The Wealth of a Nation: Institutional Foundations of English Capitalism, by Geoffrey M. Hodgson, Princeton College Press, 304 pages, $39.95
A galaxy of sensible students have tried to account for the financial transformation of England within the 18th and early nineteenth centuries—the interval that started the Nice Enrichment that created the fashionable world. What may Geoffrey M. Hodgson’s The Wealth of a Nation add to this mountain of scholarship and disputation?
Quite a bit. Constructing on his earlier work, particularly 2015’s Conceptualising Capitalism, the British economist argues that the Nice Enrichment and the related rise of liberalism stemmed from institutional change, significantly a authorized and political system that protects property and contracts and gives a safe area for particular person enterprise. He combines that view (which owes a lot to the Nobel-winning economist Douglass North) with a redefinition of capital and capitalism, the place he attracts on Joseph Schumpeter, Thorstein Veblen, and different heterodox economists.
Hodgson criticizes the definition of capital utilized by the nice majority of economists and historians, through which the phrase means bodily items used to provide different items or companies. He argues as an alternative that it correctly refers back to the buying energy used to accumulate these items, whether or not as money or as credit score. This makes finance and monetary establishments central to capitalism. It additionally makes capitalism traditionally distinctive: a contemporary phenomenon that’s distinct from the different types of markets and property relations which have existed in civilizations all through historical past.
In Hodgson’s account, the important shift stemmed from authorized institutional modifications (together with the Monetary Revolution of the 1690s) that made it doable each to entry extra capital and to create it primarily from nothing. One central innovation was the modification of land title regulation and enforcement to allow much more mortgage finance. The principle course of right here, which took a substantial time to take maintain and isn’t but absolutely full, was the alternative of older feudal types and guidelines of tenure by extra easy title.
These shifts didn’t simply make the pooling and assortment of capital simpler. They made it doable to successfully convey credit score from the long run into the current: You possibly can safe credit score in opposition to the earnings that will stream from future manufacturing to mobilize sources to create that manufacturing, then use the eventual earnings to service and liquidate the credit score. Hodgson argues that progress was held again by a scarcity of capital till the center of the nineteenth century, when the modifications have been sufficiently superior.
***
This story, making finance the motive force of financial modernization and making authorized institutional reform the issue enabling finance, signifies that Hodgson has to have interaction with a number of rival accounts. One rival idea is that of Karl Marx, who noticed class battle because the driving power of historic change. Hodgson primarily accepts a lot of Marx’s evaluation of how a capitalist society’s social relations work, however he rejects Marx’s idea of historical past and his account of the relation between materials productive processes and social relationships.
Hodgson additionally rejects 4 different theories of the origins and nature of contemporary capitalism. The primary, which sees know-how because the autonomous supply of financial progress and modernity, is represented primarily by the concepts of the Texas economist Clarence Ayres. The second is Max Weber’s thesis linking capitalism to the change in outlook and psychology introduced by Protestantism. The third is Deirdre McCloskey’s argument attributing the Nice Enrichment to the proliferation of liberal values and concepts, akin to respect for commerce and enterprise as methods of life, welcoming innovation relatively than fearing it, and easily permitting broad limits for folks to do and suppose what they like. The fourth, related to Joel Mokyr, combines cultural and technological explanations.
Of those rival accounts, these of McCloskey and Mokyr are closest to Hodgson’s and but most completely different. Each share Hodgson’s perception within the historic uniqueness of contemporary capitalism (although McCloskey prefers to not name it that) and each date its emergence to the mid-Seventeenth century. However each reject his central thesis that authorized establishments are the basic issue on this historic rupture.
The issue with Mokyr’s arguments, as Hodgson says, is that they depend on a collection of seemingly fortuitous and unexplained shifts or improvements. With McCloskey, nevertheless, the controversy is extra of a draw, coming right down to a probably unresolvable dispute about what counts as vital and what as enough. McCloskey notes that the establishments that North and others level to had been round for hundreds of years with out creating capitalism, so that they could possibly be solely a vital situation, not a enough one; the establishments needed to be mixed with a shift in outlook to launch the Nice Enrichment.
Hodgson counters that these cultural modifications would have had no impact with out the establishments—and that the establishments that underlay the emergence of contemporary credit-based capitalism have been themselves novel, coming about solely in a selected place at a sure time. The weak spot of Hodgson’s account is that it implies there’s a suite of institutional guidelines that may drive the emergence of a contemporary capitalism until there are very highly effective countervailing forces. That’s certainly optimistic, and McCloskey’s argument that establishments require a selected cultural and ideological milieu to have financial outcomes is well-taken.
A particular problem is the case of Japan, which independently noticed the emergence of a recognizable sort of contemporary capitalism on the identical time that England did. This isn’t an issue for McCloskey, as a result of her mannequin may be simply utilized to Tokugawa Japan (with Chonindo, a type of neo-Confucianism that valorized the “manner of the service provider,” taking part in the position performed in Europe by Anglo-Dutch liberalism). It’s extra of a problem for Hodgson—therefore a bit of the guide that argues {that a} comparable set of establishments and monetary preparations emerged underneath the Tokugawa. This part is suggestive, however due to its relative brevity it’s not absolutely labored out.
***
That stated, this can be a well-written guide with a transparent argument, and it provides one thing vital to our understanding of how the primary fashionable economic system got here into being. Its arguments for emphasizing the position of finance and for outlining capital as cash or buying energy are very convincing. And it factors the best way to additional questions, a analysis agenda that we will hope Hodgson himself will pursue whereas inspiring different researchers to do likewise.
They might, for instance, discover finance’s position in financial modernization in additional element by inspecting the completely different types it has taken in numerous nations and the way this in flip generates diverse types of enterprise group. The way in which large-scale and readily accessible finance reworked enterprise constructions throughout the Belle Epoque of 1870 to 1914 is worthy of a giant guide itself. One other subject to discover is the connection between the exact types taken by capitalist social relations and the financial and monetary methods in place. One other can be the ways in which some nations, together with England, are nonetheless hampered by feudal remnants and by the persevering with financial and political weight of the landed aristocracy.
Many historians would possibly push again in opposition to Hodgson’s declare that capitalism, as he outlined it, is discovered solely within the fashionable world. Right here we could draw on a theorist who Hodgson doesn’t talk about, the French historian Fernand Braudel. For Braudel, capitalism was constructed round and outlined by finance in the best way Hodgson describes. However he noticed it as a recurrent phenomenon, one thing that appeared at numerous factors in historical past as an occasional outgrowth or superstructure of market relationships. This may imply that the establishments Hodgson sees as unprecedented once they emerged in early fashionable England have been in truth solely the newest occasion of one thing that had occurred a number of instances earlier than—for instance, in Antonine Rome, Gupta India, Abbasid Iraq, and Tune China.
But when that is appropriate, we should additionally conclude that these earlier episodes didn’t maintain themselves. That in flip poses a query that Hodgson doesn’t discover: whether or not capitalism as he defines it might probably persist indefinitely.
One doable response to that query—one other a part of the analysis agenda this guide ought to encourage—can be to check the social and authorized place of finance in numerous instances and locations. In most cultures, finance is feared and mistrusted, exactly due to its solvent impact on social, political, and financial relations. But it’s concurrently desired (when it exists) due to its capacity to make so many tasks possible. If you’re in search of theories as to why these capitalist episodes are lower quick, there simply is perhaps some clues in that stress. This has apparent, and urgent, up to date relevance.
