineteenth-

century cotton textile factory. Note that

all the workers are women. (Bettmann/




Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 79

a disarmed and plentiful labor force, and control of the production and markets of much of the rest of the world resulted in dramatic increases in the level of production and wealth. These  advances were most dramatic in England and later in the United States, France, and Germany. In England, for example, spun cotton increased from 250 million pounds in 1830 to 1,101 million pounds in 1870. World steam power production went from 4 million horsepower in 1850 to 18.5 million horsepower twenty years later; coal production rose from 15 million tons in 1800 to 132 million tons in 1860, and 701 million tons in 1900. The consumption of inanimate energy from coal, lignite, petroleum, natural gasoline, natural gas, and water power increased sixfold from 1860  to  1900; railway trackage went from 332 kilometers in 1831 to 300,000 kilometers in 1876. The Krupp ironworks in Germany employed seventy-two workers in 1848; there were 12,000 by 1873.

There was also a revolution in shipping as ocean freight costs fell, first with the advent of the narrow-beamed American clipper ship and later with the introduction of the steamship. A clipper ship could carry 1,000 tons of freight and make the journey from the south coast of China to London in 120 to 130 days; in 1865 a steamship from the Blue Funnel Line with a capacity of 3,000 tons made the journey in seventy-seven days. The construction of the Suez Canal, completed in 1869 with the labor of 20,000 conscripted Egyptian fellaheen, or peasants, cut the travel time from England to eastern Asia in half—although it bankrupted the Egyptian treasury and put the country under Anglo-French receivership. These events initiated a military revolt that the British stepped in to put down, consequently cementing the British hold on Egypt and much of the Middle East. Politically, the United States emerged as a world power, and Japan was building its economy and would be ready to challenge Russia. The Ottoman Empire was on its way to disintegrating as France, England, and Russia sought to gain control over the remnants.

But it was not all good news for the capitalist economy. There was organized worker resistance to low wages and impoverished conditions, resistance and rebellion in the periphery, and the development of capitalist business cycles that led to worldwide economic depressions. Thus, although business thrived in much of the nineteenth century, it had also entered a world of great uncertainty. First, with the expansion of the scope of production, capital investments had increased enormously. It was no longer possible, as it had been in 1800 when a forty- spindle jenny cost six pounds, to invest in the factory production of textiles at fairly modest levels. Furthermore, there was increased competition, with factory production expanding dramati- cally in Holland, France, Germany, and the United States. There was the constant problem of overproduction, when supply outstripped demand and resulted in idle factories and unem- ployed workers. Unlike agricultural production—there seemed always to be a market for food—industrial production depends on the revolution in demand or, as Anne-Robert-Jacque Turgot put it, “a transformation of desires” (Braudel 1982:183). Until the eighteenth century, manufacturers launched their enterprises only when profit was guaranteed by subsidies, interest-free loans, and previously guaranteed monopolies. Now manufacturers simply had to hope people would buy their products.

Moreover, there were speculative bubbles that burst, leading to investors’ losing millions of dollars. The big mania in 1840s England was railroad stock. Piqued by Queen Victoria taking her first train trip in 1842, British interest in building railroads surged, particularly among land- owners who would benefit by the rise of land values adjacent to railroads.

In England, George Hudson was the first to fan the public interest, building and acquiring thousands of miles of track and publicizing the virtues of rail travel. He charged high tariffs and paid low wages, leading to various accidents, but paying shareholders in his railroad a dividend of 9 percent. And anyone could start a railroad: All you needed were a collection of people, per- mission from parliament, an engineer, and the sale of subscriptions to raise the money necessary to build. Parliament thought of regulating the growth of railways more strictly, but backed down after objections from speculators, such as George Hudson. By 1844, with interest rates low and railways returning 10 percent dividends, the interest in railways was growing. In 1845, sixteen



80 Part I • The Society of Perpetual Growth

new railroad schemes were projected. People readily bought shares in proposed rail lines with promises of 10 percent dividends.

By 1845, 20,000 speculators had each subscribed for more than two pounds worth of shares, including 157 members of parliament and 257 clergymen. Many had contracted beyond their means. Two brothers who subscribed for 37,500 pounds’ worth of shares were the sons of a charwoman living in a garret on a guinea a week. They hoped to sell at a profit. Many bought shares in railways that would never be approved by parliament.

Newspapers and members of parliament all warned that it was sheer speculation and that everyone knew a crash would come, but believed that they would escape and get out before prices declined. By June, there were plans for 8,000 miles of new railways, four times the size of the existing system and twenty times the length of England. By the summer of 1845, some railway scrip showed a profit of 500 percent and still more railways were being proposed and subscribed.

But by October of 1845, the boom was over and the worth of railway script crashed. Parliament was forced to pass the Dissolution Act, allowing the railways to disband but requiring speculators to purchase the script that they contracted for at the height of the craze. Many were financially ruined.

Then there was the Great Global Depression of 1873 that lasted essentially until 1895. The depression was, of course, not the first economic crisis, but the financial collapse of 1873 revealed the degree of global economic integration, and how economic events in one part of the globe could reverberate in others. The economic depression began when banks failed in Germany and Austria because of the collapse of real estate speculation. At the same time, the price of cast iron in England fell by 27 percent because of a drop in demand. The drop in iron prices increased British unemployment, while European investors, needing to cover their losses from real estate, withdrew their money from American banks. This led to bank collapses in the United States. In England, from 1872 to 1875, exports fell by 25 percent, the number of bank- ruptcies increased, and rail prices fell by 60 percent. In France, the Lyon stock market crashed in 1882; bank failures and rising unemployment followed. Competition among railroads decreased profits and led to the collapse of railroad securities in the United States (Beaud 1983:119–120; see also Guttmann 1994).

The depression of 1873 revealed another big problem with capitalist expansion and perpetual growth: It can continue only as long as there is a ready supply of raw materials and an increasing demand for goods, along with ways to invest profits and capital. Given this situation, If you were an American or European investor in 1873, where would you look for economic expansion and continued economic growth?

The obvious answer was to extend European and American power overseas, particularly into areas that remained relatively untouched by capitalist expansion—Africa, Asia, and the Pacific. Colonialism had become, in fact, a recognized solution to the need to expand markets, increase opportunities for investors, and ensure the supply of raw material. Cecil Rhodes, one of the great figures of England’s colonization of Africa, recognized also the importance of overseas expansion for maintaining peace at home. In 1895 Rhodes said,

I was in the East End of London yesterday and attended a meeting of the unemployed. I listened to the wild speeches, which were just a cry for “bread,” “bread,” and on my way home I pondered over the scene and I became more than ever convinced of the importance of imperialism.… My cherished idea is a solu- tion for the social problem, i.e., in order to save the 40,000,000 inhabitants of the United Kingdom from a bloody civil war, we colonial statesmen must acquire new lands for settling the surplus population, to provide new markets for the goods produced in the factories and mines. The Empire, as I have always said, is a bread and butter question. If you want to avoid civil war, you must become imperialists. (Beaud 1983:139–140)



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 81

P. Leroy-Beaulieu voiced the same sentiments in France when, to justify the conquest of foreign nations, he said,

It is neither natural nor just that the civilized people of the  West should be indefinitely crowded together and stifled in the restricted spaces that were their first homes, that they should accumulate there the wonders of science, art, and civilization, that they should see, for lack of profitable jobs, the interest rate of capital fall further every day for them, and that they should leave perhaps half the world to small groups of ignorant men, who are powerless, who are truly retarded children dispersed over boundless territories, or else to decrepit populations with- out energy and without direction, truly old men incapable of any effort, of any organized and far-seeing action. (Beaud 1983:140)

As a result of this cry for imperialist expansion, people all over the world were converted into producers of export crops as millions of subsistence farmers were forced to become wage laborers producing for the market and to purchase from European and American merchants and industrialists, rather than supply for themselves, their basic needs. Nineteenth-century British economist William Stanley Jevons (Kennedy 1993:9) summed up the situation when he boasted,

The plains of North America and Russia are our cornfields; Chicago and Odessa our granaries; Canada and the Baltic are our timber forests; Australasia contains our sheep farms, and in Argentina and on the western prairies of North America are our herds of oxen; Peru sends her silver, and the gold of South Africa and Australia flows to London; the Hindus and the Chinese grow tea for us, and our coffee, sugar, and spice plantations are all in the Indies. Spain and France are our vineyards and the Mediterranean our fruit garden, and our cotton grounds, which for long have occu- pied the Southern United States are now being extended everywhere in the warm regions of the earth.

Wheat became the great export crop of Russia, Argentina, and the United States, much of it produced in the United States on lands taken from the Native Americans. Rice became the great export of Southeast Asia, spurred by Great Britain’s seizure of lower Burma in 1855 and its increase in rice production from 1 million to 9 million acres. Argentina and Australia joined the United States as the major supplier of meat as cattle ranchers in Australia and the United States turned indigenous peoples into hired hands or hunted them to extermination, as did the ranchers in California into the late nineteenth century (see Meggitt 1962).

In 1871 a railroad promoter from the United States built a railroad in Costa Rica and experimented in banana production; out of this emerged in 1889 the United Fruit Company that within thirty-five years was producing 2 billion bunches of bananas. The company reduced its risk by expanding into different countries and different environments and by acquiring far more land than it could use at any one time as a reserve against the future.

The demand for rubber that followed the discovery of vulcanization in 1839 led to foreign investments in areas such as Brazil, where one major supplier increased production from 27 tons in 1827 to an average of 20,000 tons per year at the end of the nineteenth century. The laborers who collected the rubber were workers who had lost their jobs with the decline in the sugar industries and Indians, who were sometimes held captive or tortured or killed if they didn’t
















82 Part I • The Society of Perpetual Growth

collect their quota of rubber. The wives and children of those Indians who ran away would be killed if they didn’t return (Taussig 1987).

In the nineteenth century, palm oil became a substitute for tallow for making soap and a lubricant for machinery, resulting in European military expansion into West Africa and the conquest of the kingdoms of Asante, Dahomey, Oyo, and Benin.

Vast territories were turned over to the production of stimulants and drugs, such as sugar, tea, coffee, tobacco, opium, and cocoa. In the Mexican state of Chiapas and in Guatemala, legislation abolished communal ownership of land. Land could now be privately owned and subject to purchase, sale, and pawning, allowing non-Indians to buy unregistered land and fore- close mortgages on Indian borrowers (Wolf 1982:337). These lands were then turned to coffee production and, later, cattle ranching. In Ceylon, common land was turned into royal land and sold to tea planters. In 1866 diamonds and gold were discovered in the Orange Free State of West Africa. By 1874, 10,000 Africans were working in the European-owned diamond mines. By 1884, there were almost 100,000 and 255,000 by 1910. In 1940 there were 444,000.

Colonization was not restricted to overseas areas; it occurred also within the borders of core states. In 1887, the U.S. Congress passed the General Allotment Act (the “Dawes Act”) to break up the collective ownership of land on Native American reservations by assigning each family its own parcel, then opening unallotted land to non-Native American homesteaders, corporations, and the federal government. As a consequence, from 1887 to 1934, some 100 million acres of land assigned by treaty to Native American groups was appropriated by private interests or the government (Jaimes 1992:126).

At first glance it may seem that the growth in development of export goods such as coffee, cotton, sugar, and lumber would be beneficial to the exporting country because it brings in revenue. In fact, it represents a type of exploitation called unequal exchange. A country that exports raw or unprocessed materials may gain currency for their sale, but they then lose it if they import processed goods. The reason is that processed goods—goods that require additional labor—are more costly. Thus, a country that exports lumber but does not have the capacity to process it must then reimport it in the form of finished lumber products, at a cost that is greater than the price it received for the raw product. The country that processes the materials gets the added revenue contributed by its laborers.

Then there is the story of tea and opium and trade in China. China, of course, was a huge prize, but the British and western European nations had a problem with trade into China: Chinese products, notably tea, were in high demand, but there was little produced in England or the rest of Europe that the Chinese wanted or needed. However, there was a market in China for opium, virtually all of which was produced and controlled by the British East India Company. Opium was illegal in China, but the government seemed incapable of stopping the smuggling that was hugely profitable for British, American, and French merchants. When, in 1839, the Chinese government tried to enforce laws against opium sales by seizing opium held by British merchants in warehouses in Canton, the British government sent in troops and effectively forced the Chinese government to stop enforcing opium laws. An analogy today might be the Colombian government sending troops to the United States to force acceptance of Colombian cocaine shipments. Moreover, using its military superiority, the British demanded and received additional trading rights into China, opening a market not only for opium but for British textiles as well.

The British-led opium trade from India to China had three consequences. First, it reversed the flow of money between China and the rest of the world. During the first decade of the nine- teenth century, China still took in a surplus of $26 million; by the third decade, $34 million left China to pay for opium. Historian Carl Trocki (1999) suggests, in fact, that the opium trade financed British colonial expansion in the nineteenth century. Second, it is estimated that by the end of the nineteenth century, one out of every ten Chinese had become an opium addict. Third, cotton exports to India and China had increased from 6 percent of total British exports



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 83

in 1815 to 22 percent in 1840, 31 percent in 1850, and more than 50 percent after 1873 (Wolf 1982:255ff.).

Thus, as a merchant adventurer, your economic fortune has been assured by your government’s control over foreign economies. Not only could you make more money investing in foreign enterprises, but also the wealth you accumulated through trade and manufacturing gained you entry into a new elite, one with increasing power in the core countries. Power was no longer evidenced solely in the ownership of land but in the control of capital. In England, for example, the great families of high finance and international trade, businesspeople, manufactur- ers, shipowners, bankers, parliamentarians, jurists, and families of the aristocracy and gentry, all crisscrossed by ties of marriage and kinship, became the new ruling class. This new elite depended on business and industry to a great extent for their economic power: In the eighteenth century, landed inheritance accounted for 63.7 percent of national wealth in Great Britain; toward the end of the nineteenth century, that figure had decreased to 23.3 percent. Meanwhile, during the same period, wealth linked to capitalist development increased from 20.8 percent to almost 50 percent.

In the United States, a new capitalist elite emerged during and after the Civil War, as people such as J. P. Morgan, Jay Gould, Jim Fisk, Cornelius Vanderbilt, and John D. Rockefeller— most of whom made their fortunes in dealings with the U.S. government—emerged as a new bourgeoisie. More importantly, they were the driving force behind the emergence of a relatively new form of capital organization—the multinational corporation.

The era of The CorporaTion, The MulTilaTeral insTiTuTion, and The CapiTal speCulaTor

Although the imperialist activities of the core powers allowed their economies to grow, they also created international conflict on a scale never before imagined. In 1900, each of the great powers sought to carve out a sphere of domination in Asia, Africa, and South and Central America that, with the help of nationalism, racism, and xenophobia, turned economic competition into politi- cal and military conflict. These conflicts fed on myths of national or racial superiority—British, French, American, white, and so on—and the supposed civilizing mission of the West (Beaud 1983:144). At the Berlin Conference of 1885, great European powers met to carve up zones of influence and domination in Africa, laying the groundwork for levels of colonization from which Africa still has not recovered.

Attempts to extend or defend these zones of economic influence triggered what was until then the bloodiest war ever fought—World War I. Eight million people were killed. Britain lost 32 percent of its national wealth, France 30 percent, Germany 20 percent, and the United States 9 percent. Germany was forced to pay $33 billion in reparations. Industrial production fell in all countries except the United States. Then the Russian Revolution cut off huge markets for European and American products, while colonized countries demanded independence.

The United States emerged from World War I as the world’s leading economic power: Its national income doubled, and coal, oil, and steel production soared. However, workers’ real wages and the power of labor unions declined; new forms of factory organization led to greater fatigue—there were 20,000 fatal industrial accidents per year in the 1920s, and the courts blocked the formation of new unions and the application of social laws, such as those prohibiting child labor. It was an era of the rise of a new, great economic power—the corporation.

The rise of the Corporation

From your perspective as a merchant adventurer, the most important development of the early twentieth century was the merger frenzy in the United States that would be unrivaled until the 1990s. Companies such as Ford, General Motors, and Chrysler in automobiles; General



84 Part I • The Society of Perpetual Growth

Electric and Westinghouse in the electric industry; Dupont in chemicals; and Standard Oil in petroleum dominated the market. In 1929, the 200 largest companies owned half of the country’s nonbanking wealth. Since then, of course, corporations have become one of the dominant governance units in the world. By 1998, there were more than 53,000 trans- national corporations (French 2000:5). From their foreign operations alone they generated almost $6  trillion in sales. The largest corporations exceed in size, power, and wealth most of the world’s nation-states and, directly or indirectly, define policy agendas of states and international bodies (Korten 1995:54). As a merchant adventurer, you have now entered the corporate age. What kind of institution is the corporation, and how did it come to accumulate so much wealth and power?

Technically, a corporation is a social invention of the state; the corporate charter, granted by the state, ideally permits private financial resources to be used for a public purpose. At another level, it allows one or more individuals to apply massive economic and political power to accumulate private wealth while protected from legal liability for the public consequences. As a merchant adventurer, clearly you want to create an institution in which you can increase and protect your own profits from market uncertainties (Korten 1995:53–54).

The corporate charter goes back to the sixteenth century, when any debts accumulated by an individual were inherited by his or her descendants. Consequently, someone could be jailed for the debts of a father, mother, brother, or sister. If you, in your role as merchant adventurer, invested in a trading voyage and the goods were lost at sea, you and your descendants were responsible for the losses incurred. The law, as written, inhibited risky investments. The corporate charter solved this problem because it represented a grant from the crown that limited an investor’s liability for losses to the amount of the investment, a right not accorded to individual citizens.

The early trading companies, such as the Dutch East India Company and the Hudson’s Bay Company, were such corporations, and some of the American colonies themselves were founded as corporations—groups of investors granted monopoly powers over territory and industries. Consequently, corporations gained enormous power and were able to influence trade policy. For example, in the eighteenth century, the English parliament, composed of wealthy landowners, merchants, and manufacturers, passed laws requiring all goods sold in or from the colonies to go through England and be shipped on English ships with British crews. Furthermore, colonists were forbidden to produce their own caps, hats, and woolen or iron goods.

Suspicion of the power of corporations developed soon after their establishment. Even eighteenth-century philosopher and economist Adam Smith condemned corporations in The Wealth of Nations. He claimed corporations operated to evade the laws of the market by arti- ficially inflating prices and controlling trade. American colonists shared Smith’s suspicion of corporations and limited corporate charters to a specific number of years. If the charter was not renewed, the corporation was dissolved. But gradually American courts began to remove restric- tions on corporations’ operation. The U.S. Civil War was a turning point: Corporations used their huge profits from the war, along with the subsequent political confusion and corruption, to buy legislation that gave them huge grants of land and money, much of which they used to build railroads. Abraham Lincoln saw what was happening and just before his death is said to have wrote that

corporations have been enthroned.… An era of corruption in high places will follow and the money power will endeavor to prolong its reign by working on the preju- dices of the people … until wealth is aggregated in a few hands … and the Republic is destroyed. (Korten 1995:5)

Gradually, corporations gained control of state legislatures, such as those in Delaware and New Jersey, lobbying for (and buying) legislation that granted charters in perpetuity, limited the liabilities of corporate owners and managers, and gained the right of corporations to operate



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 85

in any way not specifically prohibited by the law. For example, courts limited corporate liability for accidents to workers, an important development in the nineteenth century when fatal industrial acci- dents from 1888 to 1908 killed 700,000 workers, or roughly one hundred per day. Other favorable court rulings and legislation prohibited the state from setting minimum wage laws, limiting the number of hours a person could work, or setting minimum age requirements for workers.

A Supreme Court ruling in 1886 by a sin- gle judge, however, arguably set the stage for the full-scale development of the next stage of the culture of capitalism. The court ruled that corpo- rations could use their economic power in a way they never before had. Relying on the Fourteenth Amendment, added to the Constitution in 1868 to protect the rights of freed slaves, the Court ruled that a private corporation is a natural person under the U.S. Constitution and consequently has the same rights and protection extended to persons by the Bill of Rights, including the right of free speech (Hartmann 2002). Thus, corporations were given the same “rights” to influence the government in their own interest as were extended to individual citizens, paving the way for corporations to use their wealth to dominate public thought and dis- course. The debates in the United States today over campaign finance reform, in which corporate bodies can “donate” millions of dollars to political candidates, stem from this ruling, although rarely, if ever, is that mentioned. Thus, corporations, as “persons,” were free to lobby legislatures, use the mass media, establish educational institutions such as the many business schools founded by corporate leaders in the early twentieth century, found chari- table organizations to convince the public of their lofty intent, and in general construct an image that they believed would be in their best interests—all of this in the interest of “free speech.” This power was reinforced in 2010 when the U.S. Supreme Court, in a five to four decision, ruled in the case of Citizens United that Congress could not limit the amount of campaign contributions of corporations or unions.

Corporations use this power, of course, to create conditions in which they could make more money. But in a larger sense they used this power to define the ideology or ethos of the emerging culture of capitalism. This cultural and economic ideology is known as neoclassical, neoliberal, and libertarian economics, market capitalism, or market liberalism and is advocated in society primarily by three groups of spokespersons: economic rationalists, market liberals, and members of the corporate class. Their advocacy of these principles created what David Korten called corporate libertarianism, which places the rights and freedoms of corporations above the rights and freedoms of individuals—the corporation comes to exist as a separate

This early twentieth- century cartoon depicts Jack, of “Jack and the Beanstalk,” confronted by the then “giants” of Wall Street, including John D. Rockefeller, J. J. Hill, J.P. Morgan, and Jay Gould, all watched over by a seemingly helpless President “Teddy” Roosevelt. (Fotosearch/ Getty Images.)



86 Part I • The Society of Perpetual Growth

entity with its own internal logic and rules. Some of the principles and assumptions of this ideol- ogy include the following:

1. Sustained economic growth, as measured by gross national product (GNP), is the path to human progress.

2. Free markets, unrestrained by government, generally result in the most efficient and socially optimal allocation of resources.

3. Economic globalization, achieved by removing barriers to the free flow of goods and money anywhere in the world, spurs competition, increases economic efficiency, creates jobs, lowers consumer prices, increases consumer choice, increases economic growth, and is generally beneficial to almost everyone.

4. Privatization, which moves functions and assets from governments to the private sector, improves efficiency.

5. The primary responsibility of government is to provide the infrastructure necessary to advance commerce and enforce the rule of law with respect to property rights and contracts.

However, hidden in these principles, said Korten, are a number of questionable assump- tions. First, there is the assumption that humans are motivated by self-interest, which is expressed primarily through the quest for financial gain (or, people are by nature motivated primarily by greed). Second, there is the assumption that the action that yields the greatest financial return to the individual or firm is the one that is most beneficial to society (or, the drive to acquire is the highest expression of what it means to be human). Third is the assumption that competitive behavior is more rational for the individual and the firm than cooperative behav- ior; consequently, societies should be built around the competitive motive (or, relentless greed and acquisition lead to socially optimal outcomes). Finally, there is the assumption that human progress is best measured by increases in the value of what the members of society consume, and ever-higher levels of consumer spending advance the well-being of society by stimulating greater economic output (or, it is in the best interest of human societies to encourage, honor, and reward the preceding values).

Although corporate libertarianism has its detractors, from the standpoint of overall eco- nomic growth, few can argue with its success on a global scale. World economic output has increased from $6.7 trillion in 1950 to almost $70 trillion in 2011. Economic growth in each decade of the last half of the twentieth century was greater than the economic output in all of human history up to 1950. World trade increased from total exports of $308 billion in 1950 to $5.4 trillion in 1998. In 1950, world exports of goods was only 5 percent of the world GNP; by 1998, this figure was 13 percent (French 2000:5).

There were still, however, some problems for the merchant adventurer in the early twentieth century. As corporations rose to power in the 1920s and 1930s, political and business leaders were aware that corporations, by themselves, could not ensure the smooth running of the global economy. The worldwide economic depression of the 1930s and the economic dis- ruptions caused by World War II illustrated that. That every country had its own currency and that it could rapidly rise or fall in value relative to others created barriers to trade. Tariffs and import or export laws inhibited the free flow of goods and capital. More importantly, there was the problem of bringing the ideology of corporate libertarianism, and the culture of capitalism in general, to the periphery, especially given the challenge of socialism and the increasing demands of colonized countries for independence. The solution to these problems was to emerge from a meeting in 1944 at a New Hampshire resort hotel.

bretton Woods and the World debt

In 1944 President Franklin D. Roosevelt gathered the government financial leaders of forty-four nations to a meeting at the Mt. Washington Hotel in Bretton Woods, New Hampshire. From your perspective as a merchant adventurer, it was to be one of the most far-reaching events of



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 87

the twentieth century. The meeting was called ostensibly to rebuild war-ravaged economies and to outline a global economic agenda for the last half of the twentieth century. Out of that meet- ing came the plan for the International Bank for Reconstruction and Development (the World Bank), the International Monetary Fund (IMF) to control currency exchange, and the framework for a worldwide trade organization that would lead to the establishment in 1948 of the General Agreement on Tariffs and Trade (GATT) to regulate trade between member countries. Although GATT was not as comprehensive an agreement as many traders would have liked, its scope was widely enlarged on January 1, 1995, with the establishment of the World Trade Organization (WTO). The functions of these agencies are summarized in Table 3.1.

The IMF constituted an agreement by the major nations to allow their currency to be exchanged for other currencies with a minimum of restriction, to inform representatives of the IMF of changes in monetary and financial policies, and to adjust these policies to accommodate other member nations when possible. The IMF also has funds that it can lend to member nations if they face a debt crisis. For example, if a member country finds it is importing goods at a much higher rate than it is exporting them, and if it doesn’t have the money to make up the difference, the IMF will arrange a short-term loan (Driscoll 1992:5).

The World Bank was created to finance the reconstruction of Europe after the devastation of World War II, but the only European country to receive a loan was Holland, then engaged in trying to put down a rebellion of its Southeast Asian colonies. The World Bank then began to focus its attention on the periphery, lending funds to countries to foster economic development, with, as we shall see, mixed results.

The GATT has served as a forum for participating countries to negotiate trade policy. The goal was to establish a multilateral agency with the power to regulate and promote free trade among nations. However, because legislators and government officials in many countries, particularly the United States, objected to the idea of an international trade agency with the power to dictate government trade policy, the creation of such an agency did not occur until the WTO was finally established on January 1, 1995. In essence, the agency can react to claims by member nations that other nations are using unfair trade policies in order to give businesses in their coun- try an unfair advantage (see Low 1993:42). For example, in 1989 the European Union instituted a ban on the importation of beef injected with bovine growth hormones. These hormones are manufactured in the United States by Monsanto Corporation and are used to boost milk produc- tion in cows. The hormone was approved in 1993 by the U.S. Food and Drug Administration, but public interest groups maintain that, because it increases udder infections in cows, it requires greater use of antibiotics in cows, and these antibiotics end up in the milk. Some scientists even link the use of the hormone to cancer development (see BGH Bulletin 2000). The United States, on behalf of Monsanto, claimed to the WTO that the ban amounted to an unfair barrier to U.S. beef exports. The WTO ruled in favor of the United States and allowed the U.S. government to impose a 100 percent tariff on $116.8 million worth of European imports, such as fruit juices, mustard, pork, truffles, and Roquefort cheese. Thus, the WTO can rule that a country’s food,

Table 3.1 The Bretton Woods Institutions

Institution or Agency Function

International Monetary Fund (IMF) To make funds available for countries to meet short-term financial needs and to stabilize currency exchanges between countries

International Bank for Reconstruction and Development (World Bank)

To make loans for various development projects

Global Agreement on Tariffs and Trade (GATT)

To ensure the free trade of commodities among countries



88 Part I • The Society of Perpetual Growth

environmental, or work laws constitute an “unfair barrier to trade” and penalize a country that does not remove them (see French 2000).

One of the most profound influences of the Bretton Woods meeting is the accumulation of the debt of peripheral countries; some consider this “debt crisis” the gravest one facing the world. The reasons for the debt crisis, and the possible impact it can have on everyone’s lives, are complex but essential to understand. Overwhelming debt of peripheral countries is one of the major factors in many global problems that we will explore, including poverty, hunger, environ- mental devastation, the spread of disease, and political unrest.

Three things were particularly important in creating the debt crisis: the change during the last third of the twentieth century in the meaning of money, the amount of money lent by the World Bank and other lending institutions to peripheral countries, and the oil boom of the early 1970s and the pressure for financial institutions to invest that money.

Money, as noted earlier, constitutes the focal point of capitalism. It is through money that we assign value to objects, behaviors, and even people. The fact that one item can, in various quantities, represent virtually any item or service, from a soft drink to an entire forest, is one of the most remarkable features of our lives. But it is not without its problems. The facts that different countries have different currencies and that currencies can rise or fall in value relative to the goods they can purchase have always been barriers to unrestricted foreign trade and global economic integration. Furthermore, there have always been disputes concerning how to measure the value of money itself. Historically, money has been tied to a specific valuable metal, gener- ally gold. Thus, money in any country could always be redeemed for a certain amount of gold, although the amount could vary according to the value of a specific country’s currency.

Although the meeting at Bretton Woods would not lead to the establishment of a global currency, the countries did agree to exchange their currency for U.S. dollars at a fixed rate, and the United States guaranteed that it would exchange money for gold stored at Fort Knox at thirty-five dollars per ounce. But in the 1960s, during the Vietnam War and the increase in U.S. government spending on health, education, and welfare programs, the United States was creating dollars far in excess of its gold supply, while at the same time guaranteeing all the rest of the money in the world. As a result, in 1971 the United States declared it would no longer redeem dollars on demand for gold. This totally divorced the American dollar and, effectively, all the other currencies in the world, from anything of value other than the expectation that people would accept dollars for things of value. Money became simply unsecured credit.

Because countries no longer needed to have a certain amount of gold in order to print money, money became more plentiful. How this happened, and the impact it has had on all our lives, requires some elaboration.

We generally assume that governments create money by printing it. And, in fact, when money was linked to gold, there was a limit on how much could be printed. However, with the lifting of these restrictions, most money is now created by banks and other lending institutions through debt. We generally assume, also, that the money that banks lend is money that others have deposited. However, that is not the case; only a fraction of the money that banks lend needs to be in deposits. In effect, whenever a bank lends money, or whenever a product or service is purchased on credit, money has been created. In effect, then, there is virtually no limit on the amount of money that lending institutions can create; furthermore, the interest on the loan payments creates yet more money. Economists call this debt money (Rowbotham 1998:5), or credit money (Guttmann 1994).

Debt provides an important service to the culture of capitalism; it allows people to buy things with money they don’t have—thereby fueling economic growth—and it requires people to work in order to pay off their debts. Furthermore, it stimulates greater need for economic growth to maintain interest rates—that is, return on investments. It also means, however, that there is more money that has to be invested and lent, and a considerable amount of that went to peripheral countries. This proved to be a boon not only for individual borrowers but also for peripheral countries seeking to develop their economies. The problems were that the interest on



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 89

most loans was adjustable (could go up or down depending on economic circumstances) and that debts began to accumulate beyond what countries could repay.

The second factor that led to the debt crisis was the operation of the World Bank. The Bank itself had a problem. European countries, whose economies it was to help rebuild, didn’t need the help. With a lack of demand for their services, what could they do? How could the institution survive? The Bank’s solution was to lend money to peripheral countries to develop their economies. The plan was to help them industrialize by funding things such as large-scale hydroelectric projects, roads, and industrial parks. Furthermore, the bigger the project, the more the Bank could lend; thus, in the 1950s and 1960s, money suddenly poured into India, Mexico, Brazil, and Indonesia, the Bank’s four largest borrowers. From 1950 to 1970, the Bank lent some $953 million. We should not overlook the fact that these loans also benefited wealthy core countries, who largely supplied the construction companies, engineers, equipment, and advisors needed to develop these projects.

But the success of the Bank in lending money created another problem—what economists call net negative transfers; borrowing nations collectively were soon paying more money into the Bank in loan repayments than the Bank was lending out. Put another way, the poor or peripheral nations were paying more money to the rich core nations than they were receiving from them. Aside from the consequences for poor countries, this would ultimately lead to the bank going out of business—its only purpose would be to collect the money it had already lent out. This is not a problem for regular banks because they can always recruit new customers, but the World Bank has a limited number of clients to whom it can lend money. Now what do you do? The Bank’s solution was to lend still more.

More than any one person, Robert McNamara, past chief of the Ford Motor Company and secretary of defense during the John F. Kennedy and Lyndon B. Johnson administrations, made the World Bank into what it is today. During McNamara’s tenure from 1968 to 1981, the Bank increased lending from $953 million to $12.4 billion and increased staff from 1,574 to 5,201. The result was to leave many peripheral countries with staggering debt burdens. There were other problems as well.

The third source of the debt crisis was the oil boom of the early 1970s. Oil producers were making huge profits (“petrodollars”). The problem was that this money needed to be invested, particularly by the banks into which it went and from which depositors expected interest pay- ments. But banks and other investment agents had problems finding investments. One of their solutions was to lend even more money to peripheral countries.

Thus, by the late 1970s, peripheral countries had borrowed huge sums of money and, with this infusion, were doing generally well. But then financial policies in the wealthy countries pre- cipitated an economic collapse. With their own economies in recession because of the increase in oil prices in the 1970s, core governments reacted by raising interest rates. Countries such as Brazil, Mexico, and Indonesia that had borrowed large sums of money at adjustable, rather than fixed, interest rates suddenly found that they could no longer pay back what they owed. Many couldn’t even pay back the interest on the loans. Furthermore, an economic recession in the core nations decreased the demand for whatever commodities peripheral countries had for sale, further undermining their economies.

This all sounds largely like an economic problem that would have little effect on you or me, or on a peasant farmer in Mexico, a craftsperson in Africa, or a small merchant in Indonesia. But, in fact, it has had an enormous impact, and it illustrates how global problems are tied closely to today’s merchant adventurers.

There is an old joke that says that when an individual can’t pay his or her bank debts, he or she is in trouble, but when a big borrower, such as a corporation or country, can’t repay its debts, the bank is in trouble. This, in brief, was the dilemma posed by the global debt crisis for private lending institutions and the World Bank.

The World Bank and the IMF responded to the debt crisis by trying to reschedule the repayment of debts or extending short-term loans to debtor countries to help them meet the



90 Part I • The Society of Perpetual Growth

financial crises. However, to qualify for a rescheduling of a debt or loan payment, a govern- ment had to agree to alter its fiscal policies to improve its balance-of-payments problems—that is, it had to try to take in more money and spend less. But how do you do that? There are various ways, all creating serious problems in one way or another. For example, countries had to promise to manage tax collecting better; sell government property; increase revenues by increasing exports; reduce government spending on social programs, such as welfare, health, and education; promise to refrain from printing more money; and take steps to devalue their currency, thus making their goods cheaper for consumers in other countries but making them more expensive for their own citizens.

Although these measures are rarely popular with their citizens, governments seldom refuse IMF requests to implement them because not only might they not receive a short-term loan, but agencies, such as the World Bank, and private capital controllers, such as banks and foundations, would also then refuse to make funds available. There is pressure on the World Bank and IMF to forgive or reduce debt, and forty-one of the poorest countries in the world have been targeted for debt relief of some sort (see Jubilee 2000). But for most countries, the interest alone on their debts dictates economic, environmental, and social policies that are devastating.

First, debt means that countries must do whatever they can to reduce government expenses and increase revenue or attract foreign investment. Reducing government expenses means cutting essential health, education, and social programs. The results are apparent when you com- pare high-, middle-, and low-income countries on such measures as income, life expectancy, and schooling (see Table 3.2).

Second, the effects on environmental resources are equally devastating. To increase revenues, countries must export goods and resources. Because most indebted countries, particu- larly those in sub-Saharan Africa, have little industrial capacity, they must export raw materials, such as minerals and lumber. This requires dismantling whatever environmental regulations may have existed. But because so many countries (including the wealthy countries of the world) are in debt, each must adopt the same export strategy, thus driving down the prices they receive for their exports (see Rowbotham 1998:89).

Third, there is the question, Where did all the money that was lent to peripheral coun- tries go? Because “capital flight”—money leaving the periphery—increased dramatically during the period of rising debt, the prevailing view is that loans were siphoned off by the elites in the periphery and invested back in the core. For example, while the IMF and other financial

Table 3.2 Comparison Between High-, Middle-, and Low-Income Countries for GDP, GDP per Capita, Debt, and Other Variables, 2007–2008

High-Income Countries

Middle-Income Countries

Low-Income Countries

GDP (current US$) (billions) 43,189.9 16,826.9 568.5

GNI per capita, Atlas method (current US$)

39,345 3,260 524

External debt stocks (% of GNI) — 24.5 35.2

Life expectancy at birth, total (years) 79 69 59

Population, total (millions) 1,068.5 4,650.7 972.8

Population growth (annual %) 0.7 1.1 2.1

School enrollment, primary (percent net) 95.0 88.5 77.6

Surface area (sq. km) (thousands) 35,300.1 79,484.9 19,310.5

Source: Data from World Bank Data and Statistics, http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/ 0,,contentMDK:20535285~menuPK:1192694~pagePK:64133150~piPK:64133175~theSitePK:239419,00.html



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 91

institutions were lending billions to restore the Russian economy after the fall of communism, $140 billion (U.S.)—almost $2 billion per month—fled Russia during the first six years of market reforms. The World Bank estimates that between 1976 and 1984, capital flight from Latin America was equal to the area’s whole external debt (Caufield 1996:132). Capital flight from Mexico alone from 1974 to 1982, invested in everything from condominiums to car dealer- ships, amounted to at least $35 billion. “The problem,” joked one member of the U.S. Federal Reserve Board, “is not that Latin Americans don’t have assets. They do. The problem is they are all in Miami” (Caufield 1996:133).

Finally, debt is not only a problem of poor countries. Most countries in the world are heavily in debt, and they must continue to grow to repay it. In 2009, Dubai, part of the United Arab Emirates, which had a per capita income of over $44,000, found itself overextended, threat- ening to default on its debt (Thomas 2009), and other countries such as Ireland, Greece, and East European countries face a similar situation. Table 3.3 provides an illustration of the external

Table 3.3 External Debt, Debt as a Percentage of GDP, and Investor Credit Rating1 (1–100 with 100 the highest) of Selected Countries, 2007, 2011

Country Gross External

Debt ($)2 External Debt as a Percentage of GDP

Investor Credit Rating

External Debt per Capita

2011 2011 2011 2011

United States 14,959,000,000 99,46 89.4 47,664

Hungry 216,000,000 110.3 53.1 21,706

Italy 2,494,000,000 136.6 66.5 40,724

Australia 1,283,000,000 139.9 89.7 58,322

Spain 2,392,000,000 169,5 64.7 50,868

Greece 564,920,000 178.9 19.6 50,792

Germany 5,674,000,000 183.9 89.8 69,788

Portugal 511,940,000 207.3 46.5 47,483

Austria 847,950,000 241.3 88.2 103,160

Finland 478,840,000 244.8 92.5 90,984

Norway 653,290,000 246,9 94.8 138,783

France 5,632,000,000 254.4 85.2 85,824

Sweden 995,000,000 262.3 92.9 109,318

Hong Kong 939,830,000 265.7 85.6 131,380

Denmark 591,400,000 283.2 89.1 106,680

Belgium 1,457,000,000 353.7 79.4 139,613

Netherlands 2,590,000,000 367 90.8 154,820

Switzerland 1,332,000,000 391.3 94.1 174,022

United Kingdom 10,157,000,000 451.4 85.8 161,110

Ireland 2,226,000,000 1,239 51.9 478,087

Source: See Paul Toscano, “Countries Overloaded with Debt,” CNBC, http://www.cnbc.com/id/33506526; Institutional Investor, Global Rankings, http://www.institutionalinvestor.com/Research/3633/Global-Rankings.html 1 Investor Credit Rating may be interpreted as the extent of investor confidence in the growth of the economy. More information is available at http://rru.worldbank.org/businessplanet/. 2 Gross external debt is the combined total of liabilities, plus interest, that corporations, private citizens, and the gov- ernment owe to entities outside their borders.



92 Part I • The Society of Perpetual Growth

debt of selected countries; this is money owed to entities outside the country. Table 3.3 also provides information on investor confidence in each country (in terms of investor ratings, which work much like the credit ratings of individuals, the higher the number, the more likely you will realize profit on your investment). As a merchant adventurer, this gives you an idea of whether or not you’d like to do business in a country.

The debt problems of both poor and wealthy countries once again remind us that, as a merchant adventurer, you must expect periodic financial crisis, often related to debt. It is debt, for example, that played a major role in the financial crisis of 2007–2008, as we’ll see next.

The “seCond GreaT ConTraCTion”

In the summer of 2007, the world began to enter what some have called the “second great contraction” (Reinhart and Rogoff 2009), the first being the global economic depression of the 1930s. As we have seen, being a merchant adventurer has its risks and opportunities. But there are also risks of a financial collapse that can not only wipe out great financial gains but also throw millions out of work and place national and local governments on the brink of collapse. The common explanation for this latest global financial collapse is that it resulted from the bursting of a housing bubble in the United States. The story is that low interest rates in the United States along with high cash inflows from overseas, particularly China, sent Americans on a house-buying spree that sent home prices soaring at an unprecedented rate. The bubble was further fueled by the “subprime mortgages,” loans to people with few financial resources who soon defaulted on their loans. When people began to default, and banks stopped lending, the housing market collapsed, resulting in the crash of home values and the wiping out of trillions of dollars of wealth. Most explanations for the crash focused on human greed, homebuyers pur- chasing more than they could afford, and banks, seeking greater and greater incomes, lending far more than they should have. However, as we will see, it was a little more complex than that.

Regardless, the housing crash brought major banks to near collapse and resulted in a near- meltdown of the entire economic system. The consequences were severe. Since 2007, according to the IMF, if we include losses to the financial sector, to corporations, to homeowners, and to unincorporated businesses, the total global equity loss will total some US$40 trillion, or about two-thirds of the world’s GDP. In human terms, the International Labour Organization estimates that worldwide unemployment could rise by at least 30 million people, and possibly as much as 50 million people, while more than 200 million people, mostly in developing economies, will fall into poverty (see Blankenburg and Palma 2009).

To understand the story of the second great contraction we need to begin with a gigantic oil spill—the Exxon-Valdez disaster of March 24, 1989, when the oil tanker owned by Exxon Oil Company ran aground in Prince William Sound, Alaska, and spilled 10.8 million U.S. gallons into the sea. The merchant adventurers of our story were finance people who worked at J. P. Morgan, one of the largest investment banks in the United States. As anthropologist and financial journalist Gillian Tett (2009) tells it, Exxon approached its bank, J. P. Morgan, for a 5 billion dollar loan in order to cover possible penalties to the company because of the oil spill. The bank had no problem with the loan itself: Exxon was one of its best customers and one of the most profitable companies in the world. But it was concerned about the reserve require- ment, a rule imposed by international regulatory agencies, that banks keep in reserve a portion of what is owed to protect them against default. The same reserve requirement applies to bank deposits; for example, if you deposit $1,000 in the bank, the bank may lend out about $900 of that to others, but it must keep $100 out of every $1,000 in order to meet depositors’ demands for withdrawals. It must keep only 10 percent, because no one expects everyone to want to with- draw their money (or fail to pay their loans) all at once. But banks have problems with reserve requirements, because money that has to be held in reserve is money that is not working, that is not bringing in interest or fees. For banks to pay interest, they must invest deposits (or sell them). Thus a problem that banks have is, How can they put the money they hold in reserve to work?



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 93

At J. P. Morgan, a group in the derivatives department headed by Peter Hancock thought they had a perfect solution. They approached the European Bank for Reconstruction and Finance (EBRF), which had lots of money at their disposal, and asked whether, for a fee, they would insure the Exxon loan. That is, in the unlikely event that Exxon defaulted on its obligation, whether EBRF would make good on the loan. Once EBRF agreed to do this, the derivatives team at J. P. Morgan went to bank regulators and asked the regulators to reduce the reserve require- ment on the Exxon loan, since, they argued, it was now insured, and even if Exxon failed to pay, they would then collect from EBRF. The regulators agreed, and J. P. Morgan was able to off-load the credit risk from the Exxon loan. They called this new financial instrument a “credit default swap.” This may seem like a fairly esoteric banking deal, but it set the stage for the economic disaster to follow.

The team at J. P. Morgan reasoned that they could use the same financial strategy on other loans that it held as it had on the Exxon loan. J. P. Morgan had outstanding about 10 bil- lion dollars of loans to some 307 major corporations. What if they took those loans and shifted them to a dummy corporation (thus removing them from the J. P. Morgan books), divided those assets in the form of the interest on the loans of the new corporation into smaller packages, and then sold them to investors (see Figure 3.2). They called these securities Broad Index Securities Trust Offerings, or BISTROs. These securities were a form of financial derivative, a financial instrument whose worth was linked to some other asset. These are the same sorts of finan- cial instruments or contracts that Dutch investors were buying when they invested in tulips or that commodity traders bet on when they invest in the future value of corn, hog backs, or soy. Furthermore, what if they could find a large insurance company to guarantee those loans in the same way as the EBRF had guaranteed the Exxon loan? If they could do that, they reasoned, the bank regulators would let them greatly reduce the reserve requirements on the 10 billion dollars of loans from the 307 corporations, which will reduce the risk exposure of the bank, thus freeing up millions of additional dollars for investment. They approached Joseph Caffano, the head of a









Pool of Debt Owed

to Bank

Corporate Entity Whose Assets Consist of Money Owed by Borrowers

Step 1 Step 2 Step 3 Step 4

Borrowers Securities (CDO)

fiGure 3.2 The Process of Creating Collateral Debt Obligation (CDOs)



94 Part I • The Society of Perpetual Growth

small department at the giant insurance company AIG, and, for a modest fee, Caffano commit- ted AIG to insure the securities issued on the corporate loans. And, finally, regulators agreed to lower the bank’s reserve requirement.

The team at J. P. Morgan celebrated, not because they thought they had put one over on the regulators, but because they had come up with a financial innovation that could free up billions, if not trillions, of dollars for investment and, consequently, help to speed economic growth. Furthermore they had effectively dealt with the risk of loan default by insuring against it and, at the same time, distributing risk among a larger group, thus diluting the possible loss of any one person or financial entity. They had, they thought, contributed to a better financial world. As one of the members of the J. P. Morgan derivatives team put it, “Five years hence, commentators will look back to the birth of the credit derivative market as a watershed develop- ment” (Tett 2009:56).

When other banks heard about the financial innovations of the derivatives team at J. P. Morgan, they enthusiastically followed suit, packaging loans or debt that they held into securities to sell to investors. These securities were also insured by AIG and others and seemed to have so little risk that investment rating services gave them double and triple A ratings, the same given to government-issued securities.

Then, Bayerische Landesbank, a large German bank, approached the derivatives people at J. P. Morgan and asked them to package some $14 billion U.S. home mortgages into securi- ties to sell; however, that posed a problem. Unlike corporate loans, which had a long history that enabled banks to estimate the probability of default, there was no corresponding informa- tion for housing mortgages. Thus, it was difficult to assess how risky these securities would be. J.  P. Morgan went ahead with the German bank, but only after building in additional safeguards against default, and, after doing one more BISTRO deal, discontinued that line of development.

Other banks, however, partially to keep up with their competition, bundled trillions of dollars of home mortgages and other forms of debt (credit card loans, auto loans, commercial loans, etc.) into collateral debt obligations (CDOs) and sold them to eager investors from pension funds, banks, insurance companies, and anyone else who hoped to make an almost certain profit buying triple A or double A securities. One turning point may have come when large banks entered into agreements with home mortgage companies to buy any mortgage they sold to homebuyers in order to meet the demand from investors for more of these securities. Mortgage companies could then make millions of dollars in fees for selling a mortgage to a homebuyer, with little concern about the homebuyer’s ability to pay, since they were then selling the loan, sometimes the same day, to larger banks. These companies were so anxious to give mortgages that they offered them with no down payment, even, in some cases, offering mortgage buyers a free car or a household of furniture. In some circles, these were called “liar loans,” because there was no background check on borrowers’ income or resources, “neutron loans,” because they killed the people but left the houses standing, or, finally, “ninja loans,” no income and no assets. If the homebuyer expressed concern about repaying the mortgage, they were offered mortgages with low initial payments and told that if they had a problem once payments increased, they could, with home prices rapidly rising, sell the home at a profit or refinance the loan.

Of course, it didn’t work out. The simplest way of looking at the collapse is that trillions of dollars were bet on the premise that the value of an asset—houses in this case—would continue to increase, when, in fact, the values collapsed. As buyers defaulted on their loans, the value of the securities based on those loans either greatly declined or were impossible to sell because no one knew how much they were worth. Furthermore, derivatives based on commercial loans, credit card debt, and automobile loans were threatened by defaults. With banks losing money, holding assets of unknown worth and not knowing the financial state of other institutions and borrowers, and insurance companies unable to compensate investors for their losses, banks stopped lending, and the whole financial system threatened to freeze. Remember that finance is based on moving



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 95

money, for a price, from where it is to where it is needed, and now, in the fall of 2007, it stopped moving. The insurance companies and banks that had guaranteed the  securities were forced to pay out billions of dollars they didn’t have and were on the verge of collapse until the U.S. government came to the rescue with a trillion-dollar bailout. But the resulting banking crisis stopped the flow of money and credit and forced the massive sell- ing of assets (stocks, real estate, etc.) by people who needed to meet debt obligations. This further decreased asset value, affecting millions of busi- nesses and throwing millions of people worldwide out of work.

The second great contraction followed the path of many banking crises (see Reinhart and Rogoff 2009). An inflow of money resulting from foreign investment and low interest rates set off a flurry of spending and investment, driving up prices until the process became unsustainable and resulted in financial collapse. We had seen the same thing happen with Dutch tulips and British railway stock, where people bet, wrongly, that an asset would continually increase in value. But it would be a mistake to attribute these financial crises to greed. Instead, to understand it, we must examine the internal logic of our financial system, and, again, the imperative for perpetual economic growth.

As we mentioned earlier, once a segment of the economy depends on making money with money, perpetual growth must ensue. That is, once money is lent or invested, the money must, so to speak, work to produce more money to account for both the original amount lent or invested (the principal), plus the interest, dividend, or profit. The amount of growth required depends, obviously, on the interest, dividend, or profit required. If there is insufficient growth to generate the additional money, loans go unpaid, and/or dividends or profits unrealized. Thus, going back to the present crisis, as long as house prices continued to grow, the system worked well; but once they ceased growing and in fact declined, the entire economic system was threatened.

A simple example should suffice. Take a household that is earning $150,000 a year. They purchase a house for $600,000 at 7 percent interest over ten years; the monthly payment is $6,965, but the total interest paid over the course of the loan is $235,981. The $600,000 (that is the value of the house) has been created by the bank by extending the loan, and that remains in the form of a fixed asset (the house). The remaining $235,981, that is the interest payment, represents new money that does not yet exist. The household has to produce that, and to do so, it must produce, on average, $23,598 a year, or 15.7 percent a year of their total initial income in order to pay off the debt.

There are, of course, many other variables that need to be considered to calculate the actual necessary growth rate (rates of inflation, the cost of rolling over portions of the debt, the extent to which the money invested produces, or doesn’t produce, new money, and so on). But it does illustrate why, in an economy devoted to making money with money, perpetual growth in the form of increased economic activity is necessary.

We have already seen how debt in the case of developing or emerging countries threatens their economic survival. The money that was borrowed, in most cases, did not, for various rea- sons (declining commodity prices, unfair trade practices, rising energy costs, corruption, etc.), generate the rate of economic growth necessary to produce the money needed to repay the

One of the major consequences of an economic crisis is the loss of jobs. In the United States alone, the second great contraction resulted in at least 15 million job losses. (Sherwin McGehee/Getty Images.)



96 Part I • The Society of Perpetual Growth

principal and interest on the loan. Thus, countries defaulted in their loans, were forced to accept structural adjustment programs that cut services, or were forced to sell assets, often at bargain- basement prices.

The question of how much growth is necessary given a specific level of debt is important because of the significant increase in debt obligations over the past few decades, particularly in the United States. Table 3.4 shows the current debt obligations of different segments of the U.S. economy as of January 2009 (Hodges 2009).

Much of this debt is newly created; for example, 80 percent of it was created since 1990; in 1981 household debt was 48 percent of GDP, while in 2007, it was 100 percent. Private sector debt was 123 percent of GDP in 1981 and 290 percent by late 2008. The financial sector has been in a leveraging frenzy: Its debt rose from 22 percent of GDP in 1981 to 117 percent in late 2008 (see Crotty 2009:575).

The question that never gets addressed is, What is the rate of economic growth required to honor all of these debt obligations? That is, how much growth is necessary before the rates of default impact financial institutions to the extent that credit dries up, businesses fail, unemploy- ment rises, more defaults ensue, and so on? The numbers chosen for the household debt example mentioned earlier were not arbitrary. The $600,000 represents the approximately $60  trillion debt held by all sectors of the U.S. economy in 2010, and the $150,000 income represents the approximately $15 trillion U.S. GDP, that is, the total value of goods and services produced each year. Thus, if the average interest on all of these debts, which range from 1 percent on U.S. Treasury notes to 20 percent or more on credit card debts, is, say, 7 percent and the average term of the debt or investment is ten years, the economy must produce well over $20 trillion in new money. That is, the economy must grow at a rate of 15 percent a year, a rate virtually impos- sible to achieve.

There is another factor, which receives little attention, that contributes to our understand- ing of economic growth and financial crises—that is, the wealthier a country becomes, the more difficult it is to maintain economic growth. That is why emerging economies, such as China, India, and Brazil, can grow from 6 percent to 10 percent a year, while wealthy economies struggle to attain the necessary 3 percent to 5 percent (see Figure 3.3).

The implication is that our modern merchant adventurers must continue to come up with new and innovative ways to make more and more money. That is why the derivatives team at J. P. Morgan was told, “You will have to make at least half your revenues each year from a product which did not exist before” (Tett 2009:7–8).

Table 3.4 U.S. Total Debt by Sector (January 1, 2012)1

Debt Type Debt Amount

(Trillion) Debt Per Person

Federal Government Sector $15.22 $ 49,097

State and Local Government Sector $ 3.01 $ 9,677

Household Sector $13.22 $ 42,445

Business Sector $11.63 $ 37,516

Financial Sector $ 13.6 $ 43,871

Other $ 2.24 $ 7,226

Sum of all government and private sector debt

$ 58.9 $190,000

1 Data from Grandfather Economic Report, http://grandfather-economic-report.com/debt-summary-table.htm.



Chapter 3 • The Rise and Fall of the Merchant, Industrialist, and Financier 97

Thus, the current economic crisis has more to do with the internal logic of our economic system—particularly the need for perpetual growth—than it does with any intrinsic human char- acteristic, such as greed. In general, the economy works, and sometimes doesn’t work, because of people operating according to specific cultural prescriptions and not because of any innate characteristic.


We began this chapter with the goal of trying to understand five historical developments that have had a profound influence on today’s world and in the development of the culture of capi- talism—the increase in the division of world wealth, changes in the organization of capital, the increase in the level of economic globalization, the reasons for periodic financial crises, and why our economies have to perpetually grow. We found that the division of wealth has grown enormously, between both countries and areas of the world. In 2000 more than 1.2 billion people lived in absolute poverty, earning the equivalent of less than one dollar per day. The three top ultrarich people, including Microsoft’s Bill Gates, own more than the gross national product of the forty-eight poorest nations combined. Furthermore, the gap is increasing. According to the UN World Development Report of 1997, of the 173 countries in the study, seventy to eighty have lower per capita incomes than they did have ten or thirty years ago. People in Africa con- sume 20 percent less than they did twenty-five years ago. The UN report pointed out that the 20  percent of the world’s population living in the wealthiest countries consume 86 percent of the world’s goods and services. The poorest 20 percent consume only 1.3 percent.

The organization of capital has changed dramatically. We began our journey with capital largely in the hands of individual merchants, family groups, or limited partnerships and ended with the era of capital controllers, such as transnational corporations, multilateral institutions, and investment firms. In 1400, it might take a global merchant a year’s journey from one area of the world to another to complete an investment cycle of buying and selling goods; today a capital controller can transfer billions from one area of the world to another without ever leaving his or her computer.

We have seen global economic integration increase to the extent that global trade is easier today than trade between adjacent towns was in 1400, as trade treaties dissolve regional and country boundaries, freeing capital to migrate where it is most likely to accumulate. Furthermore,



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98 Part I • The Society of Perpetual Growth

we have seen how global financial and multilateral institutions, such as corporate controllers, the World Bank, the IMF, and the WTO, function to open international markets to corporations and force countries to dismantle environmental, social, and labor reforms.

Fourth, we examined why economic bubbles form and burst and why these collapses can lead to economic crisis, and finally, why we must have perpetual economic growth and what happens when growth fails. We will need, in a later chapter, to examine whether or not there is a way out of this dilemma of perpetual growth, but for the time being it is important to understand its consequences.

Our analysis of how the culture of capitalism functions is incomplete, however, until we understand the development and function of the nation-state, how it has functioned in the evolu- tion of the culture, and how it mediates between the consumer, laborer, and capitalist.




I magine an alien from another planet who lands on Earth after a nuclear holocaust has destroyed all life but has left undamaged terrestrial libraries and archives. After consulting the archives, suggested Eric Hobsbawm (1990), our observer would undoubtedly conclude

that the last two centuries of human history are incomprehensible without an understanding of the term nation and the phenomenon of nationalism.

C h a p t e r

4 The Nation-State in the Culture of Capitalism

We have about 50% of the world’s wealth but only 6.3% of its population. This disparity is particularly great as between ourselves

and the peoples of Asia. In this situation, we cannot fail to be the object of envy and resentment. Our real task in the coming period is to devise a pattern of relationships which will permit us to maintain this position of disparity without positive detriment to our national security. To do so, we will have to dispense with all sentimentality and day-dreaming; and our attention will have to be concentrated

everywhere on our immediate national objectives. We need not deceive ourselves that we can afford today the luxury of altruism

and world-benefaction.

—George F. Kennan, Director of Policy Planning,

U.S. State Department, 1948

Due to the unqualified and unstoppable spread of free trade rules, and above all the free movement of capital and finances, the “econ-

omy” is progressively exempt from political control; … Whatever has been left of politics is expected to be dealt with, as in the

good old days, by the state—but whatever is concerned with the economic life the state is not allowed to touch; any attempt in this direction would be met with prompt and furious punitive action

from the world markets.

—Zygmunt Bauman, Globalization: The Human Consequences



100 Part I • The Society of Perpetual Growth

The nation-state, along with the consumer, laborer, and capitalist, is, we suggest, an essen- tial element of the culture of capitalism. It is the nation-state, as Eric Wolf (1982:100) suggested, that guarantees the ownership of private property and the means of production and provides support for disciplining the workforce. The state also has to provide and maintain the economic infrastructure—transportation, communication, judicial systems, education, and so on—required by capitalist production. The nation-state must regulate conflicts between competing capitalists at home and abroad, by diplomacy if possible, by war if necessary. The state plays an essential role in creating conditions that inhibit or promote consumption; controls legislation that may force people off the land to seek wage labor; legislates to regulate or deregulate corporations; creates the base money supply by borrowing from the central bank; initiates economic, political, and social policies to attract capital; and controls the legitimate use of force. Without the nation- state to regulate commerce and trade within its own borders, there could be no effective global economic integration. But how did the nation-state come to exist, and how does it succeed in binding together often disparate and conflicting groups?

Virtually all people in the world consider themselves members of a nation-state. The notion of a person without a nation, said Ernest Gellner (1983:6), strains the imagination; a person must have a nationality as he or she must have a nose and two ears. We are Americans, Mexicans, Bolivians, Italians, Indonesians, Kenyans, or members of any of more than 200 states that currently exist. We generally consider our country, whichever it is, as imbued with tradition, a history that glorifies its founding and makes heroes of those thought to have been instrumental in its creation. Symbols of the nation—flags, buildings, monuments—take on the aura of sacred relics.

By the middle of the twentieth century, the attainment of nationhood had become a sign of progress and modernity. To be less than a nation—a tribe, an ethnic group, or a regional bloc—was a sign of backwardness. Yet fewer than one-third of the more than 200 states in the world are more than thirty years old; only a few go back to the nineteenth century, and virtually none go back in their present form beyond that. Before that time, people identified themselves as members of kinship groups, villages, cities, or, perhaps, regions, but almost never as members of nations. For the most part, the agents of the state were resented, feared, or hated because of their demands for tribute, taxes, or army conscripts.

States existed, of course, and have existed for 5,000 to 7,000 years. But the idea of the nation-state, of a people sharing some bounded territory, united by a common culture or tradition, common language, or common race, is a product of nineteenth-century Europe. Most historians see the French Revolution of 1789 as marking the beginning of the era of the nation-state. Yet, in spite of the historical newness of the idea, for many people nationality forms a critical part of their personal identity. Some of the questions we need to explore are as follows: How did the nation-state come to have such importance in the world? Why did it develop as it did, and how do people come to identify themselves as members of such vague abstractions? Finally, why does the nation-state kill as often as it does?

The question of killing is important, because today most killing and violence is either sanctioned by or carried out by the state. This should not surprise us: Most definitions of the state, following Max Weber’s (1947:124–135), revolve around its claim to a monopoly on the instruments of death and violence. “Stateness,” as Elman Service (1975) put it, can be identi- fied simply by locating “the power of force in addition to the power of authority.” Killing by other than the state, as Morton Fried (1967) noted, will draw the punitive action of organized state force.

The use of force, however, is not the only characteristic anthropologists emphasize in iden- tifying the state; social stratification, the division of societies into groups with differing access to wealth and other resources, is also paramount. Yet even here the state is seen as serving as an instrument of control to maintain the privileges of the ruling group, and this, too, generally requires a monopoly on the use of force (see Cohen and Service 1978; Lewellen 1992).



Chapter 4 • The Nation-State in the Culture of Capitalism 101

Thus, to complete our description of the key features of the culture of capitalism, we need to examine the origin and history of the state and its successor, the nation-state; we also need to understand the role of violence in the maintenance of the state and the role of the state in the maintenance and growth of the economy.

The Origin and hisTOry Of The sTaTe

The evolution of the state

States represent a form of social contract in which the public ostensibly has consented to assign to the state a monopoly on force and agreed that only it can constrain and coerce people (Nagengast 1994:116). Philosophers and political thinkers have long been fascinated by the question of why the state developed. Seventeenth-century philosopher Thomas Hobbes assumed the state existed to maintain order, and that without the state, life would be “nasty, brutish, and short.” However, anthropologists have long recognized that some societies do very well without anything approaching state organization; in fact, “tribes without rulers,” as they were called, represented until 7,000 to 8,000 years ago the only form of political organization in the world. Government in these societies was relatively simple. There might be a chief or village leader, but their powers were limited. In gathering and hunting societies, most decisions were probably made by consensus. Village or clan chiefs may have had more authority than others, but even they led more by example than by force. Power, the ability to control people, was generally diffused among many individuals or groups.

The state as a stratified society presided over by a ruling elite with the power to draw from and demand agricultural surpluses likely developed in the flood plains between the Tigris and Euphrates in what is now Iraq 4,000 to 5,000 years ago. The fortified cities of Uruk and Ur, forming the state of Sumeria, had populations of 40,000. States developed indepen- dently in Egypt, the Indus River Valley of India, the Yellow River Valley of China, and, later, Mesoamerica and Peru.

Anthropologists have long been concerned with the idea of the origin of the state (see Lewellen 1992). Why didn’t human aggregates remain organized into small units or into villages or towns of 500 to 2,000 persons? What made the development of densely settled cities neces- sary? Why, after hundreds of thousands of years, did ruling elites with control of armed force emerge to dominate the human landscape?

One theory is that as the population increased and food production became more com- plex, a class of specialists emerged and created a stratified society. Who comprised this class or why they emerged is an open question. Karl Wittfogel (1957), in his “hydraulic theory” of state development, proposed that Neolithic farmers in the area where states developed were dependent on flooding rivers, such as the Tigris, the Nile, and the Yellow rivers, to water their fields and deposit new soil. But this happened only once each year; so to support an expanding population, farmers began to build dikes, canals, and reservoirs to control water flow. As these irrigation systems became more complex, groups of specialists emerged to plan and direct these activities, and this group developed into an administrative elite that ruled over despotic, centralized states.

Others propose that an increase in population, especially where populations cannot easily disperse, requires more formal means of government and control and will lead to greater social stratification and inequality. These theories of state development emphasize the integrative function of the state and suggest that it evolved to maintain order and direct societal growth and development.

However, another framework emerges from the work of Marx and Engels. In this frame- work, early societies were thought to be communistic, with resources shared equally among members and little or no notion of private property. However, technological development permitted production of a surplus of goods, which could be expropriated and used by some



102 Part I • The Society of Perpetual Growth

persons to elevate their control or power in society. Asserting control permitted this elite to form an entrepreneurial class. To maintain their wealth and authority, they created structures of force.

Anthropologists’ major criticism of this framework is that there is little evidence of this kind of entrepreneurial activity in prehistoric societies; moreover, it is difficult to apply notions such as “communism” and “capitalism” to early societies. However, Morton Fried (1967) proposed that differential access to wealth and resources creates stratification, and once stratifi- cation emerges, it creates internal conflict that will lead to either disintegration of the group or to the elite imposing their authority by force.

Yet another view proposes that external conflict is the motivation for state development: Once a group united under a strong central authority develops, it could easily conquer smaller, less centralized groups and take captives, land, or property. Following this line of reasoning, if smaller groups were to protect themselves from predator states, they, too, had to organize, the result being the emergence of competing states with the more powerful ones conquering the weaker ones and enlarging their boundaries. Robert Carneiro (1978) reasoned that war has served to promote consolidation of isolated, politically autonomous villages into chiefdoms of united villages and into states. At first, war pits village against village, resulting in chiefdoms; then it pits chiefdom against chiefdom, resulting in states; and then it pits state against state, creating yet larger political units.

It should be clear that these theories are not mutually exclusive; the emergence of states may be a result of any one or a combination of factors. Thus, other theorists, such as Marvin Harris (1971) and Kent Flannery (1972; 1973), propose that the evolution of the state required the interaction of various factors such as control of birth rates, nature of food resources, and the environment.

Regardless of why the state emerged as a human institution, it is clear that by 1400 the world was very much divided into states and empires ruled by groups of elites who maintained their positions through the use of force. But the states of prehistoric times—the city-states of ancient Greece, the Roman Empire, the Chinese dynasties—were very different from the modern nation-state. It is doubtful that subjects of the Ming Dynasty or Roman Empire identified them- selves as members of a state, let alone a nation. It is unlikely that a British or French soldier of the sixteenth or seventeenth century felt he owed allegiance to his “nation”—to his king or queen, perhaps, but not to anything so abstract as a “country.” The nation-state is a very recent historical development, one we need to understand to appreciate its role in the culture of capitalism.

The history and function of the nation-state

The state as it exists today is obviously very different from the state that evolved 7,000 years ago or the state as it existed in the years 1500 or 1800. We have gone from being states to being nations or nation-states. The differences are important. A state is a political entity with iden- tifiable components. If someone asked citizens of the United States to identify a constituent of the “state,” they could point to federal buildings (e.g., the Congressional Office Building, the White House, and federal courthouse) or name federal bureaucracies (e.g., Congress, the Internal Revenue Service, and the Department of Agriculture); they could list the things that the state requires of them—to pay taxes, register for Social Security, obtain citizenship, or vote. However, if someone asked them what constituted the “nation,” to what, other than the flag, could they point? Other than being “patriotic,” what could they say is required of them by the “nation”? The American nation is a far more abstract concept than the American state; a nation, as Benedict Anderson (1991:5–6) put it, is “an imagined political community.” Yet in the past 200 years, states have evolved to nations or nation-states. But why did a new form of political entity develop, and what function did it perform?

The modern state, suggested historian Fernand Braudel (1982:515–516), has three tasks: to secure obedience and gain a monopoly on force with legitimate violence; to exert control over economic life to ensure the orderly circulation of goods and to take for itself a share of



Chapter 4 • The Nation-State in the Culture of Capitalism 103

the national income to pay for its own expenditure, luxury, administration, or wars; and to participate in spiritual or religious life and derive additional strength by using religious values or establishing a state religion. We examine later the use of violence by the state and the use of religious values. Let’s first examine the state control of economic life.

The state has probably always been involved in its subjects’ economic life in one way or another. The ancient state existed partly to protect the privileges of the elites by ensur- ing production of resources, offering protection from other elites, and extracting surplus wealth from a largely peasant population. Traders supplied wealth to the elite in the form of taxes, tributes, and fees required to do business. The state also performed some functions for the trader—it might mint coins and produce paper money, establish standards for weights and measures, protect the movement of merchants and goods, purchase goods, and create and maintain marketplaces where merchants could sell their products. But the ancient states probably did little actively to encourage trade, and in many ways they may have inhibited it. For example, they may have taxed the merchant to an extent that making a profit became difficult. The elite may have limited the goods that merchants could trade or limited the market for goods—for example, by claiming exclusive rights to wear certain kinds of clothes or furs, hunt certain animals, eat certain foods, and inhabit certain sites.

In sixteenth- and seventeenth-century Europe and Japan, states began to take a truly active role in promoting and protecting trade, recognizing that the state’s wealth depended on the success of its manufacturers and traders. They began to protect their manufacturers and traders by imposing protective tariffs on goods from other states, using military force to open markets in peripheral areas, and granting trading monopolies to firms within their borders. States created and maintained ports, built roads and canals, and, later, subsidized railroad construction.

The state was also involved in the consumption of goods, either by purchasing goods or, again, using its military or bargaining power to open up foreign markets to its merchants. One of the most lucrative sources of manufacturers’ profits was (and still is) the sale to governments of weapons and other goods and services (food, clothing, and transportation) necessary to maintain the military and other government services. Although ostensibly the military existed in core countries to protect the state against foreign invaders, it was far more often used to create and maintain colonies necessary for the success of domestic manufacture and trade and to maintain domestic order. Finally, the state organized, entitled, and directed financial institutions, such as banks, which ensured the ready availability of capital.

The nation-state, said Immanuel Wallerstein (1989:170), became the major building block of the global economy. To be part of the interstate system required that political entities transform themselves into states that followed the rules of the interstate system. This system required for its operation an integrated division of labor, along with guarantees regarding the flow of money, goods, and persons. States were free to impose constraints on these flows but only within a set of rules enforced collectively by member states or, as it usually worked out, a few dominant states.

At the beginning of the nineteenth century, the new capitalist state faced two problems. The first was political. With the downfall of the doctrine of the divine right of kings and the absolute state, political leaders faced a crisis of political legitimacy. On what basis could they claim control of the state apparatus that had become so critical for the emergence and success of the “national economy”? A second and related problem was economic: How could the state promote the economic integration of all those within its borders? Although the English state could claim control over England, Scotland, and Wales, and the French state over the regions of France (Bretagne, Picardie, Provence, Languedoc, etc.), the situation in the countryside did not reflect that control. At the beginning of the nineteenth century, few residents of the British






















104 Part I • The Society of Perpetual Growth

Isles would identify themselves as Britons; few residents of the state of France would identity themselves as French—at least 25 percent of them didn’t even speak French. Germany and Italy, of course, didn’t yet exist.

Thus, the degree of economic integration of regions was weak or nonexistent. Not only did people speak different languages, but they also used different currencies, had different standards and measures, and were downright hostile to state officials. Wages and prices varied from area to area, and standardized vocational training was virtually nonexistent. Furthermore, tastes in commodities differed; things manufactured or produced in one area might not appeal to people in other areas. Thus, local economies existed either side by side with or independent of the so-called national economy. While countries such as England, France, and the Netherlands were busy incorporating territories in South and North America, Asia, Africa, and the Middle East into their national economies, they hadn’t yet fully incorporated members of their own states.

There was, however, a single solution to both the political and the economic problem: to turn states into nations—groups of people who shared a common culture, language, and heritage and somehow belonged together (or thought they did), worked together, and shopped together. This was not easy to accomplish because virtually all of the major European states in the eigh- teenth and nineteenth centuries were hodgepodges of languages, cultures, and religions. When Garibaldi united a group of provinces into what was to become Italy, less than 3 percent of the population spoke Italian as their native language. German became the language of Germany only because Joseph II arbitrarily decided it should be. Thus nations had to be created: Frenchmen, Italians, Germans, and Americans had to be manufactured by convincing them they had some- thing in common, preferably loyalty and devotion to their respective states.

If members of a state would see themselves as sharing a common culture—a common heri- tage, language, and destiny—state leaders could claim to represent the “people,” whoever they might be, and the people could be more easily integrated into the national economy. They would, ideally, accept the same wages, speak the same language, use the same currency, have similar skills and similar economic expectations, and, even better, demand the same goods. The question is, How do you go about constructing a nation?

COnsTruCTing The naTiOn-sTaTe

It has been argued by some, especially ardent nationalists of various persuasions, that nation- states are expressions of preexisting cultural, linguistic, religious, ethnic, or historical features shared by people who make up or would make up a state. For many of the nineteenth-century German writers who were instrumental in creating the idea of the nation-state—Johann Gottfried von Herder, Johann Gottlieb Fichte, and Wilhelm Freiherr von Humboldt—nations were expres- sions of shared language, tradition, race, and state. Thus, today we see some of the citizens of Quebec claiming that their cultural heritage and language differentiate them from the rest of Canada and entitle them to nationhood, Kurds aspiring to their own state on the basis of cultural unity, Bosnian Serbs demanding their own state on the basis of their ethnic purity, and Sikhs demanding their own state based on their mode of worship.

However, the more generally held view, certainly among scholars, is that nation-states are constructed through invention and social engineering. Traditions, suggested Eric Hobsbawm, must be invented. People must be convinced that they share or must be forced to share certain features, such as language, religion, ethnic group membership, or a common historical heritage, regardless of whether they really do. As Hobsbawm and Ranger (1983:1) put it,

“Invented tradition” is taken to mean a set of practices, normally governed by overtly or tacitly accepted rules and of a ritual or symbolic nature, which seek to inculcate certain values and norms of behavior by repetition, which automatically implies con- tinuity with the past. In fact, were it possible, they normally attempt to establish continuity with a suitable historic past.



Chapter 4 • The Nation-State in the Culture of Capitalism 105

Creating the Other

An understanding of how the nation-state and, by extension, people’s national identities are con- structed is critical to understanding nationalism and ethnicity. Let’s begin by examining some of the ways Great Britain and France, pioneers in nation building, went about the task. Linda Colley (1992) illustrated how this was done in Great Britain. Colley’s book includes a painting by Sir David Wilkie, Chelsea Pensioners Reading the Gazette of the Battle of Waterloo, that caused a sensation when it was exhibited at the Royal Academy in 1822.

The painting depicts a crowd celebrating the news of the British victory over Napoleon at Waterloo. The distinguishing feature of the painting is its clear identification of people from all over Britain. There are Welsh, Scottish, and Irish soldiers; women and children; rich and poor; and even a black military bandman. It is, Colley said, a celebration of patriotism that transcends boundaries of age, gender, class, ethnicity, and occupation. It is war, the painting suggests, that forged a nation by uniting this diverse group against a common enemy. Even the signs on the taverns celebrate past wars and victories. According to Colley, Wilkie recognized the impor- tance of war in nation building and that uniting diverse people and groups against outsiders is one of the most effective ways to create bonds among them (1992:366–367).

Outsiders, however, can be used in more symbolic ways to build national unity. For example, Colley suggested that the making of the British nation from its culturally and linguistically diverse populations would have been impossible without a shared religion, and that British Protestantism allowed the English, Scots, and Welsh to overcome their cultural diver- gence to identify themselves as a nation. However, that would not have been so effective had their religion not also distinguished them from their arch rival, Catholic France.

Furthermore, the founding of a colonial empire created additional Others from whom members of the British nation could distinguish themselves. Britons thought the establishment of an empire proved Britain’s providential destiny, that God had chosen them to rule over other peoples and to spread the Gospel. Contact with manifestly alien peoples fed Britons’ belief about their superiority. They could favorably compare their treatment of women, wealth, and power. The building of a global empire corroborated not only Britain’s blessings, but what Scottish socialist Keir Hardie called the indomitable pluck and energy of the British people (Colley 1992:369).

Sir David Wilkie’s painting Chelsea Pensioners Reading the Gazette of the Battle of Waterloo represents the power of the nation- state to transcend boundaries of age, gender, class, ethnicity, and occupation. (North Wind/North Wind Picture Archives.)



106 Part I • The Society of Perpetual Growth

Thus, one of the most effective ways to construct a nation is to create some Other against whom members of the nation-state can distinguish themselves. That Other needn’t be a country; it may be a category of persons constructed out of largely arbitrary criteria, such as racial characteristics or reli- gion. Thus, a group may insist that only people of a particular skin color or religion or who speak a particular language can be citizens of their nation. War, religion, and the creation of colonies full of subjugated peoples provided for Britons a sense of their collective identity as a people, allowing them to over- come their own significant differences in language, culture, and economic status. Of course, people must find it in their own self-interest as well to proclaim their identity as members of a nation-state. As Colley pointed out, men and women became

British patriots to obtain jobs in the state or to advertise their standing in the community. Some believed that British imperialism would benefit them economically or that a French victory would harm them. For some, being an active patriot served to provide them full citizenship and a voice in the running of the state.

Yet the creation of hated or feared Others through such means as war, religion, and empire building is probably not in itself sufficient to build loyalty and devotion to a nation. If  it were, the nation-state would likely have emerged well before it did. Constructing a nation-state also requires a national, bureaucratic infrastructure that serves in various ways to unite people.

Language, Bureaucracy, and education

Eugen Weber, in his book Peasants into Frenchmen (1976), provides a classic account of nation building. He documents how peoples in France were administratively molded into a nation by bringing the French language to the countryside, by increasing the ease of travel, by increasing access to national media, by providing military training, and, most importantly, by creating a national educational system. Weber (1976:486) compares the transformation of peasants into citizens of a French nation-state to the process of colonization and acculturation: Unassimilated masses had to be integrated into a dominant culture. The process, he suggests, was akin to colo- nization, except it took place within the borders of the country rather than overseas. What kind of transformation of national identity did take place in France in the nineteenth century?

At the beginning of the nineteenth century, even after the French Revolution, a significant portion of rural France still lived in worlds of their own. Few if any would have called themselves “French.” The peasants of France were for the most part subsistence farmers, producing not for market or cash but for themselves and their families. People spent their lives in their villages. Scholars estimate that one-fourth of the residents of France did not speak French, including half the children who would reach adulthood in the last quarter of the nineteenth century. Arnold van Gennep would write as late as 1911 that “for peasants and workers, the mother tongue is patois, the foreign speech is French” (Weber 1976:73).

State officials saw linguistic diversity as a threat not to administrative unity but to ideo- logical unity, a shared notion of the interests of the republic, a oneness. Linguistic and cultural diversity came to be seen as imperfection, something to be remedied (Weber 1976:9). As a result, in the 1880s, at the insistence of the government, the French language began to infil- trate the countryside, a process more or less completed by 1914, although even in 1906 English travelers in France had problems communicating in French.

With the homogenization of language came the homogenization of culture. Local customs began to be replaced; dress and food preferences became standardized. Although many aspects of local culture began to disappear, some were adopted as national symbols. The beret, worn












Great Britain



Chapter 4 • The Nation-State in the Culture of Capitalism 107

only by Basques in 1920, became by 1930 a symbol of France; by 1932, some 23 million were manufactured, one for every French citizen.

Another sign of state integration and the decline of local traditions and values is the decay of popular feasts and rituals that celebrated the unity of local groups and their replacement by private ceremonies and rituals along with a few national holidays. Communal celebrations, such as Christmas, New Year, and Twelfth Night, turned into family affairs. Where once they were public rituals, baptisms, first communions, and marriages became private ceremonies. Renewal ceremonies that glorified time (the season), work (harvest), or the community (through its patron saint) disappeared as the redistribution of goods, once done through ritual at these ceremonies, was now managed more efficiently (and more stringently) by the state (Weber 1976:398). The replacement of local holidays and festivals with national holidays also allowed these occasions to be turned into periods of massive consumption and gift giving, similar to Valentine’s Day, Easter, Mother’s Day, and Christmas in the United States (Schmidt 1995).

National unity in France was also evidenced by the growth of patriotism. In the early nineteenth century, draft evasion in the provinces was high; for most, the military was a foreign institution. There was great tax resistance. Even toward the end of the nineteenth century, some French citizens had never heard of Napoleon; national authority was embodied in the tax collector and the recruiting sergeant. This is not to say, as Weber (1976:114) pointed out, that the French were unpatriotic, only that they had no uniform conception of patriotism. As he said, “patriotic feelings on the national level, far from instinctive, had to be learned.”

Thus, in the nineteenth century, people living within the boundaries of the French state gradually learned to be French. But how did this happen? How were peasants turned into French citizens? As with Great Britain, war and the struggle against outsiders certainly played a role in the conversion. The war against Prussia in 1870–1871 was a significant unifying event for most residents of France. The expansion of a colonial empire helped create Others to whom the French could feel superior. But more significant was the fact that, as Weber points out, there were far-reaching changes in the infrastructure and bureaucracy of France.

New roads were built, connecting people to others to whom they had never been connected; the growth of the railroads further increased mobility and contact between people of different regions. The railroads helped to homogenize tastes. Although we now associate the French with wine drinking, wine was not common in the countryside in the first half of the nineteenth century; it became more available only with the railroads. The roads and railroads brought peasants into a national market; it allowed them to grow and sell crops they couldn’t sell before and to stop grow- ing those they could purchase more cheaply, bringing ruin to some local enterprises no longer protected by isolation. Fashions from the cities began to penetrate the countryside. And the roads and railroads set people on the move. In the early part of the nineteenth century, if people migrated to find work, they almost always returned. This was no longer true by the end of the century.

As more people spoke French and became literate, they gained access to newspapers and journals, which in turn increased knowledge of national affairs and interests, demonstrating that events at the national level affected their lives. Military service increased identification with the state. Prior to the 1890s there was little sense of national identity in being a soldier; soldiers were either feared or thought to bring bad habits to their communities. Local men who joined the army were forced to conform when they returned to their villages lest their newly learned habits affect others. Many returned not even having learned to speak French. But the war with Prussia seemed to mark the beginning of a national identity in the rank and file of the military and among the peasants. The army began to become a school for the fatherland. Furthermore, for most recruits, life in the army was better than life at home; the army ate better, dressed better, and was healthier than the average French citizen. Toward the end of the century, more and more soldiers did not return to their villages after finishing their military obligations.

As important as all these agents of nation building were in France and other countries, perhaps none was as important as the school. Weber credited the school with being the ultimate source of acculturation that made the French people French.



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At the beginning of the century, educational conditions were abysmal in France, as in most countries; some teachers couldn’t read, and some classes were conducted by nuns who could read only prayers. In 1864, a French school inspector commented that none of the children understood what they read, and when they could read, they could not give an account of it. Furthermore, schooling in the countryside had little practical benefit; it could not improve the lives of students economically or socially. Although improving education in the countryside had been a goal of the state since the 1830s, great changes occurred only in the 1880s, when the state began to subsidize education and every hamlet with twenty children or more was required to have a school.

It was clear to state officials that education was necessary as a “guarantee of order and social stability” (Weber 1976:331). “To instruct the people,” one said, “is to condition them to understand and appreciate the beneficence of the government” (Weber 1976:331). Clearly there was an explicit link in the minds of state officials between education, nation building, national identity, and economic expansion. Following is a passage from a first-year civics textbook that helped students in “appreciating their condition”:

Society (summary): (1) French society is ruled by just laws, because it is a democratic society. (2) All the French are equal in their rights: but there are inequalities between us that stem from nature or from wealth. (3) These inequalities cannot disappear. (4) Man works to become rich; if he lacked this hope, work would cease and France would decline. It is therefore necessary that each of us should be able to keep the money he has earned. (Weber 1976:331)

Schooling was to be the great agent of nationalism. As one teacher said in 1861, it would teach national and patriotic sentiments, explain the benefits of the state and why taxes and military service were necessary, and illustrate for students their true interest in the fatherland. In 1881, another wrote that future instructors must be taught that “their first duty is to make [their charges] love and understand the fatherland.” By the 1890s, officials considered the school “an

Third graders in Palo Alto, California, pledge their allegiance to their

nation-state (Russell Curtis/Science Source.)



Chapter 4 • The Nation-State in the Culture of Capitalism 109

instrument of unity,” an “answer to dangerous centrifugal tendencies,” and the “keystone of national defense” (Weber 1976:332–333).

The best instrument of indoctrination, said school officials, was history, which, when properly taught, “is the only means of maintaining patriotism in the generation we are bring- ing up.” In 1897 candidates for the baccalauréat moderne were asked to define the purpose of history in education; 80 percent replied essentially that it was to exalt patriotism (Weber 1976:333).

Before 1870, few schools had maps of France; by 1881, few classrooms, no matter how small, were without one. By the end of the century, the educational system seemed to be accomplishing its task, as evidenced by boys in rural France who began to enact the exploits of historical heroes.

Ernest Gellner (1983:34) drew the connection between nation building, education, and economic integration even more tightly. According to Gellner, work in industrial society no longer means working with things; rather it involves working with meanings, exchanging com- munications with other people, or manipulating the controls of machines, controls that need to be understood. It is easy to understand the workings of a shovel or a plow; it is another thing to understand the complex process through which a button or control activates a machine. As a consequence, a modern capitalistic economy requires a mobile division of labor and precise communication between strangers. It requires universal literacy; a high level of numerical, tech- nical, and general sophistication; mobility where members must be prepared to shift from area to area and from task to task; and an ability to communicate with people they don’t know in a context-dependent form of communication, in a common, standardized language. To attain the standard of literacy and technical competence needed to be employable, people must be trained, not by members of their own local group but by specialists. This training could be provided only by something like a “national” education system. Gellner (1983:34) went so far as to suggest that education became the ultimate instrument of state power, that the professor and the classroom came to replace the executioner and the guillotine as the enforcer of national sovereignty, and that a monopoly on legitimate education became more important than the monopoly on legiti- mate violence to build a common national identity and to provide the training necessary for the full integration of national economies.

Violence and genocide

While creating a feared or hated Other, a national bureaucracy, and an educational system are essential in constructing the nation-state, violence remains one of the main tools of nation build- ing. In fact, there is a view, shared in anthropology by Pierre van den Berghe (1992), Leo Kuper (1990), Carole Nagengast (1994), and others, that the modern nation-state is essentially an agent of genocide and ethnocide (the suppression and destruction of minority cultures). Given the glorification of the nation-state as a vehicle of modernization, unity, and economic development, this seems a harsh accusation. Yet there exists ample evidence that one of the ways states have sought to create nations is to eliminate or terrorize into submission those within its borders who refuse to assimilate or who demand recognition of their status as a distinct ethnic or national group. In the United States, the attempt first to kill all indigenous peoples, then forcibly to assim- ilate those who remained, followed by a policy of “benign neglect,” is but one example of state hostility to cultural variation, as we shall see. The claim that states are agents of death and oppression against minority or even majority groups (e.g., South Africa, Sudan, and Pakistan) is often provided in daily news reports.

Between 1975 and 1979, in one of the worst cases of state killing in the twentieth century, the government of Cambodia, the Khmer Rouge, systematically killed as many as 2 million of its 7 million citizens. These killings were carried out in the name of a program to create a society without cities, money, families, markets, or commodity-money relations. Millions were disemboweled, had nails driven into the backs of their heads, or were beaten to death with hoes.



110 Part I • The Society of Perpetual Growth

This program involved destroying what the leaders saw as the enemy classes—imperialists (e.g.,  ethnic Vietnamese, ethnic Chinese, and Muslim Chams), feudalists (the leaders of the old regime, Buddhist monks, and intellectuals), and comprador capitalists (ethnic Chinese). The goal was as much nationalistic as it was socialistic—to return Cambodia and the Khmer race to its pre- vious glory. They took over a country devastated by U.S. bombing during the Vietnam War and ended up killing millions who they deemed didn’t belong (Kuper 1990). But the Khmer Rouge’s killing of its citizens, while reaching an intensity matched by few states, was hardly an exception. As Carole Nagengast (1994:119–120) wrote,

The numbers of people worldwide subjected to the violence of their own states are staggering. More than a quarter of a million Kurds and Turks in Turkey have been beaten or tortured by the military, police, and prison guards since 1980; tens of thousands of indigenous people in Peru and Guatemala, street children in Brazil and Guatemala, Palestinians in Kuwait, Kurds in Iraq, and Muslim women and girls in Bosnia have been similarly treated. Mutilated bodies turn up some- where every day. Some 6,000 people in dozens of countries were legally shot, hung, electrocuted, gassed, or stoned to death by their respective states between 1985 and 1992 for political misdeeds: criticism of the state, membership in banned political parties or groups, or for adherence to the “wrong” religion; for moral deeds: adultery, prostitution, homosexuality, sodomy, or alcohol or drug use; for economic offenses: burglary, embezzling, and corruption; and for violent crimes: rape, assault, and murder.

In a series of books on state killing, R. J. Rummel (1994) documented the carnage com- mitted by states against their own citizens: 61 million Russians from 1917 to 1987; 20 million Germans from 1933 to 1945; 35 million Chinese killed by the Chinese communist government from 1923 to 1949 and 10 million killed by the Chinese nationalists; almost 2 million Turks from 1909 to 1918; and almost 1.5 million Mexicans from 1900 to 1920. In total, Rummel (1994:9) said, almost 170 million men, women, and children from 1900 to 1987

have been shot, beaten, tortured, knifed, burned, starved, frozen, crushed, or worked to death; buried alive, drowned, hung, bombed, or killed in any other of the myriad ways governments have inflicted death on unarmed, helpless citizens and foreigners. The dead could conceivably be nearly 360 million people. It is as though our species has been devastated by a modern Black Plague. And indeed it has, but a plague of power not germs.

Rummel attributed state killing to power and its abuses, claiming it is largely totalitarian regimes that resort to democide, genocide, or ethnocide. Democracies also kill, as evidenced in the twentieth century by indiscriminate bombings of enemy civilians in war, the large-scale massacre of Filipinos during U.S. colonization of the Philippines at the turn of the century, deaths in British concentration camps during the Boer War in South Africa, civilian deaths in Germany as a result of the Allied blockade, the rape and murder of helpless Chinese in and around Peking in 1900, atrocities committed by Americans in Vietnam, the murder of helpless Algerians by the French during the Algerian War, and the deaths of German prisoners of war in French and U.S. prisoner-of-war camps after World War II. But Rummel said even these prove his point about power, for virtually all of these cases were committed in secret behind a trail of lies and deceit by agencies and power holders who were given the authority to operate autonomously and shielded from the press. Even attacks on German and Vietnamese cities were presented as attacks on military targets. He concluded that as we move from democratic through authoritarian and to totalitarian governments, the degree of state killing increases dramatically (Rummel 1994:17).



Chapter 4 • The Nation-State in the Culture of Capitalism 111

Pierre van den Berghe (1992:191) attributed state killing not to the misuse of authority but to nation building itself. Taking what he called a frankly anarchist position, he said,

the process euphemistically described as nation-building is, in fact, mostly nation- killing; … the vast majority of so-called “nation-states” are nothing of the sort; and … modern nationalism is a blueprint for ethnocide at best, genocide at worst.

Van den Berghe said that the nation-state myth has been allowed to persist because international bodies, such as the United Nations, insist that internal killing is a state matter, a “gentlemen’s agreement” between member states not to protest the butchering of their own citi- zens. Also, scholars perpetrate the myth with the use of nation-state designation. The result is to legitimize genocide in the interests of building nation-states that function to further economic and political integration.

Carole Nagengast (1994:122) proposed that state-sponsored violence serves to aid in the construction and maintenance of the nation-state. She examined not only state killing but also the institutionalization of torture, rape, and homosexual assault. The purpose of this state-sponsored violence is not to inflict pain but to create what Nagengast called “punishable categories of people,” to create and maintain boundaries and legitimate or delegitimate specific groups. State violence against its own citizens, she suggested, is a way to create an Other, an ambiguous under- class that consists on the one hand of subhuman brutes and on the other hand of superhuman individuals capable of undermining the accepted order of society. Arrest and torture serve to stigmatize people and to mark them as people who no one wants to be. Arrest and torture become, in effect, a way of symbolically marking, disciplining, and stigmatizing those categories of people whose existence or demands threaten the idea, power, and legitimacy of the nation-state. Furthermore, because the torture and violence are committed only against “terrorists,” “commu- nists,” or “separatists,” it becomes legitimate. “We only beat bad people,” said a Turkish prison official in 1984. “They are no good, they are worthless bums, they are subversives who think that communism will relieve them of the necessity of working.” He revealed with apparent pride that he had “given orders that all prisoners should be struck with a truncheon below the waist on the rude parts, and warned not to come to prison again.” “My aim,” he said, “is to ensure discipline. That’s not torture, for it is only the lazy, the idle, the vagabonds, the communists, the murderers who come to prison” (cited Nagengast 1994:121).

Terrorist acts are often depicted as being extralegal—that is, committed by persons outside state control. Yet there is considerable evidence that most terror is applied by states to integrate or control a reluctant citizenry. As Jeffery Sluka (2000:1) puts it,

If terrorism means political intimidation by violence or its threat, and if we allow the def- inition to include violence by states and agents of states, then we find that the major form of terrorism in the world today is practiced by states and their agents and allies, and that quantitatively, anti-state terrorism pales into relative insignificance in comparison to it.

Death squads operate outside the law but with the tacit approval of the state. Thus their actions carry out state goals of eliminating dissidents without due process of law but are enough removed from official state agencies to allow the state “plausible denial.” Rarely are members of death squads punished, and many are also members of official state agencies, such as the police, militia, or army.

Targets of death squads are often portrayed by the state as “terrorists” or subversives but tend to be anyone that challenges the status quo. These include people who organize unions, offer Bible classes, propose land reforms, or advocate tax increases on the rich. They include clergy, labor organizers, human rights activists, social workers, journalists, and so on. Victims include women, children, the elderly, and relatives of activists. More recently, particularly in Latin America, victims include street children.

Few countries are immune to the operation of state-sanctioned death squads. In the United States, for example, there were 4,743 recorded lynchings from 1882 to 1968. Of these people who



112 Part I • The Society of Perpetual Growth

were lynched, 3,446 were black. People were never pros- ecuted for participating in a lynching, and they frequently requested to have their pictures taken next to the victim, often turning the photograph into a postcard (Allen 2000).1

Core countries play a major role in supporting vio- lent regimes in the periphery by either training officers or offering direct military aid. Virtually all this military support is used, not to defend against foreign invasion, but to suppress political dissent or unionization or to discipline a resistant citizenry. And the financial cost of maintaining militaries and supplying client states is high (see Table 4.1). Alexander George in his book Western State Terrorism concludes that

the plain and painful truth is that on any reasonable definition of terrorism, taken literally, the United States and its friends are the major supporters, sponsors, and per- petrators of terrorist incidents in the world today…. [M]any, probably most, significant instances of terrorism are supported, if not organized, by the U.S., its partners, and their client states. (George 1991:1–2)

1 Many of these are available at www.withoutsanctuary.org/ along with a movie narrated by James Allen.

There were 4,743 lynchings in the United

States from 1882 to 1968. These “death squads” acted with impunity and were

never prosecuted by the state. (Bettmann/


TaBLe 4.1 Military Spending, World Share, Spending per Capita, Share of GDP, and Change from 1999 to 2008 of Fifteen Countries with the Highest Military Spending

Rank Country Spending ($ Bn.) Percent of GDP World Share (%)

— World Total 1,630 2.6 100

1 United States 711.0 4.7 41

2 China 143.0 2.0 8.2

3 Russia 71.9 3.9 4.1

4 United Kingdom 62.7 2.6 3.6

5 France 62.5 2.3 3.6

6 Japan 59.3 1.0 3.4

7 Saudi Arabia 48.2 8.7 2.8

8 India 46.8 2.5 2.7

9 Germany 46.7 1.3 2.7

10 Brazil 35.4 1.5 2.0

11 Italy 34.5 1.6 2.0

12 South Korea 30.8 2.7 1.8

13 Australia 26.7 1.8 1.5

14 Canada 24.7 1.4 1.4

15 Turkey 17.9 2.3 1.0

Source: Military Expenditures: SIPRI Yearbook, 2011



Chapter 4 • The Nation-State in the Culture of Capitalism 113

spin, free Trade, and The rOLe Of energy in The gLOBaL eCOnOmy

In March of 2003, the United States, Great Britain, and a small number of military personnel from forty other countries invaded Iraq. The invasion and subsequent occupation of Iraq are clearly one of the first defining moments of the twenty-first century. Its consequences dominated U.S. electoral politics, preoccupied the media, and resulted in the deaths of hundreds of thousands of Iraqis, Americans, and others, along with the displacement of millions more at an ultimate cost of over one trillion dollars. The question is, What can we learn about the role of the nation-state from this event and from the wider involvement of the United States in the Middle East? More specifically, What does it tell us about the role of the nation-state in marshaling support for its actions and for its function of maintaining the health and growth of the economy?

To answer these questions, we first need to provide a brief history of recent U.S. involve- ment in the Middle East, and particularly its history of relations with three countries—Saudi Arabia, Iran, and Iraq—who together hold almost 45 percent of the known world petroleum reserves.

U.S. involvement in the Middle East, particularly in Middle East politics, began largely in May of 1933, when Standard Oil of California (today’s Chevron) gained the right to drill for oil in Saudi Arabia, formalizing the agreement with the Saudis by forming a partnership known as the Arabian-American Oil Company (Aramco). Aramco worked hard at making the partnership work at the cultural level, insisting that employees follow strict Saudi laws and building power plants, roads, schools, and other needed facilities. By 1980, Saudi Arabia had bought 100 percent of Aramco’s shares and in 1988, with little objection from the United States, took over total management of the company, changing the name to Saudi Aramco.

The United States has maintained remarkably cooperative relations with the Saudis, gain- ing much prestige in Saudi Arabia and the rest of the Arab world in 1956 when it sided with Egypt against Great Britain, France, and Israel, who had attacked Egypt in 1956 when it asserted control over the Suez Canal. The United States has always been adamant that no country inter- fere with its access to Saudi oil, the largest known deposit in the world.

In 1953, Iran, with the fifth-largest oil deposits in the world, became a U.S. interest when a democratically elected government led by Mohammad Mossadeq nationalized the British Anglo- Iranian Oil Company. Seeing British interests threatened, the United States joined Great Britain, and, working largely through the U.S. Central Intelligence Agency (CIA) and with Iranian army officers, overthrew Mossadeq on the pretext that he had communist leanings. They lent their support to the shah Mohammed Reza Pahlavi, who had briefly reigned when his father, Reza Pahlavi, abdicated in 1941 and who ruled more as a dictator than a constitutional monarch. As a result of U.S. participation in the overthrow of Mossadeq, U.S. firms gained a 40 per- cent share in Iranian oil and the right to maintain military bases in Iran. Largely because of the repressive nature of the shah’s government, he was deposed in 1979 when a popular revolution drove him from power and installed a fundamentalist Islamic government headed by Islamic cleric Ayatollah Khomeini. The Iranian Revolution had two serious consequences for the United States: the loss of access to Iranian oil and the loss of military bases in Iran.

The year 1979 was also eventful because Iraq, with the second-largest oil reserves in the world, officially acquired a new leader, Saddam Hussein al-Tikriti. In 1963, Saddam had been among a group of army officers who, with CIA help, overthrew and killed General Abdel- Karim Kassem, who had angered the United States by legalizing the Communist Party in Iraq and enacting land reforms while granting autonomy to the Kurdish population in the north of the country. In 1980 Saddam invaded Iran. When it looked like Iraq might lose the war, the



















114 Part I • The Society of Perpetual Growth

United States supplied arms and intelligence to Iraq, which finally signed a treaty with Iran in 1989 after the deaths of some 1.5 million people. The United States remained on good terms with Saddam until 1990, when, in a territorial dispute, Saddam invaded Kuwait. The United States and its allies responded by launching Operation Desert Storm to “liberate” Kuwait. The United States easily succeeded in driving the Iraqi army out of Kuwait, and then led the United Nations in applying economic sanctions against Iraq and limiting the country’s ability to acquire any goods (including medicines) that conceivably could be used for military purposes. UNICEF estimated that at least 500,000 children died for lack of medicines as a consequence of the sanctions. Then, in March of 2003, the U.S.-led coalition invaded Iraq.

To illustrate the role of the nation-state, mainly the relationship to capitalists (particularly multinational corporations), we need to examine the following questions, each of which is raised by the Iraq invasion. First, how does a nation-state, especially one with a representative government, gain support for policy decisions and collective action such as the invasion of another country? Second, how does the invasion of Iraq relate to the nation-state’s stew- ardship of the economy, especially its relationship to multinational corporations? Finally, given the importance of Middle Eastern petroleum supplies, what is the role of nation-states in the availability of energy supplies, and what is the role of oil, and energy in general, to the workings of national economies?

manufacturing Consent: spin

Manufacturing consent, a term suggested by Edward S. Herman and Noam Chomsky (2002), refers to the efforts of governments and corporations to manipulate the manner in which poli- cies and events are represented by the mass media and, consequently, interpreted by citizens. The effort of President George W. Bush’s administration to justify the invasion of Iraq is a good example. There is significant evidence that even before the attacks of September 11, 2001, on the World Trade Center and the Pentagon, the administration wanted to invade Iraq and that even after 9/11 was advised t

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