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When Exchange Value Ruled the World: A Brief History of Capitalism
Published : 5 years ago, on
By Cameron Dean of Oakmount Partners Ltd, a globally recognized financial institution.
In life things either have exchange value or experiential value. The chances are you are already aware of what exchange value is. Quite simply, it refers to the material worth of an item.
Exchange values change all the time. A bottle of water for example, might not be worth much –and why should it be? After all it could just be purified tap water. But water bottles on sale in night clubs or concerts can be quite expensive. The price skyrockets because sellers know their customers are likely to be exhausted from dehydration, dancing, and over-excitement.
Exchange values are mostly conducted in monetary transactions, but not always. If you’ve ever swapped an item for something else – then the exchange value is determined by the object (or objects) you were prepared to sacrifice for the gain.
The Old Age of Experiential Value
Today we live in what economists call ‘market societies’, but this hasn’t always been the case. Our societies have always had markets in them – but they were never dominated by the market itself.
European society began the process of transforming into a market society from about the sixteenth century onwards, gaining faster traction with the advent of the Industrial Revolution in the eighteenth and nineteenth centuries. The continuing commodification of labour allowed exchange value to triumph experiential value.
But before then, experiential value held sway. What then, is experiential value?
Experiential value is like a sun set. It’s the value you get from being alive. It’s the feeling you get from helping your mother to clean the dishes as a child. Think about it. Imagine you couldn’t be bothered helping out with chores, and instead offered up pocket money as a payment instead. What would happen? The chances are no amount of money could hide your mother’s disappointment. Experiential value is thought to have worth beyond monetary value.
The same thing happens when a neighbour does a favour for you and you feel compelled to say “I owe you one”. This is how societies operated largely before the market took over: by obligation, honour, and reciprocation.
Enclosures and the Beginnings of Capitalism
Before capitalism, there was serfdom. Serfdom was a legal and economic system that had persisted perhaps since the dawn of agriculture. The serfs, the ancestors of regular people like you and I, were compelled to be born, live, and die working the same plot of land.
They would plant seeds and grow cereal crops on the land of wealthy feudal landowners. Once the land was harvested, the landowner would then take what he wanted by force. The serfs would be left to eat the scraps of their own labour.
Global events brought an end to serfdom. The discovery of new sea lanes allowed the Europeans to sail around Africa and on to India, China, and Japan. Ordinary merchants took wool with them and traded it for silk and swords overseas. The landowners back in the serfdom of England were shocked and appalled to find the common folk amassing huge piles of wealth akin to their own, so they decided to get in on the action. The landowners kicked the serfs off of the land – and replaced them with sheep pastures. And so began the age of the enclosures.
The serfs, who had toiled for generation after generation, had nowhere to go. So they did the only sensible thing: they moved from town to town, looking to offer their services for somewhere to sleep and something to eat. The enclosures ended serfdom and drafted a national workforce overnight.
The birth of the profit motive and debt
Initially, there were too many unemployed former serfs, and not nearly enough work to employ them. The landowners also had a problem: they needed employees to look after the sheep on their new enclosures. And so began the birth of the profit motive, and debt. Profit is a relatively new motive in human societies. Profit should not be mistaken for greed. Greed has always exited, but the profit motive has not.
It began when a few of the serfs went back to the enclosures and offered to look after the sheep – for a wage – for the landowner. In order to look after the sheep the former serf needed employees and food. So the landowners loaned money with interest to the serf for him to start looking after the sheep. This is precisely the moment the profit motive was born. Because the serf was now indebted to the landowner, he needed to make sure of two things:
- That he made enough money to pay back the money the landowner loaned to him.
- That he had some money left over (profit) to feed himself and his employee.
Debt tends to have bad connotations, but it is debt that fuels the economy. Debt jumpstarts economic transactions by breathing life into an enterprise where there was nothing before it. If the landowner had never loaned money to the serf, then neither would have made any money at all. Debt and profit make the world go around.
The devil in the detail of debt
The gift of debt allowed ordinary Europeans with nothing to set themselves up for profit-making adventures. Much of the world was explored (and colonized) by the Europeans soon after, mainly in pursuit of profit. In tow was the commodification of more and more goods.
This commodification-creep did not go unnoticed by Europe’s Christian thought-leaders, and not only because the concept of “interest” is sinful in itself. Anxieties over the triumph of exchange value over experiential value are perhaps best culminated in Christopher Marlowe’s play Doctor Faustus.
In Doctor Faustus the main character, Faustus, conjures up a demon. The demon offers Faustus unlimited power for 20 years in return for his soul. This offer (a loan) renders Faustus’ soul indebted to the demon. As the time grows near, Faustus is only filled with dread and regret at the deal he made, before he is sent to Hell.
Doctor Faustus was written around the time that exchange value was becoming the dominant system of transaction in Europe. It is important to note that it was re-imagined in the nineteenth century. In the re-told version, Faustus – realizing his dreadful mistake – decides to spend the rest of his unlimited power on making the world a better place. When the final Day of Judgment comes, God intervenes, seeing the wellbeing that Faustus has created, and ushers him off to Heaven and not Hell.
“We’re all middle class now”
The re-write of Doctor Faustus, like the original, was ahead of its time. It recognized the potential that the profit-debt marriage has to improve people’s lives. This is what the revised ending alludes to. Faustus is no longer sinful and destined to Hell – rather his indebtedness (selling his soul) has paid dividends and he is whisked off to Heaven.
Life slowly got better for both the rich and poor; first in the Western Europe and then in the Americas. Slowly because of a certain economic system: the Gold Standard. The Gold Standard stagnated and severely limited economic development. Because gold is a finite precious metal, and because under the Gold Standard the value of a currency was defined in terms of gold, no “new” money could be generated.
One of the reasons the world managed to recover from the Great Depression of the 1930s was by abandoning the Gold Standard. And so a new system began – what Yanis Varoufakis calls the “Black Magic” system of banking. This Black Magic is the ability for bankers to create money from thin air. They create it, and loan it out at interest, careful to make sure that the loanees return the money – with interest.
The only thing stopping the bankers from printing money ad infinitum is that it becomes worthless. If there is too much money about people stop believing in its worth, which can be disastrous to economies. But the more money the bankers can create from thin air, and loan out intelligently, the more entrepreneurs can start up their own businesses – like the landowners loaned money to former serfs to labour the land.
And if those entrepreneurs are successful, they can employ more people, pulling more people out of unemployment, and steadily making everyone better off.
It was Tony Blair (not John Prescott) who said “We’re all middle class now”, pointing out that many members of the working class now earn as much as their middle class compatriots (and in some cases more), and are able to afford multiple holidays a year, large houses, and to enjoy life’s little pleasures as they come.
And that is the history of Capitalism, in a very bare-boned sort of way. It is the story of exchange value; of the marriage of profit and debt; the story of manufacturing the unlimited power of belief to lift billions out of poverty, into a world their grandparents could only have dreamed of.
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