The Multidimensional Crisis and Inclusive Democracy, Takis Fotopoulos (2005)

Chapter 1:

The emergence of the present system

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Capitalism or market economy?

Today, after the collapse of “actually existing socialism”, a very high degree of homogeneity characterises the economic and political institutions of society. Thus, the market economy and representative “democracy”, the institutions of “heteronomous modernity”, are universal. But, as we shall see next, both these institutions are historically recent phenomena. Thus, although markets have existed for a very long time, the system of the market economy was established only two centuries ago. Similarly, it was the “Founding Fathers” of the US constitution who introduced representative “democracy” in the last quarter of the 18th century. So, the crucial question which arises today is: what is the relationship between these institutions and the present unprecedented crisis of modern society?

But, first, why do we talk about a “market economy” rather than a capitalist one and what do we mean by this term? We shall define the market economy in this book as the self-regulating system in which the fundamental economic problems (what, how, and for whom to produce) are solved “automatically”, through the price mechanism, rather than through conscious social decisions. The choice of this term does not emanate, of course, from a need to comply with today’s “political correctness” which has exorcised the words “capitalism” and ―more conveniently― “socialism”. It is a choice which is implied by my belief that although Marx’s concept of the “capitalist mode of production” and Wallerstein’s concept of the “capitalist world economy” have provided important insights in the analysis of social classes and the world division of labour respectively, they are too narrow and outdated.

They are too narrow because they imply that power relations in general can be analysed in terms of (or be reduced to) economic power relations whereas it is a central premise of this book that economic power is only one form of power . This implies that if it is used as the central category in the analysis of social phenomena related to hierarchical relations (in the household, work etc.), or in the discussion of issues of racial and cultural “identity”, it is bound to lead to inadequate or oversimplified interpretations.

They are outdated because, as we shall see below, their use in the interpretation of today’s “globalisation” leads to the nonsensical conclusion that the biggest phenomenon of our times is not a new phenomenon ―if it is not seen as a “myth”, or an “ideology” to justify some sort of capitalist plot!

It is therefore obvious that the present multi-dimensional crisis cannot be fruitfully discussed within the theoretical framework implied by the above concepts. Of course, this does not mean that the central category used in this book, “the market economy”, is, per se, broad enough to adequately interpret all kinds of social phenomena. Still, the very fact that this category is used to explain only one part of reality, the economic realm, without claiming that this realm determines (not even “in the last instance”) the other realms does allow enough flexibility for the development of adequate interdisciplinary interpretations of social reality.

It is therefore obvious that the term “market economy” is used here to define the concrete system that emerged in a specific place (Europe) and at a particular time (two centuries ago) and not as a general historical category of an approach aiming to show the evolution of the economic system throughout History, as the Marxist concept of the mode of production supposedly does. The methodological approach adopted in this book is based on the premise that it is impossible to derive “general” theories about social or economic evolution which are based on “scientific” or “objective” views of social reality (see ch. 5).

Capitalism is not therefore identical with a market economy. The market economy, as defined above, is a broader term than capitalism. The former refers to the way resources are allocated whereas the latter refers to property relations. Thus, although, historically, the market economy has been associated with capitalism, namely, private ownership and control of the means of production, a market allocation of resources is not inconceivable within a system of social ownership and control of economic resources. The distinction drawn between capitalism and the market economy is particularly useful today when many in the self-styled “Left”, after the failure of the centrally planned economy, rediscovering the merits of a “socialist” market economy.[1] At the same time, several “communist” parties in the South (China, Vietnam etc.) have embarked on a strategy to build a “socialist” market economy and are in the process of achieving a synthesis of the worst elements of the market economy (unemployment, inequality, poverty) and “socialist” statism (authoritarianism, lack of any political freedom etc.). As this book will, hopefully, make clear the objective of a new liberatory project should not merely be the abolition of capitalist property relations but of the market economy itself.

A final qualification is needed before we embark on an interpretation of the historical process which has led to the present internationalised market economy. Although a market economy is an essentially self-regulating system this does not mean of course that in a market economy there are no social controls at all. Here, we should introduce an important distinction between the various types of social controls that will help us to interpret today’s marketisation and internationalisation of the economy.

There are three main types of possible social controls on the market economy. There are first what we may call regulatory controls, which have usually been introduced by the economic elites in control of the market economy in order to “regulate” the market. The aim of regulatory controls is to create a stable framework for the smooth functioning of the market economy without affecting its essential self- regulating nature. Such controls have always been necessary for the production and reproduction of the system of the market economy. Examples of such controls are the various controls introduced at present by the World Trade Organisation, or by the Maastricht/Amsterdam treaties, which aim at regulating the world and the European markets respectively, in the interest mainly of those controlling the respective markets (multinationals, big Europe-based national and multinational firms etc.) Such controls have always been very much in use throughout the history of the market economy.

Second, there are what we may call social controls in the broad sense which, although they have as their primary aim the protection of the economic elites controlling the market economy against foreign competition, still, they may have some indirect effects that could be beneficial to the rest of society as well. A primary example of such controls was the various protectionist measures aiming at protecting domestic commodities and capital markets (tariffs, import controls, exchange controls etc.). The elites which control the major market economies (what we call the “North” i.e. the club of advanced market economies) were particularly fond of introducing such controls at the time of their industrialisation. However, once they achieved this objective they gradually began phasing such controls out, requiring at the same time the peripheral countries, which did not manage to “develop” on time, to do the same and therefore condemning them, in effect, to be permanently outside their “club”.

Finally, there are what we may call social controls in the narrow sense which aim at the protection of humans and nature against the effects of marketisation. Such controls are usually introduced as a result of social struggles undertaken by those who are adversely affected by the market economy’s effects on them or on their environment. Typical examples of such controls are social security legislation, welfare benefits, macro-economic controls to secure full employment etc. Such controls proliferated during the “statist” period of modernity but in today’s internationalised market economy they either drastically restricted or undermined in every way possible.

The shift to modernity

As mentioned above, the two main institutions which distinguish modern society from the premodern one are, first, the system of the market economy and, second, representative “democracy”. As it is well known, modern society emerged, very unevenly, out of a system of rural societies that had endured 5,000 years. In fact, one may argue that the technology and social organization of the Neolithic revolution remained the basis of all civilization until the coming of industrialism. Industrial production then spread, always very unevenly, from Europe to the rest of the world.

However, the identification of modernity with industrialism (in the past propagated only by “orthodox” social “scientists” but today adopted widely even by “radicals” in the “new social movements”) is unfounded. The uneven process of industrialization, for instance, cannot be seriously interpreted in terms of the lack of industrialist entrepreneurs, industrial values etc, whereas it is perfectly explainable in terms of a market-based economic development, as we shall see in chapter 3. Therefore, to blame industrialism for the evils of modern society, as many “radical” ecofeminists, Greens, indigenous movements activists, postmodernists, irrationalists (New Agers and the like), even some eco-anarchists, do, is at best misguided and at worse misleading. This is because such a view encourages many activists to fight against the wrong targets (industrial society) rather than against the system of the market economy and representative “democracy” which are, in fact, the ultimate causes for the present concentration of economic and political power and, consequently, for the present multidimensional crisis (chapter 4).

In this book’s problematique,[2] industrial production constituted only the necessary condition for the shift to modern society. The sufficient condition was the parallel introduction ―through decisive state help― of the system of the market economy that replaced the (socially controlled) local markets that existed for thousands of years before. Thus, as Karl Polanyi notes in his classic book The Great Transformation:[3]

Previously to our time no economy has ever existed that even in principle was controlled by markets. (...) [A]lthough the institution of the market was fairly common since the later Stone Age, its role was no more than incidental to economic life. (...) [W]hile history and ethnography know of various kinds of economies, most of them comprising the institution of markets, they know of no economy prior to our own, even approximately controlled and regulated by markets. (...) All economic systems known to us up to the end of feudalism in Western Europe were organised either on the principles of reciprocity or redistribution or householding (i.e., production for one's own use) or some combination of the three.

As a rule, both ancient and feudal economic systems were rooted in social relations, and non-economic motives regulated the distribution of material goods. The goods of everyday life, even in the early Middle Ages, were not regularly bought and sold in the market. This, combined with the fact that prior to the Industrial Revolution neither labour nor land was commodified, makes it clear that the marketisation process had not begun before the rise of industrialism. Thus, it was only at the beginning of the 19th century that a self-regulating market system was created which, for the first time in human history, established the institutional separation of society into an economic and a political sphere. Under neither tribal, feudal nor mercantile conditions was there a separate economic system in society.[4]

Still, economic liberalism projected backwards the principles underlying a self-regulating market onto the entire history of human civilisation, distorting, in the process, the true nature and origins of trade, markets and money, as well as of town life. However, almost all anthropological or sociological assumptions contained in the philosophy of economic liberalism have been refuted by social anthropology, primitive economics, the history of early civilisation and general economic history.

Therefore, the crucial element that differentiates the market economy from all past economies (where markets were also self-regulating, since all markets tend to produce prices that equalise supply and demand) was the fact that, for the first time in human history, a self-regulating market system emerged ―a system in which markets developed even for the means of production, that is, labour, land and money. The control of the economic system by the market, according to Polanyi, “means no less than the running of society as an adjunct to the market: instead of economy being embedded in social relations (as in the past), social relations are embedded in the economic system”.[5] Competition, which was the motor force of the new system, ensured that the grow-or-die principle characterised its dynamics. These same dynamics imply that the market economy, once installed, will inevitably end up as an internationalised market economy.

It was the institutionalisation of this new system of economic organisation that set in motion the marketisation process. This is a concept that plays a crucial role in the analysis that will follow. It is defined as the historical process that has transformed the socially controlled markets of the past into the “market economy” of the present. It is therefore a process predominantly characterised by the attempt of the elites controlling the market economy to minimise effective social controls over markets for the protection of labour and the environment.

But, let us see briefly how the two main institutions of modernity, the market economy and representative “democracy”, were established. In both cases, it was the emergence of the nation-state, at the end of the Middle Ages, which played a crucial role in creating the conditions for the “nationalisation” of markets (i.e. their de-localisation), as well as in freeing them from effective social control ―the two essential preconditions of marketisation. Furthermore, it was the nation-state again which led to the creation of the necessary political complement of the market economy: representative “democracy”. Therefore, neither the system of the market economy nor its political complement were the outcome of some sort of an evolutionary process, as Marxists usually assume. The institutionalisation of both the market system and representative “democracy” was the result of deliberate action by the state, which was controlled by the merchant class ―the new economic and political elite that emerged during the Industrial Revolution in Europe and the USA― and there was nothing “evolutionary” about the emergence of the merchant class either.[6]

The rise of the market economy

The emergence of the nation-state had the effect not only of destroying the political independence of the town or village community but, also, undermining their economic self-reliance. It was only by virtue of deliberate state action in the fifteenth and sixteenth centuries that the “nationalisation” of the market and the creation of internal trade was achieved.[7] In fact, the 16th century can be summed up by the struggle of the nascent state against the free towns and their federations, which was followed in the seventeenth and eighteenth centuries by further state action involving the confiscation, or “enclosure” of communal lands ―a process that was completed in Western Europe by the 1850s.[8]

But, the “freeing” of trade performed by the state merely liberated trade from localism; markets were still an accessory feature of an institutional set-up regulated more than ever by society. Up until the Industrial Revolution, there was no attempt to establish a market economy in the form of a big, self-regulating market. In fact, it was at the end of the eighteenth century that the transition from regulated markets to a system of self-regulated ones was completed —a development that marked the “great transformation” of society, that is, the move to a market economy. Up until that time, industrial production in Western Europe, and particularly in England where the market economy was born, was a mere accessory to commerce.

In fact, one could argue that had a social revolution accompanied the Industrial Revolution ―so that the use of machines, in conditions of large-scale production, could have been made compatible with the social control of production― the present marketisation of society would have been avoided, as well as the huge concentration of income, wealth and economic power that was related to this market-based industrialisation. But, given the class structure of the commercial society that characterised several European societies during the Industrial Revolution, it was not surprising that the organisation of the supply of the services of “labour” and “land” was based on the transformation of human activity and natural resources into commodities, whose supply did not depend on the needs of human beings and the ecosystem respectively, but on market prices.

So, as such a revolution did not materialise at the time, what followed was inevitable. Factories could not secure continued production unless the supply of means of production (especially, labour and land) was organised. But in a commercial society, the only way to organise their supply was to transform human activity and natural resources into commodities, whose supply was market-controlled, through prices. Therefore, the introduction of new systems of production to a commercial society, where the means of production were under private ownership and control, inevitably led (with the crucial support of the nation-state) to the transformation of the socially controlled economies of the past, in which the market played a marginal role in the economic process, into the present market economies.

In other words, private control of production required that those controlling the means of production would have to be economically “efficient” in order to survive competition, i.e. they had to ensure:

  • the free flow of labour and land at a minimal cost. However, under conditions of private control of production, there is an inverse relationship between this flow and social controls (in the narrow sense) on the market. Thus, the more effective the social controls on the market, and in particular on the markets for the means of production (labour, capital, land), the more difficult it is to ensure their free flow at a minimal cost. For instance, legislation to protect labour made the labour market less flexible and, consequently, the flow of labour less smooth or more expensive. The outcome of this process is marketisation, i.e. historically, those having private control of the means of production have always directed their efforts towards minimising the social controls on the market.

  • the continual flow of investments into new techniques, methods of production and products, in an effort to improve competitiveness and the sales figures (―a logic aptly expressed by the motto “grow or die”). The outcome of this process is economic growth. Therefore, it is not a coincidence that “the modern idea of growth was formulated about four centuries ago in Europe when the economy and the society began to separate”,[9] although the growth economy itself (which is defined as the system of economic organisation that is geared, either “objectively” or deliberately, toward maximising economic growth, see ch. 2) emerged much later, after the market economy was initiated at the beginning of the nineteenth century, and only flourished in the post World-War II period.

The emergence of representative “democracy”

Αs regards the rise of representative “democracy”, we should go back to the last quarter of the 18th century when the “Founding Fathers” of the US constitution, literally invented representative “democracy”, an idea without any historical precedent in the ancient world. Up until that time, democracy had the classical Athenian meaning of the sovereignty of demos, in the sense of the direct exercise of power by all citizens ―although, of course, the Athenian democracy was partial (see ch. 5). The Founding Fathers considered as completely unacceptable this direct exercise of power, ostensibly, because it was supposed to institutionalise the power of the “mob” and the tyranny of the majority. In fact, however, their real aim was the dilution of popular power, so that the claims of representative “democracy” about equal distribution of political power could be made compatible with the dynamic of the market economy, which was already leading to a concentration of economic power in the hands of an economic elite.[10] This was of course a constant demand of liberal philosophers since the time of Adam Smith, who took pains to stress that the main task of government was the defence of the rich against the poor ―a task that, as John Dunn points out, is “necessarily less dependably performed where it is the poor who choose who is to govern, let alone where the poor themselves, as in Athens, in large measure simply are the government”.[11]

It should also be noted here that the introduction of representative “democracy” had nothing to do with the size of the population. The Founding Fathers’ argument, as Wood[12] points out, “was not that representation is necessary in a large republic, but, on the contrary, that a large republic is desirable so that representation is unavoidable”. Therefore, the Federalist conception of representation, and particularly that of Hamilton, was intended to act as a filter, i.e. as the very antithesis of isegoria, which means equality of speech ―a necessary requirement of classical democracy― as against the representative “democracy’s” freedom of speech. This way, democracy ceased to be the exercise of political power and was identified instead with the resignation from it and the associated transfer of this power, through the elections, to a political elite. In other words, the Founding Fathers not only saw representation as a means of distancing the people from politics but, in fact, proposed it for the very same reason for which the Athenians were against the institution of election (apart from exceptional circumstances when specialist knowledge was required): because it favored the economically powerful. Thus, whereas for the Athenians the regime which was dominated by the rich (by definition a minority) was considered to be oligarchic, for the Founding Fathers like Hamilton not only was there no incompatibility between democracy and the domination of the economically powerful but in fact this was considered to be the rule.

Therefore, the more or less simultaneous institutionalisation of the system of the market economy and representative democracy”, during the Industrial Revolution in the West, introduced the fundamental element of modernity: the formal separation of society from the economy and the state that has been ever since the basis of modernity. Not only people, as direct producers, were not able to control the product of their work but also, as citizens, were incapable of directly exercising political power. In other words, the market economy and representative democracy had in fact institutionalised the unequal distribution of political and economic power among citizens. Furthermore, it could be shown that the gradual extension of the right to citizeship to the vast majority of the population ―a process that was completed only in the tewntieth century― did not offset the effective loss of the meaning of citizenship, in terms of the exercise of power. Thus, the type of citizenship introduced by representative democracy was a passive citizenship which had nothing to do with the active citizenship of classical democracy. It was therefore not surprising that the extension of civil rights did not have any marked effect in reducing the concentration of political and economic power which has always characterised modern society, apart from a temporary effect on economic inequality during the statist phase of modernity, as we shall see below.

In this problematique, it was the institutionalisation of the market economy and representative “democracy”, its political complement, which were the ultimate causes for the characteristics usually assigned to modern society: the replacement of the group or the community (as the traditional basic unit of society) by the individual; the assignment of specific, specialised tasks to modern institutions (within a highly developed division of labour) in contrast to the traditional social or political institutions (family, community, king etc); the government of the institutions of modern society by “rules” rather than, as in traditional society, by custom and tradition, and so on.


[1] See e.g. Robert Pollin, “Financial Structures and Egalitarian Economic Policy”, New Left Review, No. 214 (Nov.-Dec. 1995).

[2] See for further expansion, TID, ch. 1.

[3] Polanyi, The Great Transformation, the Political and Economic Origins of Our Time (Boston: Beacon Press, 1944/1957), pp. 43-44 & 55-56.

[4] Ibid., p. 71.

[5] Ibid., p. 57.

[6] As Polanyi, quoting Pirenne, points out: “It would be natural to suppose, at first glance, that a merchant class grew up little by little in the midst of the agricultural population. Nothing, however, gives credence to this theory”. Karl Polanyi, The Great Transformation, p. 275.

[7] Ibid., pp. 63-65.

[8] Pëtr Kropotkin, Selected Writings on Anarchism and Revolution (Cambridge and London: Massachusetts Institute of Technology, 1970), pp. 245-53.

[9] Henry Teune, Growth (London: Sage Publications, 1988), p. 13.

[10] E.M. Wood, Democracy Against Capitalism (Cambridge: Cambridge University Press, 1995), pp. 214-15.

[11] John Dunn, (ed) Democracy, the Unfinished Journey, 508 BC to AD 1993 ( Oxford: Oxford University Press, 1992), p. 251.

[12] Wood, Democracy Against Capitalism, p. 216.