Where Does This Western Capitalist Mentality Come From?

In the career of political leadership, history shows the ease with which persons, facts, and even words are sanctified or demonized. Anything goes in the race to conquer people’s hearts! In this game of seduction, valuable discussion gatherings have been done away with, much to the frustration of unbelievers, specialists, and intellectuals. This is without doubt the case of the so-called ‘western capitalist mentality’ that is currently demonized in Bolivia.

It is known that the capitalist system brings about levels of (long-term) economic growth that were never seen by the world before the mid-eighteenth century. The darker side of the system is also well documented, where in many cases unfairness between social groups perpetuated compared to the previous feudal system. However, the development root of the system is little known. This root spawned in response to the mindset of middle and lower class Englishmen and their survival strategies.

Historians and specialists have a common interpretation of important happenings and events during this period. The French Revolution promoted a “liberal” mentality in Europe in the face of the repressive system that prevailed. In this mentality it was thought that the individuals should be free to think and take initiatives, which was also translating into the valuation of private initiative (which today is known as entrepreneurship). In particular, the English had a practical sense of doing things, and had a freer social organization compared to the rest of Europe.

In this context, the so-called bourgeois revolutions, as well as the development process itself, led to the abolition of feudalism in which lords and large land owners had both property and legal rights over the land and family farms, forcing the peasantry into a series of work services and financial payments or something of the like.

The disappearance of feudalism was accompanied by the transference of lands from the lords to the peasants. Nevertheless, this transfer was not free in England and it is here where the admirable force, dedication, and work of a poor and suffering class saw the opportunity to improve their living conditions. Many peasants put their efforts toward improving land productivity with the aim of generating money surplus to buy their lands and support their families. However, in this productive dynamic many farmers could not succeeded, and had to migrate to cities in search of better fortune.

At the time, majority of the middle class from British cities found business opportunities in the technological innovations that were going on since the mid eighteenth century – in a kind of learning by doing – in sectors such as textiles, steel, and transport. This class was composed of families who already had some kind of business tradition or were economically independent.

Initially, capital accumulation came from re-investment of profits and personal savings, as well as loans from family, friends, or associates. Later on it started to come also from loans handed out by banks. Capital accumulation was the main restriction that left the poorest families with little chance to create business and, hence, to take advantage of this industrial revolution. Nevertheless, the reduced upper class also failed to actively participate in this revolution, possibly due to the “rentier mentality” that prevailed in that period.

This scene nicely frames the development of the capitalist system that is motivated by especially middle, but also lower, class. They had a proactive culture in generating wealth and economic growth and, in modern terminology, a great entrepreneurial spirit.

Why then criticize this western capitalist mentality?

Perhaps the most important errors have lain in the idea that the prevailing economic market forces have a social conscience and that capitalist development could democratize power. However, it is important to keep in mind that, although they are related, economy is economy, sociology is sociology, and politics is politics.

On the one hand, capital, together with technological innovations, became the most valuable input that was consequently highly valued for production. The labor force, on the contrary, experienced impressive growth in the cities driven by rural-urban migration, which contributed to a large excess of labor supply. This, in turn, opened the door to labor exploitation and abuses permitted by the prevailing political and social rules. On the other hand, this productive dynamic and capital accumulation outstripped the most able and perspicacious people; generating in many cases large concentrations of wealth and income inequality.

Understanding the functioning of the economic forces that govern capitalist worlds is like understanding the law of gravity. Whoever wishes to jump from the tenth floor hoping that gravity has a “social conscience” will only die (if a miracle has not occurred). However, this gravity force is critical for the very existence of human beings on this planet.

Under this reality, we have learnt to live with this law. We have invented for ourselves a series of tools so as to interact in harmony with this law, such as planes, parachutes, etc. In a similar perspective, to wish that economic forces might be “democratic and altruistic” will only lead us to dissatisfaction, heated discussions and fights. Nevertheless, these economic forces are fundamental for development. It is therefore the duty of all of us to learn and understand them in order to develop instruments able to bring them into harmony with a greater social and political justice.

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Beatriz Muriel is a senior researcher at INESAD.




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  1. On other blogs I’ve published posts similar to the following, but I think it needs to be seen here too.

    For many centuries before the mid 1700s there was virtually no economic “growth”, then suddenly growth exploded and has continued for 250 years. Why? One thing: fossil fuels. Until the coal fired steam engine began to supplement and then replace human and animal muscle as the economy’s power source, growth was limited by the ability to convert food into work. Coal offered what amounted to an enormous source of “free labor” added into the economic equation. But fossil fuels are not actually “free”. We have spent 250 years drawing down a stock of ‘free’ energy that had taken hundreds of millions of years to accumulate. We gained economic growth by “spending” the Earth’s stock of stored energy, sunlight stored in the form of carbon based “solar batteries”. By converting that stock of stored energy into work we were able to massively increase the productivity of labor. In a fossil fueled industrial economy, every man-hour of human labor is supplemented by what amounts to dozens or hundreds of hours of fossil fueled machine labor.

    Before coal people burned wood. After coal we have been burning oil. Wood, coal and oil are all forms of stored solar power. Trees convert sunlight into wood. Coal is a more concentrated form of sunlight that plants converted into biomass. Oil is the most concentrated, most energy dense form of plant-based stored solar power. The development of fossil fueled engines to exploit the ‘free’ work that could be unleashed by burning these fuels is the cause of the first industrial revolution (about 1750-1840 in England, the first nation to industrialize). Around the turn of the 19th – 20th century a second industrial revolution resulted from our discovery of how to convert fossil fuels and motion energy (hydro) into electricity. More recently, electronics have created a third industrial revolution by massively enhancing our ability to exchange and share information.

    Inventions and discoveries alone are not enough to generate economic development and growth. Somebody has to figure out how to “commercialize” those innovations, how to use them to increase the output of economic goods which are the things that people need and want, in order to sustain and enhance their material standard of living. We all need food, shelter, clothing, etc. If fossil fueled machines can help us produce more of these economic goods, then our material standard of living will rise. The industrial revolutions had this effect in every nation that industrialized. The masses of people became materially more wealthy and more secure.

    But as the scale of the engines and machinery that were needed to engage in industrial production grew larger, the capital cost of entering into any of these fields of business rose far beyond any worker’s ability to use his savings to start up a business and compete in this production market. I am neither a Marxist (communal ownership of the productive infrastructure) nor a capitalist (concentrated ownership of the infrastructure). But Marx was correct in saying that in an industrial economy, “capitalism tends inevitably toward monopoly”.

    We see this today in the corporatist oligopolies that dominate production of our food, transportation, electronics, entertainment, etc. A “free market” individualist entrepreneur cannot possibly build a working car, let alone produce cars of the quality and refinement that people would actually buy. To compete in these markets you have to be a very large scale corporate entity, which is owned either by a billionaire or by a few large and 1000s of small stockholder, and which is not run by its owner but by hired corporate managers. So how do you become a corporate capitalist who can afford to invest a billion dollars in a new startup company?

    Capitalists capture the productivity gains of new innovations by a combination of already wealthy people teaming up and pooling their money, and by bank created financing. Banks do not lend out their depositors savings balances. Banking is not a “zero sum” equation where before a bank can make a million dollar loan, it must receive a million dollars of customer deposits. All the 10s of trillions of dollars of money that exist today did not exist 100 years ago or even 30 years ago. Banks would not be able to loan out $10 trillion of mortgage money if savers did not “have” $10 trillion of money to save. This money has all been created by banks. The idea that banks lend out their depositors’ savings is simply wrong.

    Bank ‘lending’ is the act of “creating” bank deposits. Bank loans “add” to the total amount of money, the money supply. Via access to bank money creation, some people are able to borrow and invest millions or billions of dollars into large scale industrial plants to commercialize the productivity improvements of technological innovations, and to capture the ‘free’ labor of fossil fuel powered machines, and convert all those gains into capitalist profits. Because the fossil fueled industrial economy produces so much more economic output than unaided human and animal work, everyone becomes richer in goods, in real economic wealth. But only the capitalists (and savers who save rather than spend their incomes) become richer in “money”, which they earn as their profits. Labor earns enough wages to purchase some of the goods it produces, but capital earns all the profits of industrial production.

    Without the profit motive the aggressive people who build large businesses would probably vent their energies in warring against each other, as John Stuart Mill observed is the historical situation (Mill published his “Principles of Political Economy” in 1848, the same year Marx/Engels published “The Communist Manifesto”. But the commercialization of fossil fueled steam engine technology opened up a whole new realm of “economic” competition among this class of aggressive men (they were almost all males, and this competition remains a male dominated field). It is an ego battle for “top dog” stature. A billionaire has no need to earn income, but billionaires vigorously strive to control legislation and defeat competitors to maximize their dominance and profits for “bragging rights”, not due to any need-based economic motivations.

    These are the men who built the modern large scale globalized industrial economy. It is an ego battle for wealth and power, and during its early phases the battle generated collateral benefits for the working classes of industrialized nations. But by 1848 diverse observers including JS Mill and Marx/Engels foresaw that fossil fueled machines were rendering human labor obsolete. The industrial economy could produce plenty for all without the need of full employment. Mill advocated a policy of “steady state” economy, where unlimited economic growth was curtailed and the fruits of industrialized production were distributed by “political” decisions (redistribution) rather than by “market” mechanisms (incomes earned by working in production). An economy that does not have and does not need full employment cannot distribute production by means of earned incomes.

    In the 20th century capitalists learned how to use newly available mass media to “manufacture needs” via advertising. So all the economists who imagined a future of comfortable leisure, with little work and much time spent on developing our higher human qualities, proved to be wrong. Humans can be induced to run like rats in a cage for the reward of the shiny trinkets that are the ‘fruits’ of the modern consumer economy.

    Marx/Engels advocated a revolutionary takeover of the industrial infrastructure by the working classes who actually operated the machinery of production, stripping the “capitalists” of the profit they earned by owning the productive infrastructure. But it was these same capitalists who organized the industrial production processes, which is a massive and highly skilled feat of applied technology and business and financial administration that wage workers are wholly unable to replicate or sustain.

    Industrialization does not happen without “greedy” capitalists pushing it forward. I spent my life as a small business owner/operator, and I was never motivated to try to grow my business to a massive scale. I would have never built a steam engine or a factory or an electricity generating plant or a car. Guys like me would have created the kind of small scale free enterprise tradesman/craftsman/farmer/shopkeeper “market economy” that Adam Smith imagined in 1776. The Romanticist 18th century French political philosopher Rousseau believed the development of metallurgy was the downfall of humanity from an idyllic “state of nature”. But the historical reality is that hunting/gathering or peasant agriculture is a hard and insecure life of grinding poverty. And “free enterprisers” like me, whom Adam Smith idealized, would never have built a large scale high productivity economy.

    Western capitalism has now gone too far. Instead of generating collateral benefits for the masses it is causing collateral damages. The profit and growth driven consumer economy is horifically wasteful of the Earth’s finite real resources. Capitalists now compete against each other in the zero sum casinos of the financial economy where money is won and lost but no “economic” goods at all are produced. Production has been mechanized or offshored to deprive Western workers of “uncompetitively high” incomes that purchase a share of the outputs of industrial production.

    On the other hand, Asian and other formerly “Third World” workers are now enjoying the standard of living enhancements that Western workers have long taken as their “entitlement”. Western masses are becoming poorer as Asian masses are becoming wealthier. From a global perspective, economic wealth and wellbeing is evening out. But again, Asian capitalists are accumulating all the “money” as thier profits, and eventually the Asian masses will become just as indebted as their Western counterparts.

    Money is created by banks when they make loans, so all money that remains in the economy is always owed by its borrower as a debt repayment. The money is created as a bank deposit when the loan is made, and when the borrower eventually deposits the money back in his bank account to repay the loan the deposit is debited to $zero and the ‘money’ that was created by the loan is uncreated by the loan repayment.

    Bank loans create money. Repayment of bank loans uncreates that money. If there is no debt there is no money. So all the money that some people have is always owed as bank debt by other people. In the money system that is used by the entire world today, for some people to have money, other people must have debt.

    Once the capitalists have all the money, and the masses have all the debts, there can be no “profits” earned by producing goods for sale. The spenders, the consumers, have already maxed out their credit to buy stuff that they can’t afford with their income alone. They earn incomes by working for the producers, the capitalists. So worker incomes are the capitalists’ “costs” of producing goods for sale. Incomes = cost price of production. The workers can spend ALL of their income buying the outputs that they produce, but the capitalists who invested those incomes as their costs cannot earn “profit” unless the workers spend MORE than their incomes buying outputs not at cost price but at cost plus profit price. Once the workers have maxed out their credit, and the capitalists have earned back all the incomes plus all the borrowed money, there is no more “money” for capitalists to earn as profits. The only reason capitalists invest in production is to earn profits, so if they can’t earn profits, they won’t produce.

    Marx kind of understood this arithmetic problem in Das Kapital, but like all other schools of economics he confused the production of “value” with the spending and earning of “money”. Applying labor to resources “adds economic value” by producing things that people need and want. We have no direct economic need for “trees”, but we need houses and furniture that are made from trees. Converting trees into houses and furniture adds value to trees, which are “resources”. Converting resources to things that are useful to humans “adds value” to those resources.

    But building houses and furniture does not add any “money”. Buying lumber and paying wages adds money, and all of this money that producers “invest” in paying for the factors of production becomes the national income. Governments tax and redistribute some of this income, but redistribution does not “add” to national income. So national income = producers’ national cost price of production, and there is no additional “income money” for the nation to buy the outputs at “profitable” prices, which are cost price + markup. You do not “cause money” by going into the forest and cutting down trees. Economic activity creates “economic” value, but it creates no “money”.

    “Banks” create money, as repayable loans, as “debt”. The economic system produces all the goods and services that are sold “for money” in the economy. The banking system creates all the money that everybody uses to buy everything, including resources, factories, labor, and all of the goods and services. So the nation goes into bank debt in order to buy the goods that the nation produces, so that the nation can pay profitable prices to the producers. Producers would not produce unless they had the realistic prospect of selling their outputs for MORE than the national income, which is the national cost price of all the production. Producers produce “for profit”, which is earned “in money”, not in ‘economic value’ as all the schools of economics have wrongly taught since Adam Smith.

    This is why total government and private debt can only ever increase in a for-profit money economy (as contrasted with a barter economy where the goods are directly traded for other goods, but that kind of economy has never existed except in the imagination of Adam Smith and virtually ALL schools of economics since 1776). Debt adds additional new spending money into the national economy, which makes profit possible. If debt growth flattens or decreases, then national profit becomes arithmetically impossible and producers stop producing, which means they stop employing people and stop paying out incomes to people. You can get additional money into your economy by selling your real economic outputs to foreigners (exporting), but then that starves THEIR economy of domestic buying power. Globalizing the problem does not “solve” the arithmetic problem of a money economy.

    This is the fundamental insight of CH Douglas who thought up the social credit financial system. Today “heterodox” economists like Steve Keen are developing a new macroeconomics that acknowledges the difference between value and money, and that recognizes that money is created in a process that is completely separate from the process that creates economic value.

    Capitalists and bankers are not macro economists. They neither know nor care what macro effects their profit seeking behavior will generate in the macro system. They are interested only in personal profits. In today’s financial casino economy winners win by taking money from losers. This is a zero sum game where no new money is added. Ownership of the existing money is merely redistributed from losers to winners of all the derivatives and hedging games that they play.

    Among income earners in the “real” economy, savers now have all the money and spenders have all the debt. The spenders borrowed that money as bank loans, and spent it into the economy where it was earned by capitalists and savers, and the debtors still owe all that money as loan repayments. But if the savers won’t spend it then the debtors have no way to earn that money back to repay their loans. When debtors can’t pay their bank loans then the banking system that is carrying all those defaulted loans on its balance sheet becomes hopelessly insolvent, as the US and European banking systems have been since the crash of 2008.

    Central banks are using various means of bailing out their banks. But the only real way to solve the crisis is to bail out the banks’ debtors so they can make their loan payments. If loans aren’t defaulting en masse, then the banking system is no longer bankrupt. The European Central Bank is creating money and lending it to “Greece”, but the money isn’t actually going to Greeks. It is going to the German and French banks that are holding defaulted Greek bond debt. The same kind of solution, central bank or direct government creation of new additional money and giving it (not “lending” it) to debtors so they can repay their debts, is one way of actually solving the current crisis of capitalism.

    The opposite kind of solution, as advocated by Steve Keen, Michael Hudson and others, is debt forgiveness. Either way: adding positive numbers by creating and adding non-bank, non-debt money into our economies; or reducing negative numbers by forgiving debt, would “work” to solve our problem of monetary arithmetic. Any other kind of ‘solution’ is an innumerate exercise in macroeconomic ignorance.

    You don’t have to just give the newly “government created” non-debt money to debtors. That would be unfair to people who prudently saved their money and who didn’t take on more debt than they can repay. A fair solution would be to give equal amounts of money to “everybody”, every citizen of legal age, in monthly amounts sufficient to resolve the debt-money imbalance problem.

  2. The brief history of where the capitalist menatily comes from, the same described by Marx in the Communist Manifesto, indicates clearly that this mentality emerges from a historical context. It is not a unversal law, like the law of gravity. To be sure, the capitalist mentality, and the capitalist system, as Marx also says in the Communist Manifesto, has been the most creative and productive force human societies have constructed. Capitalism has indeed created wealth, inventions and provided opoportunities undreamed of in the past. It did, indeed, improve the lot of the majorities. However, times change. Just as Feudalism started to suffer cracks in its system and eventually crumbled, the current state of capitalism is also suffering fissures, and it is now failing to deliver on its promises of increasingly benefitting the majorities. Capitalism today, is not the capitalism of Adam Smith, nor of Maynard Keynes. It is no longer a system where many entrepeneurs can enter the marketplace, produce their wares, suppying the demands and through this fulfilling their creative, social and livelihood aspirations. Today´s Capitalism is controlled and concentrated in fewer and fewer hands. 147 corporations own EVERYTHING, according to New Scientist article. But we do not need an article to tell us this. We know that today we live under a global regime of Corporate Capitalism, that not only owns all of the wealth, but controls most of the politics in the world. If it has continued to produce wealth, it has also begun to undermine democracy, which is an unrelinquishable human right, and pillar of Western Civilization, one that incidently, opened the way for early Capitalism to grow and thrive. So, it is understandbale that there are increasingly more and more cries against the current Corporate Capitalist system that is failing all of us (the 99%) and is destroying the world (Climate Change) and all the creatures that inhabit it (massive extinctions). As researchers we have a responsibility to challenge what is wrong with the system, not be apologists and try to naturalize a system that is transformable, and that MUST be transformed for the wellbeing of all.

  3. Your article has opened a new area for thinking, for me atleast. Thanks a great lot !!!

  4. Magnificas reflexiones. El mundo debe buscar otras opciones, pues el capitalismo ha demostrado su fracaso.


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