Civilization and Capitalism 15th–18th Century, Vol 2

1. Economic Life Operates on Three Distinct Tiers

This metaphor of a house with several floors is a reasonable translation of the reality of the things we shall be considering, though it does rather strain their concrete meaning.

A layered reality. Braudel conceptualizes economic reality as a multi-storied house. The ground floor represents "material life"—the vast, often invisible realm of self-sufficiency and routine, where most people lived outside the monetary economy. Above this is "economic life," characterized by transparent, competitive market exchanges.

Capitalism's elevated position. The highest floor is where "capitalism" resides. This is not merely a more advanced form of the market economy but often its "exact opposite"—a shadowy zone of initiated activities, accumulation of power, and strategic manipulation. Capitalism, therefore, is a superstructure that operates over and alongside the market economy, not simply as its natural evolution.

Interconnected yet distinct. While these three layers are interconnected, they function with different rules, agents, and mentalities. The economy begins at the "fateful threshold of 'exchange value'," distinguishing it from the non-economy of material life. Understanding these distinct layers is crucial to grasping the complex dynamics of pre-industrial economic history.

2. Local Markets Form the Ubiquitous Base of Exchange

If this elementary market has survived unchanged down the ages, it is surely because in its robust simplicity it is unbeatable - because of the freshness of the perishable goods it brings straight from local gardens and fields.

The enduring marketplace. Elementary markets, held on fixed days in towns and large villages, were the most direct and transparent form of exchange. They were vital for local food supply, closely supervised by urban authorities, and served as natural centers for social life, news, and agreements. Their robust simplicity ensured their survival across centuries and civilizations.

Growth and specialization. As towns expanded, markets proliferated, often spilling into streets or leading to the construction of specialized covered halls (like Paris's Halles or London's Leadenhall). This growth, however, also led to congestion and the emergence of "private trading" by middlemen who bypassed official markets, indicating a shift towards more direct, less regulated exchange.

Global phenomenon. This market structure was not unique to Europe. Travelers observed similar "regulated and policed" markets in Black Africa, ancient China, and pre-Columbian Mexico. India, with its vibrant monetary economy, saw markets in almost every village, driven by the need to convert produce into money for taxes, facilitated by ubiquitous Banyan merchants.

3. Long-Distance Trade is the True Cradle of Capitalism

Long-distance trade undoubtedly played a leading role in the genesis of merchant capitalism and was for a long time its backbone.

Super-profits from distance. Long-distance trade, or Fernhandel, was the primary engine of early capitalism. It generated "super-profits" by exploiting vast price differences between distant markets where supply and demand were largely ignorant of each other. This was particularly true for luxury goods like spices, silks, and precious metals.

Strategic control. The Fernhandler (import-export merchant) strategically inserted himself into the supply chain, controlling raw materials and distribution in distant markets. This allowed him to dictate terms, eliminate competition, and manipulate prices. Examples include:

• Dutch merchants controlling Baltic grain and English cloth.
• Genoese merchants dominating Sicilian raw silk.
• Portuguese traders making fantastic profits in Spanish America.

Concentration of capital. The immense capital outlay and long waiting periods required for these ventures naturally limited participation, reducing competition and ensuring high returns for the few who could afford it. This concentration of wealth and control over vital trade routes was a defining characteristic of merchant capitalism, distinguishing it from the more fragmented local economies.

4. Capital's Mobility Dictates Its Engagement with Production

Capitalism did not invade the production sector until the industrial revolution, when machines had so transformed the conditions of production that industry had become a profit-making sector.

Circulation over production. Pre-industrial capitalism primarily resided in the "sphere of circulation"—trade and marketing—rather than directly in production. Capitalists, typically wealthy merchants, found higher profits and lower risks in controlling trade routes and distribution networks than in investing heavily in agriculture or early industry.

Fragile fixed capital. Production sectors, especially agriculture and early manufacturing, were characterized by:

• High circulating capital costs: Wages, raw materials, and provisions were major expenses.
• Low fixed capital durability: Roads, bridges, ships, and early machines had short lifespans and required constant maintenance, leading to low net capital formation.
• Limited technological innovation: Production methods remained largely traditional, offering modest returns compared to trade.

Strategic withdrawal. When ventures in agriculture or mining became insufficiently profitable or too risky, capitalists often withdrew, leaving these sectors to the state or less ambitious entrepreneurs. This selective engagement highlights capitalism's inherent flexibility and its relentless pursuit of maximum profit, shifting focus as economic conditions changed.

5. The State: An Ambiguous Yet Indispensable Partner to Capital

Whether favourable or unfavourable, the modern state was one of the realities among which capitalism had to navigate, by turns helped or hindered, but often enough progressing through neutral territory.

A complex relationship. The emerging modern state, from the 15th to 18th centuries, was a powerful force that both fostered and constrained capitalism. It sought to centralize power, monopolize force, and control economic life, often through mercantilist policies aimed at accumulating precious metals and promoting national industries.

Financial dependence. States, perpetually short of funds due to escalating military and administrative costs, relied heavily on borrowing. This created a symbiotic relationship with financiers, who, in turn, gained immense influence. Examples include:

• Spanish juros and asientos: Genoese bankers controlled European finance by lending to the Spanish Crown, converting American silver into gold for troop payments.
• English "financial revolution": The Bank of England and consolidated national debt, though initially controversial, provided stability and attracted foreign capital, particularly from the Dutch.
• French traitants and Ferme générale: Private tax-farmers became powerful capitalists, deeply intertwined with royal finances, often to the detriment of broader economic development.

Beyond national borders. Capitalist interests, by nature, transcended national boundaries, often complicating their dialogue with the state. While states aimed for national prosperity, capitalists pursued global profits, sometimes even at the expense of their home country's declared economic goals.

6. Social Hierarchies Shape Economic Opportunity and Resistance

There is no society totally without framework or structure.

Universal inequality. All societies, regardless of their political system or historical period, exhibit deep-seated social hierarchies and inequalities. A small, privileged elite consistently controls a disproportionate share of wealth and power, maintaining its position through various means, including inherited status, economic leverage, and political influence.

Slow social mobility. While social advancement was possible, it was generally slow and limited, often taking generations to achieve. Newcomers entering the elite typically assimilated existing norms and structures rather than fundamentally altering them. This process of "reproduction of elites" ensured the continuity of established power dynamics.

Resistance from below. The vast majority of the population, particularly peasants and the urban poor, faced constant economic hardship and limited opportunities. This often led to:

• Peasant revolts: Frequent, localized uprisings against landlords and state taxation, though often suppressed, sometimes secured concessions.
• Workers' unrest: Urban labor concentrations, like the Lyons printworkers or Leyden's textile workers, experienced strikes and protests against exploitation, but were often fragmented and faced severe repression.

These struggles, though rarely leading to immediate systemic change, highlight the persistent tension inherent in hierarchical societies and the constant effort required by the privileged to maintain order.

7. Exploitative Systems: The "Second Serfdom" and Colonial Plantations

The second serfdom was the counterpart of a merchant capitalism which discovered in the structures of Eastern Europe certain advantages and even in some cases its raison d'etre.

Capitalism's indirect control. In regions like Eastern Europe, the "second serfdom" (16th-18th centuries) saw peasants re-enserfed and subjected to increased compulsory labor. While the local nobility were not "capitalists" in the modern sense, their manorial economies served as tools for Western European merchant capitalism, supplying cheap grain and raw materials to distant markets.

Plantations as capitalist ventures. Colonial plantations in the Americas (e.g., Brazilian sugar, Caribbean sugar/coffee) were direct capitalist creations. They involved heavy investment, slave labor, and were entirely geared towards export to European markets. Profits, however, largely flowed to European merchants and financiers, not the planters themselves.

• Brazilian enghenos: Sugar mills yielded modest profits for planters (4-5%), who were dependent on European merchants for credit and market access.
• St. Domingue/Jamaica: Planters faced high costs for imported goods and slaves, long delays in payment, and exploitation by metropolitan wholesalers, who captured the bulk of the wealth through trade imbalances and financial services.

These systems demonstrate how capitalism could profoundly reshape distant production, not necessarily through direct ownership of the means of production, but by controlling trade, finance, and labor through coercive social structures.

8. Money and Credit: The Engine of High-Level Capitalist Operations

Money that passes from hand to hand, stimulating commerce, or is used to pay rents, incomes, profits and wages - money that is in other words launched on to trade circuits, forcing open doors and dictating the speed of flow, is a capital good.

The dynamism of money-capital. Money, in its various forms (gold, silver, paper), was not merely a medium of exchange but a dynamic "capital good" that fueled economic activity. Its circulation, accumulation, and strategic deployment were central to capitalist operations.

Banking and speculation. The development of sophisticated credit instruments and banking systems was crucial:

• Bills of exchange: Facilitated long-distance trade and credit, bypassing physical money transfers.
• Public banks: (e.g., Bank of Amsterdam, Bank of England) provided stability and facilitated state borrowing.
• Private banks: (e.g., Florentine, Genoese, Amsterdam houses) engaged in complex financial operations, including speculation in government bonds and company shares.

Inflation and inequality. Inflation, often driven by the influx of precious metals, disproportionately benefited the wealthy who held gold and silver, while devaluing the copper coinage used by the poor. This monetary manipulation, combined with the strategic use of credit, allowed capitalists to accumulate wealth at the expense of the broader population.

9. Cultural and Religious Norms Constrained Early Capitalism

The Church persisted in its persecution but the evil survived.

The usury dilemma. Western civilization, unlike Islam, initially viewed profit-making and lending at interest (usury) with deep suspicion, rooted in religious doctrine and Aristotelian philosophy. The Church's prohibition on mutuum (loans for profit) created a profound moral and legal conflict for early capitalists.

Loopholes and adaptation. Despite official condemnation, economic necessity forced the Church to make concessions. Legitimate interest could be charged for:

• Risk (damnum emergens): Compensating for potential loss.
• Lost gain (lucrum cessans): Acknowledging foregone opportunities.
• Specific instruments: Bills of exchange, trading partnerships (commenda), and state loans were gradually deemed permissible.

Protestant ethic debate. Max Weber's thesis linked the rise of capitalism to the Protestant ethic, particularly Calvinism, which supposedly fostered a disciplined, ascetic pursuit of wealth as a sign of divine election. Braudel, however, critiques this, arguing that:

• Catholic cities: Like Genoa and Florence, were early capitalist centers with low interest rates.
• Economic factors: Geographical advantages, lower production costs in Northern Europe, and the decline of the Mediterranean economy were more decisive.
• Calvin's pragmatism: His views on usury were more a recognition of existing economic realities than a revolutionary theological shift.

Ultimately, while religious and cultural norms influenced the form and justification of capitalist practices, they rarely halted its underlying economic momentum.

10. Global Divergence: Why Capitalism Flourished in Europe and Japan

After a fashion, capitalism has been a spectre haunting every form of society.

Conditions for capitalist success. Capitalism, as defined by Braudel, required specific conditions to flourish beyond mere market activity:

• Vigorous market economy: A necessary but insufficient base.
• Favorable social structures: Dynastic survival, wealth accumulation, social mobility, and dominant groups capable of sustained economic action.
• Liberating action of world trade: Access to long-distance trade for superior profits.

China's state barrier. In China, a powerful, centralized, and moralistic state bureaucracy consistently suppressed independent capitalist development. While a thriving market economy existed at lower levels, the state's control over land, resources, and wealth accumulation, coupled with its hostility to "abnormally" rich individuals, prevented the emergence of a robust capitalist class.

Japan's feudal advantage. Japan, by contrast, developed a "pluralism of societies" akin to medieval Europe. Its feudal system, characterized by decentralized power and semi-independent lords (daimyo), allowed for the emergence of independent economic forces:

• Free markets and towns: Fostered merchant associations and craft guilds.
• Merchant dynasties: Families like the Mitsui accumulated wealth and influence, exploiting economic disparities (e.g., rice-money, silver-gold exchanges).
• Limited state control: Despite the shogun's efforts to tame the daimyo and restrict foreign trade, a resilient merchant capitalism persisted, laying the groundwork for later industrialization.

This comparative analysis suggests that the absence of an overbearing, centralized state, coupled with a dynamic market and access to long-distance trade, was crucial for capitalism's sustained development in Europe and Japan.