The wealth of nations. Capitalism, far from being natural and inevitable, can only be created through political intervention. But that doesn't mean we can uninvent it, writes Edward Skidelsky

The origin of capitalism

Ellen Meiksins Wood <em>Monthly Review Press, 138pp, £13</em>

ISBN 158

This little book on the origin of capitalism is an ingenious attempt by a Marxist historian to salvage something from the wreckage of communism. According to the conventional Marxist formula, feudalism gives way to capitalism and capitalism to communism. The whole process unfolds with a kind of dialectical necessity. No one believes any longer in the inevitability of communism; what has survived is a belief in the inevitability of capitalism. So Marxists must change tack and become voluntarists, believers in free will, not determinism.

Capitalism, argues Ellen Meiksins Wood, is not inevitable. It is a historical accident. And if it is an accident, it can be undone. Socialism - and Wood is not too explicit about what this amounts to - remains a possibi-lity. Wood's picture of capitalism owes more to the non-Marxist historian Karl Polanyi than it does to the Marxist tradition. In his classic The Great Transformation, Polanyi attacked the view that capitalism is merely an extension of the age-old human practice of exchanging goods for mutual advantage. Instead, he discerned a radical discontinuity between traditional forms of commerce and modern capitalism. In pre-capitalist societies, he argued, economic relations are "embedded" in non-economic activities - customary, religious or political. When two tribesmen exchange gifts they are not thinking simply of profit; they are cementing a friendship or a political alliance. The banquets that punctuate traditional village life are not simply a way of getting rid of surplus produce; they are also a way of propitiating the gods or binding the community. In all such cases, the economic motive is inextricably bound up with other, non-economic motives.

Capitalism can only arise once this economic element has been separated out. It requires the creation of an autonomous "economic realm", free from the control of custom, religion and politics, in which the motive of individual profit can operate unhindered. Far from being natural or inevitable, this is a highly unnatural state of affairs. Its establishment requires an act of political intervention, and its maintenance requires continual discipline, both legal and psychological.

Wood accuses other economic historians, Marxist as well as classical, of anachronism. They assume, she writes, that the profit motive is basic to human nature and that capitalism is the natural condition of humanity. This forces them to account for its late emergence in terms of various "barriers" and "blockages". Capitalism, by implication, is what is left when the various obstacles to it have been removed.

This view is often associated with the claim that merchants are a naturally capitalist class and that the triumph of capitalism over feudalism is the triumph of merchants over nobility. This was the view of Karl Marx. Capitalism, he wrote, grew up in the "interstices of feudalism", in the medieval trading towns, until it "burst asunder" its feudal fetters. But if one accepts Polanyi's view that capitalism is not a continuation of traditional commerce, then there is no reason to look for its origin in the towns or among the merchant class. It arises wherever an economic sphere is distinguished from the spheres of kinship, custom, politics and religion. Wood herself finds its origin in the improving landowners of 17th and 18th-century England, with their policy of abrogating customary privileges in favour of defined property rights.

Wood attributes the view that capitalism is natural and inevitable to mainstream classical economics. She is wrong. This jejune view of capitalism was briefly in fashion in the early 1990s, mainly as a result of the collapse of the Soviet bloc, but the masters of classical economics have never been guilty of espousing it.

Adam Smith held that human beings have a "natural propensity to truck, barter and exchange". He did not think this natural propensity sufficient in itself to explain the rise of commercial civilisation. The division of labour - the main engine of growth in Smith's economics - has nothing natural about it; indeed, it entails a narrowing of man's natural creative powers. And the natural propensity to trade will be frustrated continually, unless government intervenes to prevent it, by the tendency of producers to band together in price-fixing. "People of the same trade seldom meet together," writes Smith, "but the conversation ends in a conspiracy against the public."

Friedrich Hayek, whose classic, The Road to Serfdom, has been reissued by the Institute of Economic Affairs, held a similar opinion on the unnaturalness of free-market capitalism. Most people, he maintained, are simply not intelligent enough to understand the underlying mechanisms of the free market, and so it will always have to be protected - if necessary by constitutional laws - against calls for its abolition.

The views of Smith and Hayek have been confirmed by the recent fiasco in Russia. After the collapse of communism, many economists, both in Russia and in the west, expected capitalism to arise pristine from under the rubble. All that was required was to liberate the "natural propensity to truck, barter and exchange" from its communist fetters. As we know, this has not happened. What has emerged bears more resemblance to Polanyi's pre-capitalist society. Economic relations, far from being liberated, are submerged in social and political ties. Russians even have a special word - blat - for this network of informal economic ties.

In retrospect, the failure of capitalism should have been no surprise. A debased feudalism, not capitalism, is all we should have expected to spring from the debris of a vanquished empire. Capitalism requires an additional effort of political will, an effort that - partly because it wasn't thought necessary - was never made.

So Wood is right to insist that capitalism is "the late and localised product of very specific historical conditions". But the conclusion she draws from this - that an alternative is available - is invalid. Her error is ultimately logical; it consists in the confusion of two distinct kinds of modality. It is possible that capitalism might never have come into existence. But having come into existence, it is no longer possible for us to renounce it. Things that are not necessary in and of themselves may become necessary once they have been established. One can make a similar observation in relation to modern science: it might never have been invented, but having been invented it cannot be uninvented. In both capitalism and science, mankind discovers and proves a new power - the power to change his natural and social environment according to his will. Realms of life that previously lay under the ban of custom or religion are suddenly opened up to manipulation. We might regret this discovered power, but we can no more renounce it than we can return to childhood.

There is another point. Capitalism may be unnatural, but socialism is positively anti-natural. Capitalism is not entailed by, but neither does it frustrate, the natural human impulse to acquire property, to trade it and to pass it on to one's children. Socialism, on the other hand, does frustrate these natural impulses. A socialist would say that none of these is a natural impulse, that there is no such thing as a natural impulse. But this can be contradicted by pointing to the tenacity, often in the face of severe penalties, of the black market under communism.

It can also be contradicted by walking around a primary-school playground and observing small huddles of boys avidly swapping football stickers. There you have evidence, in its most innocent form, of Smith's "natural propensity to truck, barter and exchange".

Edward Skidelsky's reviews appear monthly in the "NS"

This article first appeared in the 28 February 2000 issue of the New Statesman, Why the party still needs its soul