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Yet Smith’s claim that the selfish human urge to increase private profits is the basis for collective wealth is one of the most revolutionary ideas in human history – revolutionary not just from an economic perspective, but even more so
from a moral and political perspective. What Smith says is, in fact, that greed is good, and that by becoming richer I benefit everybody, not just myself. Egoism is altruism.
Smith denied the traditional contradiction between wealth and morality, and threw open the gates of heaven for the rich. Being rich meant being moral.
In the new capitalist creed, the first and most sacred commandment is: ‘The profits of production must be reinvested in increasing production.’
That’s why capitalism is called ‘capitalism’. Capitalism distinguishes ‘capital’ from mere ‘wealth’. Capital consists of money, goods and resources that are invested in production. Wealth, on the other hand, is buried in the ground or wasted on unproductive activities.
But capitalism gradually became far more than just an economic doctrine. It now encompasses an ethic – a set of teachings about how people should behave, educate their children and even think. Its principal tenet is that economic growth is the supreme good, or at least a proxy for the supreme good, because justice, freedom and even happiness all depend on economic growth.
Everything depends on the people in the labs.
If the labs do not fulfil these expectations before the bubble bursts, we are heading towards very rough times.
The empires built by bankers and merchants in frock coats and top hats defeated the empires built by kings and noblemen in gold clothes and shining armour. The mercantile empires were simply much shrewder in financing their conquests. Nobody wants to pay taxes, but everyone is happy to invest.
This was the magic circle of imperial capitalism: credit financed new discoveries; discoveries led to colonies; colonies provided profits; profits built trust; and trust translated into more credit.
The risks were thereby curtailed, but no cap was placed on the profits. Even a small investment in the right ship could turn you into a millionaire.
How exactly did the Dutch win the trust of the financial system? Firstly, they were sticklers about repaying their loans on time and in full, making the extension of credit less risky for lenders. Secondly, their country’s judicial system enjoyed independence and protected private rights – in particular private property rights. Capital trickles away from dictatorial states that fail to defend private individuals and their property. Instead, it flows into states upholding the rule of law and private property.
Vereenigde Oostindische Compagnie, or VOC for short,
The bear hug between capital and politics has had far-reaching implications for the credit market. The amount of credit in an economy is determined not only by purely economic factors such as the discovery of a new oil field or the invention of a new machine, but also by political events such as regime changes or more ambitious foreign policies.
But in its extreme form, belief in the free market is as naïve as belief in Santa Claus. There simply is no such thing as a market free of all political bias. The most important economic resource is trust in the future, and this resource is constantly threatened by thieves and charlatans. Markets by themselves offer no protection against fraud, theft and violence. It is the job of political systems to ensure trust by legislating sanctions against cheats and to establish and support police forces, courts and jails which will enforce the law.
At the end of the Middle Ages, slavery was almost unknown in Christian Europe. During the early modern period, the rise of European capitalism went hand in hand with the rise of the Atlantic slave trade. Unrestrained market forces, rather than tyrannical kings or racist ideologues, were responsible for this calamity.
This is the fly in the ointment of free-market capitalism. It cannot ensure that profits are gained in a fair way, or distributed in a fair manner. On the contrary, the craving to increase profits and production blinds people to anything that might stand in the way. When growth becomes a supreme good, unrestricted by any other ethical considerations, it can easily lead to catastrophe. Some religions, such as Christianity and Nazism, have killed millions out of burning hatred. Capitalism has killed millions out of cold indifference coupled with greed.
The nineteenth century brought no improvement in the ethics of capitalism. The Industrial Revolution that swept through Europe enriched the bankers and capital-owners, but condemned millions of workers to a life of abject poverty.
Capitalism has two answers to this criticism. First, capitalism has created a world that nobody but a capitalist is capable of running.
The second answer is that we just need more patience – paradise, the capitalists promise, is right around the corner.
THE MODERN ECONOMY GROWS THANKS to our trust in the future and to the willingness of capitalists to reinvest their profits in production. Yet that does not suffice. Economic growth also requires energy and raw materials, and these are finite. When and if they run out, the entire system will collapse.
Throughout these long millennia, day in and day out, people stood face to face with the most important invention in the history of energy production – and failed to notice it. It stared them in the eye every time a housewife or servant put up a kettle to boil water for tea or put a pot full of potatoes on the stove. The minute the water boiled, the lid of the kettle or the pot jumped. Heat was being converted to movement. But jumping pot lids were an annoyance, especially if you forgot the pot on the stove and the water boiled over. Nobody saw their real potential.
On 15 September 1830, the first commercial railway line was opened, connecting Liverpool with Manchester.
Usually, when we think of the Industrial Revolution, we think of an urban landscape of smoking chimneys, or the plight of exploited coal miners sweating in the bowels of the earth. Yet the Industrial Revolution was above all else the Second Agricultural Revolution.
The tragedy of industrial agriculture is that it takes great care of the objective needs of animals, while neglecting their subjective needs.
The conclusion was inescapable: monkeys must have psychological needs and desires that go beyond their material requirements, and if these are not fulfilled, they will suffer greatly.
The modern capitalist economy must constantly increase production if it is to survive, like a shark that must swim or suffocate. Yet it’s not enough just to produce. Somebody must also buy the products, or industrialists and investors alike will go bust. To prevent this catastrophe and to make sure that people will always buy whatever new stuff industry produces, a new kind of ethic appeared: consumerism.
Ecological degradation is not the same as resource scarcity. As we saw in the previous chapter, the resources available to humankind are constantly increasing, and are likely to continue to do so. That’s why doomsday prophesies of resource scarcity are probably misplaced. In contrast, the fear of ecological degradation is only too well founded. The future may see Sapiens gaining control of a cornucopia of new materials and energy sources, while simultaneously destroying what remains of the natural habitat and driving most other species to extinction.
Yet all of these upheavals are dwarfed by the most momentous social revolution that ever befell humankind: the collapse of the family and the local community and their replacement by the state and the market. As best we can tell, from the earliest times, more than a million years ago, humans lived in small, intimate communities, most of whose members were kin. The Cognitive Revolution and the Agricultural Revolution did not change that. They glued together families and communities to create tribes, cities, kingdoms and empires, but families and communities remained the basic building blocks of
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Many kingdoms and empires were in truth little more than large protection rackets.
Romantic literature often presents the individual as somebody caught in a struggle against the state and the market. Nothing could be further from the truth. The state and the market are the mother and father of the individual, and the individual can survive only thanks to them.
Millions of years of evolution have designed us to live and think as community members. Within a mere two centuries we have become alienated individuals. Nothing testifies better to the awesome power of culture.
An imagined community is a community of people who don’t really know each other, but imagine that they do. Such communities are not a novel invention. Kingdoms, empires and churches functioned for millennia as imagined communities.
The two most important examples for the rise of such imagined communities are the nation and the consumer tribe. The nation is the imagined community of the state. The consumer tribe is the imagined community of the market.
Consumerism and nationalism work extra hours to make us imagine that millions of strangers belong to the same community as ourselves, that we all have a common past, common interests and a common future. This isn’t a lie. It’s imagination.
The decline of violence is due largely to the rise of the state.
For real peace is not the mere absence of war. Real peace is the implausibility of war.
Most current ideologies and political programmes are based on rather flimsy ideas concerning the real source of human happiness.
As we have seen, new aptitudes, behaviours and skills do not necessarily make for a better life.
Firstly, it bases its optimistic assessment on a very small sample of years.
Secondly, even the brief golden age of the last half-century may turn out to have sown the seeds of future catastrophe.
Finally, we can congratulate ourselves on the unprecedented accomplishments of modern Sapiens only if we completely ignore the fate of all other animals.
One interesting conclusion is that money does indeed bring happiness.
Another interesting finding is that illness decreases happiness in the short term, but is a source of long-term distress only if a person’s condition is constantly deteriorating or if the disease involves ongoing and debilitating pain.
Family and community seem to have more impact on our happiness than money and health.
Marriage is particularly important.
But the most important finding of all is that happiness does not really depend on objective conditions of either wealth, health or even community. Rather, it depends on the correlation between objective conditions and subjective expectations.
When things improve, expectations balloon,
When things deteriorate, expectations shrink,
The crucial importance of human expectations has far-reaching implications for understanding the history of happiness. If happiness depended only on objective conditions such as wealth, health and social relations, it would have been relatively easy to investigate its history. The finding that it depends on subjective expectations makes the task of historians far harder.
