Thinking

The Invariants of a Weltwirtschaft

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What is this monster of history, this world-economy? In Civilization and Capitalism, 15th-18th Century, Vol. III: The Perspective of the World, Fernand Braudel provides a typology of world-economies. He has great sympathy for Wallerstein’s conception of world-systems, and it is by way of summarizing it, that Braudel presents his notion. Ce n’est pas identique: he doesn’t quite agree with Wallerstein in all details. We are not going to present Braudel’s typology directly. The reader can do worse than read the volume herself. In what follows, we shall instead strip it down to its bare bones.

Let us note here that in the Marxist frame – the dominant conception of capitalism – the central nexus is between the holder of capital on the one hand and the holder of labor power on the other. Deprived of ownership of the means of production the artisan has been reduced to docility. The accumulation of capital takes place through the under-compensation of labor. The labor theory of value is thus built into the frame. For Marxists, industrial capitalism is capitalism, the centuries of commercial capitalism preceding it is merely proto-capitalism.

Marxists have to resort to refinements like ‘finance capitalism’ (Hobson 1902, Hilferding 1910) and ‘monopoly capitalism’ (Lenin 1916) to capture the dominance of merchant-financiers which they describe as a ‘late development’, as if this state of affairs was new to the turn of the century. The City of London had been quietly running the world for over a hundred years. Forgotten too was the long reign of the Dutch merchants, and the even longer one of the Italians. The present work – A Natural History of Capitalism – is instead a political history of capitalism in the sense of Braudel.

Although Braudel’s conception of the world-economy is highly elegant and nuanced, it is too – for want of a better word – vague, at least for our purposes. [All quotes are from Braudel unless otherwise specified.] The concept has German origins. Originally, the word Weltwirtschaft can be said to be “an autonomous section of the planet able to provide for most of its needs, a section to which its internal links and exchanges give it a certain organic unity.” The Mediterranean Weltwirtschaft

was so to speak the highest plane of the economy, whose activity, more or less intensive depending on the place, was to be found along all the coastlines and sometimes deep inland. Such activity ignored the frontiers of empires.

The surest signature of a Weltwirtschaft is the prevalence of the law of one price: a Weltwirtschaft “is the greatest possible vibrating surface” characterized by a uniformity of prices over a huge area. The existence of merchant communities follows immediately. It is the activities of these merchants that results in prices moving together over a great area and which gives the Weltwirtschaft a certain organic unity. That is, long-distance trade is what knits the Weltwirtschaft into a whole:

The present writer has always maintained that long-distance trade was a kind of super-trade in the history of merchant enterprise.

Now, long-distance trade is always, without exception, the province of big merchants. Small scale traders never had the financial depth or the logistic capabilities to participate in this game. Not until the advent of listed companies in the sixteenth century could small investors participate even passively. Big merchant-financiers – whom Braudel directly calls capitalism – only got involved when there was potential for large-scale profits. Local and even regional trade was left to petty traders. It was the highest plane of the economy – long-distance trade, high finance, credit, industrial-scale manufacturing – that was, and is, the real home of capitalism.

How does the hierarchical structure of the Weltwirtschaft come about? In other words, what is the construction process of the Weltwirtschaft?

At ground level and sea level so to speak, the networks of local and regional markets were built up over century after century. It was the destiny of this local economy, with its self-contained routines to be from time to time absorbed and made part of a ‘rational’ order in the interest of a dominant zone or city, until another organizing center emerged; as if the centralization and concentration of wealth and resources necessarily favored chosen sites of accumulation.

That is, the vectors pointing this way and that in these local economies were reoriented by merchant-financiers from the Metropolis to point towards the center.

The resultant pattern of domination rests upon a dialectic between a market economy developing unaided and spontaneously, and an overarching economy which seizes these humble activities from above, redirects them and holds them at its mercy.

This is the ‘construction process’ of the Weltwirtschaft.

Thus polarized, the Weltwirtschaft develops a ‘natural’ structure. The core is a relatively small area of concentrated wealth and power. Today one must include three distinct regions: North America, Western Europe, and an East-Asian pole centered at Japan which by now includes Taiwan, South Korea, and Hong Kong. During the nineteenth century, the core was restricted to northwestern Europe. It was only after the mid-century railroad revolution that forged the big national economies, that Germany, Japan, and the United States joined the core. This development came about only in the late-nineteenth century, becoming manifest only in the 1890s.

During the reign of Holland – for a century after the Peace of Westphalia (1648) – the core was extremely small, restricted as it was to the northwestern extremity of Europe. In the bipolar era preceding the establishment of Dutch hegemony, the core consisted of one pole in northern Europe and another in the Italian city-states. Defying the law of physics, the center of gravity of this system lay at the southern extremity where the north-south axis of Europe’s glittering towns – the Venice-Bruges-London axis – met the east-west axis of the Levant trade routes. That is, Venice.

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The periphery can be discerned as unambiguously. Poor – and impoverished further by unequal exchange – this vast zone lies subordinated to the core. Specializing in resource extraction and low value-added work, it is invariably caught up in a vicious cycle of poverty. The surest sign of peripheral status is large-scale monoculture. Poland and Sicily specialized in growing grains for wealthy cities, Cuba was forced to grow tobacco, sugar plantations dominated the West Indies, the Dutch restricted cinnamon production to Ceylon, and so on and so forth. Even the American south was peripheralized: specializing in cotton plantations worked by slaves (slavery is another sure-shot marker of peripheral status). Moreover, the international division of labor persists for very long periods, through political upheavals and such like. Two centuries have passed since the decolonization of South America, yet this region is still stuck in a colonial trade relationship with the core of the Weltwirtschaft. The periphery always lies politically subordinated, more often than not under the political tutelage of states closer to the center, and at the very least, completely lacking in strong states.

Between the core and the periphery is a fairly large middle zone. Specializing neither in high-end work, nor in low-end resource extraction and monoculture. The middle zone is constantly pushing to join the core. It is where most of the great powers reside; a major reason why it needs to be identified. The jealous merchants of the middle zone envy the wealth and power of the merchants of the core. Caught up in the vortex of the Weltwirtschaft run by the merchants of the core, the strong states of this zone are irritated at their inferiority, and invariably follow an aggressive policy:

It seems to be the case that every state anywhere near the center of the world-economy became more quarrelsome, going out to make conquests as if the proximity excited its bile.

Thrice in a generation (1652-54, 1665-67, 1672-74), England engaged in fierce wars with the Dutch, trying to wrestle away control of the money-spinner.

A critical marker for the middle zone is the presence of foreign merchants. If the higher functions of a city are carried on by merchants from the core, it is a sign of subordination. During the period of Spanish high imperialism in the sixteenth century, the great bankers of Genoa set up shop in Seville and held all the strings. To take a current example, teeming with western multinationals, China is squarely in the middle zone. The middle zone is also characterized by a marked defense mechanism that betrays its inferiority. The mercantilism of major powers during the period of Dutch primacy in world trade and finance is an example par excellence of this defensive response.

This hierarchical structure emerges over time and persists due to the strong path-dependence inherent in the long-term dynamics of the Weltwirtschaft. Entire zones get locked into self-perpetuating patterns of specialization. Advantages accrue over time and reinforce the existing hierarchy. The ‘rationalization’ of the Weltwirtschaft by the merchants from the ‘organizing center’ creates chains of dependence and produce the pattern of inequality we observe in the extant world.

Throughout the core and extending into the middle zone there are capitalist cities with their wealthy merchants. Invariably, this string of glittering towns act as subordinates and accomplices of a super-city. The merchant-financiers of the super-city hold all the reigns of the Weltwirtschaft. These cosmopolitan, tolerant world-cities play host to the merchants of the world. All the tongues can be heard here and every religion is practiced. These fabulously wealthy super-cities can get mind-bogglingly expensive due to the constant inflation resulting from the intrinsic urban functions. Economic activity gets pulled in by the high prices, itself a sign of rude health. The opposite holds in the periphery: prices are laughable, always a sure sign of peripheral status.

The activities of the metropolis’ subordinates center on the super-city: “they stand guard around it, direct the flow of business towards it, redistribute or pass on the goods it sends them, live off its credit, and suffer its rule.” There are always capitalist cities jealous and eager to take over, but there is only space enough for one super-city in every age. Why??

The proof of this uniqueness theorem lies in the nature of the superstructures of hegemony. A number of things must come together: naval control over sea-lanes and military protection of the overland routes linking up the trade network, ship-building and marine insurance, specie and the management of trade imbalances, capital and the institutional mechanisms to pool and channel capital, credit and the provision of liquidity required for the expansion of the Weltwirtschaft.

The merchant-financier at the center has the perspective of the world: he can keep track of lucrative opportunities all over the Weltwirtschaft, collude with other firms, and exercise some degree of influence over the policies of the center country; for there is always a strong state at the center.

At the center of the world-economy, one always finds an exceptional state, strong, aggressive and privileged, dynamic, simultaneously feared and admired. In the fifteenth century it was Venice; in the seventeenth Holland; in the eighteenth and still the nineteenth, it was Britain; today it is the United States. How could these ‘central’ governments fail to be strong?

Immanuel Wallerstein has taken some trouble to prove that this was not the case for the government of the United Provinces – which has been described as virtually non-existent by contemporaries and historians alike. But this is to overlook the inevitable: as if the central position itself could fail to create and demand effective government, as if government and society could fail to form an indivisible whole, and as if money could fail to create both social discipline and an extraordinary capacity for action.

The elaborate machinery of dominance of New York and London should not mislead us, the superstructures of hegemony can be almost invisible. I am thus inclined to think that the discreet rule of the great bankers of Genoa (1557-1627) is the real bare-boned archetype of the object under investigation. It is here that we should be looking for invariants. So what are the invariants in this skeletal structure?

Control of specie and credit is certainly one. The Genoese bankers controlled the flow of American silver through their extraordinary credit machinery. They shouldered the burden of providing liquidity to the expanding world-economy. The role played by the Genoese bills of exchange would three centuries later be replicated by the Bill on London; the centerpiece of the gold-sterling standard of the nineteenth century. In the ‘gold standard’ era, the pound sterling served as the numéraire, and the expansion of the global economy with the spread of the industrial revolution would have been impossible without liquidity generated by the City of London.

Parenthetically, on wonders if the ‘switch to finance’ – pioneered by the Genoese in the sixteenth century – isn’t a natural response by the merchants of the center? Financial expansion in the Metropolis is a sign of maturity of the ‘cycle of accumulation’ so to speak, although I am disinclined to use ‘cycle’ with its strong connotations of the inevitability of decline. What reason do we have to suppose that the financial hegemony of New York will unravel in short order? Duménil and Lévy expected the financial crash of 2008 to undermine neoliberalism. I was decidedly skeptical. The bankers may have taken a hit in the public sphere, but financial hegemony has intensified. And why is this surprising? “In a crisis assets return to their rightful owners.” [Andrew Mellon] The advantage is always with the frontrunner.

The second invariant is the protection racket: the nexus between naval hegemons and capitalism. When Spain sacked Genoa in 1522, and pillaged the city, the nobili vecchi were safe in their country mansions. After the withdrawal of the Spanish troops, they made Genoa into a junior geopolitical ally of Spain. They up and left, setting up shop in Seville where a colony of Genoese merchants was already established. By then Spain had already swallowed up the Portuguese navy and become the maritime hegemon of the now globe-spanning Weltwirtschaft. Thus attached to the power that mattered, the Genoese became bankers to the crown and gained control of the Europe’s finances. They ran the specie trade, financed the wars into Low Countries, underwrote the voyages, dominated maritime insurance, financed long-distance trade, and organized the Piacenza fairs; in effect, they ran the Weltwirtschaft.

The third and last invariant we can glean from this skeletal structure is the existence of the anti-market. Flanders, the site of Europe’s first industry, required alum for the dyeing of cloth. The Genoese merchant-bankers had a monopoly of alum exports from Asia Minor, and used their market power to corner a large share of the surplus generated by the expansion of Flemish textile industry. The anti-market is the systematic cornering of surplus by connected insiders through the elimination of the market: market power, monopoly control of key commodities, insider information and ‘betting on sure things’, institutionalized privilege, implicit and explicit subsidies, and so on and so forth.

Keeping these three invariants in mind – the protection racket, the anti-market, and monetary control – we remark here that the construction process of the Weltwirtschaft is indistinguishable from the polarization of the system around a site of accumulation. The emergence of the Weltwirtschaft is a global phenomena whose effects are most clearly visible in the periphery. With the collapse of British hegemony, the entire edifice of European colonial empires came undone. This is no surprise: “a number of chains of dependence had been snapped.” One can observe something similar with every change of guard.

Before we undertake an examination of the ancient Weltwirtschaft from the First Millennium BC, we have to make an important departure from Braudel. Immanuel Wallerstein has argued that wherever there was a world-empire – Rome, Mogul India, China, Persia, Ottoman empire, and Muscovy – the underlying world-economy straddled by the super-state was unable to develop. Braudel thinks that

even under the constraints of an oppressive empire with little concern for the particular interests of its different possessions, a world-economy could, even if rudely handled and closely watched, still survive and organize itself, extending significantly beyond the imperial frontiers: the Romans traded in the Red Sea and the Indian Ocean; the Armenian merchants of Julfa, the suburb of Isfahan, spread over almost the entire world; the Indian Banyans went as far as Moscow; Chinese merchants frequented all the ports of the East Indies; Muscovy established its ascendancy over the mighty periphery of Siberia in record time. I grant that Wittfogel is not mistaken when he says that in these political high-pressure areas of the empires of traditional southern and eastern Asia, ‘the state was much stronger than society’ – stronger than society it may have been; but it was not stronger than the economy.

To throw it back at Braudel: the state may not be stronger than the economy but it was considerably stronger than capitalism. The super-wealthy merchants of India, Rome, China, Russia, Persia, and Ottoman Turkey, had little leverage over the court. Capitalism did not ‘share power’ with the state. In state systems on the other hand,

This [the strength of the state] did not prevent – far from it – such ‘central’ governments from being more or less dependent on a precocious form of capitalism already sharp in tooth and claw. Power was shared between the two.

Interested as we are in the political career of capitalism, we shall restrict our attention to where capitalism was strong enough to share power with the state. We can then faithfully describe these hegemons as merchant oligarchies. Therefore, it makes sense to investigate historical state systems. This will allow us to isolate cases for inspection, with the added advantage of allowing a robust application of centered geopolitical realism. We demonstrate how in their heyday Tyre (ninth and eighth centuries BC) and Carthage (the three centuries preceding the Punic wars) satisfy every criteria laid out in this piece.

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