Written by
Keith Hart
[Summary: The two centuries since the industrial revolution are a blink of the eye of world history, yet we are trapped in a perspective shaped by the daily news in one of its national fragments. Our ‘experts’ don’t try to grasp this period as we lurch into another global crisis that threatens life on this planet like the last century’s crisis did.
I focus here on the escalating dominance money has exercised over society in this process. I do not demonize money: we are trapped in limbo between the failure of the last century’s dominant social form, ‘national capitalism’, and a world society that does not yet exist. Economic transactions from the world market to the local shops are already running on money. Reforming monetary institutions will be indispensable to rebuilding society on a more inclusive scale before time runs out on us.
I locate money’s growing dominance within a framework of political history since the industrial revolution around 1800. The first stage was when peasants moved to work for urban wages on an unprecedented scale. The second was launched by the birth of ‘national capitalism in the mid-nineteenth century. This launched the second stage in mid-century, leading to a bureaucratic revolution and mass production and consumption by its close.
Two world wars and the anti-colonial revolution in the last century made the nation- state seem so inevitable that most people can’t imagine society in another form. Yet this is failing now due to neoliberal globalization and its discontents. A counter-revolution against postwar social democracy and socialism around 1980 has subjugated society to market fundamentalism, just as it was in the Gilded Age before 1914.
After the Cold War, plutocracy in the form of a lawless global money circuit was liberated from its remaining shackles. Today’s system of government by and for the rich was freed from its remaining shackles then. The relationship between money and power has moved in two centuries from conflict through compromise to their despotic merger now, with capitalism and autocracy variably dominant.
I offer links to some relevant writings posted online if readers want to follow up the argument of this sketch. The history of economic thought has addressed the questions I raise here with variable success. In the current world crisis, we need to do better.]
Introduction
Society operates through money today at all levels from the world market to the local shops. In 1800 less than three percent of humanity lived in cities and animals, plants, and human beings themselves supplied most of the energy. Humanity is stumbling into another planetary crisis, following the last century’s similar experience in its middle decades. In 1870, international trade counted for only one percent of what we would now call GNP and even in Britain the weather at harvest time was still the most reliable indicator of its level that year.
In this brief historical sketch, I seek to identify the key stages since the industrial revolution until the leading capitalist societies reached the situation now when financial imperatives have taken over all spheres of social life, both public and personal, that were less dependent on to the money’s social dominance before. This development is now so blatant that a neologism had to be found, and a seven-syllable world was coined—‘financialization’ (Epstein 2005).
If we want to understand the mess the world is in now, we should develop a historical framework long enough to help us figure out how we got here and perhaps what to do next before the roof falls in. In broad terms, the leading countries of the last century were launched by political revolutions in the 1960s and early 70s that reversed the capitalists’ victory over the old regime of traditional enforcers around 1800. A new and disposition was arrived at in mid- century in all of them—Britain, the United States, Russia, France, Germany, Japan, and Italy— based on an uneasy alliance of the two classes, with the aristocratic military landowners taking responsibility for crowd control in government.
I call this ‘national capitalism’ and it became the conventional form of society in the last century thanks mainly to two world wars and the anti-colonial revolution. It forged a strong combination of nation-states and industrial capitalism (increasingly organized by large business corporations) that underwrote expansion of their colonial empires, until the good times failed in 1914 and remained awful until 1945.
A counter-revolution against post-war developmental states—that took in the industrial West, the Soviet bloc and the former colonies was led by Reagan and Thatcher in 1979-80, when neoliberal globalization was launched. After the Cold War, plutocracy in the form of a lawless global money circuit was liberated from its remaining shackles. Today’s system of global political economy by and for the rich was established then. The relationship between money and power moved in more than two from conflict through compromise to their despotic merger now, with capitalism and autocracy variably dominant.
We must chart money’s rise against this backdrop. The first stage was the industrial revolution, when peasants and other oppressed rural workers exchanged non-market production and consumption for urban wage labor. Markets expanded rapidly to accommodate their need to pay for food, clothing, stimulants, housing, and transport, most of which were homemade until then. The birth of national capitalism launched the second stage in mid-century leading to a bureaucratic revolution and mass production and consumption by its close.
‘Financialization’ today, when money’s control of society is ever more blatant, is thus the culmination of a process lasting more than two centuries. What follows will deal with now and the previous century in greater detail than before. We should keep in mind, however, when asking if what is happening now recalls the 1930s, that they were the culmination of revolutionary change 70 years before, itself a response to the contradictions of industrial capitalism launched half a century before that. The history of economic thought has addressed the questions I raise here with variable success. In the current world crisis, we need to do better.
Finally, a note on some of my other writings of that fill out this essay’s abbreviated argument. An illustrated compilation of my writings on money, markets and technology can be found here. My latest reflection on this theme is a serialized essay (Introduction and seven parts), Money and markets after capitalism. A single file with notes and many more references can be found in my Academia profile. For a review of the recent anthropological literature, see the anthropology of money and finance (Hart and Ortiz 2014). Self in the World (Hart 2022) partly addresses themes discussed here. Two earlier books are also relevant: The Memory Bank: Money in an unequal world (Hart 2000) and The Hit Man’s Dilemma: Or business personal and impersonal (Hart 2005). A broader essay than this sketch is Capitalism and our moment in the history of money (Hart 2017).
The‘natural ’illusion of private property
This reflection is written in the shadow of an ongoing financial crisis begun in 2008 by the mania to bundle housing loans into impersonal financial instruments traded in global markets (M. Lewis 2010; A Mackay 2015). The early years of this decade have unleashed developments whose consequences are unknowable: the covid pandemic, with all the political and economic turmoil it generated, was followed by the end of a fake credit boom lasting four decades and the return of a major war to Europe, with unfathomable economic disruptions to a world economy now in the grip of the first global debt crisis.
For three decades after the end of the Cold War, the West’s rulers went to sleep, buying the absurd premise that financial accumulation was the only social problem. No longer. The money circuit has run out of control and a creditor class has taken over governments, neglecting issues of security and the threat of war. Public discussion of credit is largely monopolized by Western economists, lawyers, bankers, and high-end journalists whose perspective on our world is narrow and, as I will show, misleading. The contradictions of contemporary finance are often sold as development solutions by international organizations run by the same class of Western professionals that gave us the subprime catastrophe.
People’s homes are among the most deeply personal aspects of human experience; and this tends to be omitted by depersonalized models of the economy. But there are much wider issues at stake crying out for a joined-up historical analysis. I sketch here a history of financialization in the leading capitalist countries since the Industrial Revolution. My thinking on this question was formed by studying Africa in the field half a century ago, followed by development consultancies, university teaching and reading widely ever since.
Mainstream economists would have us believe that individuals exchanging private property, first without money and later through it, is an original component of human nature. Let us pass over the fact that private property law was only independently invented by the Romans, Chinese, and possibly the Aztecs in the first millennium CE (Hicks 1968). This perspective privileges ‘spot contracts’—buyer and seller exchange cash for a good or service at one time and each has private disposal of what they have received. But large parts of the economy rest on transactions in which giving and receiving are separated in time. Even spot contracts have a time dimension if credit is involved and in common law if the item is faulty. Have you ever wondered why in a wage contract you get paid after you have done the work, but in a rental contract you pay before you occupy the premises? These contracts reflect the social inequality of buyers and sellers in employment and housing.
Gifts must not be reciprocated on the spot (Mauss 2016 [1925]), but by far the most important transactions with time built into them are credit-debt relationships. There are wide national variations in how money is conceived. The French and Germans consider money to be debt, an obligation, while the Anglophones conceive of money as credit, something for nothing, at least for now. Money-lending with interest is the oldest form of capitalism, followed by trade— buying cheap to sell dear. Neither involves production directly.
Capitalists go it alone, but soon need help from the traditional enforcers
Buying and selling human labor on a large-scale is much more recent than usury and trade; it has been the dominant economic form for only some 150 years. This was the first and crucial financialization when peasants, serfs, and slaves, who before supplied most of their needs outside markets, moved to industrial cities and worked for wages. Now they had to buy food, clothing, accommodation, transport, and stimulants, all of which were homemade before. This expansion of the market boosted modern economic growth, but often caused destruction of existing society.
Industrial wages were so meagre that contemporary economists measured their value by the price of corn. We now know that the early industrial cities supported many informal market and non-market activities; but the economists did not notice them. Capitalists sought to displace the military landlord aristocracy from power and assumed that workers would identify with their interests. They were out to prove that when profit replaced rent as a political economy’s staple, it would grow. This is known as the bourgeois revolution (Hart 2017).
Fast forward to the mid-nineteenth century when machine production had pulled many workers into the industrial centers and criminal gangs had taken over large swathes of the main cities. Capitalists needed to enforce their contracts so that workers would work on time and buyers would pay for what they bought. Both workers and consumers were organizing in large collectives; Karl Marx and Friedrich Engels, in their Communist Manifesto (2020 [1848]), saw this as an opportunity for the working class to turn the tables on their bosses, since private ownership was inherently anarchic and could not organize society.
The capitalists now saw that they could not enforce contracts alone; they needed governments, police, prisons, even armies, especially when their project went global as colonial empires. They made an alliance with the landlords, whose speciality was fighting and crowd control, in a series of political revolutions of the 1860s and early 1870s aiming to subdue the workers and tame the gangs. This coincided with a technological revolution (continental railroads, steamships, and the telegraph).
These revolutions took place in the countries that later dominated the last century—the United States (civil war), Italy (Risorgimento), Russia (abolition of serfdom), Britain (second Reform Act, Anglo-Indian superstate), Japan (Meiji restoration), Germany (unification and Franco-Prussian war), and France (Third Republic). The world seemed to be unified then. But in most countries international trade accounted for less than 1 percent of GNP, and in Britain the weather at harvest time was still the best indicator of the national economy’s level (W.A. Lewis 1978). I call what became the main social form of the last century ‘national capitalism’—the attempt to control money, markets, and accumulation through central bureaucracy in the interest of a fictitious citizen body. Its rise, stagnation and fall in 2020-24 is the most inclusive historical framework for understanding the world crisis today (Hart 2024).
Georg W. F. Hegel first envisaged national capitalism in The Philosophy of Right (2005 [1821]). He saw that capitalism broke up the traditional isolation of rural communities and brought cheap goods to the masses; but it also generated poverty and mindless work, while exporting the unemployed to the colonies. Industrial capitalism made strong national societies possible, but the state should manage its downside. University-trained professionals would manage this process through public bureaucracies devoted to the national interest. His strategy led to four decades of financial imperialism after the mid-century political revolutions, ending in the First World War.
I know of only one work of fiction that addresses national capitalism’s violent origins, Martin Scorsese’s movie, The Gangs of New York (2002, from Asbury 1927). In the Manhattan of 1863, Union soldiers’ coffins line the dockside, poor Irish immigrants compete with runaway slaves for the lowest paid jobs, Tammany Hall corruption is rife, and Protestant and Catholic gangs fight for territory. A conscription order is issued requiring $300 to buy exemption. The poor invade districts occupied by the rich; the army shoots into crowds; and the United States’ first urban race riot kills about a hundred negroes. The Union navy shells South Manhattan where gangs rule. The film ends by fading into the modern high-rise landscape of today, minus the World Trade Center which fell the previous year.
As Hegel proposed, the late nineteenth century saw a bureaucratic revolution. Governments and business corporations maintained their alliance and granted the latter the same legal status as individual citizens, while they retained limited liability for debt, unlike human citizens (Hartmann 2002). International and rural-urban migration fueled mass production and consumption. This was the second stage of financialization. Around 1900, the world was divided into high-wage and low-wage zones conceived of as a racial hierarchy, and the former’s consumers bought a lot more than corn.
Friendly societies (Smelser 1959) spawned building societies, cooperatives, labor unions, mutual insurance, and working-class political parties (Stedman Jones 1973). Funeral clubs became life insurance, Pricing the Priceless Child (Zelizer 1985). Markets and money now penetrated social life as never before. I recall “the man from the Prudential” cycling to our house in the 1950s, his trousers in clips and a satchel on his shoulder, to take pennies from my mother toward a hedge against the costs of death. ‘Mortgage’ in Old French means a bet on death, so the idea is old enough. Incidentally, Old English plejian meant both ‘play’ and ‘pledge’—for the English (and the Chinese) a game was not worth playing without a bet on the outcome.
Governments learned in the Great War that they could raise and kill off huge armies, control production and market prices, and monopolize propaganda. Disruptions of world trade, transport, and communications turned economies inward, and national capitalism dominated the ensuing century. When “the second thirty years war” of 1914–1945 ended (Churchill [1948] 2005), a world revolution took place. Developmental states in the industrial West, the Soviet bloc, and countries seeking independence from colonial rule were committed to reduce inequality, expand public services, and increase working families’ spending power. Nation- states and international organizations regulated capital flows, exchange rates were fixed, and the United Nations and Bretton Woods institutions moderated the global excesses of racist capitalism.
This was national capitalism’s heyday, and it lasted until the early 1970s. The world economy boomed as never before or since. Richard Nixon, shortly before his downfall, said “We are all Keynesians now.” Hegel was not given credit for his brainchild’s postwar success.
(…to be continued)
