Where Money Comes From

(Originally from previous post—broken apart because of length)

By now, hopefully you should know that new money is created when people and businesses take out loans.

That is, money is injected into the economy by governments through banks as intermediaries.

This is something that is quite controversial in economic circles. For a long time–and still often today–many economists do not accept this explanation, despite overwhelming evidence for it.

For a long time, in fact, economists did not really think about money at all. This may seem odd, in that most of us think that economics is the study of money! But they portrayed money as simply a means of exchange–the intermediate good that allowed one thing to be exchanged for another thing in the real economy. It was not worthy of note in and of itself, they thought. Sure, how much of it there was floating around might be important, but beyond that you didn’t really need to think about it too much.

To explain how money was created, economists developed three alternative theories of banking. Let’s look at each one in turn.

1.) The loanable funds theory. This is the idea that banks are simply intermediaries between savers and borrowers.

So you save $100 dollars a week out of your paycheck, let’s say. Multiply that by thousands of workers and businesses throughout the entire economy and you’ve got increasing piles of cash piling up in bank’s vaults (or, rather, balance sheets) over time.

At the same time, you’ve also got people who need money. They want to do some sort of profitable enterprise, but they don’t have the money to do it right now. Or they want to buy something that they can’t pay for on the spot, but can pay back over a period of time, like a house or car for instance. Where do they go? To the bank, of course!

If you’re a bank, you pay savers a particular interest rate to get the money into your vaults, and then you loan out that money at a higher interest rate to those who want to borrow. That’s how you make your money.

So the banks are the intermediaries between savers and borrowers—those who want to save and those who want to borrow. Those are never perfectly in sync in any particular bank, so banks borrow from and loan to each other as a routine matter. But the banking system as a whole functions as an effective intermediary between savers and borrowers. The rest of the money is circulating, presumably.

In this scenario, only when the desire to borrow is greater than the desire to save, is new money injected into the system by governments through various means. Banks borrow new money from the government’s central bank to loan out.

2.) The fractional reserve theory. This idea is similar to above, but allows for money to be created not by individual banks, but through the banking system as whole through the process of “multiple deposit expansion.” That is, while the banks themselves are still intermediaries just as above, but when the central bank injects money into the banking system, that money is multiplied through the actions of banks making loans–the multiplier effect.

With a reserve of 10 percent, a bank would lend out 90 percent of a deposit, which would increase the deposits at other banks in the system, who would subsequently lend out 10 percent of those deposits, resulting in an expansion of money throughout the banking system due to the process of loaning money. Any individual bank still has to get deposits in order to lend, according to the theory. But that act of lending does create new money elsewhere in the system. George Goodman (a.k.a. “Adam Smith”) explains how it works. He imagines an oil company depositing $100.00 in a U.S. bank:

Now the bank has a deposit, let’s say…of $100. The Federal Reserve says that bank has to keep 10 percent of the deposit as a reserve. You walk in and borrow $90. You put that money in a checking account; now it’s a deposit there, and your cousin Charley can walk in and borrow $81, because that fractional reserve is set each time. Your cousin Charley deposits his loan in his checking account, and the bank lends $72.90 to the next borrower. That’s the way the multiplier works, and it keeps on going. If the Federal Reserve wants more money in the banks, it lowers the fractional reserve, so that you can borrow $95 instead of $90, and your cousin Charley can borrow $85.50 instead of $81. if the Federal Reserve wants there to be less money, it raises that fractional reserve.

PAPER MONEY, p. 245.

This system allegedly originated in the goldsmith’s discovery that he could make more loans than there was actual gold in his vaults, so long as too many people didn’t show up to claim their gold all at once.

Paper money, it is said, originated with the goldsmiths of Europe who held the private gold hoards deposited by wealthy citizens for safekeeping. The goldsmith issued a receipt for the gold deposit, and over time, it became clear that the receipt itself could be used in commerce since whoever owned that piece of paper could go to the goldsmith and claim the gold.

Modern banking originated in the goldsmith’s discovery that they could safely write more receipts and lend them to people, exceeding the total gold that was on hand, so long as they always kept a reasonable minimum in reserve to honor withdrawals. This was the origin of fractional reserve banking and the bank lending that created money.

This private money system endured for centuries and was inherited by the American Republic: privately owned banks created money by issuing paper bank notes, paper backed by a promise that at any time it could be redeemed in gold.

In nineteenth-century America, the money in use consisted mainly of these privately issued bank notes, backed by gold oor silver guarantees. The money’s value was really dependent, therefore, on the soundness and probity of each bank that issued notes. Banking scandals were recurrent, particularly on the frontier, where ambitious bankers, eager to make new loans for enterprises, sometimes printed paper money that had no gold behind it. Governments imposed regulations to keep banks honest, but the bankers still were free to create their own varieties of money. When banks failed, their money failed with them.

SECRETS OF THE TEMPLE; William Grieder pp. 227-228

3.) The credit creation theory. In this view, new money is created when loans are extended. That is, the bank does not have to make sure it has enough deposits to make the loan; it simply creates a deposit for the amount of the loan that the lender can draw against.

The third theory of banking is at odds with the other two theories by representing banks not [simply] as financial intermediaries — neither in aggregate nor individually. Instead, each bank is said to create credit and money out of nothing whenever it executes bank loan contracts or purchases assets.

So banks do not need to first gather deposits or reserves to lend. Since bank lending is said to create new credit and deposit money, an increase in total balances takes place without a commensurate decrease elsewhere. Therefore according to this theory, over time bank balance sheets and measures of the money supply tend to show a rising trend in time periods when outstanding bank credit grows — unlike with the financial intermediation theory, where only existing purchasing power can be re-allocated and the money supply does not rise.

A lost century in economics: Three theories of banking and the conclusive evidence; Richard A. Werner

William Grieder summarized this process in his mammoth book, Secrets of the Temple. First, he describes the transition from bank notes hypothetically backed by gold, to demand deposits delineated in bank ledgers:

The money illusion was transferred to a new object with the rise of demand deposits, better known as checking accounts. Instead of currency, the paper money created by banks, people hesitantly came to accept that money also existed simply as an account in the bank’s ledger, redeemable by personal drafts or checks. In the United States, the transition was inadvertently stimulated by government regulation. The National Bank Act, enacted during the Civil War, placed a heavy tax on new bank notes issued by state banks, and in order to avoid the tax, banks encouraged customers to use demand deposits–writing personal checks instead of drawing out their money in cash.

It took generations for the public to overcome its natural distrust of checks, but by 1900 most people were persuaded. Personal checks, written by the buyers themselves, were accepted as just as valuable as dollar bills. Currency remained in use, but demand deposits were by now the bulk of the money supply. The nationalization of currency issuance, completed with the creation of the Federal Reserve in 1913, simply continued this arrangement. A new dimension of trust had added to the illusion. pp. 227-228

He then goes on to describe just how money is created using these demand deposit accounts via the banking system:

New money was created not only by the Federal Reserve but also by private commercial banks. They did it by new lending, by expanding the outstanding loans on their books. Routinely, a bank borrowed money from some group, the depositors, and lent it to someone else, the borrowers, a straightforward function as intermediary. But, if that was all that occurred, then credit would be frozen in size, unable to expand with new economic growth. On the margins, therefore, bankers expanded their lending on their own and the overall pool of credit drew–and the banks credit turned it into money.

A bank officer authorizes a $100,000 loan to a small-business man–a judgement that the businessman’s future earnings will be sufficient to repay the loan, that his enterprise would create real value in the future, which would justify the risk and the creation of the additional money. Ordinarily the banker would not hand over $100,000 in dollar bills. He would simply write a check or, more likely, enter a credit in the businessman’s bank account for $100,000. Either way, money has been created by the simple entry in a ledger.

Implausible as that might seem, it was a reality that everyone would accept, even if they were unaware of its audacity. The businessman would go out and spend the money, writing checks on his new account, and everyone would honor their value. The creation of new money, thus, was really based on bank-created debt.

This concept is what baffled and outraged so many critics of the money system. Money ought to be “real,” they insisted. It should be based on something tangible from the past, accumulated wealth like gold, not on a banker’s hunch about the future.

How could such a system possibly work? Why didn’t it collapse and produce social disaster? The short, simple explanation was: trust. People trusted the banks…They believed, perhaps not even knowing the actual mechanics, that bankers would use this magic prudently. Banks would make sound loans that would be repaid, and they would always keep enough money on hand so that any individual depositor could always withdraw his when he needed it. pp. 59-60

Clearly, the trust in banks described by Grieder above has been undermined due to the financialization of the economy, not to mention the bailouts. David Graeber sums up the three school of banking in the New York Review of Books:

Economists, for obvious reasons, can’t be completely oblivious to the role of banks, but they have spent much of the twentieth century arguing about what actually happens when someone applies for a loan.

One school insists that banks transfer existing funds from their reserves, another that they produce new money, but only on the basis of a multiplier effect (so that your car loan can still be seen as ultimately rooted in some retired grandmother’s pension fund). Only a minority—mostly heterodox economists, post-Keynesians, and modern money theorists—uphold what is called the “credit creation theory of banking”: that bankers simply wave a magic wand and make the money appear, secure in the confidence that even if they hand a client a credit for $1 million, ultimately the recipient will put it back in the bank again, so that, across the system as a whole, credits and debts will cancel out. Rather than loans being based in deposits, in this view, deposits themselves were the result of loans.

The one thing it never seemed to occur to anyone to do was to get a job at a bank, and find out what actually happens when someone asks to borrow money. In 2014 a German economist named Richard Werner did exactly that, and discovered that, in fact, loan officers do not check their existing funds, reserves, or anything else. They simply create money out of thin air, or, as he preferred to put it, “fairy dust.”

…Before long, the Bank of England (the British equivalent of the Federal Reserve, whose economists are most free to speak their minds since they are not formally part of the government) rolled out an elaborate official report called “Money Creation in the Modern Economy,” replete with videos and animations, making the same point: existing economics textbooks, and particularly the reigning monetarist orthodoxy, are wrong. The heterodox economists are right. Private banks create money.

Central banks like the Bank of England create money as well, but monetarists are entirely wrong to insist that their proper function is to control the money supply. In fact, central banks do not in any sense control the money supply; their main function is to set the interest rate—to determine how much private banks can charge for the money they create. Almost all public debate on these subjects is therefore based on false premises. For example, if what the Bank of England was saying were true, government borrowing didn’t divert funds from the private sector; it created entirely new money that had not existed before.

Why is this important? It’s important because it shows that if private borrowing creates new money, then it is excessive levels of private borrowing that will expand the money supply. Consequently, debt defaults will contract the money supply. So there’s more to macroeconomic stability than merely “government money printing.”

All this is a prelude to two very important points:

1.) Private debt and public debt are two very different things. It is private, not public debt which is a cause for alarm.

And

2.) A crucial distinction must be made between the “real” economy of providing goods and services, and the banking/financial sector of the economy which makes money from debt and interest.

A lot of the mistakes in understanding the modern economy have come from just those two misunderstandings. But without understanding these facts, you cannot understand what is really going on in the economy, and you’ll be making the same mistakes as all those armchair commentators worrying about “excessive government debt,” or hyperinflation “any day now.”

The Origin of the Factory 4

We’ve been talking over the past few weeks about how the factory system was born on the sugar plantations of the West Indies, and how that system was gradually imported back into Europe, becoming the basis for the industrial revolution.

The dramatic glut of raw materials flooding into Europe called forth means of mechanization and intensification of production that were simply not called for before. This was accompanied by a population explosion, and a vast increase in the money supply—first through silver and then through paper.

While the Caribbean plantations depended on slavery, this was not viable in Europe. Instead wage labor increasingly became the norm, eroding the independence and moral economy of the yeoman peasantry. The landed aristocracy became displaced by an ascending aristocracy of industrialists and financiers. Noblesse oblige was supplanted by maximizing profit.

Because of the nature of factory production, economic activity became much more concentrated in urban areas than it had been before. This caused a vast flood of people into industrial cities, which led to the characteristics we mistakenly attribute to ALL historical urban areas: overcrowding, pollution, filth, disease, social maladies, etc. Certain industrial cities in Western Europe became super-sized almost overnight.

I’d like to conclude by noting that this method of working has never gone away. All of the subsequent reorganization of labor was based on the labor intensification methods originally developed under slavery, which were then directly to applied factory production.

That’s right, the methods we all labor under today were originally all developed to organize and manage slaves.

In essence, we are still industrial workers today. Now, you may say, ‘Hold on, that’s not right! I’m not an industrial worker; I work in IT, or healthcare, or finance, or construction, or whatever…’ But it doesn’t matter what industry you ostensibly work in, we are all laboring under the same industrial system developed on those plantations centuries ago.

The factory system is the basis for all modern work. Selling our precious time on earth in exchange for for money is the way all of us need to make a living nowadays (except the lucky few born rich, or who own sufficient income-generating assets).

So too, is submitting yourself to harsh worker “discipline.” Our bosses basically exert a level of control over us that even the most sociopathic dictators in history were never able to accomplish. We accept this state of affairs because, we are told, it is “only” within the confines of work life. We accept that “freedom” is only something to be experienced outside of the walls of the office park or cubicle. And because we are free to theoretically choose a new master at any time, we told that we have historically unprecedented “freedom.”

Yet that’s not even a fraction of the amount of freedom people enjoyed in ancient times. Everyone except slaves, that is.

That’s why it’s called wage slavery.

There were institutional barriers in the past to be sure—serfs, for example, couldn’t leave their place of residence. But there was no direct supervision of everything one did on a daily basis. There was no one looking over your shoulder. There was no one telling you to work harder, work faster, or else. There was no one telling you to not show up drunk or to pee in a cup. There was no one telling you when to go to the bathroom (something even slaves did not have to endure). That is only a modern phenomenon! Our ancestors experienced a level of freedom and autonomy that we can only dream of in our modern world.

And yet Capital-L Liberalism portrays itself as the epitome of freedom! What a fucking con!

And then that profound loss of freedom was covered up by retconning history.

In a post I wrote several years ago, Modern Work Patterns Make No Sense, I pointed out that keeping employees noses to the grindstone was necessitated by the introduction of machines in production: every minute those machines were not running was theoretically a loss of profit. That led to a time-centric, intensive work pattern that did not exist before. Prior to that, there was no such thing as a “weekend,” and many languages still do not have a word for it. I quoted historian Emma Griffin on the In Our Time podcast:

“…Traditionally people are paid for making things according to how much is made. So a shoemaker gets paid for his shoes when he’s made his shoes and is not really paid for his time—he’s paid for what he actually accomplishes. In the factories that logic doesn’t really work because the employers have spent money invested in very expensive machinery, and that means they’ve got to keep the machines running all through the week, as long as possible. So they’ve got to get workers to the factory early in the morning, they’ve got to get them working intensively throughout the day, staying until late into the evening. And that’s a very different kind of working pattern that’s being introduced. So instead of people dovetailing working at home with managing a cotton garden or something, now they’re going into the factories. And it’s the beginning of modern working patterns that we’re familiar with, where we’re effectively paid for our time rather than what we manage to get done.”

And this system persists today, despite us living in an age where machines make practically everything we need, and increasingly provide services as well (or allow us to provide our own services). I pointed out that we still stubbornly retain this archaic work pattern, despite it’s inefficiency, and despite the extreme stresses it places on individuals:

As Emma Griffin points out, those work patterns make sense when you work in a factory where every second the machine isn’t running it’s a loss of profit. This is also why agricultural societies have always been more leisurely than industrial ones—working harder won’t make the plants grow any faster, after all; once the land you’ve got is seeded and watered, it’s several months minimum before you harvest your crop with little to do but pull weeds and wait. By contrast, a machine never gets tired, and you will give out before it does, hence the Stakhanovite working hours of the early Industrial Revolution (only ameliorated by brutal strikes where workers often sacrificed their lives in a hail of government-sponsored gunfire).

But in case you haven’t noticed, not a lot of people are working in factories anymore. Yet, bizarrely, the entire structure of society is designed as if we do! We all get into our cars and head to work at the exact same time every day (causing epic traffic jams), and file home at the exact same time (causing yet another traffic jam). We all work Monday-Friday (with a few exceptions). During that time we’re chained to a desk for eight hours regardless of what we actually accomplish. It doesn’t matter if there’s four hours of work to do or forty – we’re parked there whether we like it or not. But there is no spinning machine, no power loom, no drill press, no drop forger. No machine at all except sometimes a computer which can go anywhere and work anytime

What’s more, the coercive aspect of work has never gone away. It’s just accepted as “normal” even though it’s historically novel. Of course, as social beings embedded in webs of relationships, it’s not like we ever had true absolute freedom (or would even want such a thing if we could have it). But being forced to have work extracted from you for hours upon hours a day, every single day, for our entire life with only a couple of days to ourselves—that was something new and unusual. Employers became a kind of “private government” that dictates every aspect of over a third of your waking life:

In “Private Government,” [Elizabeth] Anderson explores a striking American contradiction. On the one hand, we are a freedom-obsessed society, wary of government intrusion into our private lives; on the other, we allow ourselves to be tyrannized by our bosses, who enjoy broad powers of micromanagement and coercion. Anderson believes that many American workers are constrained by rules that would be “unconstitutional for democratic states to impose on citizens who are not convicts or in the military.” She estimates that more than half are “subject to dictatorship at work.” In “Private Government,” she asks whether this might be a failure of our political system—a betrayal of America’s democratic promise.

Are Bosses Dictators? (The New Yorker)

That similarity between the level of control employers have and the control governments have over convicts and prisoners is echoed by Lewis Mumford in describing the foundation of the factory system (see the previous post on “the minimum of life”):

The quintessence of this minimum of life was achieved in the prison. Indeed, one might without much exaggeration say that housing reform was preceded by prison reform, as John Howard preceded Shaftesbury; and the prisons embodied most of the negative improvements that were introduced for the benefit of free citizens of the non-criminal classes, in the factories and tenements. The factory maintained the coercion of the prison: the enforced silence, the repetitive routine, the lockstep, the constant surveillance of the foreman or jailer: often enough a formidable prison wall  would be around the structure, too; and the new housing quarters, with their closely calculated number of cubic feet of air and square feet of window space, cut off from sight of grass and flowers by the dusty paved courts and the dustier streets, could not have been more adequately designed if the sole object of the building were punishment.

The speculative spread of the industrial town meant the growth and spread of a dreary prison environment. The reward an honest man got for a faithful day’s labor was not measurably different from that which a more erring member of society got as punishment: indeed, the “freedom” of the first was another name for anxiety and insecurity and fearful humiliation. A minimum of life: malnutrition at every level. Mumford; The Culture of Cities, pp. 179-180

You would think this idea would be obvious to everyone. We are bossed around and told what to do almost every moment of the day as a very basic condition of our existence! If you don’t like it, you can go starve or be homeless. And this is portrayed as “freedom.”

In America, this shift occurred somewhat later than in Europe. The transition occurred from 1890 to the 1920’s—only 100 short years ago; an eyeblink in historical time. The handicraft, artisan, and the agrarian household economy all perished and were by-and-large absorbed within large bureaucratic corporations. The traumatic effects are still being felt today. William Grieder describes the change in his mammoth history of the Federal Reserve, Secrets of the Temple:

By 1900, only four in ten American workers were still on farms. A few decades earlier, the figure had been eight in ten. The economic dimensions of America’s transition from an agricultural society to an industrial society, the rapid and dramatic shift of population from rural to urban, were well understood. The emotional transaction was not. It left a deep cultural imprint of contradictory memory and emotion, still visible in popular values, a painful nostalgia for something that was lost and also a sense of liberation from old burdens.

Everything changed, even the language. In the Populist era, when the grassroots speakers appealed to the “producing classes,” they were speaking of farmers and factory workers, individuals who made things with their own hands, the “bone and sinew of the nation” in Andrew Jackson’s rhetoric. In twentieth-century usage, “producers” were no longer people; the term now meant those anonymous corporate enterprises that controlled most output, distinguished from their employees, the “workers.” In 1900, a rural census taker in Pennsylvania innocently listed all of the farmers in his district as “unemployed,” since all of them worked for themselves, not for someone else. p. 287

With loss, however, there was also reward. Millions of American families willingly traded roles in life: they ceased to be the independent yeomanry of American tradition, self-reliant and proud and skillful in the practical arts of self-sufficiency. They became, instead, employees and consumers. They went to work for someone else, usually a corporation, and their labor produced wages—pieces of paper in place of the “real things” of country life. The energies of individual expression, once devoted to daily survival, were diverted instead to consuming—buying things and using them, things made by others in some distant place.

Both new roles—consumer and employee—made people more dependent on the abstractions of the money system than they had been as self-sufficient farmers, producing real goods. Money belonged to the city and its complexities. Country people, as they were drawn closer to the ancient mystery, were uncomfortable confronting money. Money was the everyday symbol of what they had given up. Grieder; Secrets of the Temple, p. 288

It’s no wonder than that right-wing authoritarian movements always invoke a “back to the land” ethos that portrays a nostalgic and  idyllic version of rural life as the thing they hearken back to, and demonize cosmopolitan city-dwellers and their deviant lifestyles as the source of all the nation’s problems. From Maoism, to Hiter’s fascism, to modern European right-wing parties (Poland, Hungary) to Putinism, to Trumpism, it’s been a consistent feature since the rise of the factory system. So, too, is a deep distrust of money and finance (even when the authoritarian leaders themselves are in the metaphorical bed with the bankers and financiers).

The connection between industrial work and slavery was even more illuminated with the coming of the “scientific management” techniques of industrial engineering, with its time and material studies. This article goes into great detail about how the methods of industrial engineering in the twentieth century came directly out of the supervision of slaves in the American South. They were then applied to nominally “free” industrial workers in the industrial North.

In a sense, scientific management replicated slavery’s extractive techniques while jettisoning the institution itself…Writing in 1918, historian Ulrich Bonnell Phillips acknowledged the parallels between scientific management and slavery. As Daniel Joseph Singal notes, when Phillips described the sophistication of southern management strategies, he liked to reference a series of articles in the Southern Planter by H. W. Vick, whose “analysis of stance and movement” resembled some of the most advanced industrial studies of his own time.

Perhaps Phillips’s own rosy views of slavery enabled him to see these connections. One of the most influential historians of slavery, his work was infused with racial bias. He famously characterized slavery as a kind of “school” for the enslaved, and his descriptions of the interactions between planters and their slaves bear striking similarities to the ways Taylor described the ideal interactions between managers and workers.

In 1911, during the many months of congressional hearings on scientific management, Taylor attempted to distance his system from that of slavery by describing it as a school for workers who did not know how to work: this “is not nigger driving; this is kindness; this is teaching; this is doing what I would like mighty well to have done to me if I were a boy trying to learn how to do something. This is not a case of cracking a whip over a man and saying, ‘Damn you, get there.’”

How Slavery Inspired Modern Business Management (Boston Review)

This brutality is still observed daily in the warehouses of Amazon, where the taskmaster is often an algorithm, even more inhuman and impersonal than a slave driver, and not subject to pity.

And this article from the New York Times makes the case that the unique brutality and sociopathy of the American style of Capitalism comes directly out of the slavery system used on the plantations of Dixie. The techniques of the plantation economy—particularly the techniques to squeeze the maximum amount of labor out of one’s employees—were applied directly to Northern industrial workers. These techniques then inserted themselves into industrial capitalism more broadly (e.g. office work), which lead to the particularly vicious exploitation and lack of worker rights seen in modern-day America’s brutal version of winner-take-all capitalism (ironically justified in the name of “freedom”):

Perhaps you’re reading this at work, maybe at a multinational corporation that runs like a soft-purring engine. You report to someone, and someone reports to you. Everything is tracked, recorded and analyzed, via vertical reporting systems, double-entry record-keeping and precise quantification. Data seems to hold sway over every operation. It feels like a cutting-edge approach to management, but many of these techniques that we now take for granted were developed by and for large plantations.

When an accountant depreciates an asset to save on taxes or when a midlevel manager spends an afternoon filling in rows and columns on an Excel spreadsheet, they are repeating business procedures whose roots twist back to slave-labor camps. And yet, despite this, “slavery plays almost no role in histories of management,” notes the historian Caitlin Rosenthal in her book “Accounting for Slavery.” Since the 1977 publication of Alfred Chandler’s classic study, “The Visible Hand,” historians have tended to connect the development of modern business practices to the 19th-century railroad industry, viewing plantation slavery as precapitalistic, even primitive. It’s a more comforting origin story, one that protects the idea that America’s economic ascendancy developed not because of, but in spite of, millions of black people toiling on plantations. But management techniques used by 19th-century corporations were implemented during the previous century by plantation owners.

Planters aggressively expanded their operations to capitalize on economies of scale inherent to cotton growing, buying more enslaved workers, investing in large gins and presses and experimenting with different seed varieties. To do so, they developed complicated workplace hierarchies that combined a central office, made up of owners and lawyers in charge of capital allocation and long-term strategy, with several divisional units, responsible for different operations. Rosenthal writes of one plantation where the owner supervised a top lawyer, who supervised another lawyer, who supervised an overseer, who supervised three bookkeepers, who supervised 16 enslaved head drivers and specialists (like bricklayers), who supervised hundreds of enslaved workers. Everyone was accountable to someone else, and plantations pumped out not just cotton bales but volumes of data about how each bale was produced. This organizational form was very advanced for its time, displaying a level of hierarchal complexity equaled only by large government structures, like that of the British Royal Navy.

Like today’s titans of industry, planters understood that their profits climbed when they extracted maximum effort out of each worker. So they paid close attention to inputs and outputs by developing precise systems of record-keeping. Meticulous bookkeepers and overseers were just as important to the productivity of a slave-labor camp as field hands. Plantation entrepreneurs developed spreadsheets, like Thomas Affleck’s “Plantation Record and Account Book,” which ran into eight editions circulated until the Civil War. Affleck’s book was a one-stop-shop accounting manual, complete with rows and columns that tracked per-worker productivity. This book “was really at the cutting edge of the informational technologies available to businesses during this period,” Rosenthal told me. “I have never found anything remotely as complex as Affleck’s book for free labor.” Enslavers used the book to determine end-of-the-year balances, tallying expenses and revenues and noting the causes of their biggest gains and losses. They quantified capital costs on their land, tools and enslaved workforces, applying Affleck’s recommended interest rate. Perhaps most remarkable, they also developed ways to calculate depreciation, a breakthrough in modern management procedures, by assessing the market value of enslaved workers over their life spans. Values generally peaked between the prime ages of 20 and 40 but were individually adjusted up or down based on sex, strength and temperament: people reduced to data points…

The uncompromising pursuit of measurement and scientific accounting displayed in slave plantations predates industrialism. Northern factories would not begin adopting these techniques until decades after the Emancipation Proclamation. As the large slave-labor camps grew increasingly efficient, enslaved black people became America’s first modern workers, their productivity increasing at an astonishing pace. During the 60 years leading up to the Civil War, the daily amount of cotton picked per enslaved worker increased 2.3 percent a year. That means that in 1862, the average enslaved fieldworker picked not 25 percent or 50 percent as much but 400 percent as much cotton than his or her counterpart did in 1801.

In order to understand the brutality of American capitalism, you have to start on the plantation (New York Times)

Today, we’ve completely capitulated to this system; unable to imagine anything beyond it. But it might be helpful to know where and when it started, and how it became the norm we all live under. It might also help to remember that there was once a time when we didn’t all live this way, and that was for most of human history.

The Origin of the Factory 3

Before I move on to the final part, I just want to make a quick point about how the process of industrialization contributed to our overly grim views of the past, especially with regards to cities.

Typically, when you hear discussions about what city life was like the far distant past, here is what you hear:

Super-crowded. Filthy. Stinky. Excrement and garbage piled up in the streets. Water swimming with disease. Narrow streets. Ten people to a room. Dark. Rats everywhere. Nobody bathed.

Basically, people shitting in their own nests. This is especially true with respect to medieval times, according to the stereotypical view.

The irony is, all of these stereotypes actually come from the early Industrial Period! In the medieval period before 1500, the population was much too small and too rural for any of this cartoonish picture to be true. Medieval cities were not hyper-dense or exceptionally filthy. There was not rubbish in the streets. People did not live crowded into dank cellars. Construction techniques forbade buildings over 4-5 stories high in most cases, apart from cathedrals and some government buildings. More to the point, there was simply no logical reason to crowd people together in this manner.

That came much later thanks to industrialization.

In his book The Culture of Cities (1938), Lewis Mumford wrote lyrically about the medieval city and how pleasant it must have been for the inhabitants. He concluded:

In sum: as far as usable open spaces go, the medieval city had as its foundation and through most of its existence a far higher standard for the mass of the population than any later form of town, down the the first romantic suburbs of the nineteenth century. p. 44; (emphasis in the original)

The size limitations on the medieval city, as well as the practical limitations of transporting sufficient food and goods to the medieval city, capped the size at a reasonable number of people. When that was exceeded, new cities were formed rather than engendering urban gigantism or sprawl:

As long as the simple wooden palisade or masonry wall sufficed for military protection, the wall was no real obstacle to town extension. Technically, it was a simple matter to tear down the wall and extend the city’s boundaries once the inner spaces had been filled up. Florence, for example, enlarged her wall circuit for the second time in 1172, and not more than a century later built a third circuit that enclosed a still greater area. This was common practice in the growing towns up to the sixteenth century.

The limitations on the medieval town’s growth were rather of a different nature: limitations of water supply and local produce: limitations by municipal ordinance and by guild regulations which prevented the uncontrolled settlement of outsiders: limitations of transport and communications which were overcome only in the advanced eotechnic* cities that had waterways instead of roadways for traffic, such as Venice.

For practical reasons alone, the limitations of horizontal expansion were speedily reached. In the early centuries of city development, between the eleventh and the fourteenth, as in the seventeenth in New England, the surplus population was cared for by building new cities, sometimes close by, but nevertheless an independent and self-sufficient unit. The medieval city did not break through its walls and stretch over the countryside as an amorphous blob.

At all events, the facts are plain. The typical medieval town ranged in size from three or four hundred, which was frequently the size of a fully privileged municipality in Germany, to forty thousand, which was the size of London in the fourteenth century: the hundred thousand achieved earlier by Paris and Venice was highly exceptional.

Toward the close of the period, Nürnberg, a thriving place, had in 1450 about twenty thousand inhabitants, while Basel had around eight thousand. Even on the fine soils of the lowlands, supported by the technically advanced and capitalistically exploited textile industries, the same thing holds: in 1412 Ypres had only 10,736 inhabitants, and Louvain and Brussels, in the middle of the same century, had between 25,000 and 40,000. As for Germany, town life was concentrated in some 150 large cities, of which the largest did not have more than 35,000 inhabitants.

All these statistics, it is true, date from the century after the Black Death, which in some provinces carried off half the population; but even if one doubles the figures the towns themselves, in terms of modern population massings, were numerically small. In Italy alone, partly because of the early rise of capitalism there, do these figures have to be increased. The phenomena of overcrowding and overbuilding—as well as indefinite suburban expansion—did not come until the capacity for building new cities had, for reasons to be discussed in the next chapter, greatly diminished. pp. 58-60

So the overcrowding and squalid conditions that we associate with cities were not characteristics of the city throughout history. They were characteristic of a very particular period in history: the early modern period when the factories came to Europe. This was then retconned back into the past. Then it gets uncritically repeated until it’s the thing that “everybody knows” is true.

One of the reasons America is so anti-urban in its outlook is that many of its major cities were established during the industrial revolution. In fact, they were established expressly because of the industrial revolution—they were located on canals, waterways, near coal and mineral deposits, etc. Later, the railroads would be the main driver of urban locations as the country spread westward. Thus, all of America’s cities expanded due to industrialization, unlike the great cities of the ancient world. This made them historically unique.

This gave Americans the perception that cities were—indeed, that they had to be—filthy, overcrowded and disease-ridden slums where the air was thick with soot.

But that was a consequence of the city becoming the center of the factory system; before that, cities were fairly livable. After that, they became the hellscapes of critics’ imaginations (“dark Satanic mills”). The enclosure movement dealt the final death blow to the rural way of life, and desperate women and children flooded into the cities to find work. In the early days of the factory system, women and children were actually the most desirable workers from the capitalist perspective—recall that it was women who had done much of the weaving in the home during the days of the putting out system. Women and children could be paid less, and the children’s small stature meant that they could go all sort of places grown men couldn’t get to (plus their tiny bellies required less food).

The thing is, people fled to cities that were nowhere near big enough to accommodate them. They changed too fast!  And this is still true today. Houses don’t just magically spring up in response to people moving to an area; they take a long time to finance and to build, and someone has to pay for them. That someone is not likely to be recent arrivals, who probably have little else besides the shirts on their backs. “The Market” will not solve the housing crisis today any more than it did back then.

This mismatch between cities that were designed for a relatively small number of inhabitants and the nearly-overnight metastization of cities due to the factory system was the cause of so much misery and desperation. Add the filth and soot pouring out of coal-fired power plants thanks to steam power and you’ve got the vision of the city that supposedly existed for all of time but was really a product of the nineteenth century: overcrowding, squalor, inequality, misery, disease, poverty, pollution, and premature death.

Mumford terms this “the insensate industrial town,” and he described it as a vision of urbanity that cared only about production, and not human needs or livability, in contrast to earlier urban forms, such as those of the Middle Ages. In the chapter with that title, he describes what happened when the factory system arrived in Western Europe from the sugar plantations of South America and the West Indies:

In the first stage of the factory system in England, water power was all-important: hence the woolen industry tended to spread through the valleys of Yorkshire, where such power was abundant. Even in the Manchester region the cotton manufacturers were often attracted at first to the open country by cheap land for their huge plants, a docile working population, and easy access to power: so, too, in New England.

It took the better part of a century before all the agents of agglomeration were developed in equal degree: before the advantages offered industry in the towns counterbalanced the lure of independent organization in separate factory villages, sufficient to make the former the prevailing mode. Once these agents played into each other’s hands, the attractive power of the city became irresistible; and the cities came to absorb an ever larger share of the natural increase in population.

By the end of the eighteenth century most of the necessary conditions were satisfied in London, Paris and Berin: hence the ability to pile people into these throbbing centers was limited now only by the human tolerance for an obnoxious environment.

Unfortunately, on this score, human being show qualities that remarkable resemble those of the pig: give a swine a clean sty on hard ground with plenty of sunlight, and they will keep it remarkable clean: pit them in the midst of muck and putrescence underground, and they will accommodate themselves to these conditions. When starvation and homelessness are the alternatives, there is apparently no horror to which defeated men and women will not adapt themselves and endure.

Apart from the incentive of profit, industry itself, from the beginning of the nineteenth century onward, became an active factor in urban agglomeration. Eotechnic* industry has, in the nature of things, been decentralized: wind power and water power caused its spread along the coast lines and rapid-flowing rivers; the unit of production was necessarily limited in size, and only in a minor degree was there any advantage in the concentration of a single industry or plant. Despite occasional large munitions factories and textile plants, the small workshop was the typical unit.

The use of Watt’s steam engine as a prime mover in the seventeen-eighties changed all this. Steam worked most efficiently in big concentrated unit, with the parts of the plant no more than a quarter of a mile from the power-center: every spinning machine or loom had to tap power form the belts and shafts worked by the central steam engine. The more units within a given area, the more efficient was the source of power: hence the tendency toward gigantism in textile factories, which covered a large area and were usually five stories high.

Big factories, such as those developed in Manchester from the eighteen-twenties onward—repeated it in New Bedford and Fall River—could utilize the latest instruments of power production, whereas the smaller factories were at a technical disadvantage. A single factory might employ two hundred and fifty hands. A dozen such factories, with all the necessary instruments and services, were already the nucleus of a considerable town. p. 158

This is why population became so concentrated. But we weren’t ready for it. Cities hadn’t been designed just to shove in the maximum amount of people in a tight space, as we saw from Mumford’s description of the human-scaled medieval city, above. The infrastructure simply wasn’t there.

And, as Mumford notes, once the railroads were added to the mix, this further increased the concentration of the county’s population in a few urban centers, mainly in lowlands where coal could be easily shipped. This also explains why no industrial cities are found in Europe’s mountainous regions, which remained fairly pristine:

If the steam factory, producing for the world market, was the first factor that tended to increase the area of urban congestion, the new railroad transportation system, after 1830, greatly abetted it. Power was concentrated in the coal fields. Where coal could be mined or stored or obtained by cheap means of transportation, industry could produce regularly throughout the year without stoppages through seasonal failure of power. In a business system based upon time-contracts and time-payments, this regularity was highly important.

Coal and iron exercised a gravitational pull on many subsidiary and accessory industries: first by means of the canal, and after 1830, through the new railroads. A direct connection with the mining areas was a prime condition of urban concentration: to this day the chief commodity carried by railroads is coal for heat and power.

The dirt roads, the sail power, the horse-power of the eotechnic* transportation system had favored a dispersal or population: within the region, there were many points of dual advantage. But the relative weakness of the steam locomotive, which could not easily climb a grade steeper than two feet in a hundred, tended to concentrate the new industrial centers on the coalbeds and in the connecting valleys: the Lille district in France, the Meresburg and Ruhr districts in Germany, the Black Country of England, the Allegheny-Great Lakes region and the Eastern Coastal Plain region in the United States. p. 159

Thus, industrialization was the driver of urban gigantism. And everything in the new industrial town was subordinate to production and profit. In a sense, the entire city became a plantation writ large:

The factory became the nucleus of the new urban organism. Every other detail of life was subordinate to it. Even the utilities, such as the water supply and the minimum of governmental buildings that were necessary for a town’s existence often, if they had not been built by an earlier generation, entered belatedly: an afterthought. It was not merely art and religion that were treated by the utilitarian as mere embellishments: intelligent administration was in the same category. p. 161

The overcrowded, dirty, filthy city teeming with paupers happened during this era, not before. The next hundred years were a reaction to this state of affairs. And it was not the “natural” working of capitalism that ameliorated such conditions, it was aggressive pushback from the ground up, even to the point of workers risking their lives. Mumford notes of these conditions:

In both the old and the new quarters a pitch of foulness and filth was reached that the lowest serf’s cottage scarcely achieved in medieval Europe. It is almost impossible to enumerate objectively the bare details of this housing without being suspected of perverse exaggeration. But those who speak glibly of urban improvements during this period, or of the alleged rise in the standards of living, fight shy of the actual facts: they generously impute to the town as a whole benefits which only the more favored middle class minority enjoyed; and they read into the original conditions those improvements which three generations of active legislation and massive sanitary engineering have finally brought about. pp. 164-165

After describing the horrors of the industrial town in painstaking detail, and backed up by numerous facts and figures (which I encourage everyone to read), Mumford concludes:

Considering this new urban area on its lowest physical terms, without reference to its social facilities or its culture, it is plain that never before in recorded history had such vast masses of people lived in such a savagely deteriorated environment. The galley slaves of the Orient, the wretched prisoners in the Athenian silver mines, the depressed proletariat in the insulae of Rome—these classes had known, no doubt, a similar foulness; but never before had it so universally been accepted as normal—normal and inevitable.

The point becomes all the more appalling when one realizes, not only the absolute unfitness of this environment for human life, but its extraordinary quantitative multiplication. In 1850 there were but six towns with over one hundred thousand population in the United States, and but five in Germany. By 1900 there were thirty-six such places in the United States and thirty-three in Germany. (pp. 197-198)

This horror was then retconned onto the past in order that people forget what life in cities was once like.

Today, of course, “dirty” industries have mostly been outsourced to developing countries with lax environmental laws and dirt-cheap labor. Much of that labor comes from the exact same source as it did in the 1800s in Europe and America—farmers displaced from their rural land and thrown onto their own devices to make a living. This allows us to wash our hands of the whole situation.

And, remarkably, this is touted by Neoliberals as the main evidence for progress! Neoliberals have enthusiastically praised sweatshop labor:

The Reason Sweatshops are Good for the Poor (Reason Magazine)

[Steven] Pinker uses an argument that is frequently used to defend sweatshop labor: “The appropriate standard in considering the plight of the poor in industrializing countries is the set of alternatives available to them and when they live,” he writes. This is what gets you articles like “the feminist side of sweatshops” and Nick Kristof’s defense of sweatshops as a “dream,” because “in the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom.” If working in a sweatshop is better than the presently-existing alternatives in a given place, then it is Good.

But that’s not true: The women who worked in the Triangle Shirtwaist Factory may have taken the best jobs they could get, but that doesn’t mean their working conditions weren’t outrageous. Sweatshops are bad because there is no reason the world has to have sweatshops in it. Adding strong labor protections to trade agreements is a perfectly feasible thing, it’s just that hardly anybody with political or economic power cares much about the rights and well-being of people in other countries.

The World’s Most Annoying Man (Current Affairs)

Nathan Robinson is echoed by Lewis Mumford:

Perhaps here we have a key to the essential human achievement of the new urban culture: it worked out a minimum of life. There have been periods in the past that exhibited greater animal ferocity, gashing or burning the flesh of people who had sinned against the prevailing moral code or theological beliefs. But the nineteenth century, smugly conscious of its new humanitarian principles, converted such outright brutalities into a slow quiet process of attrition and inanation. A minimum of schooling: a minimum of rest: a minimum of cleanliness: a minimum of shelter. A gray pall of negative virtue hung over the urban improvements of the period, and it highest boast was the expansion of these minimum conditions and these negative gains…

In the routine of Coketown’s life, what respite existed from the monotony of subdivided occupation: from the warped, one-sided attempt to drive human energies into a single channel: mechanical production: financial gain? after his weekly spree into the tavern or the brothel, the worker returned to the factory or mine more cheated, more defeated, more empty of life, than ever. pp. 179-180

We, today, are all the children of this warped environment. We just think it’s normal.

In fact, industrialization always requires concentrated violence (direct or indirect) and centralized state action to clear the peasantry from the land; there is nothing “voluntary” about it, as this post from Branko Milanovic shows. He notes that historically in places where the peasantry was not forcibly  removed from their ancestral lands, they did not voluntarily form an industrial proletariat. These countries did not industrialize as rapidly, indicating that moving to the factories in overcrowded cities was not done by “choice” (emphasis mine):

In a society where 90 percent of the population lives in the countryside and all farmers cultivate their own (small) landholding, and there is no landlessness, how do you industrialize?

All the contemporary evidence points to the fact that peasants were not at all keen to move to cities and work for a wage. Since there was no landlessness very few people were pushed by poverty to look for city jobs. Political parties which strongly (and understandably) represented peasantry further limited mobility of labor by guaranteeing homestead (3.5 ha of land, house, cattle and the implements) which could not be alienated, neither in the case of default on the loan nor in the case of overdue taxes.

This situation was very typical for the late industrializers in South-East Europe. Greece, Bulgaria and Serbia were all overwhelmingly agricultural with small peasant landholdings and no landlessness. All displayed slow or arrested capitalist development and half-hearted urbanization. The reason was simple: farmers had no incentive to move from being self-employed to being hired labor. And who would prefer to switch from being one’s own boss and dependent perhaps only on the elements to become a hired hand, working six days a week all year round, in “satanic mills”?

The issue is noted by Francis Fukuyama (among others) in “Political Order and Political Decay”. He explains slow industrial development in Greece (and he could have readily added Serbia and Bulgaria) by political clientelism which in his views stemmed from premature democratization, that is, before programmatic and not clientilistic political parties could be formed. But he fails to see the economic origin of the problem: lack of incentive to move to cities.

The question is, how do you industrialize under such conditions? Reluctance of peasants, whenever they had their own land, to become industrial workers has been discussed (Gerschenkron, Polanyi). In England they had to be literally chased from land through enclosures; in France, the process was much more overdrawn and took a century; in Germany, Poland and Hungary, large estates owned by nobility and consequent landlessness did the job. In Russia, it was bloody and occurred through forced collectivization…

The process whereby agricultural economies industrialized was wrenching. The displacement and unhappiness of the population dragged into industrial centers through either empty stomachs or outright terror was incomparable in its human costs to today’s similar transfer of labor from manufacturing to services (or to unemployment). The transformation in the underlying economic structure is never easy but it seems to me that the one from the fresh air and freedom of own farm to being a cog in a huge soiled machine of industrialization was the most painful.

The plight of late industrializers: what if peasants do not want to move to cities? (globalinequality)

While it may be the case that today’s transfer “from manufacturing to services (or unemployment)” may not be as wrenching as the original extermination of the old peasantry according to Milanovic, it is almost as assuredly leading to another age of mass die-off.

But I guess according to Neoliberals’ omelette ethics, that’s just the price of progress.

Next time we’ll look at the fact that the factory system never went away (even if manufacturing did) and how we all work under its dictates.

* The term eotechnic comes from Mumford’s division of technological society into three historical phases in his previous book, Technics and Society (1934):

Looking back over the last thousand years, one can divide the development of the machine and the machine civilization into three successive but over-lapping and interpenetrating phases: eotechnic, paleotechnic, neotechnic…While each of these phases roughly represents a period of human history, it is characterized even more significantly by the fact that it forms a technological complex…Speaking in terms of power and characteristic materials, the eotechnic phase is a water-and-wood-complex: the paleotechnic phase is a coal-and-iron complex, and the neotechnic phase is an electricity-and-alloy complex. (pp. 109-110; emphasis in original)

The Origin of the Factory 2

Metals: The Money Factory

One of the first industries to be heavily automated and mechanized was metal production. This was by necessity.

Markets called forth more demand for silver, which called for more production, which called for more production of coins, in a kind of feedback loop.

In South America mines were often high up in the mountains where the air was thinner. That meant that traditional smelting techniques would not work. The Incas, however, has a device known as a guayra, or wind oven. At one point, fifteen thousand of these, produced by Incan craftsmen, were in use by the Spaniards.

To deal with the labor shortage here, the Spanish viceroy adopted the Incan mita system, or corvée labor. Villages were forced to supply labor to the Spanish in place of the Inca rulers. And unlike the Inca, that labor was not involved in things like building, it was used in mining silver ore.

To extract the ore, a new technique was discovered in Mexico. This was the application of mercury to crushed rock in order to more efficiently extract the ore. This required the crushing of massive amounts of rock. To accomplish this on an industrial scale, the Spanish turned to water power:

In order to crush the massive amounts of rock extracted from the giant mountain, the workers used Eurasian technology to build hydraulic wheels and install them at the base of the mountain. Within the first century of mining in Potosí, the workers built 132 such ore-crushing wheels.

To supply energy to turn these wheels in the virtual desert conditions of the high plateau, the Spanish forced thousands of Indians to excavate a series of thirty artificial lakes in the surrounding mountains to capture the small amounts of rain in the area as well as snow that melted and ran off from the higher elevations in the summer. Canals carried the water, which then cascaded down a series of sluices to turn the wheels.

The churning wheels crushed the rock into a fine gravel, and the energy from the waterwheels also powered a series of giant hammers that pounded the gravel into a fine sand the consistency of flour. The “flour” became pasta when the Indians walked on it and mixed it with mercury. IG p. 50

Mechanization did not stop there. The silver was then transported to the Case de Moneda, or house of money. In the past, coins had been struck by using manual dyes and hammer blows by skilled craftsmen on blank slugs of metal. But the massive amounts of silver meant that this hand-production of coins by skilled labor would not suffice. Instead, just like the ore production, waterwheels were pressed into service to automate the striking of vast amounts of silver coins. However, these wheels often ended up being powered by human and animal labor due to the shortage of water:

The innovators of Potosí adapted an indoor version of the waterwheel to supply extra power. Because of the lack of water, men and animals propelled the wheel by trudging in an eternal circle. This closely resembled the threshing mills used in many Old World areas that lacked running water.

The wheels in the mint, however, turned a series of wooden gears up to eight feet in diameter as well as much smaller wheels. When all of the wheels moved in concert, they produced a whopping blow of a hammer much like the hammer used at the base of the mountain to pulverize the ore. Because of the scarcity of wood, craftsmen substituted the more abundant metals for machine parts wherever and whenever practical. IG, p. 51

When the silver was shipped back to Europe, they needed ways to secure the money from pirates, as well as from the people shipping it. To do this, locksmiths devised all sort of new techniques to secure the money in the form of safes and locks.

From extracting the ore and pulverizing it on to minting coins and transporting them, the traditional Old World technology that had sufficed since the days of the ancient Phoenician mines or the mines of Solomon failed to meet the new situation.

The Spanish learned little about metallurgy from the Indians, although in many regards Indian technology was equal to and in some ways superior to European technologies. But the great new magnitude of the mining enterprise in America demanded new techniques in order to produce silver at a rate that the Indians had never before attained.

So much new information about mining developed in these years that in 1640 Barba published his Art of Metals, summarizing this new knowledge and thereby building the foundation for a modern metallurgy that became increasingly important wit the development of industrialization. IG, p. 52

And so, metal provided an example of mechanized mass production. These mechanical techniques using waterwheels will come to play an essential role in the first factories which arrive in other parts of Europe, including the village of Kahl. The Spanish back in Europe tended to not expand this mechanization of industry, because with the silver they could buy whatever they wanted from the rest of Europe. In addition, commerce was seen as unfitting for a noble to engage in, unlike in England. This is why the industrial revolution never took off in Spain. However, the Spanish silver provided a commercial stimulus to the rest of Europe.

Sugar: The First Factories

Sugar cane was not a New World product–it originated in Southeast Asia. It was cultivated widely in India and entered Europe through trading with the Arab world. Sugar is, in fact, an Arabic loan word—sukkar—from the Persian shakar (via the Sanskrit sharkara). Sugar had been introduced into Europe probably during the Crusades. Back then, instead of causing diseases and tooth decay, sugar was considered medicinal. But it very, very rare.

Rather than trade for sugar through the Arab world, it would be useful for Europe to produce its own sugar. But sugar is a tropical plant; like cotton, it does not grow in European soil or temperature conditions.

Before they colonized the New Wold, Europeans occupied and took over the neighboring islands in the Atlantic in a sort of dress rehearsal for the full-scale colonization that was to follow. While England used Ireland for this purpose, the Portuguese settled on the island of Madeira and the Azores and grew sugar there, along with island of São Tomé off the coast of Africa. The Spanish colonized the Canary Islands and planted sugar on Gran Canaria and Tenerife.

When Columbus landed in the Caribbean, he found the ideal spot for growing sugar cane. In fact, sugar was introduced into the Caribbean by Columbus himself from São Tomé on his second voyage (his father-in-law owned a plantation). Before long, the Caribbean became Europe’s sugar daddy:

We all know the appeal of sugar in our candies, cookies, cakes, and coffees, but we’ve lost an appreciation of the critical role it played in the European diet. Sugar did more than furnish calories and sweetness; it make possible storing fruits and vegetables throughout the year.

There were only three ways to keep food before artificial refrigeration: salting it, preserving it, or drying it. Sugar was the essential ingredient for preserves. Before a nineteenth-century German chemist showed how to extract sugar from beets, people had to import it from those tropical areas where sugarcane flourished. Its desirability and rarity did for the islands of the West Indies what oil later did for the Middle East: it gave them a monopoly of a commodity whose demand continued to climb for two centuries.

The Relentless Revolution: A History of Capitalism, p. 63

There a few characteristics about sugar, however, that make it quite different from standard agricultural crops such as wheat, rice, corn or tobacco. For one, the sugar has to be harvested right away, because the sucrose in the cane immediately starts to decay after it is cut. Also, as a tropical plant, it does not grow annually the way cereals do. It takes a year and half from planting to harvesting the crop. That meant that the traditional seasonal timing of agricultural labor disappeared; instead sugar became a year-round crop. Labor on a sugar plantation became divorced from the rhythm of the seasons which had dictated the schedules in agrarian societies, including in Europe.

Also, sugar has to be heavily processed in labor-intensive ways to extract the raw material for granulated sugar—pounding, boiling, etc. The only way all this could work is to centralize everything in a massive operation where everything took place immediately in a sort of assembly line process: harvesting, collecting, boiling, pounding, processing, and shipping.

The only way to really deal with all this is via plantations; no “yeoman farmers” here. Eric Wolf describes the plantation model, while also noting its similarity to military organization:

A plantation can be defined formally as a capital-using unit employing a large labor force under close managerial supervision to produce a crop for sale. The labor force usually works in labor gangs that carry out the repetitive and physically demanding tasks under the watchful eye of foremen who enforce the required sequence and synchronization of tasks.

Plantations tend to be large in size, achieving economies of scale by devoting as much of their resources as possible to the cultivation of a single crop. Large-scale production requires large-scale processing. The bulk product must be moved from the fields to a processing center: the processed crop must be stored until it can be taken to market.

It aim is to produce one or two crops for the markets. That specialization is a source at once of its strength and of its weakness. The organization can respond to increases in market demand; but it is highly vulnerable to economic downturns.

Plantation agriculture therefore takes on something of the order and drill of an army, which led Edgar T. Thompson to characterize it as “military” agriculture.

The combined functions of organizational control, processing and storage create the plantation center, which becomes a post of command, walled off from the surrounding fields and workers’ barracks.

Once again, the labor shortage came to bite. Unlike in Potosí, there was no mita system, and the native Taino population had a nasty habit (from the Spanish standpoint) of either running off, or, more likely, dying from imported European diseases. Where would the labor come from to plant, harvest and manufacture the sugar crop, especially since demand for it seemed to be insatiable?

Slavery, obviously, combined with large amounts of European bonded labor. If you fell into debt in Europe during this period, you might very well find yourself on a sugar plantation somewhere in the Caribbean.

And it was here in the Caribbean where the first factories were born:

Sugar cane, Saccharum officinarum, has the peculiarly problematic characteristic that its sucrose starts to decay immediately after the cane is harvested. This required the farmers to press the sweet juice from the cane as soon as possible after cutting the cane. Shipping the cane for processing to a nearby urban area, let alone all the way to Europe, was was done with cotton, would destroy the product. Each plantation needed its own sugar mill to grind the cane and to boil the residue down to a crystalline brown sugar.

The plantation functioned more like what we today think of as a factory than like a traditional European farm or manor. . . Since the sugar cane took one and a half years to mature, the plantation operators had to break the traditional cycle of seasons characteristic of European agriculture. Because of the need to process the cane immediately after harvesting, the harvesting had to be staggered so that too much cane came ripe at the same moment. This made sugar cane culture even for field workers a continuous rather than a seasonal or sporadic activity.

Stanley Mintz describes the sugar plantations as a “synthesis of field and factory” in a form that was “quite unlike anything known in mainland Europe at the time.” The cane had to be crushed, and then go through the stages of reduction, clarification, molding, and crystallization in a carefully synchronized and very exact procedure involving mills, giant furnaces, and boiling cauldrons. This highly skilled part of the work required about 10 percent of the total workers of a plantation. Mintz describes this as “the closest thing to industry that was typical of the seventeenth century.” Even though the final refining of sugar into a white substance was completed in England, the plantations of the Caribbean were essentially sugar factories…

The close connection of sugar-cane plantations to factories is seen even in the nomenclature. In Portuguese, sugar mills are called eghenos de assucar, which means “engines of sugar.” Even in English the term sugar mill emphasizes the industrial rather than the agricultural aspect of the enterprise. IG pp. 52-53

And nothing would go to waste: the mills often had a distillery on hand to make rum and molasses. Sugar, syrup, molasses, and rum all came out of the mills from a single agricultural input—sugar cane. One is reminded of later oil refineries, which produced all sorts of distillates from petroleum. Gasoline, which came to predominate, was originally a waste product from the production of kerosene for lamps. In fact, modern sugar processing facilities do look like oil refineries.
The idea that sugar production was the first rollout of the factory system is also echoed by Kenneth Pomeranz. In the book The World That Trade Created, he titles one of his chapters, Sweet Industry: The First Factory:

Already in the seventeenth century, sugar plantations involved perhaps two hundred slaves and freemen, with a mill, boiling house, curing house, distillery for rum, and storehouse. This involved not only some of the most sophisticated technology of the era, and a large workforce, but also investment of several thousand pounds.

True, nine-tenths of the workforce were field hands engaged in brute labor. But the 10 percent in the crushing, boiling, and distilling plants were very much specialized labor. More importantly, the scale, complexity, and social organization of the sugar mills made them into the first factories.

Time was a ruthless master in the sugar production process. Once harvested, cane had to be rushed to the mill to prevent the loss of sugar content. In the mills, especially the larger ones, close care of temperature was necessary. The boilers’ fires had to be constantly stoked; the liquid sugar had to be moved from kettle to kettle without permitting unwanted crystallization, while running off the sediment at the right time. Then the sugar had to be quickly brought to the curing house where the molasses was run off. Sugarcane produced various qualities of sugar, as well as molasses and rum. The closer to attention to production, the better the final product and the greater the returns…

This led to sugar mills becoming the first factories ruled by the discipline of industrial time. The specialized work gangs had to coordinate their efforts: cane had to be quickly cut when mature; carters had to carry it to the mill; the hungry crushers were constantly fed cane; the leftover cane, the bagasse, was carried to the boiling room to stoke the fire.

The time exigencies of the production process meant that slaves had to work together as so many part of a well-oiled machine. Efficiency and slavery, labor saving and labor intensification were combined…

Sugar, which we think of as a leisure and pleasure product, an import from the balmy Caribbean lands of mañana, was actually the first industrial product and a cruel master to the hundreds of thousands of slaves who labored to turn out sweet delights. Marx observed that “the veiled slavery of the wage-workers of Europe needed, for its pedestal, slavery pure and simple in the New World.” He could have added that the factories of the Caribbean were holding a mirror in which Europe could see its industrial future.

The World That Trade Created, pp. 227-228

It was regularized product produced for the market, made by a series of steps in a sort of assembly line fashion, involving large amounts both skilled and unskilled labor under strict supervision, who were slaves to the clock. And it required large amount of upfront expenses to get going. Yep, sounds like a factory to me.

Because it was so very labor-intensive and involved so much upfront investment in equipment and technology, sugar was at first very expensive. So why did it become so popular, then? Well, it turns out it’s addictive. Very addictive.

People often jokingly compare it to another white powder that did originate in the New World-cocaine. The thing is, it’s no joke. Studies have shown that sugar is nearly as biologically addictive as cocaine. Sugar activates the mesolimbic dopamine system, causing a similar dopamine hit as various addictive drugs. Quitting sugar can cause cravings and withdrawal symptoms.

With the industrialization of the food supply in the twentieth century, food companies used this fact to add sweeteners to all their products, ushering in an epidemic of diabetes, obesity, and dental caries.

This leads back to a point I’ve emphasized before: it tends to be the use and procurement of psychoactive and addictive substances that drives social change throughout human history, going all the way back to alcohol.

When sugar first arrived on the tables of the European upper class, it was used as a sculptural medium. As Braudel reports, “On 18 October 1513, the king of Portugal offered the Pope a lifesize sugar effigy of himself, surrounded by twelve cardinals and three hundred candles, one and a half metres high – all made by a long-suffering confectioner” (p. 191).

The Factory System comes to Europe

It may have begun with slaves and bonded labor on the islands of the Caribbean, but it didn’t stay there.

Fernand Braudel introduced a four-fold classification of European manufacturing developed by historian Hubert Bourgin in 1924 (pp. 298-302):

Category A: Tiny family workshops, countless in number and grouped in ‘clusters’, each with a mater tradesman, two or three journeymen and one or two apprentices, a family in itself.

Category B: Workshops which were scattered, but connected to each other–‘dispersed factories’.

Category C: Concentrated manufacture.

Category D: Factories equipped with machinery, using the additional energy sources of running water and steam.

He notes:

So there are the four categories, four types of production in roughly chronological order, although ‘while they followed one upon the other, these different structures did not immediately replace each other’…There certainly was no natural and logical transition from the manufactory to the factory. p. 302

England had been a major center for wool since the Middle Ages. Tudor kings increasingly pursued what we would today call an “industrial policy” in an attempt to make England a producer of the finished product rather than just raw materials for the continent. The investments in cloth production came just in time to be increasingly used for the production of cotton instead of wool, as cotton began pouring in from the New World. Sea Island cotton was particularly desirable.

The techniques first developed on the island plantations of the Caribbean increasingly were imported back into Europe. Instead of sugar, it was first put to use as a way to weave the huge amounts of cotton that were arriving from the Americas into cotton cloth. Since cloth production became the major factory industry back in the Old World, it was cloth production that became mechanized first and fastest, despite deep resistance from labor. The mechanization of cloth production is well-known by now: the power loom, the spinning Jenny, etc.

Eric Wolf discusses the inherent limitations of cottage industry (Braudel’s Category B above), and why it increasingly led to the expanding use of factories (categories C and D):

The advent of the factory was a consequence of the limitations of the putting out system.

That system, in which a merchant entrepreneur furnished raw materials to have them processed in many small household establishments, encountered serious difficulties in sustaining and expanding the scale and scope of operations. It therefore set limits on the accumulation of capital.

There were limits to the intensity and duration of labor where producers worked in scattered and unsupervisable economic units. This was especially true as long as industrial operations supplanted agricultural tasks, such that work in the fields could take precedence over work on spinning wheel and loom. Similarly, religious activities, kinship events, and recreation could, and did, interfere with work intensity and procedures.

Furthermore, the merchant had little defense against pilfering and embezzlement of raw materials by the dispersed workers and little control over quality of output–both problems that grew increasingly serious in the course of the eighteenth century.

The lack of synchronization among the different steps in the sequence of production added to the cost of transportation: when spinning was slow, the merchant-coordinator had to go in search of spinners to feed the looms; when spinning had improved through innovations, merchants had to go in search of hand-loom weavers. There were delays in processing and deliveries, which slowed the turnover time of capital and left customers dissatisfied.

Ever-rising large-scale trade thus encountered the limitations of a productive system divided into innumerable small-scale workshop units, “unsupervised and unsupervisable”. The answer to this contradiction was the establishment of the capitalist factory. Wolf, pp. 274-275

The factory had no such limitations. All of the operations were now located “under one roof” and could be supervised accordingly. Now workers could labor practically non-stop to supply products to the expanding market. The similarities between slavery and wage slavery were not accidental—quite the contrary:

Just as the plantations consisted of a small nucleus of slave barracks clustered around central warehouses and the production area, the European factory clustered workers’ houses around a centralized manufacturing site. This new spatial arrangement replaced the traditional organization of manufacturing in Europe in which individual craftsmen worked in individual workshops or homes.

The new European factory modeled itself on the American plantation. The centralization of workers obviated the need for costly transportation to distribute raw materials to scattered households and workshops and to pick up finished goods. Centralization also helped the owners impose uniformity of work and production on industrial laborers much as the plantation owners had already done with the African and Indian slaves. IG pp. 54-55

Categories C and D increasingly became increasingly prominent. But these manufacturing techniques did not develop out of what had come before. Rather, they were competitors to it, and soon came to supplant the other types of fabrication:

Some people erroneously assume that the European factory grew naturally out of the traditional European craft system as some sort of inevitable cultural evolution. As Peter Kropotkin pointed out quite decisively, the factory system competed with the craft system and did not derive from it. He showed how the Swiss watchmakers doggedly resisted the sale of machine-made watches and how the Lyon silk workers fought adamantly against manufactured silks.

The technology of mass production of goods completely contradicted the principles of the craft tradition, which relied on the apprentice working first toward journeyman and then craftsman status. Kropotkin pointed out that that in contrast to that tradition, the factory system depended on unskilled labor that even a child could and often did perform.

In the end he realized that the crafts would continue only as a source of goods for the aristocracy while factory goods would be for working-class people. Kropotkin decried the unnecessary centralization and urbanization of industrialization and strongly advocated a highly industrialized but decentralized mode of production instead. This he felt would be much more in keeping with both the agricultural and craft heritage of European manufacturing history. Kropotkin did not explain the origins of this alien mode of production—the alien factory which bore so little resemblance to anything else then existent in European society. IG p. 55

Since plantations had been staffed and run by slaves, would the new factories use slave labor as well? This was actually tried in parts of the the New World when the factory system was expanded to other industries besides sugar. But in the end it failed because it turns out that it is cheaper to rent your slaves instead of buying them:

The slave factory system failed in past because the owners could not compete with the much cheaper goods manufactured in New England and Europe. The capitalist system relied on paid laborers to run the factories, and these proved much cheaper than slave laborers. Factory owners had to pay only the one person, often a child, in the family who worked, and had to pay for only as many years as the worker actually produced. Slavery proved too expensive a system to operate in a factory. IG p. 56

Seen from this standpoint, it was the development of an alternative—and more efficient—means of worker control and labor exploitation that led to the demise of slavery, and not noble humanitarian sentiment as is often claimed, i.e. “the better angels of our nature.”

The workers themselves were forced into the factories by the Enclosure Movement. As fields became enclosed and agricultural techniques improved, yeoman farming became less and less of a viable way of life, and the deracinated farmers and agricultural workers poured into metastasizing cities and became the grist for the first Industrial Revolution. Just like the Indians of the New world, however, the destruction of what had been a stable, convivial way of life led to grief, culture shock, and very often, mass deaths, something subsequent history has deliberately swept under the rug in its efforts to validate and normalize capitalism as a “natural” way of life.

Wage labor, while it had always existed to some extent, now became a way of life for most lower-class people as workers became dependent upon factory wages to buy their food and clothing instead of producing it themselves. Those unable to earn money were originally given outdoor relief, but that was soon replaced by workhouses, creating a mass market for labor for the first time in the early 1800s.

As Polanyi noted, the mechanization of production was a necessary catalyst for the creation of Market Society, where custom, sociability and morals were swept aside in favor of theoretically self-regulating forces of supply and demand. This emerging system was defended by intellectuals who never had to set foot in a factory (and still is today).

But the change was traumatic. Agricultural workers were used to working in time with the seasons, having copious time off, and social drinking. They were not used to having every move they made watched, being slaves to a clock, and harsh worker “discipline.” Factory owners themselves acknowledged that they were fighting a war against basic human nature—a war they subsequently won. Eric Wolf writes:

The early British textile factories were faced, however, with a general unwillingness on the part of the potential laboring class to enter into factory employment. Above all, they resisted the unrelenting labor and discipline of the factories, so much at odds with earlier habits and with older customs of sociability and of autonomous labor.

Many early factories were modeled on penal workhouses and prisons, and indeed were manned by involuntary pauper apprentices. The identification of the factory with forced penal labor also meant that former artisans or laborers in cottage industry felt a loss in social status in moving from the relative self-determination of the cottage producer to the servitude of the industrial worker. Indeed, “as long as there was some measure of freedom of choice between cottage and factory the workmen preferred the cottage.” p. 276

The role of state power in establishing the factory system has been covered up by the inherent libertarian biases of the “science” of economics. In economics curricula, history has been eliminated in favor of abstract theorizing and mathematization of idealized utopian markets.

Return to Kahl

To round out the chapter, Weatherford returns to his exemplar village of Kahl in Bavaria. European mills were often located on waterways. This not only facilitated the transport of grain, but also allowed mills to take advantage of water power, as was the case in Kahl.

As long as Europe depended primarily on wool for clothing, peasants could spin it and weave it with simple home technology. The bottleneck in cloth manufacture was the amount of wool that the land was capable for producing, not the ability of the weavers to make cloth. Since the number of sheep determined the amount of wool for weaving, peasants lacked incentives to develop machines or more efficient ways to make clothing.

This situation changed with the massive influx of cotton from America. Suddenly, the peasants and the weavers had more fiber than they could weave. They lacked the labor to process so much fiber. Europe desperately needed more energy than it had in human and animal power, and the most readily available source for creating new energy lay in the waterwheels already in place throughout the continent. Thus were born the first textile factories. IG p. 43

As Weatherford documents, the mills were utilized less and less as the peasant diet increasingly switched from cereals to potatoes, which, unlike grain, did not require milling. The mills—powered by water—were then put to other uses. As the factory system expanded and machines became utilized more and more, it made sense to locate factories in what had previously been grain processing mills. Water power now drove the machines of weaving such as the spinning mule.

The citizens of Kahl increasingly abandoned their farms and fields and went to work in the factories producing goods for distant markets:

Early in the nineteenth century, after Kahl recovered from the disasters of the Napoleonic conquests, imaginative entrepreneurs discovered new uses for the mills of Kahl. The mills offered a great source of energy, and this energy could be applied to other purposes than the mere grinding of grains or pressing of oils; the energy could be harnessed to power looms to make cloth.

Gradually the mills throughout the area were converted into small factories producing textiles, matches, electrical fuses, and felt, and eventually they were renovated to produce electricity, felt-making machines, and more complex electrical equipment… IG p. 42

Of course, if the peasants abandoned their fields, they would nevertheless still have to eat. Where would the food come from?

Increasingly, food was imported from the vast breadbaskets of North America and the Russian plains. This freed up the agricultural workers to become factory workers. In fact, the agricultural revolution was a prerequisite to the industrial revolution, something a lot of historians miss completely.

Of course, with plentiful supplies of grain flooding into Europe from abroad, the price of grain dropped. Large landholders advocated for price supports to keep the price high enough so that they could earn a living; industrialists, on the other hand, wanted it cheap so they could pay their workers less. In England, this took the form of debates over the Corn Laws. This was fundamentally a power conflict between the old landowning aristocracy and the rising industrialist class.

There’s a fascinating story in how the Industrial Revolution was also made possible by a food revolution. That included foodstuffs from the New World and the expansion of arable lands that conquest and colonialism engendered. It also featured improved agricultural techniques in Europe as well. But that’s a story for another time.

In the end, the industrialists won out. The price of grain dropped too low for small European farmers to make a living, so they threw in the towel and moved to the city. This led to mass poverty and overcrowding. These individuals and families became the proletariat of the first Industrial Revolution, a time of wrenching social change, similar to today, where the average worker was thrown under the bus with little to no resources to fall back on and told to fend for him or herself. Like today, living standards went down and the death rate went up.

With the invention of an efficient steam engine in the late 1700s by James Watt, heat engines could then be harnessed to factories which were located far away from wind and water power. Thus out of the factory system and mechanization of labor is born the industrial revolution based around fossil fuels that we are familiar with:

Soon the manufacturing in Kahl surpassed the capacity of the waterwheels to supply power, and the villagers began excavating local deposits of low-quality brown coal to produce electricity and thus increase the power available to them. After they exhausted the coal veins, the village switched to nuclear power to generate electricity. Throughout this process the emergent industries stimulated the development of collateral businesses such as construction and thus heightened the demand for lumber, stone, brick, sand, gravel, cement and other raw materials.

The industrialization of Kahl illustrated in miniature the process that occurred throughout England, Germany, and the other European nations. America supplied the raw materials for the revolution, and the sugar-cane plantations of the Caribbean and mines and mints of Mexico and the Andes supplied the prototypes for the first factories.

This initiated the industrial revolution in Europe; later in the nineteenth century a new stage based on coal and its derivatives replaced the first stage. This in time was superseded by the oil revolution when petroleum products became not only major sources of fuel but the source of may new raw materials, such as dyes, plastics, synthetic fibers, and a side array of chemicals. p. 57

Finally, there was a nuclear power plant, financed by the Versuchsatomkraftwerk Kahl GmbH. In a little more than a century the wooden water wheel had been replaced by the nuclear reactor. All this began with the adoption of the potato, but obviously the process involved many more factors than the mere potato, since the Peruvians have had potatoes for thousands of years but still do not have atomic energy. p. 42

But it all began with the need of European colonizers the New World to deal with a chronic labor shortage and to create products for export that were labor intensive to produce. So it was the New World that pioneered the factory system. Kenneth Pomeranz sums it up:

When we think of the first factories, we usually think of Europe, particularly England. After all, factories were the definition of “modern: and Europe was the leader in modernization. We assume that they were first built in Europe, where capital, machines, and labor combined to create ever-more efficient and productive methods. European ingenuity and entrepreneurship together with previously accumulated capital and budding markets led to the industrialization that was the secret of Europe’s centuries long domination of the world economy.

According to this story, the globe was divided between industrial Europe, and later the United States, and the agrarian exporting rest of the world. With this international specialization of labor, the agricultural countries only belatedly industrialized.

In fact, there is good reason to turn this version on its head: the first factories arose in the colonial, export-oriented world. p. 226

So to answer the original question of why the industrial revolution happened when and where it did, the reason is because it was Western European powers who established colonies in far-flung locations including the Caribbean, Brazil (the center of sugar production), and the American South. It was Europe that has an insatiable appetite for exotic products like sugar and cotton. Thus it was the Europeans who developed the mechanization processes and brutal worker coercion to produce those products to cope with the shortage of labor in the New World, as well of the lack of competing social arrangements as was the case in Europe. It was the development of this harsh system, and its importation back into Western Europe–especially in the area of cloth production–that were the necessary prerequisites for everything that followed–mechanization, marketization and fossil fuel power. This unique series of circumstances was only present in Western Europe thanks to its invasion and colonization of the tropics after 1500.

Those techniques of worker control never went away. The means of controlling workers developed linearly into the conditions almost all of us labor under to this very day. We’ll take a look at that next time, after a brief detour though industrialization’s effect on urban life.

(Braudel quotes are from The Wheels of Commerce, Civilization and Capitalism 15th-18th Century Volume 2) Eric Wolf quotes are from Europe and the People Without History.

The Origin of the Factory 1

There has been an ongoing debate over what the industrial revolution was, and whether it required the introduction of fossil fuels.

On first glance, it may seem like, of course fossil fuels were required. How else could the vast amount of output of the industrial revolution be achieved?

Not so, say those who argue the opposite. The argue that the industrial revolution was well under way long before fossil fuels entered the picture.

Rather, the industrial revolution was really all about the reorganization, intensification, and mechanization of human labor, they say. During the industrial revolution, labor was transformed into something closer to what we know today—large amounts of people toiling under the same roof, each doing their own specialized part of the production process instead of individually crafting things from scratch. Deskilling, specialization, routinization, mechanization, and harsh worker “discipline”—these were all aspects of the Industrial Revolution’s reorganization of working life that did not require the introduction of fossil fuels.

Similarly the use of machines first kicked off with human and animal power, and then later moved to water and wind. It was only after centuries of this when steam engines replaced them and fossil fuels became the prime energy mover. By the time fossil-fuel-powered engines came along, the argument goes, they merely had to be plugged in to system that had already been put into place.

In large measure, they have the timeline right. The reorganization, routinization, deskilling and mechanization of labor did indeed precede the steam engine. Early factories were established before the large-scale harnessing of fossil fuels, and output did go up a great deal.

In this case, it’s helpful to distinguish, as some historians do, several industrial revolutions. How it’s divided up varies depending on the historian. But generally, a distinction is made between the birth of the factory system; the mass utilization of coal and steam engines; the use of gasoline and the internal combustion engine; and the harnessing of electricity and the application of scientific research and engineering methods to the creation of new products.

But the question remains, where did this reorganization of labor first originate?

The New World Path to Industrialization

It turns out that it originated in the New World. From there, it spread to the Europe.

That’s the contention in a book called Indian Givers by Jack Weatherford. Weatherford is best known for his series of books about Genghis Khan and the Mongols. But before he wrote those, his specialty was Native American history, and he wrote several books about the topic.

Chapter Two of Indian Givers is called “The American Indian Path Towards Industrialization.” At first glance, it might seem odd to talk about an “American Indian path to Industrialization,” as the American Indians were less, not more, technologically advanced then the European invaders (with some notable exceptions).

But it was a combination of circumstances caused by the exploitation of New World resources, as well as the discovery of new resources that played the critical role. As he puts it,

“Without European technology and organization, the industrial revolution would never have started in America; without American precious metals and methods of processing, the industrial revolution would never have happened in Europe.” p. 58

Weatherford uses as his illustration the village of Kahl in Germany. For a long time a small farming village, it industrialized during the great rolling industrialization of the nineteenth century. Today, alongside quaint village houses, fenced farm fields, and abandoned mills, sit factories, ports, railroads, truck depots, and even a nuclear power plant! What changed, and why did it change so rapidly in just the last couple of centuries?

Farm life in Kahl remained much the same regardless of whether the village was inhabited by Celts, the Chatten, the Romans, or the Franks. A peasant would probably have felt equally at home farming in the Kahl of 700 B.C. or A.D. 1700.

In this time the basic subsistence pattern of agriculture—the crops grown, the animals used, and the tools for growing and processing them—remained basically unaltered. The houses of the peasants from the two eras differed little, the peasants moved around by the same modes of transportation, and they ate roughly the same meals.

Suddenly in the last few centuries, life changed radically after millennia of great technological stability. The peasants stopped working in the fields and started to work in factories. They illuminated their houses and other buildings with electricity, and they replaced their horses with bicycles, tractors and trucks. They altered their diet, and the way they built their homes and educated their children. Within a few generations, virtually every aspect of life changed… IG pp. 40-41

Weatherford asks a question you hear often today: why did technologically advanced and sophisticated ancient cultures not break through to have their own industrial revolution? Why did it take (from our standpoint) so long? If we don’t require fossil fuel power or steam engines to have an industrial revolution, as we saw above, then what was stopping them?

After thousands of years of agricultural life, this sudden leap into the industrialized world seems difficult to explain. Why had the Greeks, with so much mathematical and philosophical learning and such outstanding architectural techniques, not been able to make and use machines? Why were the Romans, with all of their technical and practical knowledge of engineering and their vast array of engines of war, not industrialized? Why could the people of the Renaissance, who demonstrated their mechanical wizardry by making elaborate toys, not make the leap into machine production? What happened to the world in the 1700s and 1800s to make it industrialize after thousands of static years of technological stability? Indian Givers, p. 41

Weatherford’s answer is that the encounter with the New World was the catalyst. This was the missing piece from all earlier eras of world history.

Why was this the case? Well, this was simply based on the fact that the New World had a chronic shortage of labor. The Old World did not.

In fact, it’s highly unlikely that such a shortage would ever have transpired in the old civilizational centers of Eurasia. They also would have not been developed sui generis by people in the New World.

No, it took an invasion to do that. An invasion combined with a labor shortage.

In fact, the Old World had a surfeit of labor throughout most of history. That surfeit of labor would end up becoming the labor stock for the first industrial revolution.

But first, the factory system had to be invented.

Labor shortage

Unlike the Old World, the New World suffered from chronic and persistent shortage of labor.

There was a vast pool of resources just sitting around that needed processing, but the people who lived there kept inconveniently dying just when the exploiters needed them the most.

So, the conquerors were forced by necessity to come up with new ways of organizing labor due to the chronic shortage. Because of the labor shortage, Europeans in the New World developed all sorts of new and novel techniques to extract the maximum amount of labor out of their limited workforce—by and large enslaved Indians and Africans, with indentured workers (bonded labor) thrown into the mix.

In this case, necessity was the mother of invention. History shows that things typically aren’t invented until there’s some sort of pressing need for it.

You might say the New World products were the tinder, and the labor shortage was the spark.

The Americas in the sixteenth and seventeenth centuries promised vast resources—gold, silver, and furs, as well as the seemingly inexhaustible potential for crops of tobacco, sugarcane, rice, coffee, indigo, and hundreds of other plants. But a major obstacle constantly slowed the extraction of both the metals and agricultural treasures from the ground: the persistent shortage of labor.

The Spanish quickly impressed the Indians into slave labor, but in some areas, such as the Caribbean islands and Central America, the Indians died very quickly from diseases, malnutrition, overwork, or simple culture shock and grief. In other cases the natives lacked sufficient experience in agriculture or mining to be acculturated into the new Spanish system as workers.

No matter how many slaves the British and Dutch shipped to America, the plantation and mine owners demanded more laborers. Because of the lack of sufficient manpower, the Americans improvised whole new mechanical technologies to help tap the natural resources and potential wealth. IG, p. 49

Back in the days of cottage industries, artisanal production, and small, individual workshops, it was unlikely that anyone would have seen a need to scale up their operations very much, or dramatically increase their output, as there would not have been enough customers to buy their products even if they were to do so.

With the introduction of vast new amounts of silver into the Old World, and the marketization of society it engendered, suddenly not only was there a huge amount of new products, but there was also the money with which to buy them! This catalyzed a self-sustaining feedback loop—more money demanded more products, which made more money, which was invested into higher output of products. The New World produced not only the products, but also the money with which to buy the products. Supply really did create its own demand:

At the time of the discovery of the Americas, Europe had only about $200 million worth of gold and silver, approximately $2 per person. By 1600 the supply of precious metals had increased approximately eightfold. The Mexican mint alone coined $2 billion worth of silver prices of eight.

The silver coins flowing through Europe at first promised to strengthen the feudal order, but in the end they forged whole new classes and changed the fortunes of many countries. The new coins helped to wash away the old aristocratic order in which money games could be played only by the privileged few; massively larger amounts of money opened up new games to new people.

Even though all the gold and silver went into Spain, it did not stay there. From Spain the money spread throughout Europe. The Hapsburg monarch Charles V occupied his throne both as emperor of the Holy Roman Empire and as the king of Spain; this facilitated the spread of the money from Spain to the Hapsburg holdings in the Spanish Netherlands and across Germany, Switzerland, Austria, and the Italian states. Three-fifths of the bullion entering Spain from America immediately left Spain to pay debts, mostly those incurred by the profligate monarchy…

Precious metals from the Americas superseded land as the basis for wealth, power and prestige. For the first time there was enough of some commodity other than land to provide a greater and more consistent standard by which wealth might be measured. This easily transported and easily used means of wealth prepared the way for the new merchant and capitalist class that would soon dominate the whole world…

The tremendous volume of new currency influenced the economy of all Europe. For example, in Naples there wee only 700,000 ducats in circulation and in savings in 1570. In less than two centuries, by 1751, there were eighteen million ducats. These eighteen million ducts, moreover, could be used many times in a year for various types of transactions. The total number of ducats used in buying and selling would be approximately 288 million.

Similarly, in France, which received its wealth from the New World much later than Spain, approximately 120 million francs circulated in 1670, but by 1770 there were two billion in circulation, a fifteenfold increase in a century. IG, pp. 14-16

Not only did they ship over products from the New World like cotton, tobacco and coffee, but they also shipped over the means to buy those same products in the form of silver and gold bullion.

There was tremendous bounty in the New World, it was true, yet New World goods needed a lot of work to process, that is, they were labor intensive. Where would the labor to do all this work come from?

Slavery, obviously. But even slaves can only do so much. Plus, they’re expensive. You’ve got to ship them over from Africa, buy them, feed and clothe them, and so forth. The same is true for bonded labor. Plus, unlike artisans, you’re not dealing with skilled labor here. You’re dealing with simply warm bodies, ripped from their culture and with little to no training in what they are about to do.

So, to minimize the number of slaves you needed to buy (and the bonded labor you need to indenture), and to dumb down the process enough so that they could easily be put to work, you need to maximize labor output and simplify your tasks. And thus the idea of capitalist efficiency was born—maximizing productive output with the absolute minimum of labor input.

In order to do that, you need to reorganize labor and use machines to the greatest extent possible. This is why this process began in the Americas, rather than in the Old World. In particular, it began in the sugar mills of the Americas—large ,extensive operations designed to grow and harvest sugarcane and turn it into the raw material to be shipped back to Europe and sold for profit.

Even though most of the labor was unskilled, you still needed a small class of skilled laborers for supervision, as well as to direct the more precise industrial processes. So you end up with a balance of about 90 percent unskilled labor versus 10 percent skilled labor in the sugar mills, very similar to that in the earliest factories.

And another key ingredient was the impetus to mass production that New World crops gave to European markets. All sort of new products were discovered during the Columbian exchange-tobacco, chocolate, cotton, dyes, rubber, sisal, etc. These were combined with products already known to Europeans but that Europeans were unable to produce themselves because they required a tropical clime—things like like coffee, sugar and cotton, especially.

While cotton was previously known to Europeans, it turns out that cotton was domesticated independently by natives in the New World, and their cotton was of much higher quality than that in the Old World. The strands were longer, smoother, and silkier; so silky, in fact, that Europeans mistook some Indian cotton garments for silk! Cotton cloaks were used as a high-denomination currency in Mesoamerica, alongside lower-denomination cacao beans.

Some Old World types of cotton had been grown in India and the Near East for centuries, but only very small quantities of it ever reached Europe. This cotton was not only expensive, but weak and difficult to weave because of its short strands.

Asiatic cottons, Gossypium herbaceum and G. arboreum, had a strand length of only about half an inch, but American upland cotton, G. hirtutum, usually grew a full inch or more. Meanshile, G. barbodense, the tropical American cotton that became best known as Sea Island cotton (from the plantations that grew it on the coast of South Carolina and Georgia), could grow to two and a half inches.

In Europe the short strands of the Old World cotton served primarily for padding jerkins under the coats of mail worn in battle. In time the uses of cotton expanded to the making of fustian, which was a coarse material built on a warp of stronger flax and a woof of Old World cotton. Not until American cotton arrived in England, however, did the phrase “cotton cloth” appear in English; the Oxford English Dictionary’s earliest date for it is 1552.

The long-strand cotton of the American Indians so surpassed in quality the puny cotton of the Old World that the Spaniards mistook the American cloth for silk and interpreted its abundance as yet further proof that these new lands lay close to China.

For thousands of years before the European conquest of America the Indians had been using this carefully developed cotton to weave some of the finest textiles in the world. Many remnants of these early cloths survive to the present day, their colors and designs intact, after several thousand years in the desert burials of Peru, Bolivia, and Chile. IG, pp. 42-42

I’m not going to go deep into the history of New World products or foods. Instead, I’d like to take a look at how the labor shortage forced the Europeans to automate many of the processes they used with enslaved New World labor, and how this led to the development of the factory system in Europe. In particular, we’ll look at two critical New World industries: mining and sugar production.

The Nature of Unemployment

While doing some research on History Stack Exchange, I came across this answer concerning unemployment, and I thought it was relevant to share here:

There is no such thing as a “labor shortage”. “Labor Shortage” is just a propaganda term used by employers who are trying to find some excuse to pay less.

For example, many manufacturers complain that there is a “shortage” of machinists. What this means is that they would like to pay machinists $10 an hour and, surprise, surprise, no machinist wants to work for $10 an hour. If the manufacturer offered $100 an hour, he would have machinists coming out of his ears. He would have machinists lining up at his front door wanting to work for him. He would have machinists flying from all over the world to work at his factory.
Likewise, employees use the same political language. They say there is a “job shortage”. Of course, there is no job shortage. If you are willing to work for $5 an hour you will find hundreds of employers willing to hire you. In fact, for $5 an hour * I * will hire you.

There is no such thing “labor shortages” and “job shortages”. They are just made up terms used by people for political purposes.

https://history.stackexchange.com/a/12977

That’s an interesting take on it. Of course, there might be a true labor shortage if there literally weren’t enough people to keep society running, in which case we would have zero unemployment. This would be an “all hands on deck” situation where everyone’s labor is required simply to survive.

Another phrase you’ll often hear is that we need to import people to the jobs “Americans won’t do.” Well, they would do them if you paid them well enough. The fact is, this is just an excuse by employers to keep wages low.

Another exchange clarifies the point:

I think he meant labour shortage in the sense that there were actually more available jobs than workers. – Saal Hardali May 27 ’14 at 17:49

You don’t seem to get it. There are an infinite “number of jobs”. If you and your friends agree to work for me for 25 cents an hour I will hire you all, even if you have a thousand friends. I just “created” 1000 jobs instantly. You seem to have the erroneous idea that “jobs” are some kind of fixed commodity. A “job” is just some guy willing to pay some other guy to do something. – Tyler Durden May 27 ’14 at 18:08

Another question asks whether there was unemployment in ancient Rome. The commenter answers that what we think of as “unemployment” was not relevant to earlier pre-capitalist societies::

The modern definition of unemployed is “having looked for work recently”. I’m not entirely sure that definition is appropriate for Rome. Modern Western Liberal Democracy is organized around the notion that “companies” provide employment, and that people seek employment. Unemployment results in a dramatic decline in economic and social status.

Although there were workshops in Rome, and there were teams that organized to perform tasks that no individual could, I’m not aware of anything that resembles the modern limited liability corporation. Roman politics and economics were based more on relationships than on companies. Romans belonged to a family, and to a tribe, and usually to some kind of patron/client relationship. Depending on their social class, they may have also belonged to one or more social organizations (e.g. burial society). If someone wanted to work, they would rely on these connections to find them employment. “Unemployment” didn’t really result in the kind of economic and social decline we find today because these social bonds provided a safety net. If for some reason you were isolated from your social network, that might be a definition similar to “unemployed”, but there were mechanisms (adoption, social organizations, etc.) that made the social networks fairly resilient.

https://history.stackexchange.com/a/12821

There is no unemployment in foraging societies either, for example. Unemployment presumes a market society where we must earn wages or some sort of other income to survive. The wealthy rely on passive income from investments; the rest of us have to sell our labor. And despite the insistence of the “financial independence” crowd (Mr. Money Mustache, et. al.), is is not possible for all members of society to live off of passive income. It also assumes that we have enough surplus in the first place to invest in passive-income generating schemes, which most of us do not by design. We can’t all be six-figure software engineers (in which case, software engineers would not worth very much).

What brought this to mind was this discussion with Warren Mosler over MMT’s counter-intuitive idea that unemployment is actually created by governments, and the unemployment rate is always a policy choice. In other words, it is not like a hurricane or a fire that is out of our control. It is a human-created phenomenon. Here is Mosler explaining some important aspects of the job market:

[15:41] “The labor market is not a fair game, with or without unemployment, because people have to work to eat. Business only hires if they can make a certain return on equity that they think is a good deal, otherwise they don’t hire. Nothing bad happens to them if they don’t hire. And so mainstream, elementary game theory will tell you this is not a fair game, and so you’re going to expect real wages to gravitate towards subsistence levels, whatever that is, unless there’s some support for labor.”

“Now, we used to have a lot of support for labor with labor unions, and then in the 1980’s they were all broken, and that’s when the wedge started being driven between productivity and labor, where the productivity kept going up, but everything started going to profits instead of wages. It’s pretty clear in the data that that’s what happened, because labor lost its support…The principle is that real wages are going to stagnate near subsistence unless you do something to support them because its not a fair game.

“You could have unemployment down to everybody’s got a job except this one last guy who’s unemployed, and then he sees a job offer. Well, he’s got two choices—take the job or his family can’t eat. It’s not like all these other people have jobs so I can demand more money. You look at his position—he’s not in any better position because everybody else has a job. So it’s absolutely not a fair game.

So it shouldn’t be any surprise that wages aren’t going anywhere, even with unemployment coming down. The Philips curve doesn’t seem to be working the way some have suggested…which says as that as you get towards lower and lower unemployment wages will go up and up. It’s just not happening, and that’s why.”

This seems to be lost on nearly all economists, who are stumped by the fact that wages aren’t rising, even in the face of “full” employment. But why would they?

The economy may be booming, but nearly half of Americans can’t make ends meet (L.A. Times)

The fall in those wages has alarmed some economists, who say paychecks should be getting fatter at a time when unemployment is low and businesses are hiring. “This is odd and remarkable,” said Steven Kyle, an economist at Cornell University. “You would not normally see this kind of thing unless there were some kind of external shock, like a bad hurricane season, but we haven’t had that.”

The falling wages promise to exacerbate historic levels of U.S. inequality. Within the labor force, it means workers who were already making less are falling further behind. And if private laborers as a whole are seeing their earnings flatten while the economy as a whole grows at an annual rate of more than 2 percent, that means the gains are going almost exclusively to people already at the top of the economic ladder, economists say

For the biggest group of American workers, wages aren’t just flat. They’re falling. (Washington Post)

Then Mosler explains the basics about why unemployment is an artificial creation of the state, rather than a “natural” phenomenon. In doing so, he explains the origin of money, and what the public debt really is—the money supply:

[26:20] “The other critically important contribution of Modern Monetary Theory is that the cause of unemployment, by design, is taxation…The monetary circuit theory begins with businesses borrowing money to hire people. MMT says, no, the money story begins before then. Why is anybody working for this money to begin with? Where does the money story start? It starts with a government trying to provision itself.

“We show examples like when the British colonized Ghana. They wanted to grow coffee there. How do you do it? What you have is a state—the British at the time—that wanted to move resources, which was human labor, from whatever these people were doing in Ghana before they got there in a non-monetary society. They wanted to get them into the coffee fields…”

“What the British did was they implemented a tax. They started a new currency—let’s call it the crown—and so they offered crowns for people who wanted to come work in the coffee field. But nobody wanted to work for crowns, nobody had ever heard of it; there’s no reason to give up hunting and fishing and taking care of the children to go down to the coffee fields and pick coffee for this crown thing…So what they did was, they implemented a hut tax. They all lived in these grass huts. They said there’s going be a ten crown a month tax on every hut, and if the hut doesn’t pay its tax, we’re going to go burn it down. They had the military.”

“So now they’ve created this tax liability – everybody has to pay 10 crowns a month or get your house burned down. And so now they’ve created something which didn’t exist before-that’s people looking for paid work in a currency, which is what we call unemployment. Unemployment is not people looking for volunteer work for the American Cancer Society who can’t get a job — it’s people who need money. And it’s created by taxation. In a non-monetary society where you don’t have monetary taxation, there’s no unemployment as we know it. There can’t be. It’s just not applicable.”

And so the taxation, by design, is there to create people who need the currency for the further purpose of provisioning the government — in this case, provisioning the British with labor in their coffee fields. They would then have all these people showing up looking for work in the coffee fields, and now they could hire them and pay in crowns because the people need it to pay the tax. They understood that they had to get paid first before they could pay the tax. The British would spend first and then collect the tax. And, of course, the British would always spend more than they collected, because people would earn the money first, and they would earn more than was needed to pay the tax normally…”

So the British always ran a deficit; they always spent more than they collected, and those extra crowns they spent were called the money supply. Those were the crowns people had in their pockets or in their homes, or the merchants would have them in their shops, and they all knew that the British would spend more than they collected, and that’s where the money supply came from, and that spending more than you collect is called deficit spending, and the amount that you spend that more than you collect is called the public debt, and they all knew the public debt was the money supply, as they casually called it back then. Today we’ve lost sight of that.”

We have twenty trillion of public debt; what is it? It’s not wrong to define it as the money supply for the economy. If the government has spent twenty trillion more than they’ve taxed, and those dollars sit out there in bank accounts, until they get used to pay taxes. So the twenty trillion are the dollars spent by the government that haven’t yet been used to pay taxes. That’s our public debt, and that’s all it is.

The money story starts with the government trying to provision itself, which is very different form the mainstream story.

I did some research into the British efforts in Ghana. What Mosler stated above is confirmed on the BBC’s own Web site:

One of the central pillars of colonisation was tax. The European powers did not want Africa to be a drain on their treasuries, and they wanted the colonies to pay their own way. They also wanted people to enter into the cash economy. Taxation was a way of driving people into working for money.

The competence of a French colonial official might often be measured by how much tax he was able to collect. This could be in the form of a poll tax or a tax on homes. For the ordinary people, especially those who were not earning money through labour or selling goods, taxation was an intolerable burden. Resentment turned to anger in many parts of Africa…

The Story of Africa (BBC)

Here is some more detail about the British and French colonial activities in West Africa: 8: Colonial Rule in West Africa (WASSCE History Textbook)

So the libertarians are partly right where they say that taxes are imposed by state violence. Where they fall down is the fact that these were effectively unmonetized traditional societies before state violence, and not barter economies like Adam Smith imagined. International markets destroyed these societies; they were not an integral part of them, except as supplemental places of surplus exchange. It was the violence itself that created the markets of which libertarians are so deliriously enamored!

They were also created by law. The competitive labor market in Britain was established in 1834, before which, industrial capitalism as a social system did not exist. What Britain did internally it later did externally.

Colonialism and hut taxes destroyed the traditional provisioning methods of these societies. Rather than the traditional subsistence agriculture which had always fed the people, the colonizers wanted farmers to grow cash crops for export. This meant that food producers were now dependent upon the money gained from selling that crop to buy whatever else they needed, including food. And the amount of money they gained from that crop was entirely determined by distant global commodity markets over which they had no control.

Sometimes people wonder how it is that a country like Côte d’Ivoire can produce a nonedible crop such as cocoa but at the same time have difficulty feeding its people. The answer to this question involves two factors: colonialism and the introduction of cash crops.

The European colonial powers in sub-Saharan Africa, most notably France and Britain, expanded indigenous agriculture to include cash crops geared to the wants of European consumers and industries. The production of these cash crops for export depended upon plantation and sharecropper systems. Britain organized the commercial production of cocoa in Ghana, wool and coffee in Kenya, and tea in Zimbabwe. France arranged the production of peanuts in Senegal and Mali, and cocoa and bananas in Côte d’Ivoire.

The economic shift toward cash crops significantly decreased the production of goods for local food needs and at the same time destroyed indigenous handicraft industries.

The kingdom of Bugunda, in what has been Uganda since 1894, provides a good example. Once Bugundan peasants were forced by British colonists to produce cotton and coffee for export, the local barkcloth and pottery crafts disappeared. Likewise, people began working in mines, fields, and plantations for export production in order to pay household or hut taxes and retain access to land. As a consequence, indigenous societies lost cultural knowledge and agricultural production for local food needs declined. Indigenous labor and resources were used to sustain and develop European urban and industrial needs.

Child Labor in Sub-Saharan Africa, by Loretta Elizabeth Bass p. 32

So the “staving African” and “starving Indian” stereotypes were a product of the creation of Market society, and not natural features of their daily existence, and certainly not due to “low IQ” as the Alt-Right race fetishists would have it. The “poverty line” used by international agencies is exclusively determined by the cash income earned by people in these post-colonial economies. The fact that there was no poverty line before colonialism is always ignored. Today, the raising of the poverty line in developing countries is used as the primary defense of Neoliberalism by its supporters.

Capitalist logic defines poverty in strict monetary terms, such as the poverty line, in which people don’t possess enough money to purchase basic goods from the market. In this way, capitalism not only makes people dependent on the market for survival, but also does not acknowledge alternative factors which contribute to human wellbeing, such as health, education, affection, the environment, or life in the community.

The Obsolescence of Capitalism (Medium)

Later, marketing boards were introduced to deal with the random price fluctuations that were the cause of so much misery:

The extraction of the agricultural surplus for urban/industrial development has been a common objective of both colonial and postindependence rule. Colonial authorities imposed various taxes (head taxes, hut taxes) and compulsory planting of selecting export crops to stimulate the production of export crops and to capture the agricultural surplus. Shortly after World War II, the British colonial government introduced marketing boards in their East and West African colonies following the relatively successful record of marketing boards in Australia and New Zealand since the 1930s. The objective of the marketing boards was to stabilize producer prices and foreign exchange earnings and to reduce interseasonal price movements.

In the 1960s and the 1970s, numerous African governments introduced grain boards to control producer prices and food grains and to channel food to the urban centers. Boards usually accumulate and carry stocks to mitigate both intra- and inter-annucal flucturations in price and supply, and develop distribution systems to facilitate the transfer of grain from surplus to deficit regions.

A Survey of Agricultural Economics Literature Volume 4; edited by Lee R. Martin pp. 44-45

A lot of MMT’s recommendations are about creating a “marketing board” for jobs—a “job board” for society was it were, that would stabilize prices and demand for the commodity called “labor”. These would provide ways for people to earn the money that market society requires as a condition of survival rather than leaving it up to the “free” market, which has devastated so many communities across the world.

ADDENDUM: This is tangential, but one of the comments I sometimes see in discussions surrounding economics is something on the order of, “capitalism has always existed…”

Um, no. This is an incredibly ignorant statement, and oblivious to economic history. Yet it’s surprising how many people seem to believe it, or toss it off as if were some sort of obvious statement. It’s only possible if we define capitalism so broadly as to lose all meaning of the term. I thought this comment to an article at the Guardian did a good job of illustrating what’s wrong with this kind of reasoning:

Jesus. Capitalism involves people thinking rationally about their self interest therefore all instances of people thinking rationally about their self interest are engaging in capitalist modes of though.

Football is a sport that involves players running therefore anyone who is running is a football player.

Christmas is a religious festival marked by people exchanging gifts therefore whenever people exchange gifts they are celebrating Christmas.

Demographics Redux

A while back, I wondered if the low unemployment rate was down to simple demographics.

The reason I thought that was this chart:

Look at that peak. The peak plateaus from what I can tell, about 1958-1963. It then falls off a cliff and bottoms out around the year I was born – 1973, and never recovers, despite a very slight uptick in the late 1980’s (the “echo boom”)

While It’s harder to find data for other countries, here’s Canada. It appears to bottom out in the late nineteen-eighties:

In the U.K. it was more of a bactrian instead of dromedary hump, possibly due to the rationing years. But the cliff still occurs at approximately the same time:

Wikipedia has more data on it: Mid-twentieth century baby boom.

It notes that the baby boom was the strongest in Australia and New Zealand, which I didn’t know. It notes that in Europe, it was the strongest in France and Austria, and weakest in Southern Europe. It includes this chart for the United States:

Someone born in 1963 would be 1963 + 2020 = 57. That’s the youngest cohort. The oldest would be those born about 1947. 1947 + 2020 = 73. 55-65 is prime retirement age.

Note that we’re also hearing about how the stock market—where many retirement savings are invested—is at all-time highs. This puts retirement in reach for many baby Boomers.

This means that the people at the bottom of the trough would be my age and younger – 47. Again, note that while it increases slightly, the birth rate never recovers.

Now, I’m told that these are supposedly my “peak” working years. That is, workers in my age range are desirable – not too old, but old enough to acquire experience. But there are hell of a lot less of us than there have been in the very recent past!

That’s before you consider the demographic effects of increased mortality and incarceration which took such a huge toll on people who became adults after the sharp turn to the Right that began with Reagan in 1980. The “deaths of despair” began increasing after the year 2000. That means a lot of people are simply “missing” from the work force due to the tragedies of modern life. I’ve seen a heartbreaking number of people around me dying before their time–people in their thirties, forties and fifties.

When I first posited the idea, some readers had objections to it, and they made very good points. But I still thought that demographics must have some sort of impact, given the charts, above.

What brought this back to my attention was this article posted at TYWKIWDBI, which deals specifically with Minnesota, but is also relevant to the U.S more generally:

The Minnesota economy will also be squeezed as the last baby boomers retire in the decade. The 3 million-person labor force will essentially stop growing in the first five years of the 2020s, demographers say, and pick up only slightly after that.

This leveling off is already being felt across the state. Job vacancies have outnumbered the unemployed in Minnesota for two years. Businesses, governments and ordinary people find it’s harder to get things done. Hiring is especially challenging at restaurants, factories, schools and hospitals. Things aren’t delivered on time.

Such difficulties are mainly seen as effects from an economic upturn that, having started after the 2008-09 recession, has lasted longer than any other. But they’re also a product of the less-understood slowing of population growth…

This pattern is projected to continue into the 2030s and 2040s. There were so many baby boomers that their deaths from old age will offset the number of people being born or immigrating. By 2034, the Census Bureau says there will be more Americans over 65 than under 18. Similar challenges exist around the world. As populations become larger, it’s harder to sustain previous high rates of growth.

Population trends (TYWKIWDBI)

Which confirms the observations I made back then.

The precedent for the overall size of the economy has been set by the Baby Boom. Economies do not like to shrink, if for no other reason than to generate sufficient growth to pay back past loans. Thus, employers will continue to search for enough employees to keep the economy the size it was during the Boomer years with a shrinking pool of workers.

That’s excellent news for us workers, as it places a modicum of power back in our hands instead of being totally on the side of employers. There are the headwinds of automation and globalization to contend with, of course, complicating the situation. But if there is less competition for jobs, perhaps colleges will not be able to turn entire generations of Americans into indentured servants. They will lose their role as guardians and tollbooths to a moderately comfortable middle-class life, which would be a positive development, indeed.

This will, of course, be framed as horrible, horrible in the mainstream media, which is owned by major corporations and run for their benefit. Of course, the reason the media will declare this as a very serious threat is precisely because it benefits workers over capital and threatens to raise wages for workers–a process which is so far being fiercely resisted by big business.

There will be urgent and persistent calls for increased immigration in the mainstream corporate media, especially if there is a trend of rising wages. While Trump’s immigration policies are barbaric, if the average American sees the benefits of a tight labor market, Trump will (unfortunately) remain popular. the Left has really shot themselves in the foot by encouraging mass immigration for the past several decades, which decimated what used to be their base of working-class people, as the chart above shows. Instead, they counted on support from a small niche demographic of wealthy, upper-class urban professionals who did not have to compete with immigrants and benefited from the low wages in the service sector.

That came around to bite them. That’s not enough to win. Immigration was a wedge here in the States, and we saw it as a major wedge in the most recent U.K. election which gutted the Labour party. Both ostensibly “leftist” parties paid the price for abandoning their working-class constituencies by embracing the globalism touted by what’s often been termed the “professional managerial class” (PMC).

It should also be noted that recessions generally take a decade to shake out “naturally” that is, without the appropriate Keynesian counter-stimulus. Since the meltdown began in 2008; 2018 would be when we would expect the economy to start recovering in earnest, and this is pretty much what occurred. Again, unfortunately this occurred when Trump was in office. Of course, he’ll tout his tax cuts, but there is zero evidence that this has had any effect besides enriching the donor class. The quality of the new jobs is another matter as well, but that’s for another time.

So natural economic cycles have joined with demographics in the U.S. to encourage a relatively favorable economy for average people, at least for now. Trump will run out in front of the parade and claim he is leading it. The challenge for the rest of us it to ensure that the means of preventing rising wages and worker empowerment employed by corporations will not be effective. That will give us some ability to make things better in the future.

Incidentally, the population rate in the U.S. continues to decline, most likely because the demise of the middle class: US has slowest population growth rate in a century as births decline (The Guardian)

The Legal Nature of Money

Last time we looked at the Book The Code of Capital. The big idea of that book is that what constitutes capital – wealth generating assets – is the way they are encoded by laws. Law is what flips and asset from just another idea or piece of paper into something you can make money off of. And now theoretically anything can be coded as capital – even one’s own labor.

But law is intimately involved in more than just capital. It’s also behind what constitutes money.

We think of money as some neutral thing. But underneath it lies the same system of laws and regulations that creates capital. Certain types of money take precedence over others. Certain types of money have a higher claim on real resources, and those claims are determined by the state via law.

I’ve read about that idea before, but it was reinforced by this podcast with Rohan Grey, an attorney originally from Australia who writes about the money system. Here his is on the essential legal nature of how we order and design our economy and economic transactions:

[10:01] Rohan Grey: “I sometimes think of the scene in The Matrix where he’s kind of looking at everything and [seeing] the the green lines of code [behind everything].”

“Not that I would recommend anybody go to law school, but one of the things that is good about going to law school is that it trains you to see the legal ‘code’ behind almost every issue.”

“You know, you’re walking down the street and you see something, and go, ‘wow, that’s a lawsuit waiting to happen.’ Or you see someone putting up electrical wires, and you think, ‘I wonder who approved the local council ordinance for that to happen this way,’ or something.”

“So there’s just so many different things where, to borrow a line from the poet Rilke, ‘Don’t be confused by the surfaces; in the depths, everything is law.’

And so when you think about what money is, there’s a lot of times where people get hung up on either the physicality of it–whether it’s paper, or a coin, or a blip on a computer screen. They think money is the thing that they can point to, or the thing that they can hold.”

“There are other people who think that, very crudely speaking, money is what money does. If something is a store of value; if something is a medium of exchange, it is money.”

“Whereas, I think what we would say is that money is first and foremost a *relationship*. It’s a statement of social relations between people. And those social relations are structured by law and legal dynamics.”

“To give this an example or analogy, when people talk about what property is–property isn’t the thing…If I had a house, that wouldn’t be my property. My property would be the legal title to the house. And that wouldn’t mean that I suddenly owned the house. It would mean that I had a set of legal rights, and legal claims, against other people.”

“So when we talk about the property right to a house, the first thing that comes to your mind is a house. What we’re really thinking about is the relationship between me, and everyone else in the world, with respect to the house. It’s that web of invisible filaments between me and the state, between me and you, between me and other people who inhabit the house. That web is what the property right is, not the house itself.”

“So, to take that idea to money, it doesn’t matter whether we’re taking about a coin, or a paper note, or an account entry on a balance sheet, or a computer blip on a screen. The essence of money is the legal relationships that are structured between me and other people with respect to some sort of instrument, or some sort of monetary value.”

“And that relationship can be structured in different ways. It can be a form of private credit. So if I ‘owe you one,’ in the kind of broad favor sense, that might not be money. But if I owe you *one dollar*, and you know you can take me to court over that, and then you can take that IOU that I have for you…and give it to somebody else, and that person can take me to court, than that might be money. So something that started off as a sort of personal, informal favor, can become money once it gains certain legal properties.”

“Another kind of money–or the kind of money that the MMT story starts with and thinks is the most central to modern societies where most relationships go beyond the people that you know by name…the dominant form of money is the money that the state issues and says, ‘we will accept this for any legal debt that you owe to us, or to other people.'”

“So the way that MMT boils that down for the average person, is to say, ‘taxes drive the value of government money.’ Out of all the kinds of money that could be out there; out of all the kind of private credit relationships…the most important is the one that the state says will be acceptable for its own IOUs–its own debts to itself: taxes, court judgements, criminal fees and fines, [penalties]–that kind of money has the most wide acceptability because everybody knows that at some point they might incur legal damages. They might be sued. They might have to pay taxes. They might have to pay some sort of fee or fine. And if *they* don’t have to pay, someone else is going to have to pay, which means that if they accumulate some money, at the very least they’re going to be able to offload it to somebody else who needs it.”

…There’s only two things in life that are certain: death and legal liability risk. Even if you think you’re off-grid, even if you’re living in the Canadian wilderness and hunting bison with a bow and arrow…somebody could come along and get in an altercation with you, and the next thing you know you’re getting a court summons because they’ve sued you for hurting them…So it’s almost impossible to image a world where you’re not at risk. Even if you don’t have an *actual* bill from the government due tomorrow, you’re at risk of facing a bill from the government, even if you don’t have to pay taxes.
So that idea that at some point you might find the need to pay some sort of legally-denominated debt means that you–and anybody who is in a similar postion–is going to want to make sure you have access to some of the money that can pay that debt.

Which means that the best way to think about that money…is that it’s a tax credit, or that its a legal credit. And therefore, any instrument–whether it’s virtual or physical–that legally is recognized as being a tax credit, is going to have some degree of money[ness].

In Rohan’s telling, rather than money in the abstract, the fundamental social nature of money is taken into consideration. This is eliminated in standard economics curricula, which assumes everyone to be atomized strangers to everyone else, with no prior dealings.

We saw that even with “primitive money.” Earlier we looked at the essay “Primitive Money” by George Dalton. There we saw that “primitive” money isn’t used so much as a means of exchange for settling spot transactions between strangers, as it is in our culture. Rather, money is used as a means to discharge social obligations between people in a society.

Primitive money performs some of the functions of our own money, but rarely all; the conditions under which supplies are forthcoming are usually different; primitive money is used in some ways ours is not; our money is impersonal and commercial, while primitive money frequently has pedigree and personality, sacred uses, or moral and emotional connotations. Our governmental authorities control the quantity of money, but rarely is this so in primitive economies.

There are a couple of reasons why this is so. For one, there are very few “strangers” in traditional societies. For another, markets are not very important to society. They are tangential places of exchange, but they don’t order social relations, nor are hypothetically “self-adjusting” markets the sole means of resource distribution.

In our society, our social relationships tend to be structured primarily by money transactions in markets. There are exceptions of course—we still have families, after all. We can think of citizenship as another way to structure social relations between people.

But in traditional societies, social relationships are not structured around money. They are structured by other things—usually kinship. Money is simply one of the means of discharging one’s social obligations.

Some common social obligations are weddings and funerals. Bridewealth and dowries are a couple of examples. But delict and crime is another example, and one which which illustrates the social nature of money. In these cases, what constitutes payment will be determined by the authorities, and how much is required for the settlement of various offenses will also be determined by the relevant authorities. Ancient legal codes had a schedule of payments from one group to another based on the offense committed.

Relating to Rohan Grey’s argument above that the necessity of having a means of settlement with the authorities establishes the type of money that is most in demand, in many cultures what constitutes the acceptable means of settlement becomes the first type of money. In some cultures this is cattle; in others it might be shells, or metal coins, or whatever. Things than become priced in whatever that is, and a range of equivalencies are created (5 goats = 1 cow, etc.).

We’ve just abstracted so much that we’ve lost sight of this relationship.

If any means of settlement between two people or groups of people constitutes money, than we have an awful lot of different types of money. How do we differentiate them? The following are taken from a paper by Stephanie Bell entitled “The Hierarchy of Money.

In [G. F.] Knapp’s treatment, all money represents a Chartal means of payment. That is, all money is a ‘ticket’ or ‘pay-token’, which gains validity by proclamation that it will be accepted as a means of payment. These ‘tickets’ or ‘tokens’ which individuals/institutions have proclaimed acceptable as a means of payment do not become money until they have been accepted by another individual/institution.

Going back to Keynes, then, a great number of ‘things’ will answer to the ‘description’ or ‘title’ of money. That is, every plane ticket, pre-paid phone card, movie ticket, subway token, etc. is a form of Chartal money. It will, therefore, be useful to narrow our focus and to proceed with a simplified discussion of ‘the hierarchy’.

This is where the concept of a hierarchy of money comes in. And that hierarchy is once again determined by laws and legal institutions.

..a money’s place within the hierarchy depends on the degree to which it is accepted by society…

…the ‘hierarchy of money’ can be thought of as a multi-tiered pyramid where the tiers represent promises with differing degrees of acceptability. At the apex is the most acceptable or ‘ultimate’ promise. But if all promises are denominated in the same unit of account, why are some deemed more socially acceptable than others? Whose promises will be the most acceptable? And why would anyone agree to hold the relatively less acceptable promises?

The paper than goes on the list the numerous relationships structured by debt, and where they sit on the tier of money. The bottom tier consists of the debts of firms and households. The top tier consists of the debts owed to the state. The reason why the state’s debts rank higher than others is because the means of settlement with the state do not have to be converted into anything else in order to be valid:

To get business and household debts accepted, they might be made convertible into the debt of someone higher in the pyramid and may also require interest payments to compensate for the risk associated with holding less liquid assets…Unlike households and firms, state promises and certain bank promises would be accepted even if they were not convertible into anything else…Likewise, the state’s promises do not depend on convertibility into anything else…Recall that As the ‘decisive’ money of the system, both the state’s promises and banks’ promises rank high among the monies of the hierarchy…the legal obligation to pay taxes and the state’s proclamation that it will accept its own currency at state pay-offices elevate the state’s liabilities to the top of the pyramid, rendering them the promises with the highest degree of acceptability.

It concludes:

In short, not all money is created equal. Although the government, banks, firms and households can create money denominated in the social unit of account, these monies are not considered equally acceptable. Only the state, through its power to make and enforce tax laws, can issue promises that its constituents must accept if they are to avoid penalties. The general acceptability of both state and bank money derives from their usefulness in settling tax and other liabilities to the state.

What makes the capitalist system unique is that the debts between individuals can be monetized—that is converted into the state’s ultimate means of settlement, thus expanding the money supply. Again, this is entirely a creature of law. As Pistor pointed out, the state’s money unit can be used to structure horizontal relationships between individuals, and not just vertical relationships between the citizens and the state:

The test of ‘moneyness’ depends on the satisfaction of both of two conditions. First, the claim or credit is denominated in an abstract money of account. Monetary space is a sovereign space in which economic transactions (debts and prices) are denominated in a money of account. Second, the degree of moneyness is determined by the position of the claim or credit in the hierarchy of acceptability. Money is that which constitutes the means of final payment throughout the entire space defined by the money of account. Pigou’s ‘money’ was ‘proper’ not simply because it was backed by gold, but because the state pronounced the abstract money of account and established its exchange rate with gold.

A further important consideration is the process by which money is produced. Credit relations between members of a giro for the book transfer and settlement of debt were, as Innes observed, extensively used as early as Babylonian banking. However, these credit relations did not involve the creation of new money. In contrast, the capitalist monetary system’s distinctiveness is that it contains a social mechanism by which privately contracted credit relations are routinely ‘monetised’ by the linkages between the state and its creditors, the central bank, and the banking system.

Capitalist ‘credit money’ was the result of the hybridisation of the private mercantile credit instruments (‘near money’ in today’s lexicon) with the sovereign’s coinage, or public credits. The essential element is the construction of myriad private credit relations into a hierarchy of payments headed by the central or public bank which enables lending to create new deposits of ‘money’ – that is the socially valid abstract value that constitutes the means of final payment.

Credit and State Theories of Money by L. Randall Wray et. al., pp. 214-215

This is actually quite important in understanding how money not just as an abstract thing, but a way of social ordering created and reinforced by the state. Thus, you cannot have a market economy without a very specific set of laws and legal institutions established by states. And since the state is intimately involved, it makes no sense to argue that the state should somehow “get out of the way” of the market relations it established in the first place through laws, as libertarians argue for.

The Code of Capital

An interesting book came out earlier this year by law professor Katerina Pistor called The Code of Capital. The book explains in detail the qualities that an asset has to have in order to generate wealth over time, and how the law can bestow such properties on an ordinary asset to turn it into a capital asset.

In other words, capital is coded via law, and a set of private legal institutions have been set up and used for centuries in order to to code certain things into capital. The first asset coded this way was land, but the code has been extended to more and more things over time, and it continues to be expanded.

I think the book is important because the standard libertarian argument relies on a misunderstanding of things like private property, money and capital as being somehow “natural” and a priori to the state.

But in reality, all of these things are created by human institutions, most particularly the state with its monopoly on coercive power. They are than artificial creations designed to arbitrarily privilege some groups over others.

Pistor’s book focuses on capital, and her conclusion is that the institution which creates capital is the legal system. In the book, she attempts to document exactly how this is done. It also has some interesting historical insights into how capitalism emerged out of feudalism with much of the original power relations more-or-less intact.

Capital is an asset that has some potential to generate private wealth. In order to create a capital asset out of an ordinary asset, Pistor argues that you need to do some legal encoding of that asset. This encoding of an asset—grafting onto an asset a particular set of ideas enshrined in the law—is what she refers to as the “code” of capital. The “code of capital” is what flips a simple object, idea, or promise to pay into a wealth-generating capital asset.

Over time, the code of capital has transformed more and more things into income-generating assets. The code was originally developed with respect to land to preserve the wealth of landlords from challenges to their power. Over time, these legal codes have been used to make capital assets out of things like financial instruments, debt and intellectual property.

Pistor argues that you need to encode three out of four of these concepts to flip an ordinary asset into a capital asset. They are:

1. Priority – Having more senior rights to an asset than other people. This is the fundamental rule you need in order to create a capital asset, or even to have private property.

Legal institutions create ranks and prioritize some claims over others. This matters in insolvency, for example, where claims are ranked from strongest to weakest. The strongest claims feed at the trough first, while the weaker “runt” claims get the leftovers, if anything. How those claims are ranked is determined by the law.

Priority rights are the minimum requirement. But to create a capital generating asset, you need more.

2. Durability – If an asset can end up easily on the auction block, the ability to accumulate wealth over time is limited. Durability protects assets and asset pools from too many counterclaims. It extends priority rights in time.

Durability was fist established using the entail in English common law to protect assets from being seized by creditors. See Fee tail (Wikipedia)

3. Universality – Priority and Durability need to be enforced against everyone, not only against the parties with whom you have directly negotiated these interests—erga omnes in the legal terminology.

Universality gives lawyers the ability to create assets that have priority rights that will be universally enforced not just against the contracting parties, but against anybody, whether or not they knew about the arrangement or were parties to the deal. Universality extends priority rights in space.

4. Convertibility – This allows you to not just be able to transfer an asset, but also to flip the asset into another, safer asset if necessary.

This is most obviously comes into play by turning an object into cash. State-issued currency retains its nominal (though not its actual) value. The ability to do this is especially critical in giving financial assets durability. Without being able to “cash out” paper assets, they might lose much, or even all, of their value. As Pistor describes, convertibility was especially critical in turning things like CDOs and other debt-based securities into capital assets.

When these four legal ideas are grafted onto an asset–any asset–it becomes an income-generating asset, that is capital. Any object, promise of payment or idea can be flipped into a capital asset using these legal tools–this “code”

A lot of these were first developed with respect to land, and then were grafted onto other assets: land, farms, debt, firms, know-how, and even data, with data being the most recent and ongoing.

The legal modules to do this have remained fairly stable over time. She enumerates them as: Property law, Contract law, Corporate law, Collateral law, Trust law and sometimes Bankruptcy law, which can mimic features of all the others.

This is also provides a useful definition of what capital is. Obviously, capital is the beating heart of our economic system. Yet, remarkably, people still argue over what it even is!

Marx entitled his masterwork Captial, and placed it at the center of his analysis. Following him, the overall economic system has been termed “capitalism.” But a solid definition of what does and does not constitute capital has remained elusive. Using the above, we might define it as an asset—physical or otherwise—that possesses three out of four legal properties of priority, durability, universality, and convertibility.

Economists often claim that the central factors of production are land labor and capital. But land and labor can be capital. In fact, anything can be capital if it is coded as such. She points out that one’s own labor can be coded as capital by establishing a corporate entity and issuing dividends to yourself as a corporation shareholder in lieu of a salary.

What this demonstrates that the law is intimately involved in the creation of capital.

“What are the functions that law plays? What you need to convert an asset into a capital asset is a credible commitment of enforceability. You want to make sure that you can enforce your rights at some future date in some place, and maybe even in some place outside your own jurisdiction. You need to have the institutionalization of the centralized means of coercion that private parties can use to organize their private affairs so that they can bank on enforceability. At some level, at every stage in the creation of capital and the creation of financial markets, I would say in the creation of markets in general, the state is deeply involved.”

But what do we mean by law? Law is a particular institutionalization of the central state’s coercive powers. Pistor distinguishes three dimensions in which we have institutionalized law:

1. Top-down vertical ordering – the state enforces order among its citizens through a monopoly on coercive violence.

But the flip side of this vertical dimension is that, in rule-of-law based constitutional systems, citizens can also use the law to protect their interests against the state. This aspect is often ignored. Top-up vertical ordering allows private actors to supersede the state; to “tie its hands” as it were.

The centralization of the means of coercion on the one hand, and the allowing of individuals to avail themselves of the legal system to protect their private property rights against the state through civil and political rights, was an enormous institutional revolution.

2. Horizontal ordering – Private parties can employ the coercive properties of the state to organize their own private affairs. This means that private relations can be structured much more forcefully than they otherwise could be by private parties availing themselves of the state’s legal system.

Pistor traces this legal coding all the way back to the thirteenth and fourteenth centuries in England. For whatever reason, England developed a very powerful private legal profession very early on. Wealthy landowners commonly availed themselves of legal services provided by professional attorneys much more often then their continental counterparts. On the continent the legal profession was less empowered. France controlled them in a top-down fashion, and Prussia halved the private legal profession in the eighteenth century because they were seen, correctly, as a threat to state power.

As Pistor depicts it, many of these laws originated for the benefit of the large, aristocratic landlords to, in essence, to preserve the power relations under feudalism. They enshrined these pre-modern, pre-legal, pre-constitutional power relations into law. The lawyers who did this were often descendants of these very same aristocratic landowning families, so its obvious whose side they were really on.

This adds an interesting perspective on the libertarians’ “year zero” problem. They usually argue for a “night watchman” state that only protects private property rights and lets everything else just sort of work itself out. But where do these property rights come from in the first place? Why do some people have priority over others?

Matt Breunig makes this same point:

Perhaps the most interesting thing about libertarian thought is that it has no way of coherently justifying the initial acquisition of property. How does something that was once unowned become owned without nonconsensually destroying others’ liberty? It is impossible. This means that libertarian systems of thought literally cannot get off the ground. They are stuck at time zero of hypothetical history with no way forward.

How Did Private Property Start (Jacobin)

Pistor’s book fills in some of the gaps in that process. It was through law that such priority rights established, and legal decisions usually favored certain stakeholders over others. These decisions can in no way always be said to be “fair.” Rather, she argues that they come from whatever legal arguments happen to carry the day in court.

During the sixteenth-century in England there was a legal dispute over who had better property rights to the land—the landlords or the commoners. Who had priority rights over the commons, the peasants or the aristocracy?

The commons was an area where multiple, overlapping stakeholders had multiple, overlapping claims, and those claims were balanced against one another for centuries by traditional customs without written legal precedent determining ownership. So whose claims would take priority if one side defected, and whose claims would be downgraded, or even dismissed?

At first, this dispute was conducted in a decentralized fashion in hundreds of sporadic conflicts all up and down the British Isles. The landlords attempted to assert their rights over the commons. The commoners rebelled. There was violence, breaking fences, and digging hedges. The “Diggers” were so-named because they dug under the fences and hedgerows planted by landlords to mark their territory.

Eventually, these disputes wound up in the courts. The attorneys—by and large children of the nobility—argued on behalf of the landlords. The landlords won. The argument that carried the day in the court was seniority—the landlords had the stronger claims to the land because their rights took precedent. In essence, they were there first. Another strike against commoners is that they were not organized into a single, coherent corporate entity, so unlike the landowner, they could not assert collective rights. They were simply seen as numerous private individuals by the courts. More recent scholarship has shown that by the early seventeenth century, already two-thirds of arable land in England had been enclosed even before the major Enclosure Acts were passed.

These decisions gave the landlords priority rights. But you also needed to have shielding devices to create sustainable value.

To this end, the landed elite in England learned how to entail their land to preserve it down through time. Lawyers took a page from feudal law and argued that the contracts that potential creditors had entered into were with the “life tenant” rather than the person who gained the profit off the land. The life tenant, however, was not the real owner, they said—he only holds the asset for future generations. Under the feudal law, this meant that you could only seize 50 percent of the land, and never the family mansion.

Entailment gave English landlords durability. When the land was no longer able to generate sufficient revenue thanks to the repeal of the Corn Laws and the flooding of the market with cheap grain, the landlords could shield themselves from creditors and keep land in the family. This caused a debtor crisis by the mid-nineteenth century. In 1881 the English courts declared that the the life tenant was the true owner and therefore creditors could seize all of the land. After the Land Settlement Act and the Land Conveyance Act were passed, almost 20 percent of land changed hands. The repeal of durability greatly affected the value of land as a capital asset.

When England started seizing lands from aboriginal peoples all over the world, obviously the “they were here first” argument wouldn’t hold water. So the attorneys switched up their arguments to improvement and discovery. Improvement is the argument made by John Locke, i.e. you combine your labor with the land to make it productive, so that gives you ownership rights to the land. Discovery is a sovereign territorial claim. It boils down to, essentially, “finders keepers.”

Note that this is the inverse of the priority rights that were argued during the enclosure movement. Under the feudal system, it was by-and-large the labor of the commoners that brought forth the fruits of the land. Yet back then, this gave them no special claims to ownership! Landlords had some legal and administrative duties back during the feudal era, but the Crown (i.e. the state) had largely taken over those functions by the time these disputes showed up in the courts. Thus, landlords contributed very little labor to the land, and yet they claimed exclusive ownership rights over it, and won in court!

And, of course, how does the labor theory of property apply to a financial asset?

In other words, what justifies one’s claim to an asset appears to be whatever the apologists for those with power argue it should be. And that obviously favors those already with the power.

Pistor highlights the fight by the indigenous Maya to encode their collective use rights as property rights in the Supreme Court of Belize. The constitution of Belize—as most constitutions do—says that property rights will be protected. But it does not define what counts as property—it simply assumes it. The supreme court of Belize eventually recognized the priority claims to the ancestral lands by the indigenous Maya. But what they didn’t do was use the state’s coercive power to back up those claims. Instead, Mayan land continued to be bought and sold by outsiders.

In telling this story, Pistor’s core point is this: what we recognize and what we do not recognize as property is a political decision that we make. In making these decisions the state tends to favor the rights of those who will generate more wealth for the state.

Since the end of the nineteenth century in Britain, we’ve shifted from protecting the landowners and their capital to protecting the credit claimants. By elevating creditor claims above all other claims, we have allowed financialization to occur. This has subsequently engendered all the “exotic” financial instruments based on debt that we see circulating today.

Pistor goes into detail about how these legal coding techniques were used to turn exotic financial instruments into capital assets via law. In doing so, the features of durability, universality, and convertibility became paramount in turning paper claims into capital assets. In fact, it was in trying to understanding the exotic financial instruments underlying the global financial crisis that she discovered the code of capital. For example, the “code” allowed the mortgage debts of millions of ordinary homeowners were turned into capital assets that could be traded and used for wealth generation. Her arguments here are fairly complex, so if interested you should look further into the book.

An important point she makes is that land and other tangible, usable objects are still usable in a certain way even without any legal coding. You can grow crops on land. You can drive a tractor. You can milk a cow.

However, intellectual property rights and financial assets only exist in law. These are entirely creations of the law.

And so, she notes, we’ve created a legal system where we create brand new assets ex nihilo through the law, and then further enhance these assets with the additional attributes of priority, durability, universality, and convertibility to turn them into wealth-generating assets. Of course, this benefits certain people over others.

Finally, she addresses the issue of universality. Private law is domestic law, but we live in a global capitalist system. And so how can you have domestic law sustaining a system of global capitalism when we don’t have a global state?

Pistor argues that as long as all global states choose to recognize the features of a specific legal system, you can, in theory, have legal universality even without a single, global legal system. For financial capitalism, the legal systems that currently serve this purpose are the laws of England, the state of New York, and Delaware for corporate law. Thus globalization turns out to be a very parochial system of coding rooted in just two legal systems! This gives Anglo-Saxon firms a legal advantage in crafting these types of assets, including financial assets. The world’s largest and most powerful law firms are all headquartered in Anglo-Saxon countries, where most of the legal coding work is done.

“The globalization of legal practice which is the very foundation of our global capitalist system is ultimately a globalization of Anglo-Saxon, particularly American legal practices.”

What started centuries ago in land has been extended to corporations, to financial assets, to intellectual property rights, to data, and potentially to many more things. As she notes, even exotic things like DNA are being eyed as potential capital assets.

As a result, citizens of various states increasingly feel as if they’ve lost control of their own domestic destiny. With everything around them being rapidly turned into capital assets for international markets left and right, they feel helpless. They feel that collective self-governance has fallen by the wayside under this system. Pistor points out that Brexit was rooted in the idea that the people have lost their legal sovereignty. She argues that this perception was essentially correct, but it was not really a takeover by Brussels (the EU headquarters) but more accurately a takeover by London.

The Code of Capital illustrates that the neofeudal order that is coalescing today is not some inevitable force of nature, but an imposition of a specific legal code on all of us to turn the entire world into capital assets owned and traded by an international oligarchy of wealth, while local communities are steadily hollowed out. It is the endgame of global capitalism; the final gutting of civil society. Despite the assertion of neoliberals and libertarians, there is nothing “natural” about it. It is blatantly obvious for whom the state’s monopoly on coercive violence is now serving, and its not the citizens of the world’s various counties, but a transnational investor elite.

Ive taken the above information from YouTube talks and interviews given by professor Pistor.

Talk at the Watson Institute: https://www.youtube.com/watch?v=m81pkJs5fcY

Talk in Brussels: https://www.youtube.com/watch?v=UwsJhnOmebM

Majority Report interview: https://youtu.be/yArlk9a–ck

Book review from the London School of Economics

Is Socialism Contrary to Human Nature?

In a recent column, philosophy professor Ben Burgis takes on the idea that socialism is “unnatural”, that is, somehow contrary to basic human nature:

…one of the most persistent claims of socialism’s critics…is the idea that socialism is not just impractical or even immoral but unnatural. Economist and libertarian social critic Murray Rothbard, for example, entitled a book of his essays Egalitarianism as a Revolt Against Nature. Psychology professor and science popularizer Steven Pinker breezily asserts in The Blank Slate: The Modern Denial of Human Nature that “socialism and communism…run against our selfish natures.”

The grim view of human nature painted by these critics has roots as fresh as evolutionary psychology and as ancient as the doctrine of original sin. It’s been used to motivate arguments against socialism not just by libertarians like Rothbard, neoliberal centrists like Pinker, or various right-wing critics of progressivism … but even by someone as firmly “on the left” as The Young Turks (TYT) host Cenk Uygur. When a C-SPAN caller asked Uygur about Marxism, he flatly stated that, “Human nature does not work the way that communists want it to work.” In some versions of this critique, the point is generalized from human nature to nature in general…

Socialism and Human Nature (Arc Magazine)

Burgis goes on to debunk many of these criticisms, but I’d like to take them on from a different perspective. I’d like to use some of the historical and anthropological works we’ve looked at over the past few years. To do that, we need to take a look at some of the history of thought on this issue.

Fundamentally the question being asked here is, what is human nature? To some extent, this is an impossible question to answer. As Chris Ryan writes in Civilized To Death, “To ask ‘What is human nature?’ is like asking ‘What’s the natural state of [water]?’ So much depends on conditions. Liquid, solid, gas—temperature and pressure make all the difference.” (p. 120)

While the question of human nature may be impossible to answer definitively, let’s take a trip through the beginnings of anthropology and sociology to see if we can at least shed a little light on it. This will help us to determine whether or not human nature—so far as we can determine what it is—is fundamentally incompatible with socialist ideals of liberty, solidarity and collective ownership, as mainstream economists assert.

The Father of Anthropology.

We could start with Lewis Henry Morgan. He was an attorney and senator who lived in upstate New York in the nineteenth century. At this point in history, the Native American tribes, although decimated by disease and territorial expansion, still had remnants of their original social structure intact. Morgan became adopted into the Seneca tribe, which was part of what has come down to us as the Iroquois League (although they obviously did not call themselves that). He studied their social organization from a scientific/intellectual perspective. It was one of the first attempts by a Western-European based culture to understand other cultures rather than just obliterate them.

Morgan traveled around the western United States investigating the kinship relations of various Native American tribes. For tribes further afield, he sent questionnaires to missionaries who were living with tribal cultures on other continents.

Morgan is considered to be “the father of anthropology” for his discovery that the primordial form of human social organization was not solitary, contractual or territorial, as many Enlightenment philosophers had believed, but based on kinship; that is, descent from a common ancestor, whether real or imagined. The social arrangement based around this concept was called the tribe: “Tribes were the initial social structures human created to further their survival.” (1)

The flexibility of this arrangement stems from three features. First, if you traced your lineage further back in time to a more remote ancestor, then you could enlarge the circle of kinship. Thus, even disparate tribes could be conjoined if they had a more remote ancestor in common (again, real or imaginary—often times imaginary). Second, non-blood relatives could be “adopted” into an extended family to increase the size of the tribe, as Morgan had been. Such adoption would determine their social roles. This is called fictive kinship by anthropologists. Third was the joining of previously unrelated people through the marriage partnership, called affinal relationships. The children of such a union share the genetics of both their mother and father’s families, and therefore both families are invested in the offspring’s future and become interrelated even though they were not before (what we call in-laws in English, a rather bizarre term, as laws are usually a stand-in for kinship). As Robin Dunbar notes, marriage is not about the parent’s families; it’s about the children. Through affinity, families could be joined, recombined, and enlarged. Marriage was also a major source of political alliances until relatively modern times, even in Western Europe.

The other thing of note was that kinship was not at all uniform–whom one regarded as a parent, sibling, cousin, or other relative varied greatly across tribal cultures. For example, in the Iroquois culture, one’s mother was not just one’s biological mother, but all of her sisters as well (whom we would call aunts). Similarly, one’s father was not only one’s biological father, but also all of his brothers (whom we would call uncles). In many cultures, those whom we would call cousins were regarded no differently than our brothers and sisters, with the same terms being used for both. In some cultures, one’s biological father and his family were not even considered to be related to you at all—only your mother’s relatives were! In these cultures, the major male figure in your life would be your mother’s brother instead of your biological father. In many cultures, parallel cousins (children from a parent’s same-sex sibling) were considered your relatives, but cross cousins (from an opposite-sex sibling) were not.

Such kinship relations organized the tribe’s entire social structure. They defined one’s rights, duties, debts and obligations relative to the rest of the tribe. They also dictated whom one could and could not marry (e.g. one’s cross-cousin, but not one’s sibling, with parallel cousins often being considered siblings). Relationships were defined by status–older over younger, men (in some aspects) over women, husbands over wives, parents over children, brothers over cousins, kinsmen over strangers. etc. As later writers would put it, social relations were primarily status-based rather than contract-based (whether the contract was written or implied). Government-citizen; employer-employee; business partner, and even husband-wife relationships were examples of contract-based relationships in European societies (since marriage could be dissolved and was primarily concerned with legal matters such as inheritance).

All of this was more important than geography, which did not matter at all. You could live right next door to someone and, if they were not a part of your tribe, then you had no obligatory social relationships with them. There was no such notion as “citizenship” based on living in a common circumscribed territory, or under the same nominal government. Plus, many tribes throughout history were nomadic, and thus they could not have based their shared identity on any particular piece of land or territory. Of course, in practice, most people did live closest to their tribes and kinsmen, muddying the issue.

The notion of a social contract was equally problematic. Written contracts could not work, since most tribal cultures did not use writing. And the notion of an implied contract would be impossible without a shared cultural heritage (particularly language and religion), which only existed among members of the same tribe to begin with.

And so, it was clear from the evidence that kinship was the universal and primordial form of human social organization, with all others being later inventions, sometimes much later inventions. Such arrangements had been preserved in cultures all over the world even up until Morgan’s time (the late 1800’s), and still exist in remote places all over the world today.

Morgan wrote a book about his discovery called Systems of Consanguinity and Affinity of the Human Family. He then followed it up with his best-known work, Ancient Society, in which he outlined the basic structures along which he believed all ancient societies around the world had been constituted.

Morgan’s book was hampered by its depiction of societies progressing through definite stages from Savagery to Barbarism to Civilization. Aside from the derogatory connotations of these terms, the very notion of all cultures passing through a predictable series of stages has been soundly rejected by modern anthropologists, as has the notion of some societies being more “highly evolved” than others (although this is enjoying a recrudescence thanks to the Alt-right). Social development does not have a direction, up, down or otherwise. In Morgan’s defense, however, nearly all scholars in the nineteenth century framed their arguments as a sequence of stages, probably influenced by biological evolution. This mistaken notion colored the thinking of scholars in all sorts of disciplines regardless of their political views until deep into the twentieth century.

Despite this drawback, the core of Morgan’s work—his argument that consanguineal kinship formed the basis of human social organization, with all other arrangements following later—has proven basically correct. Subsequent anthropology was built on this foundation, even if rejected some of Morgan’s other claims.

Dunbar’s Number and fractals

If we accept that kinship and tribes were the primordial form of human social organization, is there a way of knowing the size of those tribes? In other words, apropos of our discussion of kinship groupings, is there a “natural” size of social organization?

Although Morgan didn’t know it at the time, subsequent research has come up with an answer. The evolutionary psychologist Robin Dunbar had the idea that the size of the neocortex relative to the rest of the brain was roughly correlated to group size in social animals. From this, he calculated that the “mean group size” of humans would be around 148 people, often rounded up to 150. This has been called “Dunbar’s Number” in his honor. Another group of researchers arrived at a larger number, around 290 (with a median of 231)—the Bernard/Kilworth number.

Furthermore, there are a series of widening “concentric circles” of social relations, with each having a different relation to an individual. Again, this is due to the cognitive limits in the human brain.

According to the theory, the tightest circle has just five people – loved ones. That’s followed by successive layers of 15 (good friends), 50 (friends), 150 (meaningful contacts), 500 (acquaintances) and 1500 (people you can recognise). People migrate in and out of these layers, but the idea is that space has to be carved out for any new entrants.

Dunbar’s number: Why we can only maintain 150 relationships (BBC Future)

Even though the numbers differ on the amount of close, personal relationships we can maintain, we can see that there is a definite upward limit on that number. It is not 500. It is not 1,000, or 10,000, and certainly not a million. This means that there is a “natural” size limit for human social groups, based on our evolutionary heritage.

Dunbar’s number is found all throughout human social groupings, from the size of military units, to the size of Mennonite villages, to the size of small businesses, to the length of people’s Christmas card lists (back when people still did that). And while Iroquois villages could be as large as several thousand people, the longhouse—the center of village life—tended to hold between 20-90 people, consisting of several matrilineal families, each with their own space. The longest one ever excavated could hold 180 people.

According to Dunbar and many researchers he influenced, this rule of 150 remains true for early hunter-gatherer societies as well as a surprising array of modern groupings: offices, communes, factories, residential campsites, military organisations, 11th Century English villages, even Christmas card lists. Exceed 150, and a network is unlikely to last long or cohere well.

Dunbar’s number: Why we can only maintain 150 relationships (BBC Future)

Human social organization also appears to be fractal. Again, Morgan could not have known this, since the concept of fractals was only described by mathematician Benoit Mandelbrot in 1975. A fractal is a geometric figure where each part has the same statistical character as the whole. That is, self-similar patterns occurring at progressively larger and smaller scales.

The recursive (or fractal) nature of human social organization allows it to scale up and down as needed, presumably based around the Dunbar number, above. Thus, the structure of the family is basically the same as that of the clan, which is basically the same as that of the tribe, which is the same as that of the nation, which is the same as that of the confederacy; repeating the same basic structure at progressively larger scales. Another way of describing this structure is recursive, much like Russian Matryoshka dolls nesting inside each other.

Incidentally, only humans seem to capable of doing this. Even our closest animal relatives—chimpanzees and bonobos—despite being gregarious and highly social animals, cannot accomplish this sort of flexible social scaling. Language is an example of another recursive structure unique to humans, which also plays a social grooming and bonding role.

Numerous scholars in the nineteenth century noted that In the age of monarchy, rulers would commonly depict themselves as benevolent fathers, with their subjects as the children, and the kingdom being a kind of large-scale family. Even in the twentieth century, dictators who ruled over millions of people like Joseph Stalin and Mao Zedong often depicted themselves as benevolent uncles.

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So, now we’ve limned at least a little bit of what human nature might look like. It’s based on kinship—whether real or fictive—and based around social groupings of no greater than perhaps 150-250 close relationships (what has been humorously termed the monkeysphere), repeated on progressively larger and larger scales, creating a sort of nested group of widening social circles, with different social relationships inside each circle.

By contrast, living in larger, denser environments surrounded mostly by strangers has been sometimes referred to as a Behavioral Sink. This is based on John C. Calhoun’s studies of mouse behavior in overcrowded and highly stressful environments.

The Iroquois

Morgan’s work had a huge impact in Europe, and he was cited by scholars as diverse as Charles Darwin, Sigmund Freud, and Karl Marx.

It’s that last one that especially concerns us given our topic of conversation. Morgan wrote several papers on the Iroquois system of economic organization, as well as describing it in Ancient Society.

However, it is important to note that social, economic and political relationships were not typically separated from each other in tribal cultures–all were interwoven. This characteristic of early economies was referred to by economic historian Karl Polanyi as embeddedness. Embeddedness refers to the degree that “economic” behavior (for individual pecuniary gain) is constrained by non-economic factors, whether political, religious, or social. Status in most Native American societies, for example, was not conferred by wealth, and the hoarding of wealth would have been impossible due to social pressures. In some Native American cultures (notably the Pacific Northwest), social status was conferred by giving away acquired wealth in elaborate ceremonies (potlatch). Would-be chiefs would compete to see who could give away the most, and hence gain the most prestige.

The Iroquois longhouses previously mentioned were home to several matrilineal clans–people related to each other on their mother’s side. Because of their matrilineal nature, the longhouses were collectively managed by the matriarchs (eldest women) of each clan (the Clan Mothers), who formed a Clan Mothers Council. No one went without shelter.

Iroquois villages had a system of communal land distribution–all land was owned in common by the entire village and parceled out to various clans and families to cultivate. Clans had usufructary rights, meaning they had rights to the produce generated from land that they farmed collectively, but they had no permanent ownership claims over the land itself. So long as produce was being cultivated on it, an individual or clan had rights to the plot. Once a plot was no longer cultivated, it reverted to the collective ownership of the tribe, to be redistributed as needed by the Clan Mothers Council. Thus, when land was “sold” to Europeans, the Iroquois had no understanding that they had given up rights to it permanently (hence the pejorative term, “Indian givers”). Land was considered sacred, and thus could not “belong” to any single person or family.

Agriculture was based around the “three sisters”–corn, beans and squash. Plows were not used; agriculture was slash-and burn (swidden), meaning that new plots were cleared each growing season, and worked with hoes. If useful farmland around the village became depleted, the village had to move to another location (another reason social relations could not be based around land).

Work was performed cooperatively. There was a typical gendered division of labor, with women responsible for child-rearing, planting, cultivating and harvesting crops; while men did hunting fishing, trading, building and forest management. The majority of the tribe’s goods were produced by the women. No money was used–economic exchange was conducted as a gift-based economy.

The produce of the village was stored in collective granaries in the longhouse, which each clan had access to as needed. Everyone had as much as they needed, and no one starved or went hungry.

As for political leadership, Iroquois tribes were not completely egalitarian, but were led by a sachem, what we might crudely refer to as a chief. But, critically, the office of sachem was conferred to an individual by members of the tribe via collective deliberation, and could be rescinded at any time if the sachem failed to perform adequately. And—most critically of all—the office of sachem was not hereditary. A sachem’s family did not have any special claim on the office, and it was not passed down from father to offspring, as was monarchy in Europe. Nor did the sachem have special claim to excessive wealth far greater than that of other members of his tribe.

Sachems could not issue orders or command other people to do things. They could not exert control over other members of the tribe, like a European king or dictator, or a capitalist boss or executive. There was no permanent, standing army or police force among the Iroquois, so there was no way of enforcing any orders by the sachem or anybody else. Every member of the tribe was free to do as he or she pleased, bound only by the requirements of kinship and social convention.

Among the Iroquois league, decisions were made collectively by the various representatives of the tribes, with no one tribe being able to strongarm the other ones. Here is a good description from testimony before the bureau of Indian Affairs given by one Cephas A. Watt (2):

The CHAIRMAN. Mr. Watt, you stated that you weren’t one of the regular chiefs. How are the regular chiefs selected here among the Indians?
Mr. WATT. They are elected by the clan.
The CHAIRMAN. Elected by the clan. Explain what you mean by that.
Mr. WATT. They have the clan system. There are eight clans.
The CHARIMAN. Among the Senecas?
Mr. WATT. Among the Senecas; and there are four on each side of the house, you see. The four clans here do not intermarry, which is their general rule, ad they have to go over to the other four clans to select their mates; and those clans, or clan mothers appoint the chiefs, that is, the oldest woman in the clan appoints him. Of course, these clans all follow their mother’s side, it doesn’t make any difference what the father might be–he might be a Japanese, but so long as he has an Indian mother the children are legitimate Senecas, and they share in all the usual privileges. So they select some of the clan whom you might say is “a good Indian” of the clan, as their chief. There might be 25 in that clan, and they select on of them as chief.
The CHAIRMAN. By whom is he selected; by the clan itself, or by the clan mother, you say?
Mr. WATT. Yes; by the clan mother. Of course, they all have to agree.
The CHAIRMAN. But the selection is made by the clan mother?
Mr. WATT. Yes. And then they are confirmed by the Six Nations chief, and the head chief of the Six Nations.
Mr. HARRISON. But you have to have a condolence meeting of your clan, don’t you?
Mr, WATT. Yes, they have a condolence ceremony, where they are lectures by the chiefs; admonished to be good.
Senator WHEELER. Do they always follow the admonition that they get?
Mr. WATT. Well. some of them do, but when they see that the chief himself is not living up to the requirements as to his character it is different.
The CHAIRMAN. What is the term of office of these regular chiefs?
Mr. WATT. It is supposed to be for life. That is, it is for as long as he is of–
Senator WHEELER interposing. Good behavior.
Mr. WATT. Yes.
The CHAIRMAN. And if the chief dies or resigns, a new meeting is held and a new chief is selected?
Mr. WATT. A new meeting is held an a new chief is selected.
The CHAIRMAN. I understood you to say that you were a chief of come kind here. How did you get your title of “chief”?
Mr. WATT. I haven’t been through the condolence ceremony yet, but I have been appointed by my clan mother and I have been elected, and it holds good until a condolence ceremony is held.
The CHAIRMAN. What clan do you belong to?
Mr. WATT. I don’t just understand, but I think I belong to the Heron clan.
Senator WHEELER. That is a fish clan?
Mr. WATT. Long-legged bird.

Ancient Law and Primitive Property

Now, the obvious objection to this is: sure, that’s fine for bunch of “primitive” savages running around the forests of North America, but what’s all that got to do with Europe?

It’s here where a few other scholars come into the mix. One of them based his experiences not on the natives of North America, but on India (the actual Indians).

Sir Henry Sumner Maine was a judge, legislator and legal scholar who had spent many years in British India. There he noted that Indian law was profoundly different than that of England. In India, the laws were based around something he called the “Joint Undivided Village” or the “Joint Undivided Family” which was headed by the eldest male clansman, who exercised “despotic” control over the whole family. Laws had little to do with individual behavior, contracts, or inheritance, because these were not relevant to village society.

From his studies of the legal codes of the ancient Romans, the ancient Germanic laws which had been transcribed (such as the Salic Law), and the laws of ancient Ireland (the Brehon Laws), Maine concluded that these ancient law codes could only be properly understood by the realization that these societies had all been constituted along the same basic lines as the Indian villages he had witnessed! From this he concluded that the basic unit of ancient societies was not the individual, but the extended family (ie. House or Clan):

The Family then is the type of an archaic society in all the modifications which it was capable of assuming; but the family here spoken of is not exactly the family as understood by a modern. In order to reach the ancient conception we must give to our modern ideas an important extension and an important limitation. We must look on the family as constantly enlarged by the absorption of strangers within its circle, and we must try to regard the fiction of adoption as so closely simulating the reality of kinship that neither law nor opinion makes the slightest difference between a real and an adoptive connection.

On the other hand, the persons theoretically amalgamated into a family by their common descent are practically held together by common obedience to their highest living ascendant, the father, grandfather, or great-grandfather. The patriarchal authority of a chieftain is as necessary an ingredient in the notion of the family group as the fact (or assumed fact) of its having sprung from his loins; and hence we must understand that if there be any persons who, however truly included in the brotherhood by virtue of their blood-relationship, have nevertheless de facto withdrawn themselves from the empire of its ruler, they are always, in the beginnings of law, considered as lost to the family.

It is this patriarchal aggregate—the modern family thus cut down on one side and extended on the other—which meets us on the threshold of primitive jurisprudence. Older probably than the State, the Tribe, and the House, it left traces of itself on private law long after the House and the Tribe had been forgotten, and long after consanguinity had ceased to be associated with the composition of States. It will be found to have stamped itself on all the great departments of jurisprudence, and may be detected, I think, as the true source of many of their most important and most durable characteristics. At the outset, the peculiarities of law in its most ancient state lead us irresistibly to the conclusion that it took precisely the same view of the family group which is taken of individual men by the systems of rights and duties now prevalent throughout Europe.

The Ancient Greeks and Romans, the Celts, the Germans, the Slavs—each and every one had begun as a collection of village communities where kinship defined the overall social structure and all major resources—except for minor chattels—had been owned and held in common.

In other words, very similar to what Morgan described of the Iroquois.

Maine describes a progression from the Joint Undivided Family, to the House Community, to the Village Community (his terms). At each stage, property becomes less communal and more alienable:

…The group which I have placed at the head, the Hindu Joint Family, is really a body of kinsmen, the natural and adoptive descendants of a known ancestor…so long as it lasts, it has a legal corporate existence, and exhibits, in the most perfect state, that community of proprietary enjoyment which has been so often observed…in cultivating societies of archaic type…

The House-Community, which comes next in the order of development, has been examined by M. de Laveleye, and by Mr. Patterson, in Croatia, Dalmatia, and Illyria…These House-Communities seem to me to be simply the Joint Family of the Hindus, allowed to expand itself without hindrance and settled for ages on the land. All the chief characteristics of the Hindu institution are here—the common home and common table, which are always in theory the centre of Hindu family life; the collective enjoyment of property and its administration by an elected manager.

Nevertheless, many instructive changes have begun which show how such a group modifies itself in time. The community is a community of kinsmen; but, though the common ancestry is probably to a great extent real, the tradition has become weak enough to admit of considerable artificiality being introduced into the association, as it is found at any given moment, through the absorption of strangers from outside. Meantime, the land tends to become the true basis of the group; it is recognised as of preeminent importance to its vitality, and it remains common property, while private ownership is allowed to show itself in moveables and cattle.

In the true Village-Community, the common dwelling and common table which belong alike to the Joint Family and to the House-Community, are no longer to be found. The village itself is an assemblage of houses, contained indeed within narrow limits, but composed of separate dwellings, each jealously guarded from the intrusion of a neighbour. The village lands are no longer the collective property of the community; the arable lands have been divided between the various households; the pasture lands have been partially divided; only the waste remains in common.

Thus, Maine came to the conclusion that, “We have the strongest reason for thinking that property once belonged not to individuals nor even to isolated families, but to larger societies composed on the patriarchal model;” and that “by far the most important passage in the history of Private Property is its gradual elimination from the co-ownership of kinsmen.” In addition, transfers of land were never between individuals, but between groups, and so it was far more ceremonious than the mere signing of a contract: “As the contracts and conveyances known to ancient law are contracts and conveyances to which not single individuals, but organised companies of men, are parties, they are in the highest degree ceremonious…” He found evidence of this all over Europe:

…the mode of transition from ancient to modern ownerships, obscure at best, would have been infinitely obscurer if several distinguishable forms of Village Communities had not been discovered and examined…

The chiefs of the ruder Highland clans used, it is said, to dole out food to the heads of the households under their jurisdiction at the very shortest intervals, and sometimes day by day. A periodical distribution is also made to the Sclavonian villagers of the Austrian and Turkish provinces by the elders of their body, but then it is a distribution once for all of the total produce of the year. In the Russian villages, however, the substance of the property ceases to be looked upon as indivisible, and separate proprietary claims are allowed freely to grow up, but then the progress of separation is peremptorily arrested after it has continued a certain time. In India, not only is there no indivisibility of the common fund, but separate proprietorship in parts of it may be indefinitely prolonged and may branch out into any number of derivative ownerships, the de facto partition of the stock being, however, checked by inveterate usage, and by the rule against the admission of strangers without the consent of the brotherhood.

It is not of course intended to insist that these different forms of the Village Community represent distinct stages in a process of transmutation which has been everywhere accomplished in the same manner. But, though the evidence does not warrant our going so far as this, it renders less presumptuous the conjecture that private property, in the shape in which we know it, was chiefly formed by the gradual disentanglement of the separate rights of individuals from the blended rights of a community.

Our studies in the Law of Persons seemed to show us the Family expanding into the Agnatic group of kinsmen, then the Agnatic group dissolving into separate households; lastly the household supplanted by the individual; and it is now suggested that each step in the change corresponds to an analogous alteration in the nature of Ownership.

Many remnants of this arrangement remained even in Maine’s own time. It could be seen even in Western Europe, particularly in a region called Ditmarsh, and also in Switzerland where all land was communally owned by the canton, and the cantons were united in a larger Swiss federation (similar in many ways to the Iroquois league), with no one canton being in charge of all the others. And the Swiss, like the Iroquois, had no standing army.

But the most pervasive examples came from outside Western Europe. Eastern Europe preserved such communities in something closer to their original form. Maine refers to such villages in Sclavonia and Dalmatia (what is today Croatia) and in Russia. He also refers to communities farther afield in India, the Middle East, and Java (modern day Indonesia).

The naturally organised, self-existing, Village-Community can no longer be claimed as an institution specially characteristic of the Aryan races. M. de Laveleye, following Dutch authorities, has described these communities as they are found in Java; and M. Renan has discovered them among the obscurer Semitic tribes in Northern Africa. But, wherever they have been examined, the extant examples of the group suggest the same theory of its origin [as] the Germanic village-community or Mark; ‘This lowest political unit was at first, here (i. e. in England) as elsewhere, formed of men bound together by a tie of kindred, in its first estate natural, in a later stage either of kindred natural or artificial.’

In the end, such village communities were supplanted by the feudal system in Europe. Capitalism developed out of this feudal system:

The Manor or Fief was a social group wholly based upon the possession of land…At this point the notion of common kinship has been entirely lost. The link between Lord and Vassal produced by Commendation is of quite a different kind from that produced by Consanguinity…there would have been no deadlier insult to the lord than to attribute to him a common origin with the great bulk of his tenants. Language still retains a tinge of the hatred and contempt with which the higher members of the feudal groups regarded the lower…There is, in fact, little to choose between villain, churl, miscreant, and boor.

The break-up of the feudal group, far advanced in most European countries, and complete in France and England, has brought us to the state of society in which we live. To write its course and causes would be to re-write most of modern history, economical as well as political…

Maine’s investigations were taken up by others, most notably the Belgian political economist Émile de Laveleye, who wrote a book about the subject called Primitive Property (De la Proprieté et de ses Formes Primitives). In it, he documented copious examples from every corner of the globe confirming that property was at first held in common, and only gradually did it fall under the exclusive ownership of individual families. Then, only much later does it proceed to belong to single, solitary individuals, who then claim “absolute” rights over it in perpetuity, and this process progressed the furthest in the Anglo-Saxon countries. From the introduction to Laveleye’s work by T. E. C. Leslie:

Sir Henry Maine in his lectures at the Middle Temple was, I believe, the first to lay down with respect to landed property the general proposition, afterwards repeated in his Ancient Law, that “property once belonged not to individuals, nor even to isolated families, but to larger societies.”…Sir Henry Maine’s residence for several years in India, had enabled him to collect fresh evidence from existing forms of [Hindu] property and social organization, in support of his original doctrine, that the collective ownership of the soil by communities larger than families, but held together by ties of blood or adoption, was in eastern as well as in western countries the primitive form of the ownership of the soil…To the evidence previously collected by Sir H. Maine and the Danish and German scholars already referred to, [Lavaleye] has added proofs gathered from almost every part of the globe. Ancient Greece and Rome, Medieval France, Switzerland, the Netherlands, Russia, the southern Slav countries, Java, China, part of Africa, Central America, and Peru, are among the regions laid under contribution…

The preponderance of evidence was that, in every corner of the globe, it was not private property, but collective property, that was the primordial form of resource ownership. This has been further confirmed by studies of foraging groups, among whom private property is virtually unknown.

Marx and Engels believed from such evidence that primitive societies were universally matrilineal and matriarchal (a state they called, following an earlier scholar called Bachofen, the Mutterecht, or Mother-right). It was only after societies switched to a patriarchal model, they asserted, that the communal ownership of property became overthrown by individual patriarchal families:

…this revolution – one of the most decisive ever experienced by humanity – could take place without disturbing a single one of the living members of a gens. All could remain as they were. A simple decree sufficed that in the future the offspring of the male members should remain within the gens, but that of the female should be excluded by being transferred to the gens of her father. The reckoning of descent on the female line and the matriarchal law of inheritance were thereby overthrown, and the male line of descent and the paternal law of inheritance were substituted for them.

As to how and when this revolution took place among civilized peoples, we have no knowledge. It falls entirely within prehistoric times. But that it did take place is more than sufficiently proved by the abundant traces of mother-right which have been collected, particularly by Bachofen. How easily it can be accomplished can be seen in a whole series of American Indian tribes, where it has only recently taken place and is still taking place under the influence, partly of increasing wealth and a changed mode of life (transference from forest to prairie), and partly of the moral pressure of civilization and missionaries…

Today, anthropologists tend to regard this as far too simplistic. Not all societies passed through these stages, and looking for universal stages common to all societies is futile. Each case is unique. However, there is a good argument to be made that this is a reasonable description of the progression of societies now broadly classified as Indo-European, which includes much of Europe and India, as well as those of Semitic origin—including most of the ancient Near East.

Subsequent scholarship, by Michael Hudson especially, has shown that rather than surplus-generating activities originating with individual self-starting “entrepreneurs”, such activities began in the public (temple) sector for the benefit of the community. Furthermore, non-commercial debts owed to the public sector were periodically annulled in “debt jubilees” and forfeited land was frequently returned and redistributed.

Hudson counters that [Greece and Rome]…are not actually where our financial system began, and that capitalism did not evolve from bartering, as its ideologues assert. Rather, it devolved from a more functional, sophisticated, egalitarian credit system that was sustained for two millennia in ancient Mesopotamia (now parts of Iraq, Turkey, Kuwait and Iran). Money, banking, accounting and modern business enterprise originated not with gold and private trade, but in the public sector of Sumer’s palaces and temples in the third century B.C. Because it involved credit issued by the local government rather than private loans of gold, bad debts could be periodically forgiven rather than compounding until they took the whole system down, a critical feature that allowed for its remarkable longevity.

The Key to a Sustainable Economy Is 5,000 Years Old (Truthdig)

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I think you can understand from the above why Marx was so intrigued by the accounts of the Iroquois League in Morgan’s work. The Iroquois nation was a living, breathing example of “primitive communism” in action. Marx took extensive notes on Morgan’s work. After his death, Friedrich Engels organized the notes and published them as The Origin of the Family, Private Property, and the State.

Subsequent scholarship in the late nineteenth century had confirmed that arrangements like those of the Iroquois were not the exception, but seemingly the norm all over the entire world, including Western Europe, which had begun as numerous tribal societies during the fall of the Western Roman Empire.

Thus, the idea that money and absolute private property were permanent, universal, and necessary features of the human condition was clearly contradicted by such accounts. If someone asked for an actual example of communism in action, here was something Marx and his followers could point to as an example of something very much like they were advocating to replace capitalism: collective ownership of the means of production, with economic and political decisions being made by collective deliberation among equals, cooperative labor, and everyone having access to the collective store of what was produced by the whole society. Inheritance was not bequeathed to individual offspring; rather essential resources were redistributed as needed. And leaders were elected and served for as long as they were seen to be able to perform their duties ethically. They could not pass down wealth and titles to their offspring in perpetuity (but their offspring could occupy the same office if the public so desired).

Unless one were to argue that the Iroquois and their culture were somehow unnatural, it would be impossible to deny such a thing was at least, in theory, possible. And if it was possible, the question became how best to make it happen, not whether such a thing could even exist, or whether it was somehow against human nature. As Marx and Engels concluded in Origin:

…once the gens is given as the social unit, we also see how the whole constitution of gentes, phratries, and tribes is almost necessarily bound to develop from this unit, because the development is natural. Gens, phratry, and tribe are all groups of different degrees of consanguinity, each self-contained and ordering it own affairs, but each supplementing the other. And the affairs which fall within their sphere comprise all the public affairs of barbarians of the lower stage.

When we find a people with the gens as their social unit, we may therefore also look for an organization of the tribe similar to that here described; and when there are adequate sources, as in the case of the Greeks and the Romans, we shall not only find it, but we shall also be able to convince ourselves that where the sources fail us, comparison with the American social constitution helps us over the most difficult doubts and riddles.

And a wonderful constitution it is, this gentile constitution, in all its childlike simplicity! No soldiers, no gendarmes or police, no nobles, kings, regents prefects, or judges, no prisons, no lawsuits – and everything takes its orderly course. All quarrels and disputes are settled by the whole of the community affected, by the gens or the tribe, or by the gentes among themselves; only as an extreme and exceptional measure is blood revenge threatened-and our capital punishment is nothing but blood revenge in a civilized form, with all the advantages and drawbacks of civilization.

Although there were many more matters to be settled in common than today – the household is maintained by a number of families in common, and is communistic, the land belongs to the tribe, only the small gardens are allotted provisionally to the households – yet there is not need for even a trace of our complicated administrative apparatus with all its ramifications. The decisions are taken by those concerned, and in most cases everything has been already settled by the custom of centuries. There cannot be any poor or needy – the communal household and the gens know their responsibilities toward the old, the sick, and those disabled in war. All are equal and free – the women included. There is no place yet for slaves, nor, as a rule, for the subjugation of other tribes…And what men and women such a society breeds is proved by the administration inspired in all white people who have come into contact with unspoiled Indians, by the personal dignity, uprightness, strength of character, and courage of these barbarians. p. 52

It’s also worth noting that humans have a capacity for sharing and cooperation as well as well as self-aggrandizing greed, as Burgis notes:

The usual socialist response to what I will call the Human Nature Argument is to question the truth of the premise. Where anti-socialists play up our capacity for selfishness, our cruelty, and our tendency to arrange ourselves into dominance hierarchies, socialists usually emphasize our capacity for cooperation, compassion, and solidarity. So, for example, in G. A. Cohen’s Why Not Socialism? we’re asked to wonder why society shouldn’t be able to function like a camping trip, where families share equipment and resources and whatever else they individually brought, rather than assert their exclusive use over those goods.

Socialism and Human Nature (Arc Magazine)

As we’ve seen, that’s pretty much how humans functioned for most of history. Most transactions are—by their very nature—communistic, as anthropologist David Graeber has often pointed out: When we are working on a project and ask our coworker to hand us a hammer from the toolbox, he doesn’t immediately turn around and ask ‘and what are you going to pay me for it?’.

In fact, as he also points out, corporations themselves are islands of communism floating in a sea of capitalism. I’ve worked for many corporations, and when I ask for a pen from the collective storeroom, I usually I get one. I don’t have to pay to put my food in the refrigerator. I don’t pay the electric bill for my individual computer or telephone. And when I ask a coworker to help me out with something, I don’t have to give him or her money over and above whatever he or she is being paid to be there. Thus, a corporation functions much like the “joint family” or household Maine described.

Similarly, while people do often have a tendency to be greedy and selfish, the degree to which we let them indulge in those impulses is entirely socially determined. Capitalism argues that the rich “deserve” their spoils, and that their hoarding behavior and lust for power will make us all better off in the long run due to the Invisible Hand. That view is getting harder and harder to justify with each passing year, especially as growth slows due to planetary (and other) limits. As Christopher Boehm argues in Hierarchy in the Forest, foragers practice a kind of “reverse dominance hierarchy” designed to keep the arrogant and greedy in check. As he put it, “In short…an apparent absence of hierarchy was the result of followers’ dominating their leaders rather than vice versa…an egalitarian relation between followers and their leader is deliberately made to happen by collectively assertive followers.” (3)

To bring up yet another nineteenth century scholar who hasn’t been mentioned yet, Piotr Kropotkin was a Russian writer of minor nobility who is associated with anarchism. Trained as a biologist, he expected to find a brutal “struggle for survival” everywhere in nature, as he had been taught by the followers of Darwin. Instead, everywhere he looked, he found cooperation to far more pervasive than competition in the realm of biological life:

Kropotkin expected to see the brutal dog-eat-dog world of Darwinian competition. He searched high and low—but nothing. “I failed to find, although I was eagerly looking for it,” Kropotkin wrote, “that bitter struggle for the means of existence, among animals belonging to the same species, which was considered by most Darwinists (though not always by Darwin himself) as the dominant characteristic of the struggle for life, and the main factor of evolution.”

Instead he saw mutual aid—everywhere. “In all these scenes of animal life which passed before my eyes,” Kropotkin wrote, “I saw Mutual Aid and Mutual Support carried on to an extent which made me suspect in it a feature of the greatest importance for the maintenance of life, the preservation of each species and its further evolution.”

And it wasn’t just in animals. The peasants in the villages he visited were constantly helping one another in their fight against the brutal environment of Siberia. What’s more, he noted a correlation between the extent of mutual aid displayed in a peasant village and the distance of that village from the hand of government. It was just as the anarchists had suggested. “I lost in Siberia,” he wrote, “whatever faith in state discipline I had cherished before. I was prepared to become an anarchist.”

The Russian Anarchist Prince Who Challenged Evolution (Slate)

Another example of humans voluntarily cooperating in extreme circumstances is given by Rececca Solnit’s book, A Paradise Built in Hell.

And so, it is very strange indeed that evolutionary biology and psychology have come to be associated with the reactionary right and wielded as weapons in their favor. That human’s evolved tendencies favor Right-wing ideals is a topsy-turvy inversion of what has historically been the nature of the arguments about what is closest to human nature.

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So the idea that communism is somehow uniquely “unnatural” is a very recent one, and not really consistent with the findings of anthropology. The people most closely studying primitive societies in the nineteenth century were the socialists, anarchists, Marxists, and similar philosophies, not the “Classical Liberals” or capitalists. It’s pretty clear from Adam Smith’s writing that, although he did an outstanding job describing the English mercantile economy of his own day, his historical knowledge was nonexistent. Even what little was known about primitive economies (for example, from accounts of Native Americans) was ignored by Smith, who instead used inductive reasoning to arrive as his incorrect account of primitive barter economies (which anthropologists universally acknowledge never existed). Even today, evolutionary biologists who promote the virtues of Neoliberalism (such as Steven Pinker) deride their intellectual opponents as “Marxists” (or, in the case of Jordan Peterson, as “Post-modern Neo-Marxists”).

When it comes to studying human nature, it was the socialist/anarchist Left, not the laissez-faire Classical Liberals, who were diving into the anthropological literature and grappling with it. In those days, the “human nature” argument was far more associated with the socialist Left than the apostles of capitalist Progress. Far from being unnatural, Marxists would have seen their ideas as conforming to a more natural, egalitarian social order that had been usurped, first by kings and priests, and then by greedy capitalist bosses.

The opponents of socialism and communism, by contrast, had to argue against earlier and more “natural” forms of human social organization being superior to the commercial capitalism of their day. In these cases, primitive societies—presumably comporting far more closely with evolved human nature—were considered to be inferior and poor examples to emulate—commercial Capitalism and markets were simply a “higher” and “more evolved” form of social organization, they asserted.

Really, according to all the evidence, it is capitalism that is unnatural.

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Now, the real argument against the information above isn’t that it is unnatural. It is this: ideas about how our ancestors lived in small, horticultural communities surrounded by kith and kin centuries or millennia ago are not applicable to modern industrial societies with global trade networks and millions of unrelated strangers interacting on a daily basis.

That’s true, but notice that the argument has been completely flipped on its head! It’s not that socialism is unnatural, it’s that it is incompatible with the unnatural environment we find ourselves in today.

And that’s a very different argument. By this standard, everything about our current way of life is unnatural, and appeals to evolutionary biology and psychology to justify the status quo are deeply flawed from the start.

Not only that, as Burgis points out, proponents of socialism are more concerned with ideas surrounding such mundane issues as ownership, legal rights, wealth and property distribution, and so forth, and it would be preposterous to claim that there is some “natural” form of any of these things that we can discern from a study of evolutionary biology. All of those things are, to one degree or another, recent artifices necessary for modern society to function. Being artifices, we can arrange them as we wish. Evolution—whatever it supposedly decrees—is no impediment.

Even if Pinker and Uygur did have a reasonable objection to a specific vision of socialism put forward by Marx, how is this is supposed to generalize into what Pinker breezily lumps together as “socialism and communism” in general? If “from each…to each” is unrealistic, it hardly follows that public ownership of the means of production is intrinsically unrealistic.

Let’s assume for the sake of argument that Marx was wrong to think that the combination of automation and collective ownership of machines would one day make it unnecessary for human butchers, brewers, and bakers to continue to be given material incentives to produce our dinners. I would argue that we can have socialism and incentives. It’s unlikely that workers in a democratic economy would feel the need to incentivize anyone by paying them 287 times what others were paid — the average pay differential between workers and CEOs last year in the United States — but this doesn’t mean they’d settle on completely flat pay scales either. If anything, they might reverse some of the inequalities we’re accustomed to under capitalism.

Socialism and Human Nature (Arc Magazine)

Perhaps the most basic argument against the fact that the kind of capitalism we’re living under now is somehow compatible with basic human nature is that fact that we’re so disturbed by the current levels of hyper-inequality. When we see the excesses of the super-rich, or how poor people are being taken advantage of, we get angry (those of us who aren’t Libertarians or Neoliberals, anyway). The current levels of anger and frustration at the grotesque levels of inequality present in modern societies should serve as proof that there is nothing “natural” about our current arrangement from an evolutionary standpoint.

Add to that the fact that high levels of inequality are correlated with social instability and pathologies like depression and suicide. Whatever its statistical flaws, the book The Spirit Level does make a good case that high inequality isn’t healthy for societies. And Marx was hardly the first to point this out. From the Gracchi brothers, to Wat Tyler and John Ball, to the Diggers, there has always been resistance to extreme wealth inequality. After all, no one gets disturbed about too much generosity or too much sharing, or a dearth of depression and suicide. Even Thomas Jefferson was disturbed by inequality:

The general spread of the light of science has already laid open to every view the palpable truth, that the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of God. These are grounds of hope for others…

Ultimately, one could argue that our modern way of life, whatever our political beliefs—capitalism, libertarianism, communism, socialism, anarchism, or whatever—is contrary to human nature, no matter who owns the means of production or how we organize work and leadership. But that’s a whole other can of worms…

(1) The Psychology of Patriotism, The Shepherd Express, July 02, 2019.
(2) Source (Google Books)
(3) Christopher Boehm, et. al., Egalitarian Behavior and Reverse Dominance Hierarchy (PDF)