Themes /

Setting the Record Straight

The origins and meaning of capitalism

Jonathan Cornford

Manna Matters October 2016

Christianity versus Capitalism (Part 1)


   Portrait of a Merchant (Hans Holbein, 1532)

At the beginning of the 20th Century, Max Weber published his landmark essay, The Protestant Ethic and the Spirit of Capitalism, drawing a link between Protestantism and the birth of capitalism. Ever since, the nature of the relationship between Christianity and capitalism has been debated backwards and forwards and remains hotly contested.

How is it that the religion whose founder said, ‘Do not store up treasures for yourself on earth’ has come to be so closely associated with the economic system of ‘endless accumulation’? Any plain reading of the texts of the New Testament and the ‘texts’ of capitalism would judge the two systems as diametrically opposed. Yet, on the whole, the Christian church has proved remarkably accommodating to capitalism and, to this day, parts of the church remain fervent propagandists for it.

The very term ‘capitalism’ has been a lightning rod for conflict. The polemic overtones of the word have tended to recommend it to both left and right wing ideologues and discouraged its use by many others. For a long time, more moderate thinkers preferred to use terms such as ‘globalisation’ or ‘free market economics’ or ‘neoliberalism’, rather than the more inflammatory language of ‘capitalism’. But since the Global Financial Crisis all that has changed - capitalism is firmly back on the agenda. In 2009, the then Prime Minister of Australia, Kevin Rudd, declared that ‘the international challenge for social democrats is to save capitalism from itself’. In 2014, Thomas Picketty’s dense 600-page Capital in the Twenty-First Century became Amazon’s No.1 bestseller almost immediately on its release.

These days, there is little doubt that there is something called ‘capitalism’ that is driving the behaviour of the global economy, but there is still not much clarity about what ‘it’ is and certainly no agreement about what to do about it.

There are plenty of serious-minded Christian thinkers who have a strong critique of capitalism, but who have nevertheless come to the ultimate conclusion that capitalism is the only economic system worth supporting. In particular, we are told that no other economic system has been so successful at lifting people out of poverty and that, therefore, if we have a basic concern for the poor then we must accept a capitalist economy. The job of Christians should not be to try to abolish capitalism, but to make it nicer. For example, the widely respected  theologian, Miroslav Volf, wrote this in critiquing a book he felt was too harsh on capitalism:

This is the hour of capitalism’s triumph, and it is now that capitalism most needs a critique. ... [but] for all its grave inadequacies including a trail of tears in its wake, capitalism is also helping feed and make life easier for the great majority of the world’s population.

This is a powerful argument and one that cannot be dismissed lightly. Nevertheless, this series of articles will argue that capitalism is indeed a project which Christians need to reject if we are to be faithful to the way of Jesus and if we are choose life for ourselves, our neighbours and all the earth’s creatures. However, to come to this position responsibly, without resorting to a glib radicalism, requires doing some hard work of clarifying and disentangling a dense confusion of ideas, beliefs and assumptions that have all been knotted together to form a powerful moral justification for capitalism. We need to clarify what we mean by the word ‘capitalism’; we need to disinter its history and its behaviour over the course of five centuries; we need to examine its historical relationship to Christian faith; we need to discern the meaning of all of this through the lens of the gospel; and finally, we need to ask what rejecting capitalism actually means and just what it is that the gospel calls followers of Jesus positively to do in light of these facts.

This is a lot of intellectual labour, but it is not an abstract exercise; rather, it cuts to the heart of many of the most personal challenges of modern existence faced by all of us. Capitalism is a force that holds the world and us in its grip, with implications for planetary survival as well as the spiritual and material outcomes of our own individual lives. If we take the call of Jesus seriously, then capitalism is something about which we must make some choices.

What is it?

Unfortunately, there is no settled definition of capitalism or account of its origins. A common assumption is that capitalism merely describes natural human economic behaviour free of constraints from governments. This idea is often joined with a bastardised concept of Adam Smith’s ‘invisible hand’, to suggest that when people are free to pursue their economic lives in peace, then everyone is better off. In this telling, capitalism doesn’t have a history, as it has always been intrinsic to human behaviour; rather, history tells the story not of the rise of capitalism but of the gradual process by which human society has freed itself from the restrictive shackles of domineering government and religious superstition, to finally reach its apogee in secular capitalist liberal democracy. Coinciding with this story is also the story of how human civilisation has raised itself from the mire of widespread poverty and hardship to widespread prosperity. This is, in fact, the story told by Francis Fukuyama’s famous The End of History (1992), where capitalism and democracy are described as evolutionary forces inexorably bringing about the moral and material betterment of humanity. In such versions of history, capitalism is therefore fundamentally linked to ‘natural’ human behaviour, individual freedom, political democracy and rising prosperity. It’s a nice story, except that, as we shall see in a moment, it’s complete bunkum.

Another common assumption is that capitalism merely describes the opposite of communism or socialism. Karl Marx did not invent the term capitalism, but it was his description of ‘the capitalist mode of production’ in Das Kapital (1863) that has in large part set the terms of the debate ever since. Marx made an enormous contribution to broadening the lenses by which we look at economics, for which he should be credited. However, the political project which Marx so fervently advocated – that of revolutionary communism and the abolition of private property - also had the unfortunate effect of weighing down much future discussion with the assumption that one ultimately had to choose between capitalism and ‘the spectre of communism’.

Now, at the beginning of the 21st Century, this is no longer a problem - communism is a dead project. However, this has also left something of a vacuum in challenging capitalism, with a widespread assumption that, as Margaret Thatcher famously proclaimed, ‘There is no alternative’.

To try to see capitalism with a little more perspective, we need to take it down from its twin ideological pedestals - ‘the font of all freedom’ on one hand, and ‘everything that is wrong with the world’ on the other - and to come to understand it as merely one more product of human history. It is not some universal human phenomenon, but rather a very particular form of economic organisation with a very particular story.

The story of capitalism

Debates about the origins of capitalism amongst economic historians are almost as pedantic and heated as debates about atonement amongst theologians. Nevertheless, the broad outlines of the story are fairly clear and agreed upon and that is all that need concern us here.

Our story begins in Europe in the 15th Century at the end of the mediaeval period. This was a time when Europe was settling down after a couple of centuries of turmoil caused by plague, peasant revolts and endemic warfare. The perplexing tangle of principalities, dukedoms and kingdoms was gradually forming into the modern states that we now recognise, governed by a centralised kingship. Towns were growing, trade was on the increase and there was generally rising prosperity. I say prosperity was rising generally because the striking fact about this period of history - contrary to our highly distorted perception of the Middle Ages - is how prosperous peasants had become and how much the economic gap between peasant and lord had narrowed.

In this new environment, a series of economic changes began to take hold, which, over the course of a couple of centuries (roughly between 1450-1650), amounted to a complete transformation of the economic order. Perhaps one of the most profound changes was the end of the old feudal arrangements between lord and peasant, in which the peasant had protection and guaranteed access to land in return for giving the lord a certain amount of his labour each year. This was a fixed arrangement and, in a time of rising peasant prosperity, lords were losing out on the deal. In response, they began to settle for a new deal – peasants were granted their freedom (they were no longer under the legal bondage of serfdom) and the lord (or landowner) would pay for their labour when it was wanted, but in return peasants needed to pay rents for land they wanted to farm. What had once been a social relationship was transformed into a commercial relationship. Where once there was some understanding of a mutual obligation, now rents could be raised as high as the market would bear and labour could be dispensed with when it was not needed. In short, land and labour had become commodities to be exchanged on the market.

At about this same time, a number of northern Italian city-states - Venice, Genoa, Florence - began to become fantastically wealthy from the profits of long-range trade between East and West. As well as financing the artistic flourishing of the Renaissance, these Italian cities also invested their wealth in two distinct areas. Firstly, they became very shrewd international financiers, underwriting merchants and kings across Europe, and everywhere using their credit to win commercial advantages for themselves.

Secondly, they began spending vast sums on what we would now call a military-industrial complex, developing the new gunpowder technology of warfare – artillery and firearms - and paying for professional mercenary armies. As well as successful trading enterprises, these cities became remarkably formidable war-making states. Looking on, the newly-centralising larger states of France, Spain, England and the Netherlands began to realise that if they were going to be able to compete militarily in this new environment, they too would need to become commercially successful states, advancing the interests of trade and privileging finance. Trade flourished and Europe gradually became the site of a stable international market. Where once the challenge of kings was to win the loyalty of lords who could supply knights for his armies, now the challenge of kings was to foster an economy that could generate enough revenue to pay for the new style of warfare.

Alongside these deep changes in the structure of social, economic and political relationships, there were a number of other factors that added fuel to the fire of change. The ‘discovery’ and then pillaging of the Americas by Spain and Portugal brought a vast new quantity of gold and silver into circulation which generally stimulated economic activity and contributed to the new and perplexing economic phenomenon of perpetually rising prices – what we now call inflation. Also at this time, the world of business was being transformed by new techniques. The adoption of ‘Arabic’ numerals suddenly made multiplication easy (it is fiendishly difficult with Roman numerals) and opened up a new and revolutionary vista to the world of finance: the miracle of compound interest. The adoption of double-entry bookkeeping allowed a businessman to weigh the exact cost of things against their exact return, thus providing a very close calculation of overall profit. This began to sharpen business understanding of commercial efficiency and rationality. Finally, closely related to these techniques of accounting, merchants had developed sophisticated means of joining together to undertake large-scale, high-risk, high-profit ventures – the beginnings of the joint stock company.

Together, these changes had transformed the social, economic and political landscape of Europe by 1650 and constituted what we retrospectively describe as the beginnings of a capitalist world-economy, or capitalism for short.

Defining capitalism

We are now in a position to begin to define this term a little more closely. To become clearer about what capitalism is, it is perhaps helpful to first clarify what it is not, as this has been an area of some confusion.

Firstly, it needs to be pointed out that capitalism is not simply a synonym for the pursuit of profit. Everywhere and throughout history there have been people who have engaged in commerce and who have pursued profit. Indeed, East Asia (China, Japan, India and even through to Persia) in the 15th Century had a highly developed international trading economy which was much larger, and in some ways more sophisticated, than that of Europe. Nevertheless, Europe went on to develop capitalism and East Asia did not. Alternatively, it would be meaningless to think of the struggling local fish and chip shop owner as a capitalist, simply because she is engaged in commerce.

Certainly, both commerce and profit are absolutely central to capitalism, but they are by no means unique to it. While it may be legitimate at times to describe a person or firm, or even a country, as ‘capitalist’, the language of capitalism has its strongest descriptive power when it is used to describe an economic system as a whole. Thus, a capitalist economic system surrounds and involves and even determines the lives of many who could never be described as capitalist. Moreover, capitalism was from the very beginning an internationalised economic system which has never been under the control of a single government. As an economic system, it has governed governments and not been governed by them.

This is central to what makes capitalism unique amongst all other forms of economic organisation in human history. In all other social systems in history (whether tribal, feudal, despotic or even the great imperial ‘super-economy’ of China), economic structures have ultimately served the needs of social and political structures, usually hierarchic and military. The new world-system that emerged in 16th Century Europe - what we are calling a capitalist world-system - accomplished a historic inversion: in a capitalist world-economy, social and political structures ultimately came to serve an economic structure that was beyond the scope of any political authority to control. As Karly Polanyi famously observed, ‘it means no less than the running of society as an adjunct to the market. Instead of economy being embedded in social relations, social relations are embedded in the economic system.’

The other common misconception about capitalism that needs to be clarified - and perhaps the most surprising - is that capitalism is not synonymous with general economic freedoms, ‘free trade’, nor with the economic ideology referred to as ‘neoliberalism’ or ‘economic rationalism’. While there have indeed been times and places in the history of capitalism when the economic elite have seen it as in their interests to promote free trade, there have been just as many times and places when economic elites have felt it in their interests to maintain monopolies and restrictions on trade. Similarly, rather than just emerging from free individuals exercising their economic inclinations, capitalism has nearly everywhere been fostered by the state and frequently relied on state intervention to assist it (just think of the post-GFC bail-outs). The equation of capitalism with simple economic freedoms becomes even more ludicrous when you realise that, from the very beginning and to this present day, the capitalist system has always given impetus to various forms of slavery in more regions of the world than we would care to admit.

Having clarified what capitalism is not, we are now in a position to say something more concrete about what it is. There are three things which are common to virtually all definitions of capitalism:

  1. The use of capital to make more capital.
  2. The mediating role of the market.
  3. The importance of rights in private property.

The first of these elements, the endless accumulation of capital, represents the governing principle of capitalism. A capitalist economy must continually grow. The constant search for growth - fuelled by competition - is the incredible dynamism which has been the driving success of capitalism and has led it to displace all other economic systems. The role of competition in driving growth – what Joseph Schumpeter referred to as ‘creative destruction’ - has also made capitalism remarkably adaptable and resilient.

The relationship between the second two elements – the role of the market and the role of property rights - is what makes them significant. The point about property rights is that they allow you to use your property to produce for the market in whatever way you choose. You can also trade that same property on the market. As we have seen, a key shift in Europe was the transformation of land and labour from a heritage and a commitment into property that could be bought and sold on the market. Thus we can simplify our definition of capitalism to two things:

  1. The process of endless accumulation.
  2. The commodification of all things.

There is much more that could be said to describe the behaviour of a capitalist economic system in contrast to others; however, this is perhaps enough for our purposes here. In brief, we can say that capitalism is not ‘natural’, it is not inevitable and it is not universal, in the sense that not everyone behaves like ‘a capitalist’. Rather, capitalism refers to a very particular form of economic organisation that rose out of very particular historical circumstances, and it is governed by a very particular set of principles. 

The question now becomes, ‘What should be the Christian attitude towards capitalism?’  And what about Weber’s supposed contention that capitalism was a product of the Protestant Reformation? Does that mean that Christianity is in some way directly responsible for capitalism? It is to these questions we shall turn in the next edition of Manna Matters