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- Herausgeber: Biteback Publishing
- Kategorie: Fachliteratur
- Sprache: Englisch
Capitalism has lifted millions out of poverty. Under its guiding hand, living standards throughout the Western world have been transformed. Further afield, the trail blazed by Japan is being followed by other emerging market countries across the globe, creating prosperity on a breathtaking scale. And yet, capitalism is unloved. From its discontents to its outright enemies, voices compete to point out the flaws in the system that allow increasingly powerful elites to grab an ever larger share of our collective wealth. In this incisive, clear-sighted guide, award-winning Financial Times journalist John Plender explores the paradoxes and pitfalls inherent in this extraordinarily dynamic mechanism - and in our attitudes to it. Taking us on a journey from the Venetian merchants of the Renaissance to the gleaming temples of commerce in 21st-century Canary Wharf via the South Sea Bubble, Dutch tulip mania and manic-depressive gambling addicts, Plender shows us our economic creation through the eyes of philosophers, novelists, poets, artists and divines. Along the way, he delves into the ethics of debt; reveals the truth about the unashamedly materialistic artistic giants who pioneered copyrighting; and traces the path of our instinctive conviction that entrepreneurs are greedy, unethical opportunists, hell-bent on capital accumulation, while manufacturing is innately virtuous. Thoughtful, eloquent and above all compelling, Capitalism is a remarkable contribution to the enduring debate.
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To Stephanie, Tom, Olivia, Celia, Richard and Robin
CONTENTS
ACKNOWLEDGEMENTS
This book draws on the wisdom of so many people and so much reading over the years that it would be impossible to thank all my sources individually. What I can do is acknowledge the long-standing support and stimulus from my colleagues at the Financial Times, the enthusiastic encouragement of David Marsh, managing director of the Official Monetary and Financial Institutions Forum, and of Andrew Hilton, director of the Centre for the Study of Financial Innovation. Anyone who writes about capitalism from a historical and cultural perspective also has to acknowledge a debt to Jerry Z. Muller, whose book The Mind and the Market: Capitalism in Western Thought has been an inspiration and a delight. I offer heartfelt gratitude to my old friend Brian Reading of Lombard Street Research, who read the manuscript. He saved me from numerous errors and made characteristically thoughtful suggestions, most of which I have taken up. I am hugely grateful to my agents, Leslie Gardner and Gabriele Pantucci of Artellus, who believed from the outset in a book that did not fit neatly into any category with which publishers could feel naturally at ease. To the publisher who did take it on board, Iain Dale of Biteback and his enthusiastic team, I am likewise profoundly grateful. Above all I am indebted to my beloved wife Stephanie, who was both a wonderful supporter-in-chief through some very difficult times during the gestation of the book, and a superbly perceptive subeditor. My debt to her in everything is beyond enumeration.
INTRODUCTION
The great financial crisis that began in 2008 with the collapse of Lehman Brothers, the US investment bank, has been the worst since the Wall Street Crash of 1929. Unlike that earlier crisis, it has not put the survival of the capitalist system in doubt. Indeed, the Great Recession that began shortly before the Lehman debacle was the first modern crisis in which no systemic alternative to capitalism was on offer. No one, after all, is looking to North Korea for an alternative vision of the future. Since the fall of the Berlin Wall, the only question has been about the extent of the market orientation of capitalism. What the crisis did do was provoke intense soul searching about the merits and defects of an entrenched capitalist system.
The merits are clear enough. Capitalism, by which I mean a market-based system where private ownership of industry and commerce is supported by property rights, has lifted millions out of poverty. Since the start of the industrial revolution in the eighteenth century, living standards in the West have been transformed. And since the mid-twentieth century, the process of industrialisation and urbanisation that holds the key to raising rates of economic growth has spread to the developing world. The trail blazed first by Japan, then by the Asian Tiger economies such as South Korea, Taiwan, Hong Kong, Thailand and Singapore, has been followed by other emerging market countries across the globe. As they go through one industrial revolution after another, these countries’ growth rates have accelerated to levels far beyond anything achieved through industrialisation in Europe and North America – most spectacularly so in the case of China, where the Communist Chinese leader Deng Xiaoping signalled a milestone in capitalism’s slow march towards respectability by declaring that ‘to get rich is glorious’.
China’s economy grew at 10 per cent per annum on average during the 1990s and 2000s, while the three decades to 2010 saw an eightfold increase in per capita gross domestic product. That rate of growth is not exceptional by recent Asian standards. What is exceptional is the breathtaking scale on which poverty has been reduced. According to the World Bank, the number of people living at or below $1.25 a day, after adjusting for the purchasing power of the dollar in different countries, has fallen from 52 per cent in 1981 to 21 per cent in 2010 – a transformation in living standards without precedent in human history. Small wonder that, while globalisation ensures that the developed and the developing countries are increasingly interdependent, the balance of economic power is shifting towards the latter. A further consequence of this series of industrialisations is that global inequality has lessened.
As Karl Marx rightly perceived, industrial capitalism has always been inherently unstable, which is the first and most palpable defect of the system. The cycle of profit, speculation, irrational exuberance, stock market panic and recession has been an endemic feature of capitalism since the industrial revolution began. Creative destruction, the process identified by the Austrian-American economist Joseph Schumpeter as the essential dynamic of capitalism, has long been troublesome for those thrown out of work as a result of increasing competition and technological innovation. It also subverts the sense of community. And today, not only is the business cycle made worse by ill-judged monetary policies and manic bankers – there have been more than 100 major banking crises worldwide in the past three decades – but globalisation and economic interdependence have caused basic manufacturing industries to evacuate wholesale from the developed to the developing world, at a high cost in lost jobs. Some jobs have been repatriated since the financial crisis as business leaders discovered that their supply chains were over-extended. Yet it remains an open question whether capitalist innovation can continue to generate new jobs in the way it has done over the past two centuries.
At the same time, globalisation and increased concentration in the banking system since the crisis mean that the scale of any future global financial crisis and subsequent recession will be greater than ever before. Moreover, the environmental cost of bringing emerging market countries up to the per capita income levels of the advanced countries is rising all the time and is hazardous for the planet in a way that the fallout from early industrialisation was not. It follows from all this that the rising living standards for which capitalism deserves credit are accompanied by a high degree of insecurity – an insecurity that is exacerbated at the time of writing by tight fiscal policies in the US and Europe. These were designed to address the government deficits and debt burdens incurred to finance the welfare safety nets that were installed to mitigate that insecurity.
The other key discontent about capitalism concerns its ethical basis. The centrality of the money motive in driving the market economy has long been a worry for many. In the aftermath of the financial crisis, that concern has been heightened by extreme levels of inequality within both developed and developing countries. A particular focus is boardroom pay. Few can see any justification, economic or moral, for the enormous widening of the gap between boardroom and workplace rewards, which is why the Occupy Wall Street movement and comparable protests around the world attracted such sympathy in 2011–12. Most feel absolutely sure that the pay awarded to bankers is wildly excessive. While global inequality has decreased, inequality in many countries of the developed world has soared, partly as a result of the explosion in boardroom pay. There is also a clear sense of unease in the English-speaking world at the increasing financialisation not only of the economy, but of everything from public services to the arts.
These discontents have been a source of fascination to me since the outset of my career. When I left Oxford University in 1966, I embarked on what I confidently expected to be the great twentieth-century novel. With about a third of it written, it dawned on me that it was horrendously devoid of literary merit. When I binned the incomplete manuscript, I had no Plan B and thus succumbed to parental pressure to join one of the big firms of chartered accountants in the City of London, where a great uncle of mine had been the dominant figure through most of the first half of the century. Three years there left me with a profound distaste for accountancy and a qualification that I did not expect to be of much use. Yet I acquired a growing interest in the workings of the global economy and an enduring concern about the ethical basis of capitalism. These are subjects that I pursued in my subsequent career in journalism, which was later to be informed by practical experience as, among other things, a non-executive director and chairman of a quoted company, and pro bono work on corporate governance around the globe for the World Bank Group and the Organisation for Economic Cooperation and Development.
This book contains the fruits of that experience. It explores current discontents in a historical context, looking at many of the great debates about money, business and markets not just through the eyes of economists and business people, but through the views of philosophers, politicians, novelists, poets, divines, artists and sundry others. It is, in effect, a discursive and opinionated probe around the grumbling bowels of the capitalist system. In it, I have sought to explain the paradox whereby this extraordinarily dynamic mechanism, which has done far more than armies of politicians and bureaucrats to alleviate global poverty, commands such uneasy support. I conclude by explaining why the world is still on the edge of an abyss despite all the efforts of politicians, central bankers and financial watchdogs to strengthen the global financial system. Sadly, there is every likelihood that we will experience a further and more damaging crisis in due course.
CHAPTER ONE
THE ROOT OF ALL EVIL (OR NOT, AS THE CASE MAY BE)
Capitalism is unloved. Since the collapse of Lehman Brothers, the American investment bank, in September 2008, it has become commonplace to refer to it as broken. Certainly its legitimacy is being questioned more than at any time since the Wall Street Crash of 1929 and the subsequent Great Depression. Few find it easy to live with the turbulent nature of the capitalist market economy, with its constant fluctuations in output and employment, accompanied by recurring financial crises. Many have concerns about the ethical basis of capitalism and the role of the money motive in driving economic growth.
In fact, ambivalence towards moneymaking pre-dates capitalism by centuries. Not only has money throughout the ages had a terrible press on ethical grounds; nothing, apart from religion, has so divided the human race as the issue of how to regard money, wealth and markets. Over millennia, an assorted band of critical ascetics, divines, philosophers, artists and poets has had the best of the moral argument, while exerting minimal influence on human behaviour. For the apologist of the capitalist ethos, the list of antagonists is formidable. Plato set the tone in The Republic, where he had Socrates tell Adeimantus that ‘the more they [men] think of making a fortune, the less they think of virtue; for when riches and virtue are placed together in the scales of the balance, the one always rises as the other falls’.1 In the Laws, his Athenian speaker accused business of ‘breeding in men’s souls knavish and tricky ways’.2 Aristotle lent support in his Politics, frowning on trade, which he regarded as ignoble: ‘There are two sorts of wealth-getting … one is a part of household management, the other is retail trade: the former necessary and honourable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another.’
As for finance, he declared that ‘of all the modes of getting wealth this is the most unnatural’ – a sentiment that resonates down the ages in the light of recurring financial crises.3 Then came the New Testament, with its low view of worldly goods and its uncompromising assertion that it was impossible to serve both God and Mammon. Jesus had no time for the rich, suggesting that it was well-nigh impossible for them to enter the kingdom of heaven. And then, of course, there was the apostle Paul, that terrible old curmudgeon, who launched the definitive anti-materialist assault in his letter to Timothy, where he declared that the love of money was the root of all evil.
Business people have had as bad a press as business itself. From antiquity to the present day, the vulgarity and pretention of the nouveau riche businessman has been ruthlessly satirised by novelists and dramatists, the supreme examples being the repulsive guests at Trimalchio’s banquet in Petronius’s Satyricon and Molière’s Monsieur Jourdain, who delighted in the discovery that he had spent a lifetime speaking prose. Nineteenth-century novelists have been particularly harsh. Balzac, Dickens, Dostoyevsky, Trollope and Zola excelled in the portraiture of miserly ogres and business rogues while showing a lesser inclination to celebrate the creation of wealth. In the modern age, D. H. Lawrence articulated more clearly even than Karl Marx the view that capitalist industry debased mankind. In his essay ‘Democracy’, he wrote:
The great crime which the moneyed classes and promoters of industry committed in the palmy Victorian days was the condemning of the workers to ugliness, ugliness, ugliness: meanness and formless and ugly surroundings, ugly ideals, ugly religion, ugly love, ugly clothes, ugly furniture, ugly houses, ugly relationship between workers and employers. The human soul needs actual beauty even more than bread.4
As for poets, Robert Graves probably spoke for most of them when he said, ‘There’s no money in poetry, but then there’s no poetry in money either’ (although there are some notable exceptions to this rule, as we shall see in Chapter Ten).
All of which is discomfiting for those of us who are business people or, like the author of this book, make a living from writing about economics, business and finance. We have to recognise that for much of history, anti-business sentiment has been a given of the political and social structure. And history provides a big clue as to why capitalism has been such an uncomfortable implant into the cultures of both the West and East, and why it is so hard for people to accept the values that the capitalist system introduces into society.
Consider Europe in the feudal era. At that time, power and wealth came from land, while aristocrats looked down on commerce. For them, arms, estate management and the Church were the only careers suitable for nobles, while the values they ostensibly prized were honour, loyalty and disinterested self-sacrifice. Not for them the bourgeois virtues of thrift and enterprise, although they clearly did have a natural, self-interested desire to preserve their own wealth and status within society. Much the same was true of Asia, where the anti-business ethos was deep seated. In China, early Confucian scholars taught that there was a hierarchy of callings – the Four Occupations – which started with gentleman scholars at the top and ran via rural peasants, then artisan craftsmen, down to lowly merchants and traders. In the similarly stratified feudal society that existed in Japan over many centuries before the Meiji restoration of 1868, the social hierarchy descended from samurai, to farmer, to artisan and finally to the merchant. At best, the merchant was regarded as a necessary evil; at worst, a dangerous and corrupting parasite. India was similarly hierarchical. The precise categories of the Hindu caste system are controversial and confusing, but, broadly speaking, Brahmin priests came first, warriors second, merchants and farmers third and labourers fourth. Untouchables were excluded from these four formal categories.
Happily for the merchants, history did not leave them on the lower rungs of the social ladder for ever. I would argue that the first great landmark on business’s long march to semi-respectability came in China, where the progressive commercialisation between the tenth and seventeenth centuries, under the Song and Ming dynasties, saw a loosening of the four occupational categories and the absorption of rich merchants into the ranks of the landowning gentry – though China’s bureaucracy, educational system and self-imposed isolation still acted as a powerful brake on modernisation and the development of a capitalist economy. A similar loosening took place in Europe in the course of the feudal period, although this was not thanks to any revisionism on the part of the Catholic Church. The tension between moneymaking and Christian doctrine arguably suited the interests of the clergy because the guilty feelings of those who had money ensured ample donations, while for everyone else the Church was an all-powerful gatekeeper on the path to compensatory riches beyond the grave. Yet, for kings, this tension was less helpful. If the pariah status of business started to erode in Europe, it was chiefly because medieval monarchs needed to tax and borrow. Increasingly, they accepted tax in lieu of military service from the landed class. And they turned initially for credit to the Jews, whose religion had a less party-pooping attitude to wealth than Christianity. It was also less hostile to lending at interest, a practice excoriated by thinkers such as Thomas Aquinas, who recycled Aristotle’s view that making money out of money was unnatural.
Yet, to the legalistic Jews, it was more unnatural to lend – at least to Christians – without interest, as Shakespeare’s Shylock made clear in casting anathemas on Antonio in The Merchant of Venice:
How like a fawning publican he looks.
I hate him for he is a Christian;
But more, for that in low simplicity
He lends out money gratis, and brings down
The rate of usance here with us in Venice.5
Why the Christian antipathy towards lending at interest? It is, after all, a core function of the capitalist economy and appears to most modern Christians to be morally neutral. In part, it was because extending credit was seen as an act of friendship and trust, so there was a moral and social dimension to the activity. Lending was often a form of help to a neighbour in distress. Charging interest could thus be seen as a breach of trust. From a more economic perspective, the bias against charging interest is perfectly logical if you bear in mind the context. The mindset stems not so much from a failure to grasp the time value of money as from the nature of a world where minimal or non-existent growth in per capita income was the norm. As the earlier quotation from Aristotle’s Politics implied, without growth, trade struck people as a zero-sum game where it was felt that one man’s profit could only be earned at the cost of inflicting loss on another man. The moral basis of trade thus appeared dubious, while usury, or making money out of money, was still worse. Even the Jews were constrained by their religion in lending to each other at interest, while being permitted to lend to non-Jews. ‘Unto a stranger thou mayest lend upon usury,’ says Deuteronomy, ‘but unto thy brother thou shalt not lend upon usury…’ Muslims, of course, continue to be prohibited from lending at interest to the present day. Yet in terms of anti-business sentiment, Islam is a special case in that the Islamic anti-business bias is limited to finance. Muhammad, who was himself a trader before his religious revelation, regarded trade and commerce as lawful. Note, too, that traders played an important part in disseminating Islam around the world.
There is a more bizarre and ruthless logic in the cynical way the Catholic Church tolerated usury on the basis that the Jews who carried out the business were going to hell anyway. (In Dante’s Inferno, usurers were consigned to the seventh circle of hell in the company of sodomites.) As time progressed, both Jewish and Christian merchants also became adept at finding ways around the Church’s usury laws through what would now be called regulatory arbitrage. For example, interest could be disguised if the lender issued an IOU, or a bill of exchange, at a discount while insisting on being paid back at face value. In some countries, the laws themselves also ceased to be enforced as the pre-Reformation Catholic Church became more lax. So, like the bank robber Willie Sutton, who reputedly said he robbed banks ‘because that’s where the money is’, the asset-rich, cash-poor European feudal elite went to such merchants because they were the only available source of money for the pursuit of war, grand projects or conspicuous consumption. The evolution of a more market-oriented economy, pre-figuring modern market capitalism, thus freed monarchs from dependence on feudal retainers, while making it possible to run paid bureaucracies and standing armies. For Christians, the Reformation sounded the death knell of absolute prohibitions on usury, although there are still some European countries and a number of US states that maintain usury laws to impose caps on interest rates. So, too, does modern Japan.
It was in the Italian city states that business took its next landmark advance towards greater social acceptability. Merchants and bankers made an existential leap to become the pre-eminent figures in society. As they melded into a powerful ruling aristocracy, the link between power and land was severed. Their economies became money-based and proto-capitalist in the sense that they were based on market exchange and supported by reasonably clear property rights. With urbanisation and the establishment of the market economy, Cosimo de’ Medici of Florence provided a model of the cash-rich merchant banker oligarch, providing patronage to an extraordinary galaxy of scholars, architects and artists. The change in merchants’ status in the course of the fourteenth century, before Cosimo came to power, was noted by Boccaccio in The Decameron, where he declared: ‘I mercatanti son netti e dilicati uomini’ – merchants are cleanly and refined men. Unfortunately for them, as they became more refined, the seductions of court life led to increased lending to monarchs. This was the undoing of the Medici bank, among many others, which collapsed in 1494, having lent too lavishly to the English king Edward IV.
Across Europe, the dividing line between aristocracy and business became similarly fluid thanks to one of the ancient social verities. As Trollope later so nicely put it in The Way We Live Now, trade purchases rank by re-gilding its splendour. That is to say, rich bankers and merchants married off their daughters to aristocrats. Anti-money snobbery nonetheless proved exceptionally durable. One of the greatest putdowns in history was François I of France’s description of King Manuel I of Portugal as the Grocer King, a devastating snub that no doubt reflected envy of the vast riches amassed by the Portuguese crown from the spice trade in the Orient. That anti-business prejudice survived in France until the revolution and beyond, in a society where hierarchy was more rigidly maintained than in more libertarian countries such as England. Yet even in England, anti-money prejudice was part of the culture. Alexander Pope reflected this in his ‘Epistle to Bathurst’, the satirical poem that discusses ‘whether the invention of Money has been more commodious, or pernicious to Mankind’ and illustrates Pope’s conviction that ‘we may see the small value God has for riches by the people he gives them to’.
A truly decisive landmark in the balance of the argument over money and markets came with Enlightenment thinkers, who promoted the notion that self-interest was good and that Christian hostility to materialism was pure hypocrisy. Nowhere was the accusation of double standards more powerfully, entertainingly and controversially put than by Bernard Mandeville. Mandeville was a Dutch-born physician who wrote widely on philosophy and economics during an adult life spent mainly in London. His best-known work is the satirical poem The Fable of the Bees. In it, the bees did their busy stuff. But high motives had nothing to do with it.
The Root of Evil, Avarice,
That damn’d ill-natur’d baneful Vice,
Was Slave to Prodigality,
That noble Sin; whilst Luxury
Employ’d a Million of the Poor,
And odious Pride a Million more:
Envy itself, and Vanity,
Were Ministers of Industry;
Their darling Folly, Fickleness,
In Diet, Furniture, and Dress
That strange ridic’lous Vice, was made
The very Wheel that turned the Trade.6
But then the bees discovered the path of virtue and their frugality had disastrous consequences for the economy.
As Pride and Luxury decrease,
So by degrees they leave the Seas.
Not Merchants now, but Companies
Remove whole Manufactories
All Arts and Crafts neglected lie;
Content, the Bane of Industry,
Makes’em admire their homely Store,
And neither seek nor covet more.
This was as shocking a development in economic thinking as that of Machiavelli in political thought in the mid-sixteenth century, when the Florentine diplomat and historian declared that, in the interests of maintaining the state, a prince ‘is often obliged to act against his promises, against charity, against humanity and against religion’. Yet Dr Johnson, for one, was not shocked, remarking that every young man had The Fable of the Bees on his shelves in the mistaken belief that it was a wicked book. He passionately believed, with Mandeville, that luxury could be socially beneficial. James Boswell, his biographer, records him saying: ‘You cannot spend money in luxury without doing good to the poor. Nay, you do more good to them by spending it in luxury than by giving it; for by spending it in luxury you make them exert industry, whereas by giving it you keep them idle.’7
Men of letters took sides in this great eighteenth-century debate on luxury, with Swift and Smollett leading the hair-shirts while Pope hopped from one side of the fence to the other. Meantime, the philosopher David Hume took the nuanced view that luxury could be morally innocent provided it was aesthetically refined. The eighteenth-century argument about the usefulness of luxury is really a version of what is now known as the trickledown theory. It suffered from the flaw that in a society marked by an uneven distribution of income favouring a numerically small elite, the rich had plenty of spending power to satisfy their desires, but not enough buying power to dynamise the economy to its full potential to raise real incomes.8 The German sociologist and economist Werner Sombart nonetheless argued two centuries later that luxury played an important part in the development of capitalism. 9 And Mandeville’s point has trickled down through history. To name just one example, Gordon Gekko’s ‘greed is good’ speech in the film Wall Street clearly descends in a direct line from the author of the fable.
The Fable of the Bees was not universally admired by other Enlightenment thinkers. Adam Smith could not bring himself to accept the extremity of Mandeville’s paradox, in which vice was a necessary condition of prosperity. In his justly celebrated redefinition of the boundaries of the argument about business and morality, he emphasised self-interest rather than vice, with his statement in The Wealth of Nations that ‘it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard for their own interest’. 10 In much the same vein, he added: ‘I have never known much good done by those who affected to trade for the public good.’11 Yet, as the author of The Theory of Moral Sentiments, he also emphasised the need for markets to operate within a moral context and believed that the act of engaging in market exchange entailed a discipline that encouraged good individual behaviour as well as the good of wider society.
Such sentiments reflected the intellectual climate of eighteenth-century England and Scotland, an ethos in which the great French writer and philosophe Voltaire rejoiced. In Les Lettres Philosophiques, which was informed by a long stay in England, he argued that commerce was what made the English citizen free, and lauded the readiness of younger sons of peers of the realm to go into business. This he contrasted unfavourably with France in a rhetorical question larded with irony:
I do not know … which man is more useful to a State, a well powdered Lord who knows the precise hour at which the King rises and goes to bed, and who puts on grand airs as he plays the role of slave in the antechamber of a Minister, or a Businessman who enriches his country, gives orders from his office to Surat and Cairo, and contributes to the happiness of the world.12
Voltaire also believed that economic self-interest was a less dangerous motive than religious zealotry. A flavour of the argument can be gleaned from his verdict on the Royal Exchange, the predecessor of the London Stock Exchange:
Come into the London Exchange, a Place more respectable than many a Court. You will see assembled there representatives of every Nation for the benefit of mankind. Here, the Jew, the Mahometan and the Christian deal with one another as if they were of the same Religion and reserve the name ‘infidel’ for those who go bankrupt. Here the Presbyterian puts his trust in the Anabaptist, and the Anglican accepts the Quaker’s promissory note. On leaving these peaceful and free assemblies, some go to the Synagogue, others go for a drink; another goes to have himself baptised in a large tub in the name of the Father through the Son to the Holy Ghost; another has his son’s foreskin cut off and has some Hebrew words muttered over the Infant that he doesn’t understand at all; some others go to their Church to await the inspiration of God with their hat on their head. And all are content.13
Voltaire’s brilliant inversion of traditional assumptions about religion and money – and this was very grubby money since exchanges were then regarded as thoroughly disreputable – was on a par with Mandeville’s in The Fable of the Bees. It was also a case of exaggerating to make a point. Despite their commercial inclination, the English still managed to look down on people who were ‘in trade’ – think only of the anti-trade snobbery that permeates the otherwise highly money-conscious novels of Jane Austen. Yet the point was still a good one to lob at the ruling class of Voltaire’s more sclerotic homeland and at those, like his contemporary Jean-Jacques Rousseau, who thought that the pursuit of material gain led to moral impoverishment.
Yet for all that, Voltaire in his own life did a great deal to give money a bad name. He left England in disgrace, accused of reneging on debts, forging banknotes and other financial skulduggery. He was forever trying to corner markets and find insider dealing opportunities. When invited to the court of Frederick the Great as the resident Enlightenment intellectual, he rewarded the Prussian monarch’s hospitality by engaging in an illegal bond market scam that would, if successful, have cost the Prussian exchequer dear. (Frederick had his revenge, but that is another story.)
Adam Smith, while admiring Voltaire’s extraordinary talents, thought he set ‘the most pernicious example’. Nonetheless, Voltaire’s entrepreneurial activities, of which the most important was lending money to royalty, made him a vast fortune. He spent the last two decades of his life in a chateau at Ferney on the Swiss border where his income from rent was so great that he was reckoned on his death in 1778 to be one of the twenty greatest landlords in France, despite being a mere commoner. Yet Voltaire’s venal behaviour points to one of the perennial problems of business and, indeed, of the wider capitalist system. The centrality of the money motive means that many of the winners in the system are often profoundly flawed or unattractive people. The successful capitalist is not always a great advertisement for capitalism, which is not helpful in convincing people of the merits of the system, as we shall see in later chapters.
In this increasingly secular world, there followed a dramatic change in the context of the debate on money, a final landmark that radically tilted the odds in favour of a more materialist view. The industrial revolution that began in the late eighteenth century and embodied to the full the workings of what we now know as capitalism was ultimately to lift millions out of grinding poverty. The economist Angus Maddison calculated that in the period from 1500 to 1820, world gross domestic product per capita grew at an annual average compound rate of just 0.04 per cent – one-thirtieth of what has been achieved since 1820. Put another way, in Western Europe between 1820 and 1992, per capita growth increased thirteen-fold. Maddison’s work is an extraordinary statistical marathon. While some economists quibble about his methodology, few doubt that the broad picture is correct.14
The move towards a capitalist market economy that had started in the late medieval period thus became truly transformational. Economic activity was no longer perceived as a zero-sum game in which one man’s profit was another’s loss and thus morally questionable. It became easier to make great fortunes from industry and commerce than from the land, even if many landed aristocrats in Europe showed a remarkable tenacity in hanging on to their inherited assets. Wealth became increasingly intangible and the rich were rarely powerful in the military sense. War, from which so much evil had stemmed throughout history, began to lose its status as the primary means through which monarchs and states sought to enrich themselves. The owners of great business fortunes provided benefits to society chiefly through the provision of an array of new goods and services, paying their taxes and engaging in large-scale philanthropy. And for the working classes, salvation was no longer exclusively to be sought in the afterlife.
In Victorian Britain, industrialists were even lauded by some men of letters. Thomas Carlyle, who invented the phrase ‘captains of industry’ and dubbed economics ‘the dismal science’, was a virulent critic of money worship and the commercialisation of society. Yet he saw businessmen as a potential new warrior class, capable of leading the country out of the grasping materialism and squalid working conditions of the early industrial revolution:
To be a noble Master, among noble Workers, will again be the first ambition with some few; to be a rich Master only the second. How the Inventive Genius of England, with the whirr of its bobbins and billy-rollers shoved somewhat into the backgrounds of the brain, will contrive and devise, not cheaper produce exclusively, but fairer distribution of the produce at its present cheapness! By degrees, we shall again have a Society with something of Heroism in it; something of Heaven’s Blessing on it; we shall have again, as my German friend asserts, ‘instead of Mammon-Feudalism with unsold cotton shirts and Preservation of the Game, noble just Industrialism and Government by the Wisest’.15
Some of that vision, outlined in Carlyle’s Past and Present, finds its way into the Victorian novel, most notably in the shape of Mrs Gaskell’s northern textile manufacturer John Thornton in North and South, a self-made man who is persuaded by the heroine of the novel to adopt a more humane attitude to his workers after a violent strike at his factory.
Impressive though the economic and industrial achievements of the Victorians were, it has to be acknowledged that those of the Americans were even greater. In the twentieth century, the United States emerged as the ultimate capitalist economy, combining strong religious roots with a greater commitment to the profit motive than any other country. The intensity of this potent combination no doubt explains what the historian Simon Schama has called ‘a pulsing vein of American insecurity about the moral character of money’. Yet the country also had the lowest quotient of anti-business snobbery. This found expression most famously, or notoriously, in President Calvin Coolidge’s declaration in 1925 that ‘the chief business of the American people is business’. Also much quoted is his declaration that ‘the man who builds a factory builds a temple … the man who works there worships there’. Because of his belief in minimal regulation in the period of corporate and securities market abuses before the 1929 Wall Street Crash, Coolidge has been roughly treated by many historians. And there is, I feel, a delightful irony in a President named Calvin presiding over an era of licence known as the Roaring Twenties.16
That said, the verdicts on Coolidge often overlook his more reflective side. In his Memorial Day address shortly before becoming President in 1923, he gave a notably more measured view of the conflict between Christian values and the profit motive:
There are two fundamental motives that inspire human action. The first and most important, to which all else is subordinate, is that of righteousness. There is that in mankind, stronger than all else, which requires them to do right. When that requirement is satisfied, the next motive is that of gain. These are the moral motive and the material motive. While in some particular instance they might seem to be antagonistic, yet always, when broadly considered or applied to society as a whole, they are in harmony. American institutions meet the test of these two standards. They are founded on righteousness, they are productive of material prosperity. They compel the loyalty and support of the people because such action is right and because it is profitable.17
While there is something uniquely American about Coolidge’s small-town Republican belief in righteousness, hard work and small government, the respect for the money motive was not, by that time, confined to the United States. In 1905, George Bernard Shaw, whose Fabian politics were utterly remote from the beliefs of Coolidge, produced his play Major Barbara, in which an arms manufacturer is portrayed as morally superior to his Salvation Army daughter, and Mammon triumphs over God. In the play’s preface, he declared:
The universal regard for money is the one hopeful fact in our civilisation, the one sound spot in our social conscience. Money is the most important thing in the world. It represents health, strength, humour, generosity and beauty as conspicuously as the want of it represents illness, weakness, disgrace, meanness and ugliness.
Shaw even went so far as to say that the lack of money was the root of all evil. Shaw’s fellow Irishman Oscar Wilde was less of a windbag, but of much the same conviction: ‘There is only one class in the community that thinks more about money than the rich, and that is the poor. The poor can think of nothing else. That is the misery of being poor.’
A further dimension to the argument is provided by the great economist John Maynard Keynes. Like Dr Johnson, who declared that ‘there are few ways in which a man can be more innocently employed than in getting money’, Keynes thought that moneymaking was a socially productive way of channelling the basest instincts:
Dangerous human proclivities can be canalised into comparatively harmless channels by the existence of opportunities for money making and private wealth, which, if they cannot be satisfied in this way, may find their outlet in cruelty, the reckless pursuit of personal power and authority, and other forms of self-aggrandisement. It is better that a man should tyrannise over his bank balance than over his fellow citizens.18
I think this is an intriguing insight, but it somewhat stretches the pro-money case, with its seeming implication that if only Hitler, Stalin and Mao Zedong had each been given a textile factory to run at an early age, we might have been spared the worst horrors of the twentieth century.
Note, too, that despite Britain’s traditional dependence on trade, it retained an impressive snobbery about business. Ogden Nash caught this neatly when he remarked:
England is the last home of the aristocracy, and the art of protecting the aristocracy from the encroachments of commerce has been raised to quite an art.
Because in America a rich butter-and-egg man is only a rich butter-and-egg man or at most an honorary LLD of some hungry university, but in England, why before he knows it he is Sir Benjamin Buttery, Bart.
(One of the ways, of course, that the English aristocracy protected itself from encroaching commerce was to follow the maxim of Trollope referred to earlier, by encouraging its sons to marry American industrial magnates’ daughters.) Not that rampant materialism has always gone uncriticised in America. US literature has its fair share of business villains and snake-oil peddlers, most notably F. Scott Fitzgerald’s Jay Gatsby, whose fortune came from bootlegging. The Great Gatsby was both a disillusioned exploration of the Roaring Twenties before the 1929 crash and a jaundiced verdict on the American dream. Equally critical of American materialism is Sinclair Lewis’s 1920s satirical novel Babbitt, about a successful realtor who undergoes a mid-life crisis, goes bohemian and subsequently returns to the bourgeois fold.
Yet US literature also produced one of the few great novels that look at a particular business in depth, in the shape of Herman Melville’s Moby-Dick. This tells you all you need to know (and more) about the catching and butchering of whales. And then there is Upton Sinclair, whose description of the Chicago slaughterhouses in the campaigning anti-business novel The Jungle was instrumental in bringing about the 1906 Pure Food and Drug Act, and whose novel The Moneychangers demonises Wall Street in a way that has taken on a new resonance in the light of the financial debacle of 2007–09.
So Americans did have their misgivings about capitalism, though their feelings were mixed, for reasons explained by John Micklethwait and Adrian Wooldridge of The Economist in discussing the behaviour of the robber barons:
Most Americans were ambivalent about business. They disliked concentrations of corporate power – the United States, after all, is based on the division of power – but they admired the sheer might of business. They disliked the wealth of businessmen, but they admired the fact that so many of them came from nothing – that Rockefeller was the son of a snake-oil salesman and Carnegie began his career as a telegraph messenger. In 1867, E. L. Godkin produced an explanation of why America lacked the intense class consciousness of Europe that probably remains true to this day: ‘The social line between the labourer and the capitalist here is very faintly drawn. Most successful employers of labour have begun by being labourers themselves; most labourers … hope to become employers.’19
In the new, industrialised, market environment, the backlash against capitalism in Europe came in many forms. Some, like Karl Marx and Friedrich Engels, were pleased at the removal of feudal restraints on enterprise, but railed at the glorification of self-interest and what they saw as the morally scandalous foundations of capitalism. For them, the conflict of interest between rich bourgeois capitalists and poor exploited workers was irreconcilable. Others, following Rousseau, worried that the individualistic nature of a capitalist society was destroying a shared sense of community. Oliver Goldsmith’s poem The Deserted Village is an eloquent attack on the shortcomings of modernity and the impact on the country of mass migration to industrial cities induced by capitalism:
Ill fares the land, to hastening ills a prey,
Where wealth accumulates and men decay;
Princes and lords may flourish, or may fade;
A breath can make them, as a breath has made;
But a bold peasantry, their country’s pride,
When once destroyed, can never be supplied.20
In like vein, the German playwright, poet and philosopher Friedrich Schiller emphasised the anti-spiritual, anti-aesthetic tendency of contemporary political economy. In his Letters on the Aesthetic Education of Mankind of 1794, he wrote:
But in our day it is necessity, neediness, that prevails, and bends a degraded humanity under its iron yoke. Utility is the great idol of the time, to which all powers do homage and all subjects are subservient. In this great balance of utility, the spiritual service of art has no weight, and, deprived of all encouragement, it vanishes from the noisy Vanity Fair of our time. The very spirit of philosophical inquiry itself robs the imagination of one promise after another, and the frontiers of art are narrowed, in proportion as the limits of science are enlarged.21
Anticipating Marx, he was equally concerned with the dehumanising nature of work in the modern economy. In an apparent reference to the division of labour – that fundamental characteristic of capitalist production – he said that a time had come when
enjoyment was separated from labour, the means from the end, the effort from the reward. Man himself, eternally chained down to a little fragment of the whole, only forms a kind of fragment; having nothing in his ears but the monotonous sound of the perpetually revolving wheel, he never develops the harmony of his being; and instead of imprinting the seal of humanity on his being, he ends by being nothing more than the living impress of the craft to which he devotes himself, of the science that he cultivates.
Observing the upheavals wrought by the capitalistic market economy, the German philosopher Hegel argued that a more powerful state would be needed to cope with the disruptive tendencies of the market. Meantime, the British art critic and social thinker John Ruskin provided an aesthetic and environmental critique of the workings of capitalism as well as attacking the dehumanisation inflicted on workers by the division of labour. In Fors Clavigera, a series of pamphlets addressed to working men in the 1870s, he delivered this splendid blast:
You think it a great triumph to make the sun draw brown landscapes for you! That was also a discovery, and some day may be useful. But the sun had drawn landscapes before for you, not in brown, but in green, and blue, and all imaginable colours, here in England. Not one of you ever looked at them, then; not one of you cares for the loss of them, now, when you have shut the sun out with smoke, so that he can draw nothing more, except brown blots through a hole in a box. There was a rocky valley between Buxton and Bakewell, once upon a time, divine as the vale of Tempe; you might have seen the Gods there morning and evening, — Apollo and all the sweet Muses of the Light — walking in fair procession on the lawns of it, and to and fro among the pinnacles of its crags. You cared neither for Gods nor grass, but for cash (which you did not know the way to get); you thought you could get it by what The Times calls ‘Railroad Enterprise’. You Enterprised a Railroad through the valley — you blasted its rocks away, heaped thousands of tons of shale into its lovely stream. The valley is gone, and the gods with it; and now, every fool in Buxton can be at Bakewell in half-an-hour, and every fool in Bakewell at Buxton; which you think a lucrative process of exchange — you Fools Everywhere.22
Yet despite such reservations, the followers of Marx, an intellectual heir of Hegel, were not entirely clear in their convictions about the capitalist system. As the writer Geoffrey Wheatcroft puts it:
Just as the labour movement had never been quite sure whether the capitalist system was on its last legs and needed only a final push to be toppled, or was healthy enough to be milked over and again, so the cultural-intellectual left had never quite decided whether it liked increasing prosperity or not.23
Donald Sassoon, a historian of the European left, has commented in similar vein:
Socialism’s appeal, when it had one, was to say, at one and the same time, that its mission was to transcend capitalism while improving it; that everyone was equal but that the proletariat was the leading class; that money was the root of all evil but that the workers needed more of it; that capitalism was doomed but that capitalists’ profits were as high as ever; that religion was the opium of the people but that Jesus was the first socialist; that the family was a bourgeois conspiracy but that it needed defending from untrammelled industrialisation; that individualism was to be deplored but that capitalist alienation reduced people to undifferentiated atoms; that there was more to politics than voting every few years while demanding universal suffrage; that consumerism beguiles the workers but they should all have a colour television, a car and go on holidays abroad.24
Perhaps the more legitimate heirs of the tradition of Goldsmith and Ruskin are today’s anti-globalisation and environmental activists who fear that a by-product of the capitalist pursuit of profit in a global free market will be ecological catastrophe.
A curious thing about the source-of-all-evil debate is how many business people have combined religiosity with moneymaking. In part, that reflects the multiplicity of conflicting moral messages in the Bible, the Koran and other religious texts. Not all religious business people would go as far as the twentieth-century British venture capitalist Harley Drayton, who told the journalist Anthony Sampson: ‘The twenty-fifth chapter of Ecclesiasticus is the only economic system which ever worked. It tells you how to run a sinking fund, how to manage a business, how to make an issue [of shares on the stock market].’ But the parable of the talents has undoubtedly given many an entrepreneur a sense of moral justification and self-worth.
At a deeper level, Max Weber, one of the founders of modern social science, argued in The Protestant Ethic and the Spirit of Capitalism that the more puritanical Protestants, such as the followers of Calvin, were disproportionately represented in the ranks of rich industrialists because their religion favoured the rational pursuit of economic gain in a way that Catholicism did not. He also argued that there were good reasons why capitalism had not developed in Asia. Beliefs such as Confucianism and Taoism, he thought, fostered a bias against technical innovation, while the Chinese were motivated to covet official positions, not profit. Together with China’s strong emphasis on kinship, which inhibited the development of legal institutions and laws that were fundamental to the property rights on which a capitalist system depends, these factors constituted a big barrier to capitalist development. Weber believed that the Hindu caste system in India operated similarly to prevent the adoption of capitalism and that these religious and cultural constraints in Asia gave Protestant northern Europe a global competitive advantage.
Weber was curiously downbeat about the Jewish contribution to the development of capitalism, a bias that his contemporary Werner Sombart sought to remedy in his Die Juden und das Wirtschaftsleben (The Jews and Modern Capitalism). Weber’s theory also sits oddly with history. Calvinist Scotland has always performed less well economically than England with its more comfortable, state-sponsored Anglicanism. The Catholic parts of Belgium industrialised in the nineteenth century well before the Calvinist-tinged Netherlands. In the second half of the twentieth century, Catholic Italy produced a spectacular economic growth miracle. And some argue that the origins of capitalism really date back anyway to the pre-Protestant Italian city states rather than the industrial revolution. A larger question for Weber’s thesis, though, comes from the explosive recent development of Japan, the Asian Tiger economies and finally China. These have seen the fastest rates of economic growth in history without any help from the Protestant religion.
Yet, before writing off Weber it is important to remember that his concern here related to the very specific question of whether non-European traditions had religious and cultural characteristics that were capable of giving rise spontaneously to capitalist development in the way that Protestantism had done. The fact that non-Europeans subsequently borrowed the capitalist means of production from Europeans is not, in itself, a refutation of his thesis.
The ultimate watershed on business’s long march from pariah status towards semi-respectability came when the Chinese leader Deng Xiaoping declared, after starting to open up China’s economy in 1978, that ‘to get rich is glorious’. Nuances may have been lost in the translation, but this embrace of capitalist values by a hardened veteran of the Communist struggle definitively put the big battalions behind the materialist side of the moral argument and appeared to draw down the curtain on the socialist backlash. It is no coincidence that Deng’s conversion broadly coincided with the ascendancy of the Chicago school of economics and the presidency of Ronald Reagan, who oversaw the conclusion of the Cold War. Reagan lauded ‘the magic of the market’. Like Margaret Thatcher in Britain, he ushered in an era of liberalisation and neo-conservatism, policies favoured by economists at the University of Chicago. Other intellectual champions of this ethos included Ayn Rand, mentor of the subsequent chairman of the Federal Reserve Alan Greenspan. Rand, a true inheritor of Mandeville’s shock-and-awe approach to philosophical issues, trumpeted free markets, argued the merits of selfishness in all things, including sexual relations, and called for a radical reduction in the role of the state. In her novel Atlas Shrugged, she did her best to turn the entrepreneur into the ultimate heroic figure and to offer a polemical glorification of moneymaking and unbridled capitalism.
Sadly, this dystopian fantasy, in which society’s wealth-creating entrepreneurs decide to opt out of an increasingly anti-business society, which then disintegrates for want of enterprise, cannot be considered a plausible runner in the Great American Business Novel stakes. Despite a compelling narrative, which appeals particularly strongly to today’s Silicon Valley entrepreneurs, the characters are made of cardboard and the plot is too zany to make the literary grade. That said, the book undoubtedly satisfies the market test, since it remains one of the publishing world’s outstanding bestsellers.25
If there is now a more widespread acceptance that the money motive is not invariably reprehensible, there are caveats. For some, like Keynes, the motive could still be highly distasteful. In forecasting how the world might look to his generation’s grandchildren, he wrote that the love of money would ultimately be recognised as ‘a somewhat disgusting morbidity’. For others, such as Joseph Schumpeter, the economist best known for identifying creative destruction as the motor of capitalism, there remained a question as to how far the profit-maximising business person could be regarded as an admirable role model. He argued that something was lost in the transition from a society governed by aristocrats, whose values were essentially military, to an industrial age; and, unlike Thomas Carlyle, he saw the businessman as woefully unheroic:
With the utmost ease and grace the lords and knights metamorphosed themselves into courtiers, administrators, diplomats, politicians and into military officers of a type that had nothing whatever to do with that of the medieval knight. And – most astonishing phenomenon when we come to think of it – a remnant of that old prestige survives even to this day, and not only with our ladies.
Of the industrialist and merchant the opposite is true. There is surely no trace of any mystic glamour about him, which is what counts in the ruling of men. The stock exchange is a poor substitute for the Holy Grail. We have seen that the industrialist and merchant, as far as they are entrepreneurs, also fill a function of leadership. But economic leadership of this type does not readily expand, like the medieval lord’s military leadership, into the leadership of nations. On the contrary, the ledger and the cost calculation absorb and confine.
I have called the bourgeois rationalist and unheroic. He can only use rationalist and unheroic means to defend his position or to bend a nation to his will. He can impress by what people may expect from his economic performance, he can argue his case, he can promise to pay out money or threaten to withhold it, he can hire the treacherous services of a condottiere or politician or journalist. But that is all and all of it is greatly overrated as to its political value. Nor are his experiences and habits of life of the kind that develop personal fascination. A genius in the business office may be, and often is, utterly unable outside of it to say boo to a goose – both in the drawing room and on the platform.26
Somehow I doubt that the Japanese, who emerged relatively recently from feudalism, would understand that argument. Businessmen in Japan, who were originally despised by the samurai warrior class, are now seen as inheritors of the samurai tradition and regarded by many, in the spirit of Carlyle, as genuinely heroic. Certainly they are less prone to greed than their English-speaking counterparts and cultivate a work ethic that is intended to promote the corporate and national interest rather than individualistic self-gratification. In fact, the Japanese version of capitalism is uniquely egalitarian, with companies being run in the interests of managers and employees, rather than shareholders. In effect, Japan has tried to solve the ethical dilemma at the core of capitalism by turning capitalism into corporate communism.
