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Global Problems and the Culture of Capitalism

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Global Problems and the Culture of Capitalism

Sixth Edition

Richard H. Robbins State University of New York at Plattsburgh

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Library of Congress Cataloging-in-Publication Data Robbins, Richard H. (Richard Howard) Global problems and the culture of capitalism / Richard H. Robbins.—6th ed. p. cm. ISBN-13: 978-0-205-91765-5 (alk. paper) ISBN-10: 0-205-91765-8 (alk. paper) 1. Economic history—1990– 2. Social problems. 3. Capitalism. 4. Consumption (Economics) 5. Poverty. 6. Financial crises. I. Title. HC59.15.R63 2014 330.12'2—dc22

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v

Brief Contents

Part 1 Introduction: The Consumer, the Laborer, the Capitalist, and the Nation-State in the Society of Perpetual Growth 1

Chapter 1 Constructing the Consumer 12 Chapter 2 The Laborer in the Culture of Capitalism 35 Chapter 3 The Rise and Fall of the Merchant, Industrialist,

and Financier 57 Chapter 4 The Nation-State in the Culture of Capitalism 99

Part 2 The Global Impact of the Culture of Capitalism: Introduction 127

Chapter 5 Population Growth, Migration, and Urbanization 133 Chapter 6 Hunger, Poverty, and Economic Development 168 Chapter 7 Environment and Consumption 197 Chapter 8 Health and Disease 220 Chapter 9 Indigenous Groups and Ethnic Conflict 248

Part 3 Resistance and Rebellion: Introduction 275

Chapter 10 Peasant Protest, Rebellion, and Resistance 282 Chapter 11 Anti-Systemic Protest 306 Chapter 12 Religion and Anti-Systemic Protest 329 Chapter 13 Solving Global Problems: Some Solutions and Courses

of Action 353

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vii

Contents

Preface xiii

Part 1 Introduction: The Consumer, the Laborer, the Capitalist, and the Nation-State in the Society of Perpetual Growth 1

A Primer on Money: The Philosopher’s Stone 3

The Development of Commodity Money 5

The Shift from Commodity to Fiat or Debt Money 7

The Consequences of a System of Debt Money 8

Chapter 1 Constructing the Consumer 12 Remaking Consumption 14

Marketing and Advertising 15

The Transformation of Institutions 17

The Transformation of Spiritual and Intellectual Values 19

The Reconfiguration of Time, Space, and Class 21

Kinderculture in America: The Child as Consumer 23

The Role of Children in Capitalism 23

The Social Construction of Childhood 25

Exporting the Consumer 31

Conclusion 34

Chapter 2 The Laborer in the Culture of Capitalism 35 A Primer on the Elements of Capitalism 36

The Baptism of Money 39

The Construction and Anatomy of the Working Class 40

Characteristics of the Working Class 40

The Growth of Overseas Assembly Plants 45

The Creation of Free Labor 48

The Segmentation of the Workforce 49

Control and Discipline 52

Resistance and Rebellion 54

Conclusion 55

Chapter 3 The Rise and Fall of the Merchant, Industrialist, and Financier 57 The Era of the Global Trader 60

A Trader’s Tour of the World in 1400 60

The Economic Rise of Europe and Its Impact on Africa and the Americas 65

The Birth of Finance and the Tulip Bubble of 1636–1637 70

viii Contents

The Era of the Industrialist 74

Textiles and the Rise of the Factory System 77

The Age of Imperialism 78

The Era of the Corporation, the Multilateral Institution, and the Capital Speculator 83

The Rise of the Corporation 83

Bretton Woods and the World Debt 86

The “Second Great Contraction” 92

Conclusion 97

Chapter 4 The Nation-State in the Culture of Capitalism 99 The Origin and History of the State 101

The Evolution of the State 101

The History and Function of the Nation-State 102

Constructing the Nation-State 104

Creating the Other 105

Language, Bureaucracy, and Education 106

Violence and Genocide 109

Spin, Free Trade, and the Role of Energy in the Global Economy 113

Manufacturing Consent: Spin 114

Markets and Free Trade 118

Energy and Technology 120

Conclusion 124

Part 2 The Global Impact of the Culture of Capitalism: Introduction 127

A Primer on Market Externalities: Polanyi’s Paradox 129

Chapter 5 Population Growth, Migration, and Urbanization 133 The Malthusians Versus the Revisionists 135

The Case of India and China 136

The Issue of Carrying Capacity 138

The Ideology of Malthusian Concerns 138

Demographic Transition Theory 141

A Primer on the Determinants of Population Growth and Decline 143

Some Examples of Demographic Change 145

Population Growth in the Periphery 148

Wealth Flows Theory 149

The Social Implications of Wealth Flows Theory 151

The Question of Gender and Power 152

Issues of Immigration 154

Contents ix

History of Migration 156

The Economics of Immigration 158

Understanding Illegal Immigration 160

Urbanization and the Growth of Slums 162

Conclusion 167

Chapter 6 Hunger, Poverty, and Economic Development 168 The Evolution of Food Production: From the Neolithic

to the Neocaloric 169

From Gathering and Hunting to the Neolithic 170

Capitalism and Agriculture 171

The Neocaloric and the Green Revolution 173

The Politics of Hunger 176

The Anatomy of Famine 177

The Anatomy of Endemic Hunger 179

Solutions and Adaptations to Poverty and Hunger 184

Economic Development 184

The Nature and Growth of the Informal Economy 188

The Nature and Scope of the Informal Economy of Drugs 191

Conclusion 196

Chapter 7 Environment and Consumption 197 The Case of Sugar 202

Sugar Origins and Production 202

Uses of Sugar 202

The Development of the Sugar Complex 203

The Expansion of Sugar Production 203

The Mass Consumption of Sugar 204

Modern Sugar 205

The Story of Beef 206

Creating a Taste for Beef 207

The Emergence of the American Beef Industry 208

Modern Beef 212

The Impact of Production on the Environment: The Effects of Climate Change 213

The Environment, Sustainability, and the Nation-State 217

Conclusion 219

Chapter 8 Health and Disease 220 A Primer on How to Die from an Infectious Disease 225

The Relationship between Culture and Disease 229

Gathering and Hunting to Early Agriculture 229

Cities: “Graveyards of Mankind” 230

x Contents

Diseases of Environmental Change 233

Diseases of Human Ecology: Chickens, Pigs, and Wild Birds 235

The Origin of Influenza: Avian Flu and H1N1 235

Aids and the Culture of Capitalism 238

How Did the Disease Spread? 240

Who Gets Infected with AIDS? 243

Who Gets Blamed? 245

Conclusion 246

Chapter 9 Indigenous Groups and Ethnic Conflict 248 The Fate of Indigenous Peoples 251

Some Characteristics of Indigenous Peoples 251

The Process of Ethnocide 252

The Guaraní: The Economics of Ethnocide 259

History and Background 260

Contemporary Development and Guaraní Communities 262

Disadvantaged Majorities and Their Revenge 264

Leveling Crowds 266

Genocide as an Externality of the Market 267

Conclusion 273

Part 3 Resistance and Rebellion: Introduction 275

A Primer on Terrorism 277

Chapter 10 Peasant Protest, Rebellion, and Resistance 282 Malaysia and the Weapons of the Weak 283

Malaysian Peasants and the Green Revolution 284

Fighting Back 286

Obstacles to Resistance 287

Protest and Change 288

Kikuyu and the Mau Mau Rebellion 289

The British in East Africa 289

The White Highlands 291

The Roots of the Rebellion 292

The Rebellion 294

“State of Emergency” 295

The Oath and the Detention Camps 297

Independence 298

The Rebellion in Chiapas 299

Poverty and Inequality in Chiapas 301

The Rebellion and the Global Economy 302

Contents xi

The Revolt and the Reactions of the Mexican Government 303

The Future of Peasants 304

Conclusion 305

Chapter 11 Anti-Systemic Protest 306 Protest as Anti-Systemic: The Two World Revolutions 307

The Revolution of 1848 308

The Revolution of 1968 310

The Protests of Labor: Coal Miners in Nineteenth-Century Pennsylvania 311

The Coal Industry and the Worker’s Life 311

Worker Resistance and Protest 314

Destroying Worker Resistance 316

Global Feminist Resistance 317

Gender Relations in the Culture of Capitalism 319

Strategies of Protest 321

Direct Action and Occupy Wall Street 323

Anarchism and Direct Action 325

Conclusion 328

Chapter 12 Religion and Anti-Systemic Protest 329 Indigenous Religious Movements as Anti-Systemic Protest 331

The Ghost Dance 331

The Cargo Cults 332

Zionism in South Africa 334

The Global Challenge of Anti-Systemic Religious Protest 336

Islamic Fundamentalism 338

Islamic Fundamentalism in Iran 339

Protestant Fundamentalism in North America 340

“Terror in the Mind of God” 345

Some Examples of Religious Violence 346

Understanding Religious Violence 351

Conclusion 351

Chapter 13 Solving Global Problems: Some Solutions and Courses of Action 353 The Central Dilemma of Growth 354

The Depletion of Natural Capital/Wealth 357

The Depletion of Political Capital/Wealth 358

The Depletion of Social Capital/Wealth 363

Things We Could Do 372

The Debt Strike 375

Conclusion 376

xii Contents

References 379

Name Index 392

Place and Culture Index 398

Subject Index 401

xiii

PrefaCe

Over the past 400 to 600 years, a culture and society, originating for the most part in Europe and dedicated to the idea of trade and consumption as the ultimate source of well-being, began to expand to all parts of the globe. In many ways it is the most successful culture and society the world has ever seen, and its technology, wealth, and power stand as monuments to its suc- cess; however, accompanying its expansion have been problems—growing social and economic inequality, environmental destruction, mass starvation, and social unrest. Most members of this society and culture perceive these problems as distant from themselves or as challenges for them to meet. However, there is the possibility that these problems, which threaten to negate every- thing this culture has accomplished, are intrinsic to the culture itself. That is the possibility to be explored in this book.

The outline of this book emerged when, a few years ago, my colleagues at the State University of New York at Plattsburgh, James Armstrong and Mark Cohen, and I began developing a course on global problems. We wanted to create a course that would help students understand the major global issues that they confront in the mass media—problems such as the so-called population explosion, famine and hunger, global environmental destruction, the emergence and spread of new diseases, so-called ethnic conflict and genocides, terrorism, and social protest. We learned quickly that to make the course successful, we had to overcome the often-ethnocentric perspectives of the students, perspectives that were often reinforced by media coverage of global affairs. We needed also to compensate for the students’ lack of backgrounds in anthropology, history, and economics, all crucial for understanding the roots of the problems we were to examine. Finally, we needed to illustrate that the problems we examined were relevant to them, that the problems would affect them either directly or indirectly, and that their actions now or in the future would determine the extent to which the origins of these problems could be acknowledged, let alone ever addressed. The form of this book emerged from our efforts at deal- ing with these pedagogical issues and the classroom interactions that these efforts stimulated.

The Focus oF This Book

We can summarize our approach in this book as follows: There has emerged over the past five to six centuries a distinctive culture or way of life dominated by a belief in trade and commod- ity consumption as the source of well-being. This culture flowered in Western Europe, reached fruition in the United States, and spread to much of the rest of the world, creating what some anthropologists, sociologists, and historians call the world system. People disagree on the critical factors in the development of this system and even whether it was unique historically, although most agree on certain basic ideas. Among the most important are the assumptions that the driving force behind the spread of the contemporary world system was industrial and corporate capital- ism, and that the spread of the world system is related in some way to the resulting division of the world into wealthy nations and poor nations or into wealthy core, developed, or industrialized areas and dependent peripheral, undeveloped, or nonindustrialized areas.

The spread of the capitalist world system has been accompanied by the creation of distinctive patterns of social relations, ways of viewing the world, methods of food production, distinctive diets, patterns of health and disease, relationships to the environment, and so on. However, the spread of this culture has not gone uncontested; there has been resistance in the form of direct and indirect actions—political, religious, and social protest and revolution. How and why capitalist culture developed and the reasons why some groups resisted and continue to resist its development are among the questions posed in this book.

The answers to these questions are based on specific assumptions. First, a central tenet of anthropology is that personal, social, cultural, and historical factors determine the point of view

xiv Preface

any person might have regarding a certain phenomenon. No less is true of those participating in the culture of capitalism who have created a view of global events that we share. Consequently, these views tend to be, to one extent or another, ethnocentric; that is, they describe, evaluate, and judge events solely from a specific cultural perspective. Among the major purposes of anthro- pology is to teach ways to avoid ethnocentrism and appreciate the importance of understanding the beliefs and behaviors of others from their perspectives rather than from our own, a view anthropologists refer to as cultural relativism. To some extent ethnocentrism is unavoidable, and the job of the person who interprets global events—whether a journalist, economist, sociologist, or anthropologist—is to make the event comprehensible to those people for whom that person is writing. Our assumption is that to minimize cultural bias we must recognize that our views of events are partially influenced by our culture and, for that reason, we must make our own culture an object of analysis.

Second, we assume that an understanding of global events requires us to recognize that no contemporary culture or society exists independent of what anthropologists refer to as the world system, and that each falls within either the core or the periphery of that system. Using this terminology to refer to different parts of the world permits us to avoid the more value-laden distinctions implicit in the use of terms such as developed or undeveloped, modern or traditional, and First, Second, or Third World. World system theorists often include a third category, semi- periphery, to denote those nation-states or regions that are moving toward the core or that have moved out of the core. These distinctions recognize that countries can move from one category to another. For example, the three nation-states that world system theorists consider to have been dominant in the past four centuries—the Netherlands, the United Kingdom, and the United States—all began as semiperipheral to the world system.

Third, we assume that global events and actions cannot be adequately understood with- out considering the events that preceded them; we must develop a historical perspective. For example, we live in a period of human history largely defined by a sequence of events that began some four to five hundred years ago, loosely termed the Industrial Revolution. Because each of us has lived during only a particular phase of that history, we tend to take it for granted that the world has always been as it is today. Yet the modern industrial world order is, in historical terms, a very recent event. We are deceived by our biology, by our limited life span, into think- ing of sixty, seventy, or eighty years as a long time, but in the perspective of human history it is a fleeting moment. Human beings have for most of their existence lived as bands of gatherers and hunters, for a shorter time as agriculturists and farmers, and only recently as industrialists and wage laborers. Yet the Industrial Revolution has transformed the world and human societies as has no other event in history. We cannot understand the events, issues, and problems of today’s world without understanding the how’s and why’s of the Industrial Revolution.

It will be clear that the emergence of capitalism represents a culture that is in many ways the most successful that has ever been developed in terms of accommodating large numbers of individuals in relative and absolute comfort and luxury. It has not been as successful, however, in integrating all in equal measure, and its failure here remains one of its major problems. It has solved the problems of feeding large numbers of people (although certainly not all), and it has provided unprecedented advances in health and medicine (but, again, not for all). It has pro- moted the development of amazingly complex technological instruments and fostered a level of global communication without precedent. It has united people in common pursuits as no other culture has. Yet it remains to be seen when the balance sheet is tallied whether capitalism repre- sents the epitome of “progress” that some claim.

NeW To The sixTh ediTioN

Since the publication of the fifth edition of Global Problems and the Culture of Capitalism, we have experienced significant global upheaval as well as heightened concerns over global immigration, urbanization, climate change, and regional conflict, as well as levels of protest,

Preface xv

all of which are addressed in this, the sixth, edition of the book. Specific changes include the following:

• Additional discussion of money as debt, the movement of money, and the consequences and the importance of perpetual growth.

• Material on advertising targeted to children and the scope of the practice. • Coverage of immigration, its history, and its social, political, and economic impact. • Coverage of urbanization and its impacts • Discussion of climate change and its impact on the economy and society as a whole. • Timely information on Occupy Wall Street and the philosophy and techniques of Direct Action. • A new, comprehensive Chapter 13 discussing how to address many of the issues raised in

the book.

Throughout this edition, I have tried to make the nature and origin of complex problems acces- sible to general readers and undergraduates without oversimplifying the gravity of the problems.

As always, I welcome comments and communications from readers and can be reached by email at richard.robbins@plattsburgh.edu. In addition, readers are encouraged to use the Web resources, including readings, online videos, and references created especially for the book, at http://www.plattsburgh.edu/legacy.

This text is available in a variety of formats—digital and print. To learn more about our programs, pricing options, and customization, visit www.pearsonhighered.com.

AckNoWledgmeNTs

Many people have contributed to the writing of this book. I have already mentioned my colleagues James Armstrong and Mark Cohen. Others include Alfred Robbins, Michael Robbins, Rachel Dowty, Tom Moran, Philip Devita, Gloria Bobbie, Douglas Skopp, Edward Champagne, Vincent Carey, Larry Soroka, Ellen Fitzpatrick, Ann Kimmage, Michael Miranda, John Hess, Jan Rinaldi, Tina Charland, Tim Harnett, Daphne Kutzer, Monica van Beusekom, Russell Kleinbach, Peggy Lindsey, Dan and Mary Abel, Amy Weisz Predmore, Mark White, Barbara Harris, Art Orme, Sam Baldwin, and Mary Turner, along with the many students who helped me better articu- late important issues. I also thank members of the email list H-World, particularly its moderator Patrick Manning; Richard Winkel, moderator of the email list Activ-L (aml@webmap.missouri. edu), and its many contributors; and many of the students who used one or another version of this book and who provided invaluable feedback. I would also like to thank the book’s reviewers.

Reviewers of the first edition were John L. Aguilar, Charles O. Ellenbaum, Cynthia Mahmood, Richard Moore, Jon Olson, and Dave Winther. Reviewers of the second edition were Elliot Fratkin, Smith College; James Loucky, Western Washington University; Luis A. Vivanco, University of Vermont; and Vaughn Bryant, Texas A&M University. Reviewers of the third edition were Eric Mielants, Fairfield University; William Leggett, Middle Tennessee; Nancy McDowell, Beloit College; and Benjamin Brewer, James Madison University. Reviewers of the fifth edition were George Esber, Miami University, Middletown; Suzanne Scheld, California State University, Northridge; James Sewastynowicz, Jacksonville State University; and Miguel Vasquez, Northern Arizona University.

I owe a special debt of gratitude to Sylvia Shephard for her initial support of the project; to Sarah Kelbaugh, Dave Repetto, Nancy Roberts, and Barbara Reiley of Pearson and Jennifer Jacobson and Dan Vest of Ohlinger Publishing Services for guiding the project through to its present edition; as well as to Shiny Rajesh, who managed the latest edition, and Sayed Zakaullah, whose copyediting will make reading the book far easier than it would have been otherwise. And special thanks go to Amy, Rebecca, and Zoey, who tolerated with unusual understanding my periods of self-imposed isolation. Needless to say, the final form of the book, for better or worse, is the result of my own decisions.

http://www.plattsburgh.edu/legacy
www.pearsonhighered.com
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[W]hat difference it would make to our understanding if we looked at the world as a whole, a totality, a system, instead of as a sum of self-contained societies and cultures; if we understood better how this totality developed over time; if

we took seriously the admonition to think of human aggregates as “inextricably involved with other aggregates, near and far, in weblike, netlike, connections.”

—Eric Wolf, Europe and the People without History

On or about December 1910, wrote novelist Virginia Woolf, human character changed.1 On his repeated visits to the United States, Frenchman André Siegfried (1928; see also Leach 1993:266) noted much the same thing: “A new society has come to life in America,” he said. “It was not clear in 1901 or 1904; it was noticeable in 1914, and patent in 1919 and 1925.” Samuel Strauss (1924, 1927; see also Leach 1993:266), a journalist and philosopher writing in the 1920s, suggested the term consumptionism to characterize this new way of life that, he said, created a person with

a philosophy of life that committed human beings to the production of more and more things—“more this year than last year, more next year than this”— and that emphasized the “standard of living” above all other values.

It is obvious, he continued,

that Americans have come to consider their standard of living as a somewhat sacred acquisition, which they will defend at any price. This means that they would be ready to make many an intellectual or even moral concession in order to maintain that standard.

Introduction: The Consumer, the Laborer, the Capitalist, and the Nation-State in the Society of Perpetual Growth

P a r t O n e

1 The quote, which has been widely used (see, e.g., Fjellman 1992:5; Lears 1983), appeared in an essay, “Mr. Bennett and Mrs. Brown,” in The Captain’s Death Bed and Other Essays, but was originally part of a paper Woolf read to the Heretics, Cambridge, on May 18, 1924. “On or about December 1910 human character changed … The change was not sudden and definite … But a change there was nevertheless, and since one must be arbitrary, let us date it about the year 1910” (Woolf 1950).

2 Part I • Introduction

There is no question that in America, the half-century from 1880 to 1930 marked a major tran- sition in the rate and level of commodity consumption—the purchase, use, and waste of what comedian George Carlin called “stuff.” Food production grew by almost 40 percent from 1899 to 1905; the production of men’s and women’s ready-made clothing, along with the produc- tion of costume jewelry, doubled between 1890 and 1900; and glassware and lamp production went from 84,000 tons in 1890 to 250,563 tons in 1914. In 1890, 32,000 pianos were sold in the United States; by 1904, the number sold increased to 374,000 (Leach 1993:16).

During this period, the perfume industry became the country’s tenth largest; at one depart- ment store, sale of toiletries rose from $84,000 to $522,000 between 1914 and 1926. The manufacture of clocks and watches went from 34 million to 82 million in ten years. By the late 1920s, one of every six Americans owned an automobile.

Of course, these figures are dwarfed by what Americans and others around the world consume today. World and national consumption expanded at an unprecedented pace during the twentieth century, with household consumption expenditures reaching $37 trillion in 2010, three times the level of 1975 and six times that of 1950. In 1900, real consumption expenditure was barely $1.5 trillion (United Nations Development Programme 1997). Today there are as many cars in the United States as the number of people with drivers’ licenses, and the rest of the world is doing everything that it can to catch up. China and India, alone, have added at least half-a-billion middle-class consumers in the new century demanding everything that consumers in the West desire.

However, although consumption rates were not nearly as high as they are today, the early twentieth century is notable because it marked the early phase of what Ernest Gellner (1983:24) called the society of perpetual growth and the creation of a new type of culture: consumer capitalism.

The emergence of the society of perpetual growth and the culture of capitalism marked a new stage in an ongoing global historical process that began (to the extent that it can be said to have a beginning) anytime from the fifteenth to the early nineteenth centuries. The creation of the human type that characterizes this stage, the consumer, followed soon after the emer- gence of two other historically unique categories of human types: the capitalist and the laborer. Merchants had existed, of course, for thousands of years, and people had always labored to produce goods and liked to consume what they’d produced. But never before in history has there existed a society founded on three categories of people: the capitalist, whose sole purpose is to invest money to earn more; the laborer, whose sole means of support comes from the sale of his or her labor; and the consumer, whose sole purpose is to purchase and consume ever-increasing quantities of goods and services.

At some point in their lives, virtually everyone plays the roles of consumer, laborer, or capitalist: as consumers, they buy goods and services; as laborers, they work for wages; and as capitalists, they invest money in banks, insurance policies, pension plans, stocks (slightly more than half of American families participate in the stock market, either directly or through investment accounts), education, or other enterprises from which they expect to profit. What ties together these roles, and indeed the entire culture, is money.

Thus, we can perhaps best conceptualize the working of the culture of capitalism as sets of relations between capitalists, laborers, and consumers, tied together by the pursuit of money, each depend- ing on the other, yet each placing demands on, and often conflicting with, the others. Regulating these relationships is the fourth element in our scheme, the nation-state. In this cultural scheme, the nation- state serves as, among its other functions, a mediator, controlling the creation and flow of money and setting and enforcing the rules of interaction. (Figure I.1 is a highly simplified model, but it serves to underline the key features and unique style of the culture of capitalism.)

Nation-State Nation-State

$

$ $

Consumer

CapitalistLaborer

Figure i.1 Patterns of Relations in the Culture of Capitalism

Part I • Introduction 3

However, money is, obviously, the key to understanding this culture. Jacob Needleman (1991:40–41) wrote that, in another time and place, not everyone has wanted money above all else. People, he said,

have desired salvation, beauty, power, strength, pleasure, prosperity, explanations, food, adventure, conquest, comfort. But now and here, money—not necessarily even the things money can buy, but money—is what everyone wants.… Therefore, if one wished to understand life, one must understand money in this present phase of his- tory and civilization.

People require money as a means of exchange and, for the modern capitalist system to function, money must constantly increase in supply—that is, it must perpetually grow. Why this is so is not immediately apparent, even to many economists, but should the money supply fail to expand, the whole system could collapse in economic, political, and social ruin. Thus, virtually all of the issues discussed in this book relate in one way or the other to money and people’s efforts to acquire it or compensate for the lack of it.

Part I of the book describes the emergence of the consumer, the capitalist, the laborer, and the nation-state and outlines how each must function for our society to work. In Part II, we examine what economists call market externalities—that is, some of the mostly unintended consequences that follow from the interaction between the consumer, the laborer, the capitalist, and the nation-state. Finally, in Part III we explore the range of resistance to these externalities.

But first, given its central role in the working of the entire society, let’s begin with a brief primer on the nature of money and an exploration of how money has assumed its importance and how it determines how we live our lives.

A Primer on money: The PhilosoPher’s sTone

Commonly we consider money simply as a standardized means of exchange—that is, as a sub- stance with which the value of goods and services can be compared and traded, a tool, so to speak. But to view money only in that way is to misunderstand its true importance. To better explain, think, instead, of the philosopher’s stone. Magicians or alchemists sought the philoso- pher’s stone because it was thought to have the magical power to transmute base metals into gold, which implies taking something that was considered worthless and converting it into something of value. Money is the modern-day equivalent of the philosopher’s stone.

To appreciate the magic of money, the most important thing to consider is that the prime directive of the culture of capitalism is that it must maintain economic growth. People must buy, produce, invest, and profit more this year than the last and more next year than this in perpetuity. Failure to maintain growth would threaten the economic, social, and political foundations and stability of our entire society. People would be unable to repay debts, banks would fail, millions would lose their jobs, and millions of businesses would go bankrupt, to name only a few of the obvious consequences. Aside from a few notable periods of economic contraction, such as the periodic depressions

Alchemists believed that the philosopher’s stone could convert something worthless into something of value, namely, worthless metal into gold. By adopting paper money as a medium of exchange, the culture of capitalism has invented a new philosopher’s stone—one every bit as powerful as that sought by magicians of another time. (Mary Evans Picture Library/ Alamy.)

4 Part I • Introduction

of the nineteenth century, the great worldwide depression of the 1930s, the recession of the early 1980s, the Asian financial collapse of 1997, and the economic crisis of 2007–2008, the economy has grown reasonably well worldwide, although some parts of the world have historically done a better job than others.

Economic growth is traditionally measured by the growth of gross domestic product (GDP)—a measure of the money value of all goods and services produced and sold in a given time period. Table I.1 and Figure I.2 portray the yearly growth of global GDP during the past two millennia.

Over the long term, but particularly over the past two centuries, the growth of GDP in the global economy, especially among European offshoots (e.g., the United States and Australia)

TAble i.1 Level and Rate of Growth of GDP per Capita: World and Major Regions, a.d. 1–1998

1 1000 1820 1998 1–1000 1000–1820 1820–1998

Region

Level of Growth (1990 International

Dollars) Annual Average Compound

Growth Rate

Western Europe 450 400 1,232 17,921 -0.01 0.14 1.51 Western Offshoots (e.g., United States, Australia)

400 400 1,201 26,146 0.00 0.13 1.75

Japan 400 425 669 20,413 0.01 0.06 1.93

Latin America 400 400 665 5,795 0.00 0.06 1.22

Eastern Europe and Former USSR

400 400 667 4,354 0.00 0.06 1.06

Asia (excluding Japan) 450 450 575 2,936 0.00 0.03 0.92

Africa 425 416 418 1,368 -0.00 0.00 0.67 World 444 435 667 5,709 -0.00 0.03 0.95

Source: Adapted from Maddison (2003:28)

0

5,000

10,000

15,000

20,000

25,000

30,000

1 1000 1820 1998

Western Europe

Western Europe Offshoots

Japan

Latin America

Eastern Europe and Former USSR

Asia (excluding Japan)

Africa

World

Figure i.2 Rate of per Capita GDP Growth by Region from a.d. 1 to 1998

Part I • Introduction 5

and Japan, has been spectacular: a 300-fold increase in the amount of goods consumed, the num- ber of goods produced, and the fortunes that have been made. A global citizen of today is almost nine times as wealthy as his or her counterpart some 200 years ago; in some parts of the world, the average citizen has increased his or her wealth almost 25 times over the same period.

To put perpetual growth into perspective, imagine that in the year 2010 you earned and spent $30,000 a year (or that some corporation earned $300,000,000). A growth rate of about 3 percent a year is necessary to maintain a healthy economy. Consequently, by 2015, you (or the corporation in this case) must earn and spend $34,855 (or $348,550,000) and by 2035, earn and spend $63,507 (or $635,070,000). If we factor in an inflation rate of 3 percent on top of our neces- sary growth rate, the figures are even higher (see Table I.2).

These increases, of course, could occur only with a steady increase in the money supply. Without the increase, people would not have the means to buy more, employers would not have the means to pay more, and capitalists would not be able to profit more. But how does the money supply increase? Where does money come from and what or who provides its magical power?

The Development of Commodity money

The use of objects as a medium of exchange is likely as old as trade. Thus the use of shells, furs, and other items of value as money are known in small-scale societies throughout the world (see Graeber 2011). The use of precious metals as a medium of exchange can be traced back 5,000 years to Mesopotamia and coins to the seventh century b.c. These are examples of com- modity money. Commodity money is money that has some value in itself beyond its exchange value. Thus, precious metals used for making coins can be used for making jewelry or other objects of art. Generally, the value of the coins is equal to the value of the metals used. As such, the use of coins for trade involves the exchange of one thing of value (e.g., a shirt) for another thing of equivalent value (e.g., an equal amount of gold).

But coins had a big disadvantage: They were difficult to store and to transport. Furthermore, it was not uncommon for people to melt the coins and use them for some other purpose, thus preventing them from circulation. This is where the first bit of magic comes in; people began to substitute paper for coins. “Exchange” or “demand” notes—paper certificates that could be exchanged for a valuable commodity, generally gold or silver—were first used in China in the twelfth century and became common in Europe in the fourteenth and fifteenth centuries (Williams 1997). Thus, a trader in Milan might buy textiles from someone in Bruges and pay with a paper note backed by gold that the seller could retrieve from a third party. Generally, banks or governments issued exchange notes or paper money, but virtually anyone could do it.

TAble i.2 Required Growth in Income and Spending over a Twenty-Five-Year Period

Required Income Growth 3 Percent (with 0% inflation)

Required Income Growth at 6 Percent (with 0% inflation) or Income Growth at 3 Percent

and Inflation at 3 Percent

Year Individual Corporate Individual Corporate

2010 $30,000 $300,000,000 $ 30,000 $ 300,000,000

2015 34,855 348,550,000 40,494 404,940,000

2020 40,495 404,950,000 54,661 546,661,000

2025 47,048 470,048,000 73,783 737,830,000

2035 63,507 635,070,000 134,434 1,344,340,000

6 Part I • Introduction

Theoretically, these notes represented a specific amount of some valuable metal—usually gold or silver—that could be retrieved on demand by the holder of the note.

The issuing of paper money was a huge step in helping to accelerate economic growth because there was potentially no limit to the amount of money that could be created. This was the first step in money magic: Paper, which was essentially worthless, now had the same value as gold, silver, or other precious metals. In a wonderful book, Money and Magic: A Critique of the Modern Economy in the Light of Goethe’s Faust, economist Hans Binswanger (1994) describes how Johann Wolfgang von Goethe, who served as finance minister at the Weimar court, used his classic work Faust (published in two parts in 1808 and 1832) for a commentary on the industrial economy, and, more specifically, on the nature of money. The original Faust, on whom the story is based, was a magician, an alchemist. In Goethe’s book, Faust makes a bargain with Mephistopheles—a devil—and together they create a new society based on paper money. Binswanger suggests the alchemist’s attempts to convert lead into gold were abandoned

not because they were futile, but because alchemy in another form has proved so suc- cessful that the arduous production of gold in the laboratory is no longer necessary. It is not vital to alchemy’s aim, in the sense of increasing wealth, that lead actually be transmuted into gold. It will suffice if a substance of no value is transformed into one of value: paper, for example, into money. (Binswanger 1994:9)

There was, however, a big loophole with commodity money. Banks or other entities that issued money were under no legal obligation to have on hand an amount of gold or silver equiva- lent to the deposits they held or the amount of paper money they issued. Banks practiced what is called fractional reserve banking; this means simply that they had to keep on hand only a fraction of the money or gold deposited assuming that not everyone would demand their gold deposits at the same time. They settled on about a 1:10 ratio; that is, for every dollar deposited, they could lend out ten paper dollars, even though they did not have on hand the gold on which the money was based. This gave to banks, and other private financial institutions, the power to literally create money out of thin air. On the one hand, banks profited from the interest on the

The issuing of paper money was a huge step in helping to accelerate

economic growth. (Rafael Ben-Ari/Fotolia.)

Part I • Introduction 7

loans, and people had more money to spend. On the other hand, problems occurred when, after an economic boom, the economy slowed down and depositors demanded their gold. Unable to pay all their depositors because they had issued notes in excess of the amount of gold they had on hand, banks failed and people lost their savings.

In 1913, the U.S. government tried to address some of these problems by creating the Federal Reserve Bank to control and stabilize the money supply. The Federal Reserve Bank, a private corporation, creates money by lending it to the federal government. The debt assumed by the government becomes an asset (i.e., money owed to the Federal Reserve) that the Federal Reserve then distributes to member banks who, following the fractional reserve requirement, can lend it out or invest it at a 10:1 ratio to earn interest and/or dividends. Money simply represents debt. It is lent into existence (see Brown 2010; Hallsmith and Lietaer 2012). Paper money was still tied to gold, and a person could retrieve paper for gold, but the Federal Reserve could ensure that banks had enough money on hand, or could quickly acquire it, to honor withdrawals. In that way, banks could honor requests for gold but be able to create new money by making loans. But the Federal Reserve could still not address the limitations imposed on economic growth by tying money to a fixed commodity. Solving that problem required another bit of magic in the form of another government decree.

The shift from Commodity to Fiat or Debt money

The next stage in the evolution of money occurred in 1931 when the United States stopped allowing people in the country to convert paper money into gold. The value of money was still tied to the value of gold, and exchanges with foreign governments still occurred in gold. Then in 1971, the U.S. government declared that its currency would no longer be backed by gold, or anything else for that matter. This marked the final shift from commodity to fiat or debt money—paper that was used as evidence of a claim to economic value but that, legally, was not redeemable for anything.