TABLE OF CONTENTS
Preface
Introduction - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0017
[importance of definitions, theorists of capitalism, legal institutionalism, origins of capitalism, outline of book]
The introduction outlines the aims of the book and the perspective adopted. The importance of adequate definitions of key terms is stressed. This vital task of conceptual precision has been downgraded and the meaning of several key terms has been corrupted. Important theorists of capitalism, including Karl Marx, Max Weber, Joseph A. Schumpeter, John Maynard Keynes, and Friedrich A. Hayek, are discussed. The adopted theoretical approach of legal institutionalism is outlined. There is also a short overview of the literature on the origins of capitalism. The definition of capitalism developed in the book is cited. Finally the structure and content of the book are outlined. (pages 1 - 22)
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Part I. Discovering Capitalism
Chapter 1. Distilling the Essence - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0001
[Aristotle, definitions, essences, natural state model, varieties of capitalism, population thinking, birth of capitalism, impurity principle]
Chapter 1 outlines the philosophical and historical considerations involved in defining capitalism. Following Aristotle, a definition must identify the essential features of the type it defines. It is argued that the identification of essences is central to all science, and fashionable “anti-essentialism” is mistaken. But while adopting an Aristotelian account of essences, Aristotle's “natural state model,” where variety is seen as a temporary deviation from a representative type (as in works by defenders of capitalism and by opponents such as Marx) is rejected. Instead Darwin's “population thinking” can help in understanding varieties of capitalism. It is also argued that a reasonable definition of capitalism must identify the novel institutions that help to account for its spectacular growth from the eighteenth century. A definition has also to take into account “impurities” and internal variety. It is explained that constructing a definition is different from abstraction, analysis, or description. (pages 25 - 52)
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Chapter 2. Social Structure and Individual Motivation - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0002
[social structure, social position, institutions, organizations, human evolution, moral motivation, respect for authority]
Chapter 2 outlines some basic and more general concepts and issues that are necessary before dealing with the more specific social formation of capitalism. A social structure is defined as a set of social relations between interacting individuals in a society. Social positions are designated social roles within social structures. Institutions are systems of established and prevalent social rules that structure social interactions. An organization is a special type of institution involving membership, principles of sovereignty, and a structure delineating responsibilities. It is then argued that systems such as capitalism cannot be understood purely in terms of the ideas people use to describe the system or are prevalent within it. Marx's base/superstructure metaphor is found wanting, partly because elements consigned to the “base” require legal terms to define them, while Marx allocated law to the “superstructure.” A brief, evolutionary-grounded account of human motivation is outlined, stressing that people have moral as well as selfish motives, as well as dispositions to obey authority. (pages 53 - 75)
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Chapter 3. Law and the State - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0003
[law, custom, the state, Friedrich Hayek, spontaneous order, punishment, obeisance]
Chapter 3 clarifies the nature of law, criticizing the idea that it can emerge spontaneously through the interactions of individuals, and rejecting the notion (promoted by Friedrich Hayek among several others) that law is essentially custom. Instead it is argued that the development of law required a state and an institutionalized judiciary. Although all law depends to a degree on custom, and there are examples of spontaneous emergence of legal rules, it is difficult to see how a full legal system could emerge as a spontaneous order and obtain a critical mass in large, complex societies. Crucially, law must suppress and divert all rudimentary punitive emotions into legal channels, and build on long-evolved dispositions to adhere to moral rules and to obey authority. (pages 76 - 100)
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Chapter 4. Property, Possession, and Contract - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0004
[property, possession, property rights, collateral, property rights, economics, contracts, exchange, legal impermeability, emergence]
This chapter draws on legal theorists and others to argue that there is a difference between property and possession. Possession means control of a resource. Property involves rights that are legitimated by a powerful public authority, typically involving law and the state. Property involves a number of different rights, and crucially it can be used as collateral, to borrow money. Many social scientists treat property principally as a relation between an individual and a good, thus downplaying the institution of property, social relations between individuals, and between individuals and the state. In particular, “property rights economics” encompasses neither property nor rights, in the senses established in law. Consequently, contractual exchanges are more than acts of reciprocation: they are mutually agreed legal obligations, often involving the transfer of property rights. Nevertheless, all contracts involve cultural and other non-legal supports, and much human interaction in modern society is without recourse to law. Taking a historical turn, the chapter then argues that it is a mistake to assume that the establishment of “secure property rights” marks the rise of capitalism in England. These rights emerged much earlier. (pages 101 - 128)
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Chapter 5. Commodity Exchange and Markets - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0005
[commodities, exchange, trade, markets, earliest markets, relational exchange]
Three Nobel laureates in economics have noted that economists have paid relatively little attention to the nature of markets and how they work. Markets can be defined broadly in terms of any form of exchange or trade, or narrowly in the everyday sense of an organized zone of exchange involving recurrent trade with multiple buyers and multiple sellers. Arguments are made for the narrow definition. While trade generally has existed for tens of thousands of years, the earliest evidence of a market is in China in 3000 BC. There is evidence of multiple markets in Athens and the Middle East around 600 BC. Hence markets, while associated with capitalism, emerged much earlier than capitalism as such. It is shown that social scientists are now paying more attention to the institutional structure of markets in modern capitalism, although the concept is still abused by loose usage. The chapter concludes with a discussion of the ambiguity of the term “commodity.” (pages 129 - 146)
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Chapter 6. Money and Finance - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0006
[money, barter, Carl Menger, spontaneous order, history of money, coinage, debt, State Theory Of Money, financial institutions, ontology of money]
This chapter is about money and financial institutions. The first question concerns the nature of money. Carl Menger's famous thought experiment showing the spontaneous emergence of money from barter is not only historically inaccurate, but is undermined by modifications that move it in a more realistic direction. It is argued that money involves a combination of state power and individual incentives. The history of money underlines the role of the state in its creation and management. A brief account of the development of financial institutions shows how financial leadership passed from Italy through the Netherlands to Britain in the eighteenth century, where a Financial Revolution helped trigger the rise of capitalism. A penultimate section outlines John Searle's ontology of money. (pages 147 - 172)
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Chapter 7. Meanings of Capital - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0007
[capital, wealth, human capital, slavery, social capital, collateralizability, sociology, Gary Becker, Pierre Bourdieu]
Originally “capital” referred to head-counts of cattle, as measures of wealth. But in thirteenth-century Italy it acquired its enduring commercial meaning as money, or the money-value of assets invested in enterprise. In contrast, Adam Smith treated physical assets, machines and people as “capital” and this different usage has dominated economics since. The pre-Smithian meaning referred to money or other saleable assets that could be used as collateral. This chapter questions the change in meaning by economists and sociologists, and highlights the importance for capitalism of collateralizable property. “Human capital” can only be collateral if the humans involved are slaves. “Social capital” can never be used as collateral and it is not even owned. These important issues are masked by the broadened notion of “capital” in economics and sociology. Given the conceptual problems involved, economists and sociologists should consider returning to the pre-Smithian and surviving business usage of the term. (pages 173 - 203)
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Chapter 8. Firms and Corporations - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0008
[firms, corporations, transaction costs, cohesiveness of the firm, legal personality, hybrid forms, Ronald H. Coase, Oliver E. Williamson, Michael C. Jensen, William H. Meckling]
This chapter considers the nature of the firm and the corporation. A firm is defined as a legal unit, set up to produce goods or services for sale. A corporation is a special type of firm, involving legal incorporation and registration. The accounts of the firm in the transaction cost economics of Ronald Coase and Oliver Williamson are outlined. Both authors paid insufficient attention to the singular legal personality of the firm, including its capacity to sue and be sued. Consequently they were unable to explain what held the firm together. They shifted from the idea of a firm-market dichotomy to a firm-market continuum. Ill-grounded notions such as “firm-market hybrids” and “internal markets” became conspicuous in both economics and sociology. Other prominent writers on the theory of the firm failed to explain its cohesiveness and integrity. The chapter includes a brief history of firms and incorporation, showing the roles of both the state and business lobbying in the creation of legal forms for business activity. The rise of the corporation in the late nineteenth century is noted. Arguably it would have been difficult for features such as limited corporate liability to have emerged spontaneously. (pages 204 - 234)
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Chapter 9. Labor and Employment - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0009
[employment relationship, contract for services, slavery, complexity, missing markets, incomplete futures markets for labor, Karl Marx]
This chapter considers (1) the nature of the employment relationship, (2) the consequences of practical and legal limitations on contracts for future employment, and (3) Marx's claim that the employment relationship is a foremost characteristic of capitalism. The distinction between an employment relationship and a contract for services is explained; where in the former case the employer has the right of detailed control over the manner and pattern of work. Employment contracts have advantages of flexibility in complex and rapidly changing economies. But the absence in a capitalist economy of full futures contracts for labor-power is a consequence of the ban on slavery. These endemic missing markets mean that capitalism cannot reach optimal outcomes through market adjustments. Considering the possible place of employment in the definition of capitalism, it is pointed out that day-labor was common in England in the Middle Ages, long before the capitalist take-off in the eighteenth century. But it is possible that employment relations could be replaced by other arrangements in the future, signaling a different type of system. (pages 235 - 250)
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Chapter 10. A Definition of Capitalism - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0010
[capitalism, Louis Blanc, Karl Marx, Joseph Schumpeter, markets, private enterprise, employment relationship, financial system, state capitalism, China]
This chapter starts by tracing the origin of the word “capitalism” to works by Louis Blanc in the 1840s. The commonplace meanings of the term are considered, noting a prevalent focus on markets and private property. But these two features are much older than the dynamic economic system that emerged in the eighteenth century. Further criteria need to be added to the definition, including widespread employment relations and a developed financial system (emphasized by Marx and Schumpeter respectively). A full definition of capitalism is followed by a consideration of “state capitalism.” It is argued that the term inappropriate for Soviet-type economies but could be applied to post-Mao China, where the state plays a leading role in a private enterprise economy. (pages 251 - 262)
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Part II. Capitalism and Beyond
Chapter 11. Conceptualizing Production - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0011
[production processes, mechanical metaphors, physics and economics, John Stuart Mill, Karl Marx, Alfred Marshall, Thorstein Veblen, knowledge, evolutionary and informational ontology, working time]
As a prelude to the consideration of capitalist and post-capitalist possibilities, this chapter considers the general nature of the production process. After a review of key contributions by economists in this area, it is argued that mechanistic or physical metaphors should be replaced by a richer narrative that derives from modern informational conceptions of evolution, highlighting the role of knowledge. As well as encompassing communication and meaning, this informational metaphor is much more capable of dealing with key institutional features of capitalism, involving law, property and contract. It suggests conclusions different from those of other leading commentators concerning the shortening of working hours and the limits to comprehensive central planning. (pages 265 - 281)
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Chapter 12. Socialism, Capitalism, and the State - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0012
[socialism, abolition, private property, Karl Marx, Albert Schäffle, Ludwig von Mises, Friedrich Hayek, Austrian school, Oskar Lange, entrepreneurship]
This chapter turns to the question of socialism, noting the origins of the term in the 1830s. Until the 1940s, socialism meant the abolition of private property. One of the first economists to question the possibility of socialism was the German economist Albert Schäffle. Against Oskar Lange and others, Austrian critics Ludwig von Mises and Friedrich Hayek emphasized the importance of entrepreneurship and knowledge. The chapter notes the neglect of legal and state institutions by both sides in the “socialist calculation debates.” Both sides also downplayed crucial institutions (such as corporations) that span the individual and the state. The Austrians had overly-spacious definitions of property and markets, weakening their defenses of specifically capitalist institutions. While the Austrians were right to emphasize information and knowledge, there are limits to the roles of private property and markets in knowledge-intensive economies. Ironically, after the 1950s, when most nominally “socialist” parties abandoned the original aim of the complete abolition of private property, Hayek was accused of taking a “social democratic” stance. But Hayek did not highlight the problem of economic inequality within capitalism. (pages 282 - 314)
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Chapter 13. How Does Capitalism Evolve? - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0013
[capitalism, evolution, generalized Darwinism, diffusion, variation, selection, hegemonic economies, globalization and convergence, varieties of capitalism, increasing complexity]
It is noted that “evolution” is a very vague and ambiguous word. Rather than trying to give it a specific meaning, it is better to consider the types of phenomena under investigation. The notion that capitalism goes through pre-ordained stages of development is downplayed. Instead it is argued that the global evolution of capitalism should be addressed largely through the identification of changing hegemonic types and powers. It is argued that global capitalism involves populations of states, organizations within states, and human individuals, each of which is subject to processes of variation, replication and selection. Following earlier work on generalized Darwinian principles and their application to socio-economic evolution (Hodgson and Knudsen 2010), it is argued that institutional and technological diffusions are major mechanisms of replication in modern capitalist systems. The survival of varieties of capitalism and the possibility of increasing complexity are also considered. (pages 315 - 331)
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Chapter 14. The Future of Global Capitalism - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0014
[capitalism, globalization, convergence, hegemonic economies, varieties of capitalism, inequality under capitalism, rule of law, corruption, financial instability, threats]
This chapter looks forward until about the middle of the twenty-first century. Its themes are the ongoing globalization of capitalism and the rising challenges to US economic leadership and political hegemony. It is considered whether the accelerated post-1980 global diffusion of institutions and technology will lead to the rise of a new economic leader or hegemon, such as China. Various future growth estimates are addressed, alongside problems in institutional development. There is evidence that higher levels of capitalist development are related to the rule of law, open government and lower levels of corruption. It is also argued that global capitalism is likely to maintain some diversity, including in levels of inequality and public social expenditure, despite the creation of an increasingly integrated world economy. The chapter concludes with a brief discussion of major problems for future global development, including financial instability and threats to the global ecosystem. (pages 332 - 351)
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Chapter 15. Addressing Inequality - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0015
[inequalities, income and wealth, sources of inequality, factor asymmetry, exploitation, collateralizability, policies, basic income, wealth taxes, Thomas Paine]
This chapter addresses inequality, including possible types of exploitation within capitalism and factor asymmetries between labor and capital. One asymmetry, noted by Alfred Marshal among others, is that labor (unlike capital) is inseparable from its owner. An additional and neglected asymmetry is that labor under capitalism (unlike capital) cannot be used to obtain collateral. This is an important ongoing source of inequality within capitalism. By contrast, markets and globalization are not necessarily sources of inequality. Some proposals for dealing with the problem of inequality are briefly reviewed. (pages 352 - 365)
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Chapter 16. After Capitalism? - Geoffrey M. Hodgson
DOI: 10.7208/chicago/9780226168142.003.0016
[post-capitalist, employment, knowledge intensive production, specialization, self employment, worker cooperatives, corporate law reform, welfare state]
The final chapter considers various post-capitalist possibilities (other than traditional socialism, which was discussed critically in chapter 12). The definition of capitalism as developed in the book is crucial to this task. It is argued that among the six points used to define capitalism the one concerning widespread employment relations is most likely to be surpassed in the foreseeable future. But unlike some authors, it is not argued that the abolition of the employment relationship is a priority. Instead it is argued that growing knowledge intensity and increasing specialization within capitalism may help to transform employment into something very different. The traditional employment relationship could be displaced by self-employment or worker cooperatives. Reform of the capitalist corporation and the role of the welfare state are also considered. These issues open up policy perspectives that do not fit easily into the familiar categories of “left” and “right.” (pages 366 - 384)
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Glossary
References
Index
