Colonial Plunder Didn’t Create Capitalism

That’s right. Now, without getting too deep into the weeds, let me just make this argument here. In feudalism, you had plenty of money going around. In feudalism, you had plenty of markets as well. But the markets were very limited, and the money was deployed in a mostly nonproductive way. Why?

Well, who were the bulk of the producing class in feudalism? Who controlled production? It was peasants. Peasants with small plots of land. And those peasants with small plots of land overwhelmingly were geared toward what you might call a “safety-first” strategy. Instead of throwing themselves onto the market, trying their best to be as efficient as possible, or trying their best to outcompete other peasants, they tried to steer away from market competition and relied on their own crops, their own land, and even produced as many of their own manufactured goods as they could.

Now, because they’re making their own food and their own manufactures, it means that they don’t actually go to the market very often. They don’t have to buy things very often. Now, if every peasant is doing this — if every peasant is basically producing for himself — it means that they only take those things to the market that are left over after they’ve taken care of their consumption needs.

But if this is the case, it also means that markets are pretty thin. They don’t have a lot of goods coming to them because people only bring the tiniest fraction of all the goods they’re growing or making at home to the market. But this means, in turn, that the markets themselves are not very reliable. Peasants can’t count on finding everything they need there. And that reinforces peasants’ tendency to not rely on the markets.

So you have a situation where there are some markets, but they are not continually growing. This is the opposite of Adam Smith’s assumption. The same can be said regarding the nobility. They don’t control production the way capitalists control production. The way they get their income is by extracting rents from peasants.

But rent extraction posed a problem. The nobility, like today’s landlords, could say, “Hey, I’m jacking up your rent a hundred bucks. Pay it or I’m going to evict you.” But whereas the landlord nowadays can rely on the fact that whoever’s renting from them is going to try to raise money to pay these higher and higher rents, the feudal landlords were not legally allowed to kick peasants off the land as long as the peasants were willing to pay what’s called a customary rent. So they couldn’t jack up the rents.

Now, how do feudal landlords increase their income if it’s coming out of rents? The main way they can do it when they can’t threaten peasants with eviction is through coercion. Often times, this involved physical threats and intimidation. But most of all, it involved raiding other lords’ lands and annexing them. Warfare is the best way to dramatically increasing your revenue when markets don’t allow for it.

Warfare and coercion were built into the feudal system. This had a very important implication: The rational thing to do with your surplus, if you were a lord, was not to invest it in means of production, but in means of warfare and coercion. If lords come across a windfall, a lot of money, what they’re going to use the money for is a larger retinue, a larger army — that is to say, the means of coercion.

So, for both the main classes — peasants on the one hand, lords on the other — the feudal structure imposed specific economic strategies. Peasants avoided the market to the extent that they could, which kept the market small, and they committed to a safety-first strategy rather than a profit-first strategy. And the lords did not put what money they had into new machines, new tractors, new trailers, new plows, but instead put their money into larger and larger armies.

In this situation, if these lords suddenly got lots of physical treasure, what they did with it was accelerate the intensification not of production, but of warfare, which is what Spain and Portugal did. In turn, that system generated its own rationality for what you do with your money. And no matter if it’s a small pool of money or a large pool of money, you’re going to use it in a way that makes sense within that class structure.

So what it required, therefore, for money to become capital,  and this is what Marx is saying in his chapters on primitive accumulation — and it’s impossible to miss unless you’re going quotation-hunting — is if money is to be used in a way that’s recognizably capitalist, the money itself won’t trigger that change in class structure. It’s a prior change in class structure that creates a new function for money. That money now becomes capital, whereas previously it was just money.

That is what the chapters on primitive accumulation are supposed to show. They show that Smith’s mistake was not that he was wrong on where the money came from — plunder versus frugality. He was wrong in assuming that the money would be used capitalistically at all.

And this is what you just said, Melissa. The key here is Smith assumes what needs to be proved. He’s assuming that capitalism already exists. Yeah, if it already exists, then a windfall like treasure could accelerate your pace of development. But if it doesn’t already exist, that money is going to be put to other uses, which brings us back to the question of where capitalism came from if it couldn’t have come from the windfall?