Adam Smith Did Not 'Start' Capitalism

Benny Zwartz, reports in the Age (Melbourne: theage.co.au): here

"The Religious Write: ‘Off to market’ (6 August) about Samuel Gregg, now a high-flyer with the Acton Institute, a free-market think tank in the United States, who wrote a new book, “Catholic Social Teaching and the Market Economy”, which gets ‘in some solid blows against both the economic teaching of Catholic bishops and the interventionist welfare state’.

‘Gregg notes that the church thought through many issues of capitalism long before Adam Smith. Most people think capitalism began with Smith and his 1776 book The Wealth of Nations, but everything in it had been said before, much of it by Jesuits in 16th century Spain confronted with the explosion of commerce from the New World, he says’."Merchants were asking theologians, 'can I charge interest?' 'How do I judge what's a fair price?' Capitalism began in the medieval period in northern Italy, Flanders and parts of Spain. That's when Western civilisation really took off.'

‘Gregg says most Christian leaders of all persuasions know little of this history. So the book is designed to teach that history and present an alternative view of economic theory, to start a conversation where the church at present is engaged in a monologue.

He suggests that there is considerable room for difference about economic theory within Christianity. Some think the best way to help the poor is a large welfare state, others argue for a minimal safety net with the rest done by civil institutions such as the church and trade unions. "When we think about morality and economic questions, we can't ignore the evidence of economic science. The greatest poverty-reducing machine in history is the market economy.'

Comment
Samuel Gregg is pushing two themes in his book. One is that ‘capitalism’ was noticed among Jesuit in the 16th century (when Spain was importing inflation in the form of stolen gold from its American conquests) and that ‘capitalism’ had developed in medieval times. The other (not reported in this posting) that Christian theology recognises that the market is ‘the greatest poverty-reducing machine in history’.

Gregg’s first assertion is less credible than the second. It all comes down to a recognition of what we mean by ‘capitalism’, a word not invented until 1854 to deal with the unique situation of substantial flows of finance capital from the early years of the industrial revolution. Words can obstruct understanding as well as liberate it. In the history of economics, several schools overlap with ideological preferences for words.

Adam Smith designated the appearance of the ‘commercial’ age as occurring in classical Rome and Greece, with the appearance of trade in the Mediterranean area, which was brought to an end in Western Europe by the fall of Rome (5th century) and a reversion to agriculture in various forms, first warlords and then feudal lords.

The Eastern Empire continued for several centuries, but commerce, as it had been in the Western Empire, was a relatively small part of the economy. With the slow revival of commerce from the 15th century, technological progress and basic science, gradually created conditions in which commerce became self-sustaining as a source of growth up through the 18th century, and in the 19th century emerged into what we call capitalism.

For Smith the ‘age of commerce’ was about markets, distant trade and the slow accumulation of capital. Others (example Professor Silver) traced commerce further back that Roman antiquity into activities in Egypt, Syria, Babylon in the Near East, coincidentally, which had been where the ‘age of agriculture’ first appeared from 8,000-11,000 years ago.

Thus, Greg is being ‘a bit previous’ (as the say in London) when he asserts that ‘capitalism began with Smith and his 1776 book The Wealth of Nations’. That is absurd; no book creates a social phenomenon. If Smith had become a preacher, as his mother intended, instead of a moral philosopher, the commercial age would have continued whether he or anybody else noticed. And, incidentally, Smith never used the word ‘capitalism’ in anything he wrote, nor did any of his contemporaries, because it had not yet emerged.

As an example of ideology leading scholars to miss-name phenomena, we have the writings of Karl Polanyi (mid-20th century) who argued strongly that there were no markets, never mind capitalist markets, until the mid-19th century. He steadfastly denied that markets had existed in Roman antiquity – something that denies the evidence of, for instance, the common use of coinage in something as mundane as the pay of the Imperial armies and in everyday transactions for household provisions. What else was coinage for? Polanyi’s theories were close to Marxian and he denied the existence of markets before capitalism for reasons that I find unsatisfactory. You may see if you agree with his argument in: Karl Polanyi [1944] 2001, The Great Transformation: the political and economic origins of our time, Beacon Press, Boston.

The Jesuits in 16th century Spain, as other Christian writers had before then, found a need to answer certain questions about money, interest, usury, and profits precisely because, with the slow revival of commerce from the thousand year interregnum after the fall of Rome, there was a pastoral need among their flocks for guidance in the re-appearance of coinage, financial contracts, and debt management.

The inflow of stolen gold into Spain and Portugal spilled over into a flood of inflation across Western Europe; it didn’t do much for the labouring poor, or indeed the commercial rich, of the Iberian peninsular, it was not used to develop their economies, or begin the transformation of their economies. What was absent was the technology that arrived two centuries or more later, but not in Spain or Portugal, nor their colonies, under the thraldom of fundamentalist Catholic Christianity, complete with its version of the Taliban in the Jesuits order who stifled the necessary secular Enlightenment that occurred in the rest of Europe to the North.

What Adam Smith wrote about in his appreciation of the rise of the commercial age was unique. He didn’t anticipate capitalism, nor ‘found’ it. He wasn’t peddling an ideology, nor anything like one. He was a philosopher, whose task he said in his ‘History of Astronomy’ essay, was to ‘do nothing, but observe everything’, which he carried out admirably in his works.