Sapiens: A Brief History of Humankind

by Yuval Noah Harari

Whoever believes in progress believes that geographical discoveries, technological inventions and organisational developments can increase the sum total of human production, trade and wealth.

The belief in the growing global pie eventually turned revolutionary. In 1776 the Scottish economist Adam Smith published The Wealth of Nations, probably the most important economics manifesto of all time.

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.

Smith denied the traditional contradiction between wealth and morality, and threw open the gates of heaven for the rich. Being rich meant being moral.

Smith therefore repeated like a mantra the maxim that ‘When profits increase, the landlord or weaver will employ more assistants’ and not ‘When profits increase, Scrooge will hoard his money in a chest and take it out only to count his coins.’

Investments can be made in many ways: enlarging the factory, conducting scientific research, developing new products.

Yet all these investments must somehow increase production and translate into larger profits. 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 res...

The idea that ‘The profits of production must be reinvested in increasing production’ sounds trivial. Yet it was alien to most people throughout history.

In premodern times, people believed that production was more or less constant. So why reinvest your profits if production won’t increase by much, no matter what you do? Thus medieval noblemen espoused an ethic of generosity and conspicuous consumption. They spent their revenues on tournaments, banquets, palaces and wars, and on charity and monumental cathedrals. Few tried to reinvest profits in increasing their manors’ output, developing better kinds of wheat, or looking for new markets.

True, his suits might be Versace and he might get to travel in a private jet, but these expenses are nothing compared to what he invests in increasing human production.

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.

This new religion has had a decisive influence on the development of modern science, too. Scientific research is usually funded by either governments or private businesses.

No history of modern science can leave capitalism out of the picture.

The European conquest of the world was increasingly financed through credit rather than taxes, and was increasingly directed by capitalists whose main ambition was to receive maximum returns on their investments.

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.

Ships hit icebergs, foundered in tropical storms, or fell victim to pirates. In order to increase the number of potential investors and reduce the risk they incurred, Europeans turned to limited liability joint-stock companies.

Yet within eighty years the Dutch had not only secured their independence from Spain, but had managed to replace the Spaniards and their Portuguese allies as masters of the ocean highways, build a global Dutch empire, and become the richest state in Europe.

The secret of Dutch success was credit. The Dutch burghers, who had little taste for combat on land, hired mercenary armies to fight the Spanish for them.

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.

This enterprise may sound a little strange to us, but in the early modern age it was common for private companies to hire not only soldiers, but also generals and admirals, cannons and ships, and even entire off-the-shelf armies.

Island after island fell to VOC mercenaries and a large part of Indonesia became a VOC colony. VOC ruled Indonesia for close to 200 years.

As the seventeenth century wound to an end, complacency and costly continental wars caused the Dutch to lose not only New York, but also their place as Europe’s financial and imperial engine.

The vacancy was hotly contested by France and Britain. At first France seemed to be in a far stronger position. It was bigger than Britain, richer, more populous, and it possessed a larger and more experienced army.

The way in which the Mississippi Company used its political clout to manipulate share prices and fuel the buying frenzy caused the public to lose faith in the French banking system and in the financial wisdom of the French king.

Louis XV found it more and more difficult to raise credit. This became one of the chief reasons that the overseas French Empire fell into British hands.

The most notorious example of how governments did the bidding of big money was the First Opium War, fought between Britain and China (1840–42).

In 1840 Britain duly declared war on China in the name of ‘free trade’. It was a walkover. The overconfident Chinese were no match for Britain’s new wonder weapons – steamboats, heavy artillery, rockets and rapid-fire rifles.

Furthermore, the British demanded and received control of Hong Kong, which they proceeded to use as a secure base for drug trafficking (Hong Kong remained in British hands until 1997).

In the late nineteenth century, about 40 million Chinese, a tenth of the country’s population, were opium addicts.3

These were hardly the only wars fought in the interests of investors.

They proposed to the rebel leaders the issue of tradable Greek Rebellion Bonds on the London stock exchange. The Greeks would promise to repay the bonds, plus interest, if and when they won their independence.

The Greek economy was mortgaged to British creditors for decades to come.

Ardent capitalists tend to argue that capital should be free to influence politics, but politics should not be allowed to influence capital.

They argue that when governments interfere in the markets, political interests cause them to make unwise investments that result in slower growth.