DOC TAYROC'S [UNSOLICITED] ECONOMICS HOT THOUGHT

Marx and the Death of the Author XV: Capitalist Crises: Tulip Mania, Rail Mania, and AI, part I

What makes capitalism different from what preceded it and what (hopefully) follows? The clue, my friend, is in the name. Capital is what makes capitalism different, and now I will try to explain what capital is, and why money doesn't have to be capital. You see, 'profit seeking' behaviour is not unique to capitalism, per se, but the particular role of capital within the system has made it not only 'acceptable behaviour' but the underlying assumption.

To really understand this, we have to ask a reasonable question, 'when does capitalism really emerge as a proper distinct entity'? Some like to make its emergence one and the same with the dawn of European expansionism. For my 2p, I would not argue that the early Spanish and Portuguese empires were fully realised capitalist states. They were, do not get me wrong, spectacularly evil in other, horrifying ways, and set into motion the eventual emergence of capitalism, but in many other ways, they also continued many aspects of classical imperialism, albeit with a religious and racial twist that hadn't pre-existed them, which contributed to their particularly brutal brand of slavery, genocide, and colonial extraction.

Capitalism, as we understand it today, is a product of the 'bourgeois revolution' which emerges in different parts of Europe at different times. For the Dutch, it emerges during their war for independence from Spain, and the establishment of the Dutch Republic. For the British, it is emergent largely in the aftermath of the Civil Wars (1640-1660). A key component of capitalism, you see, is the imbuing of capital with inherent power. In the case of pre-Civil Wars Britain, the underlying assumption for power was rooted to the antiquated notion of aristocracy and the church, as was the case in most of medieval Europe. Aristos, Kings and senior-rated Clergy (bishops, et al.) had special permission from God to hold the political power within the kingdom, and all economic activity and political power was centred around this belief in the 'magic blood' of the British (short hand here for all English and Scottish, even pre-Union) nobles. The nobles needn't necessarily be rich in money as we understand it today, and indeed many weren't, but their nobility still afforded them privilege and power regardless. In the eyes of a Marxist we'll point out that this is because with nobility typically came land, which was the main means of production of the feudal era. Daily commerce was done with money, but money alone could not dictate power, nor was it even the only means of conducting commerce.

The first glimpse of modern capitalism was already brewing within London, however. Dating back to the original Magna Carta of 1215, the 'City of London', which still exists as a single neighbourhood and borough within Greater London, was granted special permissions within the rest of the land, particularly for merchants. Between 1215 and the end of the Civil Wars, several London merchants, who were almost universally 'commoners' in the class system of the era, had tried to use these special permissions to 'rise above their station', and most had met a rather gruesome end for their troubles. This is the age of 'drawing and quartering', after all, and if you're the sort to believe in ghosts, the Tower of London had to collect all its permanent inhabitants somehow. Every time the bourgeois of this era tried to exert the kind of power reserved for the nobility, their head would become a temporary attraction on London Bridge. Fortunately for the bourgeois, the English-speaking world's prototype Christo-Fascist, Oliver Cromwell, separated King Charles I's head from his body, and in the process lowered the prestige of the British Royal Family forever. When Charles II returned to the throne in 1660, marking the end of the Civil Wars, he did so with the understanding it was at Parliament's pleasure, thus establishing Parliamentary supremacy over the crown in Britain, a legal precedent which would be enforced in 1688 when Parliament deposed King James II, and began the monarchy of 'William and Mary'. This time, no one lost their head and the only shots fired were in Ireland to genocide some Catholics, as was the style of the time.

With Parliamentary supremacy came room for the bourgeois, who could hold office in the House of Commons, and for the first time, money could outright buy power. 'Magic blood' had lost its sheen in most of Britain, excepting a few increasingly desperate, pathetic, hangers-on, who somehow are still with us selling coins on the telly to 'celebrate' the remnants of Britain's feudal past.

The important thing is, by the late 18th century the merchant class, the bourgeois, had supplanted the aristocracy and the church in power, as the aristocracy and the church both had blown what power they previously held during the remarkable mess that were the British Civil Wars. The merchant class over saw the colonies, over saw the dramatic expansion in the slave trade, dominated Parliament, and established Britain's contribution to the newfound capitalist system that had also overtaken the Dutch Republic, the British brought insurance in the form of Lloyd's of London, and modern banking in the form of Barclays. The Dutch, who had overthrown the Spanish branch of the Hapsburg monarchy in order to gain independence, similarly found themselves with an emboldened bourgeois class and an aristocratic class whose inherent power had left the country with the Hapsburgs. Similar lengthy struggles between the neighbourhood Calvinists and Catholics had left clerical power up for personal interpretation, much like in Britain, as such the Bergers, er bourgeois, now held the coin and the power in the Republic.

Here's our first entry in why capitalism is distinct from the feudalism it replaced. The Dutch bring capital front and centre with the establishment of the Amsterdam Stock Exchange in 1602/1606 (records vary). The initial purpose of the Stock Market was (drum roll, please) violent and genocidal colonial expansion and exploitation. Boy, turn money into capital and almost immediately we have to commit war crimes.

The ASE was created to finance the establishment of the Dutch East India Company (VOC, Dutch initialism), the Dutch answer to the British East India Company (EIC). Both were attempts by the 'protestant' world to break up the monopoly held by the Spanish and Portuguese Empires on the spice trade. It is important to note that the VOC and EIC were both capable of a remarkable amount of cruelty and inhumanity, but in the early days, the VOC was better at extreme violence against indigenous people and the EIC alike. If you don't believe me look up the Amboyna massacre wherein the VOC killed 21 persons, including 10 Englishmen, and several Japanese and Portuguese traders, in which several victims were allegedly tied to the rack and had limbs blown off using gun powder. You can also look at the Banda massacre, wherein the VOC wiped out the majority of the Banda people in present-day Indonesia and destroyed several nutmeg plants all in the name of increasing the price of nutmeg and ensuring the VOC's monopoly over nutmeg, at the expense of the political and economic independence of the Indonesians and the EIC.

Regardless of your feelings on the remarkable cruelty of the early 17th century VOC, Dutch share holders were exceedingly happy as this resulted in a very profitable series of trade routes for the nascent Dutch Republic. Most Dutch people had never met a Bandas person anyway, so who cared if they were massacred. Whilst the EIC had initially relied on money from Queen Elizabeth I and other nobles, the VOC was created in a time and place where there was no Dutch monarch nor Dutch nobles. As such, the VOC accumulated the money necessary to operate by selling stocks to the Bergers, who expected a return on investment. How precisely this ROI was achieved was immaterial, and so potential wars with England and Portugal, indigenous massacres, and the rapid expansion of the Dutch slave trade were all just the 'cost of doing business'. These war crimes were fine, since a VOC induced artificial scarcity of nutmeg meant more profit per pound of the spice sold. Remember this next time you're enjoying a 'pumpkin spice latte'.

With this, the ASE introduced a new idea, and this is where capital really picks up its unique behaviour outside 'normal' non-capital money. The VOC was primarily focused on spice, and from the perspective of a 17th century Dutch merchant there are two things 'wrong' with the spice trade:

1. Spices come from plants, and plants take some time to grow

2. Said plants don't grow in the Netherlands, and our sailing ships are slow, and so it takes a lot of time to get said spices to the Netherlands to sell.

As such, and in order to realise ROI quicker, the first 'modern' financial instrument was created. If one can anticipate that, for example, a nutmeg plant takes a certain amount of time to mature enough to produce the spice, and in a given acreage of cultivation of the plants a predictable percentage of the plants reliably produce a predictable sellable amount of the spice, then I could, theoretically sell not nutmeg per se, but the promise of future nutmeg, which the person buying the future nutmeg off of me could sell at their personal profit, relative to the predicted market price of nutmeg once the actual spice arrives in the Netherlands. That's right, we've invented futures markets, and with them we've brought speculative investment. Ships are still powered by sails, and the majority of North and South America are unknown to Europeans, but 'futures markets' are already here. If you're from the US and you're reading this, yes, you really were damned from the start.

I've been using nutmeg as my example plant thus far, largely because of the ludicrously violent methodology that the VOC used to obtain its nutmeg monopoly in the first place. I mean, between that history and the enduring practice of 'black Peter', I can't actually muster any respect for the Dutch. But famously, and almost immediately after the very invention of modern capital, it was the tulip serving as history's first warning that this capitalism thing was really stupid, and would routinely highlight the worst aspects of the human condition.

Tulips, unlike nutmeg, can grow indigenously in the Netherlands. Also unlike nutmeg, tulips do not taste good, but do look pretty. Like nutmeg, on the other hand, tulips take a not insignificant amount of time between planting and maturation, and one can predict how many tulips a harvest may yield depending on various variables.

Whilst tulips can grow in the Netherlands, they are not of the Netherlands originally. Much like how tea isn't British but came to be associated with Britain thanks to the aggressive actions of British tea merchants over the course of the 18th and 19th century, our modern association of tulips with the Dutch is largely a product of the very phenomenon you're currently reading about. Tulips were, at this point, largely 'exotic' to the Netherlands, fresh and new. Most tulips that had made their way to Europe at this point had done so through the Ottoman Empire. This exoticness and novelty was a selling point to members of the Dutch merchant class who had enough money to spend on frivolous status symbols. There's little difference between a tulip in 17th century Holland and a Lexis logo on a present-day up sold Toyota, or the silver Apple logo on the back of an overpriced laptop.

All this to say, there was money in tulips. Further, the predictability of the tulip growing cycle meant there was, at least in theory, reasonable room for speculation.

And lo, thus began the first speculative bubble in the history of modern capitalism. Based in equal parts on the understanding that the tulips would grow and they would be profitable at point of sale. Unlike with the potato blight that would hit Ireland in a couple of centuries the thing that would burst this bubble had nothing to do with a crop failure. The tulips did indeed grow, and to this day, the Netherlands maintains a strong cultural association with tulips, especially amongst influencers who take pictures of themselves in fields of tulips with increasingly obsolete windmills in the background, and maybe a pair of clogs. If the influencer is white, they might even take a picture of themselves with a Dutchman in horrifying blackface, to really get the full spectrum of the Dutch experience.

No, what burst this bubble came in two fold: First, turns out people lie. A lot. All the time even. Merchants especially, if there's profit to be made. You can predict how many tulips per acre there will be, you can also lie about how many acres there are, or how healthy the soil is. You can even sell nonsense products that will allegedly increase tulip yield, even if there's no evidence that this will occur. You can contract a farmer to use this nonsense product and promise investors that there will be a larger tulip yield because this nonsense product was used. Said investors might not be happy when the yield is exactly the same as it would have been had you never used the product, but you can always promise that whilst the magic serum didn't improve tulip yield this year, now that it's in the soil, it is sure to have returns next year, a lie that will let you sell shares until it won't. The value of those shares will increase the more of them you sell, even if the initial sales are all built on a lie. It's the 17th century, and basic research is hard without the internet.

Second, the tulip might be a particularly beautiful flower to some people, but for most people, it's just another flower. For many in the 17th century, once the novelty of the tulip wore off, especially as an increasing amount of the relatively limited Dutch countryside was dedicated to the cultivation of this flower, they began to see the tulip as 'just another flower', eliminating a considerable amount of its profit. Even the tulip sellers that actually had tulips in hand began to have a hard time moving them, and so cut prices. You can imagine what that would do to promised future profits of entirely theoretical flowers. Unfortunately for these holders of tulip futures, it would be nearly two centuries before the British went crazy for ferns, and so plant-based speculative economics would have to take a considerable breather.

And so, a large collection of papers promising future profits for tulips became worthless overnight, and in the process wiped out entire (on paper) fortunes. Resulting in an economic downturn, as the holders of these papers were now realising how silly they had been, and so had to be more conservative with their investments until they returned to reliable liquidity.

The trick is, of course, the money never actually existed. The money was promised, but that promise was enough to drive real economic activity. When the promise was never realised the market 'self-corrected' and wiped out real economic activity as the promised money never arrived. Resultantly, even people who had nothing to do with tulip cultivation or speculation found themselves out real gilder. And this is part of what separates capital from other forms of money. Capital drives itself not on actually existing current assets and resources, but on the promise of future returns. To a normal person, devoid of capitalist logic and assumption, a house is vital shelter, a home, and several other things that healthy people would never put a price on. To a capitalist, it is an asset that accrues or loses value, and is a source of equity based on projected future value and the 'net present value'. Capital isn't just money, it's potential future money. This is why when a member of the capitalist class is broke, even declaring bankruptcy, they have an easier time moving around leveraging debt and assets to regain liquidity. A member of the bourgeois can lose £1mn in a day, a member of the proletariat might never see it in their entire lives, as their labour is the only tradable capital to their name.

Of course, the problem with prediction is probability, and the problem with probability is that it ceases to have meaning once the actual event occurs or fails to occur. The tulips might never arrive, and even if they do, the 'market' might have no use for them. At that point, all the imaginary future money that was promised from the tulips sales reveals itself to have a null value all along, putting additional strain on the very real current money that was invested to create the future money, and in the name of restoring liquidity, the capitalist withdraws labour demand from the market, increasing unemployment, which decreases demand in other commodities, which further increases unemployment. The imaginary money ends up costing real money, and the flow of necessary resources is interrupted. This will likely result in physical, mental, and emotional pain for many amongst the proletariat class, who will accept reduced wages as something is better than nothing, and thus the cost of labour will be cheaper when the next speculative bubble begins, improving the value of the gilder for the capitalist, at the growing cost for the proletariat. Marx notes that this cycle of boom and bust at the cost of the proletariat came to define capitalism throughout the 17th, 18th, and 19th centuries.

It's easy to mock the Dutch of the 17th century for ruining so many human lives over something as utterly ridiculous as a flower. And we should mock them for this, but it's vital to remember that tulip-mania would not be the last time speculative markets ruined entire nation-states worth of lives. Tulips are pretty but useless. But next week we'll talk about British people going bug-fuck over trains. Trains are cool and useful, I'm your stereotypical autistic person who loves trains. Not enough to ruin the lives of all my neighbours over them, but love. Trains have obvious utility, I use two to get to and from work daily. A considerable amount of raw materials and finished goods transit themselves around Britain and the world in any variety of goods wagons. I could hop on a train right now and end up in exotic Glasgow. But one of the problems with capitalism is its remarkable capacity to take actually useful things like computers or trains and turn them into things of self-parody and absolute ridiculousness.

Oh yeah, and the source of a remarkable amount of human pain and misery.