Political Economy and the Rise of Capitalism

A Reinterpretation

David McNally

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Conclusion: Political Economy and Capitalism

The history of landed property, which would demonstrate the gradual transformation of the feudal landlord into the landowner, of the hereditary, semitributary and often unfree tenant for life into the modern farmer, and of the resident serfs, bondsmen and villeins who belonged to the property into agricultural day-labourers, would indeed be the history of the formation of modern capital.[1]

So Marx wrote in his famous preparatory notebooks for Capital . What Marx had in mind in this passage is that the genesis of capitalism crucially involved dissolving the bonds between labourers and the land which had characterized all previous modes of production. The essential precondition of capitalism—what Marx called “the primitive accumulation of capital”—is creation of a growing class of propertyless labourers. And creation of such a class presupposes the (often forcible) separation of producers from the land: “the expropriation of the agricultural producer, of the peasant, from the soil is the basis of the whole process.”[2] The ultimate result of this historical process of separation is the triadic social order of landowners, capitalists, and wage labourers, which characterizes agrarian capitalism. In the actual course of events, however, all kinds of intermediate social arrangements are possible. In fact, it was quite common in the seventeenth century for the improving landlord to function as the principal economic agent organizing capitalist production on the land and for the farmer to appear as a wage labourer of sorts. The pioneer analysts of the emerging economic system thus often identified surplus value with ground rent and capitalist profit with wages. Within this developing system of agrarian capitalism they had not yet grasped the essential features of that industrial capitalism which would emerge in the course of time. As Marx wrote,

Petty, Cantillon and all those other writers who stand closer to the feudal period assume that ground-rent is the normal form of surplus value, while profit for them is still lumped indiscriminately with wages or at most appears as a portion of this surplus-value extorted from the landowner by the capitalist. They therefore base themselves on a state of affairs in which, firstly, the agricultural population are still the overwhelming majority of the nation, and, secondly, the landowner still appears as the person who appropriates in the first instance the excess labour of the immediate producers, by way of his monopoly of landed property. Landed property thus still appears as the chief condition of production.[3]

The pioneers of classical political economy thus wrote with an emerging agrarian-based capitalism in mind. Their theoretical preoccupations were shaped by those changes which transformed the nature of agrarian economy rather than by industrial development. They envisioned the economy as a circular flow of wealth animated by the agricultural surplus product; the primary economic agents were farmers, landlords, and country labourers. Merchants and manufacturers, although necessary within a commercial economy, were considered of subsidiary importance; indeed, in some cases these groups were depicted as actually detrimental to economic and social well-being. Even when these groups were seen as fulfilling an economically necessary role, their functions were emphasized as subordinated to the leading economic sector—agriculture.

This theoretical orientation is clear in the earliest period of classical political economy, the late seventeenth century. In the case of William Petty, the pioneer of classical British economics, we have shown that rent was the central concept in his system of economic analysis. Petty was preoccupied with determining the relative value of land and labour inputs in agricultural products and that agrarian income which he considered most significant—rent. As we have demonstrated in chapter 2, Petty’s conceptual structure centrally informed the economic writings of Child, Locke, Barbon, and North. A similar approach informs the pioneer of classical French political economy—Pierre de Boisguilbert. Although Boisguilbert’s primary concern was the relation between taxes and the generation of wealth, he saw the continuous production of an agricultural surplus as critical to the economic and political health of France; the economic and fiscal policies of the Crown should derive first and foremost from encouraging peasants and landlords to improve agriculture and expand their output. Thus, although Boisguilbert’s analytic point of departure differed from Petty’s, he too arrived at the view that economic well-being hinged on a growing agrarian surplus.

In the third quarter of the eighteenth century the analyses of Petty and Boisguilbert were integrated into a rigorous and coherent model of economic relations. Building on Richard Cantillon’s refinements of Petty and Locke, the physiocratic school developed the first genuine system of theoretical economics. Quesnay and his followers saw themselves as reconstructing at a theoretical level the basic economic practices of English agriculture. They took agriculture to be the only surplus-producing (or “productive”) sector and saw rent as the only form of this surplus. Thus, the generation and utilization of rent became the crucial phenomena of the physiocratic model. Moreover, the Physiocrats saw the agrarian economy in clearly capitalist terms. Central to their model was the triadic social structure which had become the distinctive feature of English agriculture, the relationship of landlord, tenant farmer, and wage labourer in agricultural production. They thus constructed their model on large “capital farms” which employed hired wage labour and produced for the market.

The same triadic structure occupies a central place in Adam Smith’s vision of the economy. Indeed, it crucially informs his theory of value, in which the value of every good “resolves itself” into rent, wages, and profit; these incomes accrue respectively to landlords, labourers, and capitalists.[4] Moreover, though Smith rejects the physiocratic doctrine of the exclusive productivity of agriculture, he does consider it to be the most productive sector of the economy. This view is fundamental to his critique of mercantilism, which he faults for diverting wealth away from its most productive use (landed investment) into less productive areas. Furthermore, as we have demonstrated in chapter 5, Smith’s theory of capital accumulation rests upon an agricultural model of the economy. His growth theory treats the economy like a giant corn-producing enterprise, in which all capital is reproduced during the course of the annual agricultural cycle (and in which there is thus no fixed capital). Though this model does not incorporate all the essential features of industrial capitalism, it points to some central aspects of growth, as defined in terms of a per capita increase in the most important consumer good—corn. Moreover, Smith’s analysis of growth in an agricultural economy clearly assumes capitalist production relations; it assumes that all feudal or precapitalist forms of organization have given way to those based on capital and wage labour. It is this assumption, integrated into an economic model, which clearly distinguishes the classical political economists from Petty to Smith as theorists of agrarian capitalism .

A capitalist model of economic relations presupposes a labour market; it presupposes that feudal social relations have been severed, communal and customary rights to land in large measure eliminated, and the direct agricultural producer “proletarianized,” that is, reduced to the status of a rural day labourer. The rudimentary model of Petty and Locke explicitly incorporates the wage labourer. Unable to take the results of primitive accumulation for granted, the Physiocrats advocated state policies which would create capitalist relations of production on the land. Smith, by contrast, simply accepts without analysis the results of primitive accumulation; and, in chapter 6 of Book 1 of The Wealth of Nations, he quickly plunges his readers into a social setting inhabited not principally by independent commodity producers like butchers, brewers, and bakers but rather by three main social classes: landowners, capitalists, and wage labourers.

Some classical political economists thus made explicit reference to those processes of primitive accumulation which are a prerequisite of capitalist development; others simply presupposed this unique result of historical change. But in either case, there can be little doubt that classical political economists prior to Ricardo paid significant attention to those historical processes which constitute the origins of capitalism, an attention they shared with Marx. But the pre-Ricardian classical economists differed sharply from Marx; they saw these historical changes as creating a social relation (wage labour) consistent with the natural order of things and thus as indispensable to economic prosperity and social harmony. These economic theorists thereby naturalized and eternalized historically specific relations of production. The result, as Marx put it, is that for the political economists “there has been history, but there is no longer any.”[5] It is this ahistorical and naturalistic treatment of capitalist production relations which gives the work of these theorists its uncritical and apologetic character.

Although they accepted the need for primitive accumulation, however, the political economists had profound reservations about the general effects of commercialized economic relations on social and political life. It is here that their treatments of the state become important—and it is here that our analysis departs again from the traditional interpretation of classical economics. As we have pointed out in the introduction, this interpretation sees classical political economy as a species of economic liberalism. According to this view, the political economists developed a liberal-individualist account of economic relations which buttressed the liberal theory of the state. Indeed, this view generally credits the classical economists with identifying market relations—personified in merchants and capitalist manufacturers—as the vital precondition for liberal political arrangements. In this way, it says, they made commercial and industrial capitalists the agents of liberty.

Our analysis has shown that such a view suffers from grave defects. To be sure, the classical political economists we have studied were, to differing degrees, advocates of laissez-faire insofar as they believed that self-seeking action by independent individuals produced beneficial social effects. Yet they held that this pertained only under very definite conditions. And it was the role of the state to create those conditions—conditions which would ensure that market processes were not distorted to give monopolistic power to any economic agents. Only if the state created institutional arrangements which protected society against attempts to manipulate economic processes for selfish ends would self-seeking activity in economic markets operate for the good of society.

To say that, however, is to recognize that for these economic theorists the state had to be constructed on principles different from—indeed, antagonistic to—those which prevailed in civil society. The early classical political economists did not treat the state as an emanation of civil society, as a special institution rooted in market relations and constructed on principles consistent with those which regulated the economic relations between private individuals. On the contrary, as we have suggested, they believed that the state should function as a bulwark against the intrusion of private economic interests into the political sphere. To this end, they argued that the state should be immunized against the disease of “particularism” and constituted as a general order above the sphere of private interest. In this sense, then, the principles of the political order were the ultimate key to prosperity and harmony. Theirs was thus anything but a nonpolitical theory of society. They assigned to the state the task of creating and maintaining the legal and political framework in which self-seeking economic activity, rather than harming society, would further its general interests.

It followed from this argument that the state should not be based upon those groups which excelled at the enterprise of private economic advancement. Useful though such groups might be in a well-ordered society, they should not be allowed to influence the principles of the political realm. On this point the Physiocrats and Adam Smith were united, however much they differed in their overall conceptions of the state. For the Physiocrats, no group in civil society was to be allowed to exercise influence over state policy. Civil society was characterized by rampant particularism. For this reason, Quesnay and his school argued, the state must exist in the form of an absolute monarchy in which an indivisible political power is constructed over and against civil society. Only such a state can defend the general interest of society against the pleadings of special interests; and only such a state can intervene to eliminate those economic and fiscal practices instituted in order to win the favour of private interests. The absolutist state—a form of enlightened despotism—was for the Physiocrats, then, the essential precondition for reorganizing society from above in such a way that it could move towards agrarian capitalism.

Adam Smith shared the physiocratic opposition to the intrusion of selfish interests into the political sphere. Unlike the Physiocrats, however, Smith held that certain groups in civil society had interests consistent with the general interest. These were the groups connected with agriculture and the dominant agrarian class, the landed gentry, in particular. There were many reasons for Smith’s bias in favour of the landed gentry. Two are worthy of emphasis in the present context. First, Smith held that landlords, unlike merchants, have a fixed and permanent interest in their country of residence. They have a permanent interest, therefore, in seeing that society is prosperous and well-governed. Second, Smith held that since rent rises with the general progress of opulence, landlords have no special interest in obstructing the natural course of economic development. The same is not true for merchants and manufacturers. Since economic growth tends to depress the average rate of profit, these groups have an interest in creating monopolistic arrangements which artificially raise their prices, slow down the overall rate of growth, and increase the prices of consumer goods (thereby lowering real living standards).

From this perspective it follows that merchants and manufacturers should be prevented from influencing state policy. Instead, political power should be based upon the landed gentry—or at least its enlightened members who truly perceive the fusion between their interests and that of society. Only a commonwealth rooted in a natural aristocracy of landed gentlemen can create the framework in which self-seeking economic activity furthers the public interest. Thus, however much Smith may have admired the economic effects produced by the activities of merchants and manufacturers in a framework of perfect competition, he considered that economic progress and social stability were possible only if the state were founded upon principles foreign to those which governed the activities of merchants and manufacturers in market society. A state so founded could, moreover, be decidedly more liberal than the state envisioned by the Physiocrats. Unlike his French counterparts, Smith believed that there were groups in civil society whose private interests were consistent with the public interest. If the state were based on these groups, and if these groups were properly enlightened as to the economic and political principles necessary to the well-being of society, then the legal and institutional context could be created for private individuals to simultaneously pursue their economic self-interest and further the public good. The state could, under these conditions, play a noninterventionist role in economic life—an option which was not available in the physiocratic schema.

Our analysis makes it clear, therefore, that it is a serious misreading to depict classical political economy before Ricardo as an apologia for industrial capitalism. On the contrary, the classical political economists examined in this study—and especially their most famous representative, Adam Smith—were deeply suspicious of the commercial spirit and its potentially destructive impact upon society and the state. They did, of course, see social benefits if that spirit were to be harnessed for useful ends—benefits such as improved living standards and a strong and stable state. Nevertheless, they were profoundly worried about the dangers posed by the commercialization of social life. To circumvent these dangers, they proposed a structural tension between polity and economy. They proposed to found the state on principles foreign to those which governed economic relations in a market society. In the case of the Physiocrats, this required an absolute autonomy of the state from civil society. Smith, by contrast, believed that there was a class in civil society whose mode of life suited it for civic responsibilities—the landed gentry, or at least its most enlightened representatives. For Smith, this agrarian group could provide the required political counterbalance to the growing economic weight of merchants and manufacturers. In fact, it would appear that Smith welcomed the expansion of agrarian capitalism partly as a means of bolstering the wealth and power of the landed ruling class. By counterposing polity and economy in this way, these classical political economists, and Smith in particular, adopted an implicitly critical stance towards developing capitalism. They asserted the priority of values—distributive justice, benevolence, the priority of consumption over production—foreign to the purely economic system of capitalism. In this respect they provided the basis for a moral critique of capitalism. Yet we would not go as far as to say, as does Ralph Lindgren, that we can find in Smith a “concrete and feasible” alternative to the critique of capitalism developed by Marx.[6]

Smith’s critique of industrial capitalism was by its nature partial and seriously compromised from the start. Like all the political economists examined in this study, Smith accepted the necessity of the basic social relations of capitalism. His vision of a society based upon natural liberty presupposed those processes of primitive accumulation which had transformed the direct agricultural producer into a wage labourer bereft of land. He did so for purely economic reasons: he believed that capitalist agriculture and industry were the best means of increasing the division of labour and raising aggregate output. Yet, as we have seen, he recoiled from the inevitable consequences of generalizing these relations—intellectual fragmentation, physical stultification, and corruption. His attempt to use state policy—especially in the field of education—to combat these trends amounts to little more than an attempt to resist the symptoms of capitalist development. This ambivalence vitiated Smith’s critique of industrial capitalism. To accept the social relations of capitalism offered him little logical choice but to accept the inevitable consequences of capitalist development.

Smith was saved that choice. He lived and wrote in a period of transition, in which the ultimate direction of social and economic development was not yet clear. His ambiguous stance towards capitalism was not a tenable position, however, for social theorists and political economists of the next generation. Political economists like Jeremy Bentham, David Ricardo, and Jean-Baptiste Say recognized the direction of development and allied themselves to it. They shaped political economy into a doctrine of industrial capitalism. They jettisoned its moral and historical dimensions and its agrarian bias.[7] For them, the social relations and the direction of capitalist development were justified as natural to all forms of economic life. Classical political economy became through their labours a more rigorous doctrine; but it also became, as it had not previously been, an apologia for industrial capitalism. Once so constructed, it appeared as the goal of Smith and the Physiocrats—although their theoretical tools had been inadequate to the task. And it is that interpretation which has dominated histories of political economy. Seen through the prism of Bentham, Ricardo, and Say—rather than on their own terms—Quesnay, Turgot, and Smith appear as brilliant, although occasionally muddled, prophets of industrial capitalism, prophets whose work was merely systematized at the hands of the next generation of political economists.

Our study has shown that this view seriously distorts the richness of thought to be found in the classical political economists of the seventeenth and eighteenth centuries, and in Quesnay and Smith in particular. In their writings we find an important dimension of historical analysis (a recognition that the preconditions of capitalism must be explained) and the treatment of economic theory as political economy in the fullest sense of the term—a body of thought which sees political organization and its legal and institutional arrangements as decisive to the processes of economic life. Furthermore, because their political economy was constituted on the terrain of moral and jurisprudential discourse, we find in their writings themes which anticipate a critique of industrial capitalism. But any critique constructed upon these foundations could only be an inconsistent and ambivalent one. For as theorists of agrarian capitalism, Quesnay and Smith accepted as necessary and desirable those historical processes of primitive accumulation which transformed the mass of society into a proletariat, created a potential home market, and established certain essential preconditions of industrial capitalism. In the final analysis, their acceptance of the social relations of capitalist production rendered weak and ineffective their moral opposition to certain consequences of that form of social production.

It was the burden of Marx’s critique of capitalism to demonstrate that the original alienation of producers from the land and their transformation into wage labourers necessarily produced exploitation and general forms of capitalist alienation—alienation of workers from the products of their labour (which dominate them in the form of capital, an alien wealth and power); from their own labouring activity itself (which is performed under the dictates of capital); and from the materials and instruments of labour (the means of production).[8] For Marx, overcoming alienation and exploitation thus requires overturning the separation of producers from the means of production (including land), which is the essential precondition of capitalism; it requires in other words the expropriation of capital, that alien power produced by workers which dominates their lives in capitalist society: “What is now to be expropriated is not the self-employed worker, but the capitalist who exploits a large number of workers.” Such an expropriation “does not re-establish private property, but it does indeed establish individual property on the basis of the achievements of the capitalist era: namely cooperation and the possession in common of the land and the means of production produced by labour itself.”[9] Recognizing that capitalism was constituted on the grounds of an historical process of alienation (separation) of producers from the means of production, Marx, unlike Smith, developed a critique which struck at the roots of capitalism in demanding the abolition of alienated wage labour. For this reason, his critique remains to this day the only comprehensive—and thus “concrete and feasible” —critique of capitalism. But that is another story, one far beyond the scope of the present study.