The Troublesome Intruder

The Wheels of Commerce, Fernand Braudel, 1982.

Turin Spring, Georgio di Chirico, 1914

Tomorrow marks a year since I started writing this blog. I initially expected that no one outside of my close family and a couple of friends would read it. Twenty-nine books and 50,000 words later, it is safe to say I am blown away that nearly five-hundred people from forty-five countries subscribe, including — astonishingly! — some economists and historians whose books I have read and admire. I promise to keep it up, and many thanks to you all!

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I mentioned when I discussed The Structures of Everyday Life that Braudel is known for a distinctive perspective on capitalism. He baulks from the rigidity of a Marxist analysis, and, in general, from the idea of a ‘mode of production’ that can encompass the economic activity of an entire society. He finds clear-cut theories of a ‘capitalist mentality’ — à la Weber and Braudel’s pet frenemy, Werner Sombart — to be lacking in complexity. Nonetheless, Braudel is still attached to the concept of capitalism (this “troublesome intruder”) in a way that many who might share the above opinions are not.

In The Wheels of Commerce — a book which I will say now is far superior to its predecessor in the series — Braudel sketches the evolution of capitalism as he sees it. His vision is idiosyncratic: Braudel’s capitalism is identified with trade and finance, not production — the latter capitalism “entered only obliquely”. He is confident capitalism is present as early as thirteenth century Florence. And most importantly, Braudel’s financial capitalism is not intrinsic to the market economy, but perched above it, forming the “zone of the anti-market, where the great predators roam and the law of the jungle operates”. There are many things you could say about how The Wheels of Commerce presents this model of capitalism. But producing few points of argument is not one of them. With this second entry into his trilogy, Braudel breaks with the tone of the descriptive-to-a-fault Structures, and actually starts theorising.

This is not to say that there is no descriptive pleasure. I was struck by the discussion, early in the book, of the displacement of markets by shops in the early-modern period; a fascinating topic that I had never come across before. Since the urban renaissance of the eleventh century, markets had dominated the medieval town and city. Braudel provides vivid descriptions of the Halles in Paris, “a collection of different markets one alongside another, surrounded by heaps of rubbish, dirty water, and rotten fish”. But during the seventeenth century the shop — a fixed, permanent, usually specialised store open for long hours — became predominant; or, as Braudel puts it with characteristic flair, the shops “came to conquer and devour the towns”. Why? While in The Structures of Everyday Life Braudel might have left that question unanswered, here he makes an attempt at serious explanation. Braudel’s first argument is Smithian — he suggests that the growing European economy had facilitated specialisation of labour in retail and an expanded distribution network. But, he argues, the “principal” reason for the rise of shops was credit — for each shopkeeper functioned as a “capitalist in a small way”, and granted credit to their customers. This, Braudel argues, made them both more profitable and attractive to do business with. That is a compelling thesis, although I would have appreciated an attempt, however feeble, to estimate the actual scale of ‘retail-lending’. But regardless of the argument’s veracity, Braudel’s belief in the role of micro-credit is a microcosm of the significance he attributes to credit in economic development generally. As he shifts his focus away from retail, and towards the commanding heights of the early-modern economy, this only becomes more clear.

The meat of The Wheels of Commerce is found in the two chapters revealingly titled “Capitalism on Home Ground” and “Production: or Capitalism Away From Home”. This so-called ‘home’ of capitalism is long-distance trade and finance: the epicentre, Braudel argues, of European economic development. Braudel is aware that this is a controversial position. The obvious retort to a trade-centric theory of capitalist development is that international trade was small relative to domestic trade and to the size of the economy. Trade across the Atlantic was much smaller than inside Europe, while even within Europe Braudel estimates the grain shipped across the Mediterranean accounted for less than one percent of total grain consumption. Could developments in this sector really steer the evolution of the entire early-modern economy?

Braudel argues it could. Once again, it is his credit-centric perspective which provides justification. While long-distance trade was small relative to the rest of the economy, it was substantially more profitable than other ventures. This was connected to the opportunities for arbitrage in a world where travel over long distances was still difficult and the sheer capital-intensity of trade made it an exclusive sector. This in turn meant that the profits long-distance trade generated were usually concentrated in the hands of a few players; as unlike in domestic trade, for example, with its middlemen and endless tolls, a single firm could capture most of the profits. For Braudel, this made long-distance trade into “an unrivalled machine for the rapid reproduction and increase in capital”. It also made it the perfect breeding-ground for the development of increasingly sophisticated financial instruments — the corporation and stock market, most significantly. I find Braudel makes a convincing argument. Did the financial revolution in 14th century Italy, spurred by long-distance trade, have an outsized influence on economic development? Probably. But is it also true that throwing around ‘capitalism’, while placing production on the back-burner, is bound to raise some eyebrows.

So why was agriculture and industry not the natural home of capitalism? For Braudel, this again rests on profit. His theory is that industry and agriculture were relatively less profitable before the industrial revolution. Braudel writes that “capital hesitated to regard agriculture as anything more than a source of rent… [while] pre-industry looked to the capitalist like a trap or a quagmire… industrial gains were regularly dwarfed by trading profits”. From farms, to putting-out manufactories, to mines, the profits were smaller and less reliable than those in commerce and finance. Braudel’s explanation for this is varied. For agriculture, feudal institutions obstructed rationalisation. For mining, excluding a brief flourishing at the end of the fifteenth century, the profits were so low that the state often took control of the mines - with merchants only stepping in for distribution. For manufacturing, fluctuating demand meant that manufacturers preferred flexibility in production over profitability, and thus remained “semi-imprisoned” in the putting-out system, wherein substantial work was outsourced, with often only the ‘finishing’ and marketing carried out in-house. In sum, transport costs and risks meant that profits went to those who controlled trade and finance, and not ‘real’ factors of production. This is an interesting thesis, but keep in mind that, once again, Braudel does not attempt to back this up with quantitative evidence. He does sketch a “model of a model”, however, no systematic analysis of how profitable production was in relative terms is forthcoming. While I am willing to believe Braudel, it is hardly obvious he is correct.

What makes this theory most interesting, perhaps, is how it situates Braudel amongst the historiography. His association of capitalism with profit and the commanding heights of the early-modern economy marks a divergence with Marxism — Braudel puts themes of class conflict and primitive accumulation aside. As a result, the feted enclosures are barely mentioned, and that early-modern coal mining saw the introduction of wage labour is just an interesting aside. On the other hand, institutions such as property regimes are also made secondary, separating Braudel from the many institutionalists who may share some of his views. While they might find that the Glorious Revolution of 1688 created more capital-friendly institutions in Britain, for example, Braudel has a more sceptical view. His point is not that the Revolution — “a victory for the merchants” — made Britain internally better suited to capitalism, but simply that it gave Britain a competitive edge in the ‘zone of the anti-market’; which, crucially, would have all come to nothing if “Britain had not at the same time become a world power… [and] ousted the French from North America and India”. No meditations on inclusive institutions here.

As a final aside, it is worth noting how I have exclusively discussed Europe so far. This is because, in contrast to volume one, The Wheels Of Commerce only pays lip service to the rest of the world, and rarely at that. On the one hand, this is fair enough. If we imagine that Braudel is exclusively concerned with the rise of capitalism, then eurocentrism is — I believe — justifiable. But this is not the case: Braudel is nominally concerned with commerce and markets writ large, and as such, greater attention should have been devoted to India, China, and to the Americas in particular — Braudel’s treatment of plantation slavery is shockingly, bizarrely minimal. But the extra-European side of The Wheels of Commerce is not all bad. Somewhat surprisingly, Braudel’s opinion on would later be called the Great Divergence is remarkably solid. His take is that early-modern China had a “solidly established market economy”, without even a whiff of an ‘Asiatic mode of production’ in his analysis, thankfully. Why then was there no Chinese capitalism? Braudel’s explanation is predictable — the explanation, he argues, rests once again on long-distance trade; or rather, the lack thereof in China. This is certainly not a consensus position (although it is not unheard of). But at least Braudel is consistent.

I have likely oversimplified Braudel’s capitalism. After all, his book is long, and Braudel likes to hedge his bets. There is definitely more nuance in his analysis of the profits and significance of early-modern manufacturing than I credited him for. I have barely mentioned the state, which is egregious, as the financial story Braudel presents cannot be told properly without it. In the end, Braudel falls back on a fairly ‘weak’ theory, and the safety of claiming that “capitalism cannot have emerged from a single confined source: economics played a part, politics played a part, society played a part, and culture and civilisation played a part. So too did history, which often decides in the last analysis who will win a trial of strength”. This is a classic historian’s equivocation. But The Wheels of Commerce is, I think, bolder than this quote implies. When he is not covering his exits, Braudel has no qualms declaring that capitalism “would have been impossible without the special and as it were liberating action of world trade”. A liberating action for the predators, at least.