Bear with me here…this post is actually about the status of women in the Georgian economy….

 

When I was an undergrad my rhetoric teacher told us about how she was setting out snacks for a party one afternoon and her young daughter, looking at a bowl of olives, asked 'what are these?'  'They're olives.'  'Do I like them?'  'I don't know--try them and see.'  The girl picked one up, took a small bite, said 'I don't like this one,' and put it aside.  She then proceeded to take every olive out of the bowl, one by one, take a small bite, say 'I don't like this one either,' and put it aside.  Thirty years ago I thought this story was hilarious, but I'm now coming to understand that there's more to this story than I'd realised at the time.

 

It's natural for us to label, categorise and classify the myriad things we experience in the world around us, as a survival mechanism and a way to reduce sensory and cognitive overload.  It (generally) only takes one bad experience with, say, a bee, for us to decide that all bees might hurt us and it wouldn't be sensible to antagonise them.  This ability to label, categorise and classify is also fundamental to the practice of science.  As far as science is concerned, for example, the piece of granite that I'm holding in my hand is the same as the piece of granite I'm holding in my other hand.  In reality they're not--by definition they're not the same; they come from different parts of the Earth's crust, they have had different histories, they have been perceived differently by the entities that have encountered them over the course of their histories.  One of them may have tripped up a running horse; another may have stuck in the paw of a rabbit.  They are in fact two distinct objects.  But for purposes of scientific analysis they're identical.  Anything we can say scientifically about one of them we can say about the other.  As far as science is concerned, that birch tree there is the same as that other one over there.  In reality this isn't true--they're distinct entities.  They live in different environments, have different histories, have different relationships with other things in the world, and (now that we're considering living things) have different subjective experiences of the world.  But for purposes of scientific analysis they're identical.  Anything we can say scientifically about one of them we can say about the other.  Any item in a particular category-box is logically interchangeable with any other item in the same category-box.  Our ability to use science to understand the world absolutely relies on this principle of interchangeability.  When we employ the scientific worldview we categorise every element of the universe we experience, and then extrapolate logical and empirical conclusions about any item in a category to every item in the category.  And the principle of interchangeability has served us well--we've learned a lot about the world by grouping it into plants, animals, clouds, rocks, stars, and any number of categories we have invented in order to gather knowledge about the world.

 

Although interchangeability permeates our most basic ideas and interactions with the world, we don't use it for everything.  A lot of what we do in our daily lives now, and a lot more of what most people did in their daily lives before industrial capitalism, did not rely on the principle of interchangeability. When baking, for example, although we may have rules of thumb about amounts and proportions of ingredients and temperatures and durations of heating, we may vary these depending on the specific situation; contrariwise, we may keep all of our parameters exactly the same and yet achieve different results.  I once bought a beautiful olive-green ceramic bowl at a craft fair; I asked the potter if he had others of the same colour, and he said ‘no, all of the bowls were meant to be blue, but this one was in the corner of the kiln and came out different.’  People who make objects out of wood go to the woodpile, or the forest, to search out a specific piece of wood to make an object; even when they find the right piece of wood, they still adapt the object they create to the characteristics of the particular piece of wood they have selected.  A farmer temporarily managing someone else's farm will draw on her general understanding of her craft, and her years of experience in performing it, but will discover that she still needs to learn the specifics of the situation--the personalities of the animals, the soil and climate conditions of the specific piece of land she is responsible for, the style and preferences of the farm's owner.  In these situations it is not possible to categorise or interchange one loaf of bread, piece of wood, bowl or farmstead for another, even though scientifically, economically and administratively we treat all of these things as interchangeable with other things in the same category.  Living in a world that isn't based on interchangeability requires both more knowledge and different ways of knowing.

 

Until the Enlightenment, we thought of each person as a unique individual, embedded in hir own web of location, history and relationships.  But in the seventeenth and eighteenth centuries we began to apply the scientific principles of interchangeability to our fellow people in two ways--by classifying and categorising ourselves into races, nations, classes, etc. and by creating a unitary classification of 'human', to which we assigned both descriptive and prescriptive characteristics. 

 

The former application has resulted, a couple of centuries later, in our now automatic and unconscious division of people into demographic categories.  Before this became a habit, every person would have been considered as a unique combination of location, relationships and history.  Maybe ‘women’ didn’t typically engage in such activities as, say, blacksmithing or translating Greek philosophy, but it would have been perfectly natural and normal for any particular woman to do something that, say, her family had done for generations.  Her unique position in the web of location, relationships and history was a more significant determiner of what was appropriate for her to do and how it was appropriate for her to behave than her demographic category.  As far as I can tell, only the Church made a big deal about ‘woman’ as a category; this kind of categorisation wasn’t necessarily predominant in the actual activity of daily life and social relations.

Preparing to write yet another post about women in the preindustrial and transitional economy, and ran across a quote from my buddy Dr Smith which neatly encapsulates the whole 'economics is people' thing:

Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people, of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country? How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world?

if we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that, without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to, what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.

OK I lied—I have one more thing to say about cryptocapitalism, and that is that under this economic system women were fully integrated into the economy. Family firms were just that—both husbands and wives worked, and both were responsible for running the business. Division of labour by gender in Georgian England was more fluid than we'd now tend to think, both because families wanted to use their collective skills optimally (e.g. if weaving were making money, and the woman of the house knew how to weave, then the man of the house cleaned and cooked and watched the kids and let her get on with it—that maximised household income) and because of the way families worked (men typically left their businesses to their wives in their wills; widows sometimes sold out, or passed the work on to their male children, but at least as often they, who knew as much about the business as their husbands, just kept right on doing whatever they were doing). In the particular business sector I write about there were certainly more men than women, but plenty of women—widows, married women and single women—also did this kind of work, and it seemed to be unremarkable when a woman was mentioned as doing it. You could find women working in pretty much any job--scholars reviewing wills, tax registers, church records and court records find the names of women associated with almost every occupation in medieval England, even ones from which guild regulations excluded them. They have also found evidence of women both serving as and taking on apprentices in many occupations. The economic activity of women is not my specific area of expertise, but I can recommend Davidoff and Hall's Family fortunes: men and women of the English middle class, 1780-1850 for some understanding of the role women played in the peer-to-peer economy, and can go back into my notes for more references and case studies if anyone's interested.

The disappearance of women from the public sphere (both social and economic) seemed to happen very quickly—within a generation. I remember reading somewhere (I wish I could remember the citation) some man saying something like 'my mother used to run her own business—she'd go down to the pub and smoke her pipe and make deals with her colleagues...my wife will never do this.' This sudden change in women's status in the 1830s is sometimes referred to as the 'return to the parlour'; I've heard other historians talk about it but as far as I know no one's actually written about it. It seems more than a coincidence that this happens at the same time joint-stock companies become the dominant business form (at least in wealth, if not in number)--the difference between the cryptocapitalist world of gender-neutral employment and, if not precisely equality at least representation, and the entirely male early corporate capitalist world is striking.*

*Wait, that's not entirely true...some proportion, though it's hard to say exactly, of the anonymous shareholders of joint-stock companies were women. But women never appeared as acting managers or directors. I'm not exactly sure why though (of course) I have some theories….

Part 1: Where we started—excerpts from the comments to David Futrelle's post
http://www.wehuntedthemammoth.com/2017/02/02/resisttrump-by-joining-a-local-indivisible-group-maybe/


guest:
Let me talk a little here about the ‘invisible hand’. The Wealth of Nations was published in 1776—at that time corporations were rare, and only authorised individually by Parliament in specific cases for specific purposes to benefit the public (if you’re interested, Smith wrote that corporations should only be authorised for banking, insurance, municipal water supply and transport infrastructure). They were looked at suspiciously by Smith, Parliament, and everyone else because at the time business and economics was all about personal character, and corporations can hide personal character behind collective anonymous ownership. When Adam Smith argued that people acting selfishly are guided by an ‘invisible hand’ to promote the public good, what he meant was that because, in order to gain access to the marketplace, economic actors had to, I guess we would now say, ‘virtue signal’ to demonstrate their trustworthiness as business partners, the stock of actual virtue in society would increase. At the time Adam Smith was writing, to riff on Scildfreja’s point, the economic and the social were not and could not be separated—Adam Smith, whose other book is ‘The Theory of Moral Sentiments’, would have been puzzled at the idea that they could.
@Scildfreja It really does infuriate me that without exception interpreters of Adam Smith are entirely ahistorical. We’re still learning to appreciate the intricacies of what I refer to as the cryptocapitalist economy of Georgian England, but that’s no excuse not to recognise that the ‘capitalism’ Adam Smith writes about in no way resembles the ‘capitalism’ of today. Interpreters are ahistorical in terms of technology as well–his description of the ‘division of labour’ in a pin factory was actually a thought experiment, as nothing like assembly line manufacture existed in England until the early nineteenth century (the Venice Arsenal had developed the technique a few hundred years earlier, but I’d be surprised if Smith knew much about that as it was a military secret–and in fact the first use of the technique in England was also military). Anyway.
And yes, in the first half of the nineteenth century corporations were called ‘public’ businesses, as (as now) they were created by the state, while sole proprietors and family businesses were referred to as ‘private enterprise’. How corporations managed to sneak into the ‘private enterprise’ tent, and thus gain ‘government should leave us alone’ points, is a question I’m still trying to answer (James Taylor, who has done a lot of insightful work in this field, has one answer, I have another, both may be true).
Also I know Adam Smith is a much bigger deal in the US than in England–the English have pretty much never heard of him. When I mention him in talks I typically get a sea of blank looks, so I usually say ‘Adam Smith, you know, THE DUDE ON THE £20 NOTE’ and I swear half the audience reaches for their wallets to look. (I’ve been told he’s on the £20 because he’s from Kirkaldy, which is where Gordon Brown is from.)
And I mean it when I say ‘without exception’–in preparation for giving a talk specifically about Smith’s work at a conference a few years ago I read pretty much everything written about him to date, and not one single author relates his economic work to the actual economy of the time, which is, of course, what Smith drew on to develop his theories.

@Alan It’s not that businesses felt a sense of public responsibility–it’s that people were obligated to treat other people fairly in business to ensure that they were treated fairly in return. Craig Muldrew writes in The Economy of Obligation in 1998 that up to then historians had no real understanding of the scale of the early modern economy–they postulated a low rate of economic activity based on the fact that very little money circulated. What Muldrew explained for his period, and what more of us now understand is the case for later periods, is that the entire economic edifice was built on personal credit. Say you and I do business with each other. We meet once a year to settle up–I’ve provided you with £100 worth of goods, and you’ve provided me with £101 worth of goods–so I pay you £1. The £1 is visible, the rest of the economic activity is not. That’s obviously a simple example; the credit chains for an extraordinarily complex economy could be very long, in space as well as in time. I’ve read lots of letters saying things like ‘x owes me £y, and x’s friend z owes him £a, so why doesn’t z pay me some portion of £a next time I see him and I’ll credit x for that part of £y’.
This kind of economic system can only work if the people involved know and trust each other. I and others have done work on how personal trust, which facilitated these kinds of informal credit arrangements, was established and maintained. Many business relationships were kin-related (people’s children married the children of people in related businesses to establish trust links) and religious (one of the explanations for the success of Quaker businesses), but most were built up through personal reference and association. One’s character was a marketable trait–if people could vouch for you you had access to credit. I’ve seen lots and lots of letters saying ‘I don’t do business with strangers–who do we know in common, who can assure me that you’re trustworthy, before I engage in a business relationship with you?’
As business was all about relationships, and as these depended on one’s character, if you couldn’t demonstrate to people you wanted to have an economic relationship with that you were worthy of their trust, by acting in a virtuous way, you wouldn’t have access to their credit, and would thus be effectively ostracised from the marketplace. ‘Long term relationships discouraged cheating; as rumour of unfair dealings discouraged others from interacting with their subject it was thus in everyone’s self-interest to act honestly.’
Interestingly, this ties into the history of money–a fantastic book about this is David Graeber’s Debt: the first 5000 years. Money was originally used only for taxes and religious offerings; Deborah Valenze, in The social history of money, talks about how as late as the eighteenth century it was still considered a little ‘dirty’ to exchange money directly for goods and services, and the reliance on personal credit and exchange gave the Georgian economy ‘an aura of gifting’. Aside from extending long-term informal credit, people maintained business relationships through exchanges of actual gifts–of goods, services and information.
Oh and speaking of credit–people in business wanted people to have credit with them; credit was part of the relationship. We read a lot in the literature of the time about people having ‘bills with their tailors’ and whatnot–but this wasn’t necessarily a bad or irresponsible thing. The example I use is this: say you and I are friends. Over the years I’ve lent you a few books, and you’ve lent me a few books. What if I suddenly come to your house with your books and say ‘here, these are all the books of yours that I have, I’m giving them back.’ The implication is that the friendship is over–I no longer have any reason to see you again. Another example is buying drinks at pubs–if I buy you a drink, and you don’t buy me a drink this time, we’ll need to get together again so you can buy me a drink. Outstanding credit is a way to maintain a relationship.
The economic system of peer to peer exchange based on credit facilitated by long-term personal relationships, which I call cryptocapitalism, has been generally ignored by historians–in my opinion it’s because of Marx, whose four-level economic categorisation leaves this stage out. (In writing this I’m realising that Marx himself was observing and writing during the transition from cryptocapitalism to modern capitalism–I’m not enough of an expert on Marx to know how much of what he calls ‘capitalism’ is the former rather than the latter; it would be a good research question.) Scholars have identified aspects of this economy, but have never drawn it out as a distinct system–E. P. Thompson does a good job of describing parts of this economy in Customs in Common, but as he is a Marxist he can’t really place it, referring to it as a ‘transition period’ between feudalism and capitalism. (How it can be seen as a transition when it resembles neither of these is beyond me.) Some historians seem genuinely baffled by it–here’s Gillian Cookson:
‘To accept that some kind of collaboration operated, and apparently worked well, requires an imaginative leap out of the competitive and confrontational framework upon which much late-twentieth-century management thinking rests. The evolution and success of the system is explicable in the artisan context of early textile engineering. Artisans generally took a long view of business, seeing continuation as a priority so that following generations had the means to make a living. This apparently anachronistic pre-industrial milieu provided a highly suitable setting for the new industry.’

Rhuu:
@guest: I honestly don’t understand how economists don’t get the

‘x owes me £y, and x’s friend z owes him £a, so why doesn’t z pay me some portion of £a next time I see him and I’ll credit x for that part of £y’.

bit. Haven’t they ever had a large group of friends? I’m not particularly fond of the idea, but it always seems to happen! You make a group order from thinkgeek or something, then someone else organises tickets to a concert, then someone ELSE organises a big dinner where everyone is going to pitch in 5$ for ingredients. And you’re like “OH, I’ll just pay 10$ because I owe 5$ for that thinkgeek order, and cover that organiser. And we’ll be square!”
I just never realised that that sort of thing would happen on a larger scale, and be the basis of an economy.
Though since it also happens organically in games like Catan or Bohnanza, that makes total sense haha.
Thank you for the lesson! Economics is something that seems so big, I really don’t know much about it. I enjoyed the people aspect of it as well.
guest:
Yes, exactly–that’s just how a group of friends, who know and trust each other, are connected through long-term relationships, and don’t see any benefit out of ripping each other off, would behave. One of my favourite research finds was a letter from someone who manufactured parts for spinning machines to the owner of a canal boat company–he wrote something like ‘hey, I ordered 40 pigs of iron but you only dropped off 38 on Tuesday–could you have a root around the bottom of the boat and bring me the other 2 when you find them’–that’s how two people who have a personal as well as business relationship interact. Informal mediation to settle disputes was preferable to formal contracts or legal action–letters like ‘you and I disagree how much I owe; let’s get two people we respect to hear us out and decide.’ This is capitalism, but a very different kind from what we see today.
Alan Robertshaw:
You’re really putting a lot of the stuff I do in context. What’s especially interesting though is how much of what you mention still goes on. It’s just not as apparent. But we have things like ‘without prejudice’ discussions, alternative dispute resolution, and you may remember from some threads about the sharia courts how the arbitration acts allow for parties just to choose someone all sides trust to decide disputes and avoid the regular courts. It’s not just small businesses either. The biggest users of ADR are the oil companies. And those ‘Alice owes Bob, Bob owes Charlie, so Alice can do something for Charlie’ solutions crop up a lot. It’s ironic perhaps but barter, promises of future favours etc are really common in big business. It avoids legal costs and there can be tax advantages.
Trust is still a major thing in commercial settings. One problem that I often encounter is that there’ll be some hugely complex multi million pound deal and absolutely no written record of it. It’s all done on a handshake. That’s fine until something goes wrong.
Related to that is that I’ve done more defamation cases for companies than humans. Obviously corporations can’t suffer hurt feelings but they can claim for loss of reputation. You might not be surprised to hear that ‘imputations as to competence, honesty in business dealings or creditworthiness’ are treated with particular seriousness in law.

OK, part 3—we’ve now set the scene; this is the part where the Orcs invade the Shire (I hope I have my Tolkien references correct).

I hope I’ve established so far that the economy of Georgian England was based on an amazingly complex network of personal relationships which facilitated the exchange of goods and services via sophisticated informal credit arrangements, and that one’s personal character, established by family connections, religious affiliation, or references, was a vital part of maintaining one’s connection to this network.  Given the personal nature of business, most business undertakings, as you can imagine, tended to be small, consisting of family, trusted friends, and professional relations (e.g. apprentices, connections from related businesses).  But the government recognised that some kinds of business endeavour required more capital than could easily be raised by even the richest families, and as early as Tudor times the Crown, and later Parliament, granted groups of ‘adventurers’ the privilege of limited liability and trade monopoly in exchange for financing voyages, outposts, and military and commercial personnel to establish trade with other regions.  (I hope you are all watching Taboo because it was JUST LIKE THAT.)  The efflorescence of regional trade companies in England between the seventeenth and nineteenth centuries was part of what people refer to as ‘mercantilism’, which is making profits via arbitrage—buying stuff where it’s cheap, selling it where it’s expensive, and profiting off the difference in price minus the cost of transport. 

The regional trading companies functioned pretty much as intended, bringing in lots of good stuff and making some people very rich (though of course there’s copious scholarship describing how they actually worked in practice, how their monopolies were never complete, etc.)—so well, in fact, that people recreated their business model closer to home, initially primarily in banking and insurance but also in the large-scale manufacture and trade of various products; by 1720 it’s said the capital invested in joint-stock companies was about 13% of Britain’s total wealth.  (I will note that Wikipedia, which I’ve been using to prompt my memory, suggests that this had something to do with the Industrial Revolution, but this is clearly incorrect—neither the timing nor the business sectors involved in ‘corporatisation’ would lead anyone to this conclusion.)  This phase of corporate experimentation culminated in the collapse of the South Sea Company in 1720, an event known as the South Sea Bubble, in which no less a mastermind than Sir Isaac Newton, Master of the Mint (and very good with money) lost a good part of his fortune (he never admitted how much, but people have suggested about £20,000, or £3 million in today’s money) along with lots of other suckers. 

Between the passage of the Bubble Act in 1720 and its repeal in 1825 joint-stock companies could only be formed by special act of Parliament, and Parliament was pretty stingy about these—as I mentioned before, Adam Smith opined in The Wealth of Nations that joint-stock companies, inefficient and clumsy by nature and dangerously prone to disaster, were not a good idea for anything except banking, insurance, municipal water supply and transport infrastructure, and Parliament kept pretty close to this list. Nevertheless, businesspeople either legally or extralegally continued to form corporations, with some or all of the appropriate trappings—limited liability, transferable shares, corporate action, monopoly or eminent domain—as far as I can determine, until a series of acts between 1844 and the 1860s rationalised joint-stock legislation you could pretty much get away with whatever you weren’t sued for, and courts handed down contradictory decisions about who was allowed to do what in what context.

And so, for better or worse, joint-stock companies became part of the economic landscape.  Most people thought ‘for worse’, for a few very good reasons.  In the Wealth of Nations Smith describes what came to be known as the ‘agency problem’—the fact that a joint-stock company's multiple unrelated owners were separated from its day to day management:

it cannot well be expected that [the directors] should watch over [the workings of a joint-stock company] with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. … Negligence and profusion, therefore, must always prevail...in the management of the affairs of such a company.

Since joint-stock companies were managed by paid staff on behalf of owners who were both anonymous and impermanent, it was pretty soon recognised that this form of organisation ‘undermined the importance of character in business’. The absence of the social control exercised on business owners desiring to preserve their reputations in order to participate in economic life, combined with the vast resources joint-stock companies controlled and their unclear legal accountability, could lead such companies to act unethically, simply to manipulate the stock market rather than for sound business reasons. 

Examples of unethical corporate behaviour were certainly not difficult to find.  I mentioned in a previous comment that I’m currently writing about the Attwood case, which I think was one of the many wakeup calls to the business community of the time.  In 1825 the British Iron Company purchased an ironworks from John Attwood.  The following year iron prices dropped and, in an attempt to renege on the contract, three directors of the firm took Attwood to court, alleging that he had fraudulently misled them about the value of the property.  In an act of breathtaking chutzpah they declared their own agent one of the defendants, to keep him from testifying that the deal was honestly made.  The company lost their first case against Attwood in 1828 but won a second judgment against him in 1832.  Attwood petitioned the House of Lords to have his case reheard in the Court of Exchequer, and in 1838 he finally won a substantial settlement from the company, which went bankrupt shortly thereafter.  So, happy-ish ending, but what’s clear from this cautionary tale is that Attwood’s character and reputation as an honest businessman made no difference whatsoever to his treatment by the company and by the legal system.  In one of the cases I’m writing about now, reading the transcripts of people saying ‘my reputation is solid, I’ve been doing business here for years, ask anyone in Oxford’ or ‘I vouch for so-and-so as an honest man’ is downright sad, because that system of social control had already become anachronistic in the new world of anonymous contractual bureaucratic corporate management.  

I’m also writing about a series of letters between the owner of a business and three managers of a joint-stock company, in which the business owner is attempting to develop an agreement with the company after having won a series of legal cases against them establishing his right to do so.  In literally dozens of letters between him and these three guys he keeps trying, in standard socially-connected-businessman style, to work out a deal that would suit them all—he offers proposal after proposal and concession after concession, and the three company dudes literally ignore it, as they have no interest whatsoever in making a deal with him.  They obfuscate in boilerplate bureaucratic babble, and play him off against each other (‘good cop’, ‘bad cop’, and ‘unintelligible cop’).  He eventually had to take them back to court—he won, again, but was never able to achieve a mutually-beneficial deal with them; he eventually buckled under and became an agent for the company.

Parliament and the courts generally agreed that ‘public’ (i.e. created by the state) joint-stock companies should not be permitted to participate in the ‘private enterprise’ of the general domestic economy; Parliament generally declined to authorise companies that might 'carry on any ordinary trade or calling carried on in this country' or compete with existing family businesses.  So what happened?  How did the joint-stock company get so out of control, even though people were well aware of its problems, no one wanted them anywhere they didn’t belong, and Parliament did its best to keep close control of them?  Well, it was probably inevitable given the vast amounts of capital and resources these entities possessed, but I personally think it was one specific thing.  

I mentioned in an earlier post that we now take for granted something that is actually extremely weird; most of the time when we buy things from people we’re not exchanging our money for their stuff or services—we’re giving our money to a fictional legal entity, which somehow employs people to make and sell things we buy.  I realised that the first time in history that this ever happened to any great extent was with the railway companies—when someone went to the station to buy a ticket to visit their aunt in Scarborough that was the first time most individual people had ever had a direct economic interaction with a corporation.  Parliament had originally authorised the first railway companies as joint-stock companies within Smith’s categorisation of transport infrastructure…but, to everyone’s surprise, including the companies themselves, these companies ended up not just building and maintaining infrastructure but operating a huge and diversified passenger and goods transport business within the existing domestic economy.  In my opinion it was the railway companies’ ‘scope creep’ into the sphere of ‘private enterprise’, combined with their command of enormous resources, personal connections within government, and utter disregard for business norms, that broke the dam and allowed corporations to rule the world.

THE END 

For further reading on this whole sad story I recommend James Taylor’s Creating Capitalism—valuable insight into people’s attitudes and arguments at the time, and his take on what happened and why.  As I said before, I don’t think our explanations are incompatible, and I’m drawing on his ideas.

Hi all--before getting to part 2, a couple of things:

First, about what Rhuu was saying--imagine, in your group of friends, that one person who somehow never pays for drinks/is always there when the collective bill at the restaurant is a little short/bought something for the group and collected £15 for it but only paid £12...or even that person who has never actually cheated the group but has proved untrustworthy in some other way (e.g. blabbing secrets or creating relationship chaos).  Because that person is a friend, they often get a 'free ride' for a little while (which we also find in the cryptocapitalist economy--it's hard to fire your relatives) but that can't last forever--these people will eventually find that they no longer get the benefit of the doubt, and are shut out of the group's transactions.  This kind of cheating or untrustworthy behaviour is, when you think about it, a huge risk to take--gaining a little here and there in the short term vs losing out entirely on the advantages of belonging to the group.  If your livelihood is on the line, you would probably prefer not to take it.  You might think 'I could gain a little by doing x, but it puts my connection with the community I need to be connected to to keep my family fed at risk, so maybe I'd better not.'  This is what Smith means when he talks about the invisible hand, and on not relying on the altruism of the butcher and baker--the baker doesn't HAVE to be a good person to not sell you short, he just has to be sensible enough of his own self-interest that he won't jeopardise his business by becoming known as a cheater.  This idea bears a passing resemblance to the libertarian talking point 'a business won't sell you stuff that hurts you/kills you because you'll sue them/they'll go out of business (eventually)--so we don't need laws'--but for that to work you need a) the encompassing social structure and personal relationships of the cryptocapitalist economy and b) the business owner to be cognizant of that (and c) the business to be a sole proprietor or partnership and not a joint-stock company--but we'll get to that in the next, and hopefully last, installment).

And about Alan's points--my students have pointed out that the economic structure I describe does still exist, both at the 'highest' and at the 'lowest' levels.  We do naturally still prefer our economic interactions to be directly with other people that we have some social connection to--at the farmers' market, through Etsy, or in the boardroom--and we have good reasons for that, both social and economic.

OK--I did want to write some more about Adam Smith, because a) it makes me sad that Dr Smith, by all reports a quiet, pleasant, thoughtful and generous man with a strong sense of moral obligation to his fellow humans, is now largely known as a mouthpiece for greedheads, and b) although the Wealth of Nations is a significant historical work with a lot of important insights for its time, I don't think it has much to offer us now in terms of understanding how the world works, Smith's other book, the Theory of Moral Sentiments, can still provide some insight into the mess we're in now.

So--I mentioned before that as far as I know no one has really considered Smith's work in its economic context; before anyone challenges this I should mention that plenty of people have written about Smith's work in its political and diplomatic context (with respect to e.g. tariffs and arbitrage of precious metals)--but not in the context of day to day economic interactions relating to the production, distribution, sale and consumption of goods.  (As I've also mentioned, I think one reason for that is that scholars have only relatively recently started to understand how this economy actually worked.)  Aside from the social nature of interaction that I've already described, another thing to be aware of (and Smith himself was very aware of it) is that this social network facilitated an astonishingly complex chain of production processes.  As I mentioned, most people who know anything about Smith's work know his description of pin manufacture--he writes that if ten men each did one task, instead of one man doing ten tasks, production of pins could increase a thousandfold.  A lot of people don't realise that when Smith described this particular type of 'division of labour' it was purely a thought experiment--this kind of manufacture didn't happen in England until Marc Isambard Brunel, father of the Great Isambard Kingdom Brunel, developed this technique for the manufacture of pulley blocks for Royal Navy ships, a couple of decades after Smith's death. But the larger national economy did actually work this way--goods in production travelled from place to place, where small businesses each added their piece to a developing object until it was ready for sale and use.  The archetypal example of this kind of manufacturing process in Smith's time was the production of wool cloth, which involved workers and workshops all over England. Sheep were raised all over the country; wholesalers in London purchased their fleeces and distributed them to workshops where they were passed from place to place as they were cleaned, combed, spun into yarn, bleached and dyed. Some of these processes, such as fulling and dyeing, were done in large facilities, but others, such as spinning and combing, were typically done in small workshops or homes. The finished yarn was sent back to London for wholesale purchase and distribution to various parts of the country where different types of cloth were woven, again mostly in small workshops or homes. After several more stages of production, the cloth was again sent to London for both retail purchase and wholesale purchase and distribution to manufacturers of such products as clothing and furnishings.

The difference between this kind of division of labour and the pin-making thought experiment, or the assembly line in Ford Motors or Modern Times, is that the former was not under a single owner's control--it really was a kind of anarchist cooperative mutual-aid system in which everyone interacted on a more or less equal basis.  How could such a hugely spread out and distributed system of manufacture actually work without central management?  Trust, cooperation and credit.  That's capitalism.  And you can imagine how such a system would work best when left alone--any 'interference' or attempt at control from above or outside would disrupt this carefully constructed and carefully balanced web of interaction.

If anyone had asked Adam Smith what he was, he would have said he was a moral philosopher.  He was interested in what held this system together and made it work, and his answer, in The Theory of Moral Sentiments, was what we'd call 'empathy'.  As one of the first thinkers to consider humans collectively as a unit of study, Smith is sometimes considered the first sociologist.  Smith wrote about how we learn to 'see ourselves as others see us', and attempt to create an image of ourselves that we want others to respect and admire.  He writes:

For to what purpose is all the toil and bustle of this world? what is the end of avarice and ambition, of the pursuit of wealth, of power, and preheminence? Is it to supply the necessities of nature? The wages of the meanest labourer can supply them. ...What then is the cause of our aversion to his situation, and why should those who have been educated in the higher ranks of life, regard it as worse than death, to be reduced to live, even without labour, upon the same simple fare with him, to dwell under the same lowly roof, and to be clothed in the same humble attire? Do they imagine that their stomach is better, or their sleep sounder in a palace than in a cottage? The contrary has been so often observed, and, indeed, is so very obvious, though it had never been observed, that there is nobody ignorant of it.

From whence, then, arises that emulation which runs through all the different ranks of men, and what are the advantages which we propose by that great purpose of human life which we call bettering our condition? To be observed, to be attended to, to be taken notice of with sympathy, complacency, and approbation, are all the advantages which we can propose to derive from it. …The rich man glories in his riches, because he feels that they naturally draw upon him the attention of the world, and that mankind are disposed to go along with him in all those agreeable emotions with which the advantages of his situation so readily inspire him. … The poor man goes out and comes in unheeded, and when in the midst of a crowd is in the same obscurity as if shut up in his own hovel. … The man of rank and distinction, on the contrary, is observed by all the world. Every body is eager to look at him, and to conceive, at least by sympathy, that joy and exultation with which his circumstances naturally inspire him. His actions are the objects of the public care.

We strive to achieve not because we want stuff, but because we want other people to think we're great--we act in certain ways so that other people whose opinions matter to us will approve of us, consider us important, listen to and support us, value us and our opinions, identify with us.  So, since we don't actually want stuff, there can never be enough stuff.  We see this effect particularly in the behaviour of the super-rich--they are clearly not working to meet any individual need, or even want—despite controlling literally unimaginable wealth, they continue to lie, cheat and steal to maintain and increase this wealth in order to signal belonging (to the elite) and gain approval not just from their peers but from all of society.

I'll finish this bit with an idea from G. K. Chesterton--some of us think we and our culture are too 'materialist'--but (as Chesterton says when he wants to mess with our heads) we actually have it exactly backwards.  Materialists care about material things--we value sensual pleasure, good food, pretty clothes, soft beds.  The super-rich are exactly the opposite.  They don't care about material things at all--they care about what other people think of them, and about winning the game.  Their greed is completely divorced from the material world.  They don't want a thing because it would be great to have it, and they would gain pleasure from using it; they want a thing because a) someone else has a thing and they want a bigger thing, and if they have the biggest thing they win or b) having a thing will cause other people to respect and defer to them and think they're important, and that's what truly matters.  Thanks Adam Smith!