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Capitalist Economics
Capitalist Economics
S A M U E L A . C HA M B E R S
1
3
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To my students,
who have taught me more than they know
Contents
Preface  ix
Introduction: What Is Economics?  1
PA RT I —E C O N OM IC S I N H I ST O RY
1. Social Orders and Economic Relations  19

2. How Societies Produce  33
3. Capitalist Social Orders  47
PA RT I I — C
A P I TA L I S T E C O N OM IC R E L AT IO N S
4. Money  65
5. Commodities  81
6. Profit  95
PA RT I I I — C
A P I TA L I S T E C O N OM IC F O R C E S
7. Entrepreneurs and Investment  117

8. Bankers and Interest  131
9. The Rules of Capitalism  151
Sources and Further Reading  169

Acknowledgments  177
Glossary of Terms (by Benjamin Taylor)  181
Preface
We are currently living through a period of history that calls into ques-
tion and places at stake the very meaning of both “economics” and
“capitalism.” This has happened before.
From the beginning of World War I (1914) to the end of World War
II (1945), economics was remade by history itself. What John Maynard
Keynes called the “classical school” of economics—as taught to him
by Alfred Marshall, the author of the first great economics textbook—
rested on the principle that markets were naturally occurring, self-
regulating, and always moving toward an equilibrium. Economics
could therefore not directly create political conflict, and economic
downturns should be dealt with mainly through patience. While
Keynes himself famously challenged the entire classical paradigm in
his General Theory (1936), far and away the most important work of
economics published in the twentieth century, the most damning cri-
tique of classical economics came not from Keynes but from the events
of history—two global wars and one global economic depression.
By the end of World War II, Marshall’s Principles of Economics
(1890) was not just out of date at more than a half century of age, it was
completely out of touch and inappropriate for a world that had been
entirely transformed. In both Britain and the United States, Keynes’s
utterly unorthodox approaches to monetary policy (including infla-
tion/deflation), taxation, debt, trade, and economic growth had effec-
tively transformed economic policy, and by any measures such policies
had been a resounding success. When American President Franklin
Delano Roosevelt first experimented with Keynesian ideas, as a des-
perate measure to bring America out of the Depression, the results
were impressive: GDP grew at 10.8, 8.9, and 12.9 percent in 1934, 1935,
and 1936, respectively. When, at the start of his second term in office,
Roosevelt switched course, cut spending, and balanced the budget,
the US economy fell back into depression. And finally, when the war
x Preface
economy forced a return to the Keynesian playbook, the United States

experienced truly staggering growth rates—exceeding 17 percent each
year from 1941 to 1943.
By 1945 top economics departments in the United States were filled
with young scholars who had both learned and implemented (through
direct policymaking) the new economic ideas of the day. The time was
ripe for a new textbook that could teach these ideas to the largest gen-
eration of students (expanded massively by the GI Bill) ever to attend
college. And no one thought for a moment that Keynes’s great book
could serve as such an introduction: the exposition of ideas in that text
was obtuse and impenetrable—clear as mud.
In 1947, an assistant professor at Stanford University was the first
to act. At the age of 36, Lorie Tarshis was still quite young for an ac-
ademic, but like many of his generation he had already lived a life
full of experiences. A Canadian by birth, Tarshis had gone from the
University of Toronto to study with Keynes at Cambridge University,
where he completed an MA and a PhD, before moving to the United
States to teach at Tufts University. During World War II he first worked
for Roosevelt’s War Production Board and then served as an analyst
for the US Army Air Forces. After the war he took up a post at Stanford
and quickly began work on the much-needed textbook, which he
published a year later.
Read today, Elements of Economics looks like the typical text-
book: long (700-plus pages), dry, and filled with aggregate economic
numbers and plenty of the basic charts and graphs that had been the
stuff of economics since Marshall. Nothing about the book stands out.
It begins with the usual proclamations about the need to study eco-
nomics as a scientist would (and not as a philosopher or theologian
would), and it devotes a very early chapter to underscoring the essen-
tial importance of the capitalist firm: “the presence of the private, in-
dependent business firm is the most important feature of a capitalist
economy” (Tarshis 1947: 28). Tarshis goes on to spell out that such
firms seek to maximize profits, and he insists that these are not “act[s]‌
of villainy” (Tarshis 1947: 30). A careful reader might notice that
the book spends significant time discussing the role of government
spending in a national economy, and that it devotes an entire section
Preface xi
to money, banking, and the central banking system, but otherwise it

seems like a standard textbook.
The book was important not because it was unorthodox but
surely because it met an extreme of pent-up demand, as economics
departments all across the country needed an introductory text to
teach their growing student bodies. Upon its appearance the book
quickly emerged as something of “an academic publishing hit”: “when
the book came out, professors at Brown, Middlebury, Yale, and other
universities eagerly picked it up. Elements of Economics went through
about ten thousand copies in just a few months” (Carter 2020: 375).
This is an enormous success by academic publishing standards and
portended a great future for both Tarshis and his textbook: once a text
becomes a “standard” or a set text for introductory courses, it tends
to gain inertia—as instructors return to the text they know well, and
publishers therefore bring out updated editions to maintain sales.
Yet today none but a few economic historians have ever heard
of Lorie Tarshis, and no one since the 1940s has read Elements of
Economics. What happened?
The story proves slightly complicated, but it is first and last a political
story. Almost immediately upon publication of Tarshis’s text, Merwin
Hart, a corporate lawyer with no economic training, led a proto-
McCarthyist campaign against Tarshis and his book. It began with a
scathing review explicitly calling the book “pre-Christian” Marxist
propaganda and asserting that the book was “part of a dangerous sub-
versive plot.” Hart started what today we would call an “astroturf ” cam-
paign, an effort to drum up the appearance of a grassroots movement
against the book. He sent a form letter to newspapers and to university
administrators and trustees all across the country; it claimed that the
choice was between freedom and private enterprise, on the one hand,
and “a Socialism like that of Britain . . . [itself only] a transitory stop
on the road to State Absolutism such as that of Russia,” on the other.
The campaign to convince local newspapers to editorialize against the
book proved highly effective, with many suggesting that the book was
an obvious effort to teach Marxism. In turn, the pressure on univer-
sity administrations succeeded as well, with some actively removing
the book because of its putative ideology but most merely wishing to
avoid controversy. Tarshis’s publisher dropped the book in less than a
xii Preface
year. While Tarshis had a long career at Stanford and then at univer-
sities back in his home country of Canada, he never made a mark on
economics, but instead became a footnote in economic history. And
aside from the handful who happened to take introductory economics
courses in 1947, very few students read his textbook.
At the very moment that Tarshis’s publisher was abandoning his
book, Paul Samuelson published his own textbook, which perfectly
“slipped in to fill the teaching void left by the Tarshis text” (Carter
2020: 377). Samuelson’s parsimoniously named Economics (1948)
would go on to become not just the most enduring, widely read, and
financially successful economics textbook of all time, but arguably
the single most successful textbook in any field. Over a span of four
decades, Samuelson solo-authored 12 editions of the book; seven
more editions (19 in total) were then coauthored by Samuelson and
William Nordhaus; the 2009 edition of the book remains in print and
widely used in the classroom today. Since 1961, each and every edi-
tion of Economics has sold a minimum of 300,000 copies, with total
sales surpassing four million. Paul Samuelson is described today on his
Wikipedia page as “the most influential economist of the later twen-
tieth century.” While his research surely contributes to that status,
Samuelson himself emphasized the importance of the textbook. In a
famous, though perhaps apocryphal, quote, he boasted, “I don’t care
who writes a nation’s laws—or crafts its advanced treaties—if I can
write its economics textbooks” (quoted in Carter 2020: 378).
❂❂❂❂
This is not a history book; it is an introduction to political economy. So

why does it begin with a 75-year-old story? First, the tale of the Tarshis
and Samuelson textbooks powerfully illustrates that the production
and dissemination of knowledge cannot be sealed off from political
relations of power and authority. Knowledge itself always includes a
relation to history—what we study will always be historical in that it
remains situated within history. This does not taint all knowledge or
turn it into bias. To the contrary, the recognition that no knowledge
is “pure,” that history cannot be transcended, gives us more, not less,
reason to aim for a certain “objectivity” and disinterestedness in our
Preface xiii
pursuit of knowledge. There remains a wide chasm separating the

search for understanding and explanation, on the one hand, from an
instrumental use of information to support an already established po-
sition, on the other. Nonetheless, we search for knowledge (for truth,
even) not from a place beyond history but precisely from our actual
location within history.
Second, more simply and more fundamentally, we learn from this
story that economics is never not political. There is no way to study ec-
onomic forces and relations as existing separately from political forces
and relations. This is not only because any particular historical ex-
ample of an economic event will be bound up with politics but also
because there is no economic domain outside of other domains (social,
cultural, political) and because there are no economic forces except
those deeply entangled with political forces. To boil this point down
we can put it this way: we cannot study “economics”; we can only ever
study political economy.
This book provides an introduction to that field of study and to
concrete phenomena of the world in which we live. Importantly, this
field is not itself an academic discipline. Indeed, the name “political
economy” seems to combine simply (or perhaps contradictorily) two
discrete, separate disciplines: economics and political science. You can
get a university degree in something called “political economy,” but
if you do it will be explicitly marked as interdisciplinary—and there-
fore very different from a degree in economics. As established aca-
demic disciplines, tens of thousands of students major in economics
and political science every year, and both disciplines are overflowing
with introductory texts and textbooks. However, if you search for an
introduction to “political economy,” your search will only turn up
selections from the history of economic thought or specialist texts that
describe narrower fields that lie within economics or political science,
especially texts in international political economy (a field itself built on
mainstream economics). What does it mean, then, to study political
economy at a more basic, more fundamentally introductory level?
To answer that question we first have to consider the relation be-
tween politics and economics. In particular, we need to address two
standard, guiding assumptions: that political science analyzes and
explains the discrete domain of politics, while economics does the
xiv Preface
same with “the economy.” These assumptions combine to underscore

the claim that politics and economics are different domains, consti-
tuted by different elements and forces, and that each separate disci-
pline devotes itself to the task of making sense of its own specified area.
Many economics textbooks are explicit about this point; they will go
out of their way to distinguish economics from politics and to explain
to students that economics as a scientific endeavor can and must be
carried out separately from politics. Politics textbooks are less likely
to exclude economics, but they will tacitly assume that economics can
be left to the economists. At the same time, most textbooks in either
field will affirm that they offer an examination of objective facts about
their disciplines, and that actual politics (partisan conflict, collective
struggle, and social strife) remains outside the text. In other words,
textbooks are not themselves political. As we demonstrated previously,
these claims prove completely untenable. Textbooks are shaped by the
politics of their time, and occasionally—as with the case of Tarshis and
Samuelson—they are heavily stamped and decisively marked by that
politics.
Lost in history alongside Lorie Tarshis is the story of the first edi-
tion of Samuelson’s textbook, which was also subject to a version of
the same political attack that took down Tarshis. William Buckley,
in the book that made his career as a conservative thinker, attacked
Samuelson’s book right alongside Tarshis’s. The difference was that
Buckley’s attack came later (1951) and was not combined with a coor-
dinated political campaign. Moreover, Samuelson’s book was easier to
defend because it offered a compromise between “classical economics”
and the thought of Keynes. But most importantly, both Samuelson and
his publisher directly and vigorously fought back against attacks on the
book (Carter 2020: 377). Were it not for the fact that they won this po-
litical battle, the most successful economics textbook of all time might
well be buried in history alongside Tarshis’s Elements of Economics.
The goal of this book is to offer an introduction to political economy
in the form of a broad study of capitalist economics. Our main focus
will be economic forces and relations, but we will study them without
ever pretending that they are universal or timeless (that they could
somehow be purely “natural”). One of our aims will be to see that spe-
cific types of economic forces only come into existence after (and based
Preface xv
on) social, political, and cultural changes. Another will be to grasp that
economic forces never operate in a vacuum: they are always competing
with or complementing those other forces—forces of law, forces of so-
ciety, and even forces of nature.
This is not a “textbook” as we usually understand that term. It has
fewer chapters, fewer pages, fewer graphs and charts, and no study
guides, built-in quizzes, or any of the other “options and features” that
usually constitute textbooks today and help to justify their exorbitant
prices. But it is an introductory text designed to help both students and
general readers make sense of something quite fundamental to all of
our lives: capitalist economics.
And while the historical contexts prove quite distinct, it’s probably
fair to say that I came to write this book for many of the same reasons
that Tarshis and Samuelson wrote theirs. Like them (and like all of
you) I have recently lived through an extraordinary historical period
in which, to use a phrase that Keynes himself coined, the “conventional
wisdom” in both economics and politics has been completely shaken.
Like them, I have spent about a decade and a half studying, learning,
and exploring both new and old ideas that, when combined, can pro-
vide a sharper and more useful picture of both political economy in ge-
neral and capitalist economics in particular. As was the case for Tarshis
and Samuelson in their time, the current disciplinary textbooks are no
longer fit for purpose.
We need to start over, but we do not need to start from scratch. This
book draws from a wide range of sources in the history of economic
thought, political theory, history and anthropology, synthesizing them
in a simpler, clearer overview of capitalist economics. With the goals
of clarity, parsimony, and readability paramount, the main body of the
text does not cite even a fraction of those sources. Readers who just
want to understand the ideas can focus their attention here. Readers
who want to know where the ideas come from, to engage with them
more deeply or at higher levels of sophistication, or to explore avenues
of investigation of their own should spend time consulting the Sources
and Further Reading section at the end of the book.
The implied reader of the book is . . . anyone and everyone. No spe-
cific prior knowledge is presumed. I worked out the ideas of the book
over 14 years of teaching at both the undergraduate and graduate level
xvi Preface
at Johns Hopkins University. Early drafts of the manuscript served

as the set text for my introductory courses in both Spring 2020 and
Spring 2021, so the book can clearly fulfill the main textbook function
in an introduction to political economy course. All or part of it could
also be assigned in more advanced undergraduate or graduate courses
where the instructor wants to expose students to some general ideas of
political economy or to give them a functional working understanding
of capitalist economics, while avoiding the disciplinary entanglements
of the models that form the basis of neoclassical economics. Moreover,
and I cannot emphasize this enough, although the book is written by
an academic and I think it has a role to play within college and univer-
sity curriculums, this is not an academic text. This book is also, and
in a way primarily, written for the following: anyone who has found
themselves wanting to be able to make better sense of what’s going on
with “the economy” today; everyone who reads the business or finan-
cial pages of the newspaper and finds their explanations wanting; and
anyone who just doesn’t buy the idea that economic growth, or the
fluctuations of stock and bond prices, is somehow just a “natural” re-
flection of the emotion of “investors.”
The foundational research work for this book was not under-
taken with the intention of producing a book like this. I started out
on this path of exploration precisely because I was not satisfied with
newspapers’, textbooks’, or economists’ explanations of the great finan-
cial crisis of 2008. I soon learned enough to know that many of the
standard newspaper stories on political economy were often saying
little at all, and sometimes just repeating falsehoods. This book does
not contain all the answers, for the very good reason that these are
complicated, dynamic, and deeply challenging problems. (For ex-
ample, any simple explanation of something like bond yield curves is
a bad explanation.)
The book does provide a solid grounding and clear framework for
seeking such answers, for building rich, substantive responses to the
questions and problems we face today. It aims to give readers a much
firmer grasp of the fundamental relation between politics and eco-
nomics. First, it locates economic forces and relations in history; spe-
cifically, it explains that capitalism is a unique economic form that first
Preface xvii
emerged at a particular time and place in history. Then, from this basis
the book explores fundamental economic relations and forces in great
depth, providing the reader with both a deeper understanding of how
these forces operate and a set of tools they can use to make sense of
concrete phenomena.
Introduction: What Is Economics?
Everyone knows that the noun “economics” names an academic disci-

pline in the social sciences, as well as a general profession. Economics
studies individual choices in relation to the efficient allocation of
scarce resources. This is not a textbook in economics.
The word “economic” is a distinct, older term, which English
borrowed from the French économique and the Latin economicus.
Originally a noun, but used today only as an adjective, “economic”
appears along with a noun that it modifies. Examples include eco-
nomic forces, economic outcomes, economic relations, and economic
events. This book will help you to make sense of economic forces and
relations, to grasp the meaning of these events and outcomes as they
occur in the world around you. Ultimately the goal of the book is to
explain capitalist economics, because it turns out that the very nature
of “economics” (in the fundamental sense of economic forces and rela-
tions) depends on the type of society in which we encounter it. Part I of
the book will therefore focus on the question of “economics in history,”
but before starting that work, we first need to familiarize ourselves
with this general, older idea of economicus.
The basic point is straightforward: economic forces and relations
are distinct from other types of relations; they operate according to
their own specific mechanisms and rules. One primary aim of this
book is to explain and analyze the specific conceptual structure of
economicus as it operates in capitalist societies, but this means we
must understand some simple economic mechanisms and we must
make sense out of some straightforward economic forces. Ultimately
we will need both to distinguish economic forces from other types—
physical, social, cultural, or political—and also to show how they are
linked. But first we will start with a few elementary examples of economic
forces or relations. Some of these examples will be expanded upon in
great detail in Part II, which devotes entire chapters to them. At that
Capitalist Economics. Samuel A. Chambers, Oxford University Press. © Oxford University Press 2022.
DOI: 10.1093/oso/9780197556887.003.0001
2 Capitalist Economics
point we will analyze them as capitalist economic forces, but here we

first get a more general sense of economicus by looking at them in the
broadest sense.
Money
No one can deny the force of hunger. When your stomach growls,
when you have depleted your store of calories, your body’s phys-
ical need to eat is indisputable. However, hunger itself is not an eco-
nomic force. Regardless of whether we call it biological, physiological,
or simply a “natural” force, we need not invoke economic relations in
order to make sense out of the human need to eat.
But how do we go about satisfying our hunger? If we happen to find
food ready to hand, located in the pantry or the refrigerator, then all we
have to do is prepare it and eat. And what if the pantry is bare and the
fridge is empty? We could try to grow food in our backyard, but that is
impractical at best and impossible at worst; in any case, it would take
too long to satisfy our hunger now. Therefore the standard answer is
obvious: we go to the store, or to a restaurant, or (if we live in a trendy
place) to the nearby food truck.1 More obvious still, when we get there
we will need to present the clerk or the waiter with money in order
to obtain the food. To satisfy our need for food we must first acquire
money; this means that before obtaining our ultimate goal (food), we
have an intermediate goal (money).
Your need for money is not natural. You cannot eat money, so there is
no way it can directly satisfy your hunger. Money is economic. The fact
that you need money in order to overcome hunger explains nothing
about you as an individual; it has nothing to do with the nature of your
hunger or with the fact that calories from food will satisfy that hunger.
Rather, the fact that you need money in order to eat tells you many sig-
nificant things about the society you live in and the characterization of
“food” in that society. It reveals that society as one in which relations
to food are mediated by money. Most importantly, a relation medi-
ated by money is always an economic relation. Therefore, given the
society you live in, satisfying your hunger proves to be economic, not
because eating is itself economic but because in the world you inhabit
Introduction: What Is Economics? 3
the process of acquiring food to eat depends on obtaining money to

buy the food. A society in which food is bought and sold with money is
one in which the satisfaction of human hunger can only be carried out
through a specific set of economic relations.
We will return to the example of food numerous times throughout
this book, and we will explore the nature and importance of money in
much more detail, starting with Chapter 4. At this point you should
focus on one key takeaway: hunger may be natural, but money is not;
the presence or role of money always indicates an economic relation
or force.
Price
The economic is not only a type of relation, but also a force that acts
on us from outside. We can attempt to alter or thwart this force, but we
can never control it directly. We encounter this force (and feel it as ex-
ternal) whenever we buy and sell. If you decide to satisfy your hunger
by going to the store to buy bread, peanut butter, and jelly, you will find
when you get there that you have no say in the pricing of those items;
the prices of all three are written on labels affixed to the items and the
shelves. Your choices appear to be confined to the following: pay the
price, pick another item to buy, or go home hungry.
There is of course one other very significant option: steal the food.
This alternative is usually ruled out in our heads—and is therefore
excluded from the choices listed in the previous paragraph—because
there are laws against theft, laws that establish and protect rights of pro-
perty. We often think of these laws as separate from economic forces
and relations, but even this seemingly silly example demonstrates just
the opposite: such laws are crucial preconditions for economic rela-
tions. Market prices and market transactions are not fixed or given
(not forces of nature), but rather contingent and dependent on a social
order that establishes, and defends through force, contractual and legal
relations.
If we restrict ourselves for heuristic purposes to the analysis of price
as an economic force, we see that the price is given to us. We have no
choice about it. This logic applies to the case of selling just as much as
to buying. It does not matter how much you paid for (or how much
you love) your PlayStation console and the many games you are sel-
ling with it; when it comes time to list it on eBay or craigslist, the price
you receive for it is only as high as someone is willing to pay. It may
have taken you months of work to grow tomatoes in your backyard,
but if you decide to sell them, the price is the price. People living in the
US and much of Europe who tried to sell their houses after the Great
Recession had to confront this reality directly and in painful terms: the
fact that they paid $400,000 for their house in 2006 and then spent
$75,000 to update it in 2007 meant nothing whatsoever when they
tried to sell it in 2010—it was only worth $250,000.
Prices are determined not by individuals, and not even by groups
of individuals acting consciously to set prices; rather, prices are de-
termined by multiple economic forces that are beyond the control
of any individual or group. We can call these “market forces” or the
“laws” of supply and demand; all that matters at this point is that we see
those forces as external, as powerful, and as beyond the realm of direct
human choice. Prices are economic.
Profit
Questions about profit—where it comes from, how it is generated, how

it is distributed—are the most important economic questions within a
capitalist society. You will grapple and engage with these questions in
depth in Chapter 6. For now, the point is to see that even when looking
at the simplest cases of economic relations in everyday life, the ques-
tion of profit is never far away.
In our first example, we described how money became our first
goal, because we required money before we could satisfy other specific
needs or wants. This applies not just to food but to almost everything.
Shelter, transportation, clothing, and entertainment can be obtained
almost exclusively with money. This means that if we live in a society
structured by money, most of our relations will also be economic rela-
tions because they will be interwoven with the driving concern of how
we get access to money. Fundamental questions about how we live our
life, from our career to our various pursuits of happiness, can be traced
back to this first question: How do we acquire consistent streams of

money? We emphasize “streams” because “getting money” is not a one-
time act: the money we get today will be spent tomorrow or the next
day, and therefore we will soon find ourselves once again needing to
get more money. How do we do this?
There are basically two options: get a job or inherit a fortune. If we
get a job, then an employer pays us wages. If we inherit a fortune, then
we have all the money we need. What does any of this have to do with
profit?
Perhaps surprisingly, in both cases our continued flows of money
turn out to depend fundamentally on profit. In the case of working a
job for a wage, we need the company we work for to remain profit-
able. If our company stops making a profit, then it may decide to lay us
off; worse still (but with the same effect), it may go out of business. In
either case, we will no longer receive the stream of money that we de-
pend on in order to live.
And even if we inherit money, we still cannot ignore profit. This is
because no one truly “lives off their inheritance” in the sense of directly
spending down the money in their inheritance account. No, anyone
who inherits or saves up a sum of money will always want to allocate
the money in investments that protect the principal balance while
adding to it a flow of interest, dividends, and principal growth. But this
means that the person who does not work for a wage is even more con-
cerned about profit: they need the businesses they invest in (stocks)
or the companies they loan money to (bonds) to continue to earn a
profit, because their flow of money depends entirely on those compa-
nies’ profits.
Whether we work for a wage at McDonald’s or on Wall Street,
whether we inherit $100 million or borrow a much smaller sum of
money to start a business, in every case our future streams of money
(and all that they make possible) will be powerfully dependent on the
possibility of profit. At its core, profit is the idea that we start with a
certain sum of money and turn it into a larger sum of money. Profit is
an important economic phenomenon, and within capitalist societies
it is the essential economic phenomenon. You will learn in this book
how profit comes about, and you will discover that, like a complex
chemical reaction, profit is only possible under very precise conditions
and with highly specified variables. For now we emphasize the fol-
lowing root point: no matter where you find yourself in society, profit
will matter to you because it will directly affect your ability to acquire
the sums of money that you need to live.
Economics Is Not Natural
This book will continually emphasize and illustrate the following cen-
tral point: economic forces and relations do not, and cannot, exist sep-
arately or independently of other forces and relations in society. This
means we cannot build up a study of economicus as if we were in a lab-
oratory, sealed off from the outside world. Perhaps the study of mathe-
matics and chemistry can begin with elemental particles (numbers and
elements). But the elemental particles of economic forces and relations
do not exist in nature or in a vacuum; they only exist in a concrete so-
ciety. Economic relations are not natural relations: they are historical
relations that can never be excised or isolated from social, political,
cultural, and many other relations.
In searching for their own elemental particle—something to rival
chemical elements, or the biological cell—economics textbooks typ-
ically begin with some combination of three main notions: economic
goods (commodities), scarcity, and choice. The standard story then
goes like this: the world is naturally populated with scarce commod-
ities, and economics is the scientific study of how those commodities
are allocated efficiently through individual choice.
To repeat: this is not a textbook in economics. Nor is it a point-by-
point internal critique of the discipline of economics, which is not to
say that it is not critical of mainstream economics, but that the main
point of this book is to help you understand the world (not to tell you
what’s wrong with an academic field of study). For these reasons, our
exploration of and engagement with economicus will mostly ignore the
tenets of twenty-first-century economics, either in textbook cases or
more sophisticated forms. However, in order to clarify the nature of
the journey you will take in the course of this book, it is worth briefly
specifying the problems with such attempts to place economics on the
foundation of natural or universal “elemental particles.” This will help
us to distinguish a universal study of “economics” from our grounded

engagement with economicus as it appears in today’s societies—that is,
a study of capitalist economics.
1. Commodities (economic goods) are not natural.

The earth we inhabit is filled with natural resources: air, water,
land, food (from plants and animals), materials for shelter,
and numerous energy sources. But natural resources are not
immediately economic goods (commodities). In order to become
a commodity, a natural resource must enter into economic re-
lations: the material of nature must be transformed (in various
ways) in order to produce a commodity. Commodities are not
found in nature in the same way that chemical elements or bio-
logical cells are presumed to be.2 We will explore production in
Chapter 2 and later analyze the nature of commodities in great
detail, especially in Chapter 5.
2. Scarcity is an economic relation, not a natural condition.
Scarcity is a relative, not an absolute term. To say a resource is
“scarce” means that there is not enough of it, given how much
is currently needed or desired. This implies a crucial distinction
between “limited” and “scarce” resources. Sometimes a limited
resource may not be scarce: for example, coal prior to the eight-
eenth century; pizza, if you order two larges and only you and
your roommate show up to eat it. The textbooks that make scar-
city the defining starting point of the science of economics are
saying not just that resources are finite (that the supply is lim-
ited), but that there are not enough resources relative to needs/
wants. However, while resources are limited in nature, they are
only scarce (or not) within society. In other words, scarcity is a
real condition, but it is an economic condition—one that can
only be understood in terms of economic relations and forces—
not a natural condition that would provide the foundation for
economics. Scarcity is not a universal starting point.
3. “Efficiency” is a non sequitur.
Standard textbooks often assert that economics seeks the most
“efficient” allocation of scarce resources. Yet a system can only
be judged as efficient or not relative to a set of predefined ends or
goals. Economics long ago borrowed the term efficiency from the
discipline of physics, wherein efficiency is a simple formula: en-
ergy output/energy input. For example, we can easily compare
the efficiency of two light bulbs: whichever one has the highest
ratio of output (light) relative to input (electricity)—easily meas-
ured in lumens per watt—is the most efficient. In economics,
the general idea of “efficiency” is that we could compare two
different “economies” on the basis of which one produced the
most output (commodities) relative to its inputs (natural re-
sources, technical capacities, labor-hours, etc.). And more than
this, the economics textbooks claim that economics is the sci-
ence of maximizing this type of efficiency. But there are at least
two huge problems with this approach, both of which you will
learn about in detail in this book. First, it is not at all clear how
“maximizing economic output” would be a good goal for a so-
ciety to pursue; do we really want to produce “as many shoes
as possible” regardless of the number of people in the country?
Second, any measure of efficiency requires consistent, stan-
dardized measures of input and output, but economic output is
often quantified in terms of money, which is not a fixed standard
(5 watts is always 5 watts, but $5 can buy more or less at var-
ious times). Finally, even if we could solve these problems, we
would have to deal with the fact that there is nothing inherent to
economic relations or economic forces that necessarily leads to
maximizing output or minimizing input. Quite to the contrary,
as you will see, not all economic forces and relations are the
same: economic forces under feudalism were radically different
than those under capitalism. And under capitalism the inherent
trajectory of capitalist economic forces is to maximize profits,
not “efficiency.” Moreover, there is absolutely no reason to be-
lieve that more profit creates more efficiency. Overall, given the
difficulty of even defining what an “efficient” economic system
would be, it turns out that the standard texts are not really saying
anything when they say the word “efficiency.”
4. Choice is not uniquely economic.
Some textbooks simplify the definition of economics by skip-
ping the idea of scarce commodities and just saying “economics
is the science of choice.” Clearly economic relations are de-

pendent on, and in turn help to constrain or enable, various
choices made by individuals or groups. If large numbers of
Apple customers who previously upgraded their iPhones yearly
start choosing to delay their upgrade cycle, it will obviously de-
crease the overall demand for iPhones. This will lower Apple’s
sales numbers, which will in turn lower Apple’s own purchases
from its suppliers, which will then lead Apple to cut back on fac-
tory output. If those suppliers then choose to lay off workers, this
could impact tens of thousands of workers across the world. If
owners of Apple stock choose to sell, this will lower the stock
price, which will have an effect not only on the millions of people
and organizations that own Apple stock but also on the stock
market itself (since Apple makes up roughly 10 percent of the
NASDAQ composite index). Choice is surely important to un-
derstanding economic forces and relations. However, choices
occur everywhere—in politics, in nature, in culture, in families,
in society in general—and choices are made according to com-
plex and variegated reasons or logics. Economics has no mo-
nopoly on understanding choice, and not all choices are made
according to narrow economic reasoning. It would be wrong
(and a bit hubristic) to presume that all choices were economic
choices, and it would be arrogant to think that there could be a
“science” that would explain all choices in all domains. To study
economicus as we will do in this book means to consider a wide
range of choices, made according to distinct and changing met-
rics, and it also means to consider outcomes and distributions
that are beyond “choice.” Not all economic results can be grasped
as the product of individual choice.
“The Economy” Does Not Exist
In rejecting the economics textbooks’ efforts to ground a separate

science on elemental particles we are simultaneously affirming the
fact that economic forces and relations are always bound up with,
intertwined with, inextricably connected to other sets of relations.
We can look at this point from a different perspective: there is no dis-

tinct domain or isolated location in which economic activity takes
place. Access any newsfeed and you will see constant references to “the
economy,” along with apparently limitless data meant to describe the
relative health of “the economy.” In truth, however, there is no such
thing as “the economy.” Economic activity occurs not within an “ec-
onomic domain” but only within society, which means it operates di-
rectly alongside and in interaction with other forms of societal activity.
This fact has two important implications. First, we can only study
economics within a particular society or set of societies. Economic
forces in ancient India looked utterly different from economic forces
in medieval Italy, which themselves look almost nothing like economic
forces in nineteenth-century Britain. Second, we can say in broader
terms that economic forces differ from physical forces: gravity operates
the same way in all times and places (although its effects may be very
different), but economic relations can only be understood or explained
fully for a specific time and place.
Studying Economics as Economicus—Overview

of the Book
This second point leads to an important conclusion of this introduc-

tory chapter. This chapter has tried to familiarize you with a much
broader concept of “economics” than one usually finds in textbooks
within the discipline of economics. The aim is to explain how eco-
nomic relations, processes, and forces operate, and to suggest ways to
analyze economic events or outcomes. In this introductory chapter we
have consciously chosen to use the term economicus in order to under-
score our sense of economics as constituted by an historically specific
set of relations. For the remainder of the book, aside from a few uses to
remind us, we will refer simply to “economics” rather than economicus,
but our understanding of economics will always be informed by these
arguments.
This means that for us there simply is no general science of eco-
nomics because there are no universal (in the sense of transhistorical)
economic laws. Furthermore, to study economics as economicus means
to study it in a particular society or set of societies, at a specific mo-

ment in history. In this book then, we will not be studying economics
as a general or universal science. Nor will we study economicus during
the Roman Empire, or in Tang dynasty China. We will be studying
economic forces and relations as they have come to exist in modern
capitalist societies. As its title makes clear, this book is about capitalist
economics.
The book is organized and structured so as to build your under-
standing and knowledge of economic forces, relations, processes, and
results. The ultimate goal is to provide you with the tools to under-
stand how economics functions in the society you live in, which means
that by the end you should be able to look at everyday practices and
events and discern the economic relations that run through and help
to explain them.
This leads us to a multipronged approach. First, in Part I we will an-
alyze some of the historical developments that brought about the par-
ticular type of economic relations and forces that exist in and across
modern capitalist societies today. In other words, we will start with a
broader theoretical framework that situates economics within the con-
text of other forces in society as a whole. This conceptual apparatus will
be complemented by a brief historical overview that gives the reader a
sense of the dramatically different and divergent ways that economic
forces have manifested in history. The economic relations that we un-
derstand intuitively today, and that we often take for granted, are not
universal; those relations only came into existence through a relatively
recent process of historical transformation. Put differently, economic
forces that we might assume to be natural turn out to be the result
of history, and they remain contingent on other social and political
relations that were instituted at specific times and places in history.
Next, Part II zooms in on those economic relations in great de-
tail so as to grasp their conceptual nature—to analyze the relations
they establish with each other and through which they operate. Each
chapter in this section pivots on detailed analysis of one of the key
components of economicus today: money, commodities, and profit.
Part I develops a sense of how economic forces come to operate in
the world, and Part II builds on this ground by studying the concep-
tual structure of the primary elements of capitalism. The aim is to work out
a more sophisticated analysis of those economic forces and relations

from Part I. Indeed, the ultimate goal of Part II will be to grasp the
structure and mechanisms of the most important economic forces op-
erative in the world today: the exchange of commodities, the nature of
money, and the key elements of capitalist profit.
Finally, Part III pans out to understand those economic relations in
their dynamic interplay with social, cultural, and especially political
relations and forces. A rigorous understanding of the fundamental ac-
tors within capitalism will make possible a much deeper account of
capitalist processes and their broader effects on (and within) a capi-
talist social order. We will consider the specific mechanisms by which a
capitalist society decides to produce a certain set of commodities. This
will, in turn, give us some sense of how economic growth or decline
occurs for a society as a whole. Part III also strives to offer a clearer
sense of some contemporary economic phenomena that often seem
bewildering to many people (and which are rarely even addressed in
economics textbooks)—particularly financial assets and instruments.
One final note before you dive into the text: unlike some introduc-
tory books in the natural and social sciences, where it is possible to
skip around from chapter to chapter, this book is not meant to be read
out of order. So even if you are most interested in money (Chapter 4)
or entrepreneurship (Chapter 7), you will want to start with a careful
study of Part I. The commodity (Chapter 5) can only be grasped as a
result of the historical development and first emergence of a capitalist
system of production; the choices and actions of bankers and central
bankers (Chapter 8) can only be explained and unraveled after you
have studied money and commodities in Part II. Everything starts with
the idea of economics in historical context, so we begin there.
Notes
1. Here and throughout, the “we” refers to the twenty-first-century human

beings reading this book, living in modern societies. This “we” is not a ge-
neric or universal we that refers to all human beings throughout history.
What “we” do to satisfy our hunger is something utterly different than what
most humans have done throughout history.
2. Arguably even the most elemental particles of natural science must them-
selves be understood as imbricated with other types of forces. This issue lies
far beyond the scope of this book, but it raises an important point of em-
phasis: in rejecting the idea that the economic is “natural,” we are not by
any means claiming that it is somehow unnatural or separate from mate-
rial or physical realities. Indeed, as we will see most clearly in Chapter 2,
relations of production and distribution can only be grasped as material,
physical relations, and they are thus utterly bound up with nature—and in
that sense thoroughly “natural.” But in the history of economic thought, the
idea of a “natural force” has often been used to distinguish forces and rela-
tions within a social order from those that putatively lie beyond it—forces
that are thought somehow to completely and necessarily determine all so-
cietal outcomes. It is this final idea that we will reject thoroughly and resist
consistently.
PART I
EC ONOMIC S I N HISTORY
Before we can understand capitalist economics or any other sort of

economics, we must first locate economic forces and relations within
history. Put differently, and in somewhat stronger language, economic
forces only come about and always remain conditioned by (dependent
on) prior historical change, by earlier social and political transform-
ations. This means that economic forces do not grow, unfold, or “de-
velop” on their own—or according to an independent logic. Rather,
as we will explore in this first part of the book, our main “site” for the
study of economic forces and relations is society itself.
“Society,” however, turns out to be a broad term—sometimes vague
and sometimes ambiguous—so in this section of the book we will de-
velop the concept of a “social order.” In Chapter 1 we will see that social
orders are made up of a variety of forces, relations, and logics: polit-
ical, social, cultural, and economic. Most significantly, none of these
forces are discrete or isolable: each of them functions through, with,
and against the others. Economic forces never exist by themselves and
can therefore never be fully understood except when grasped in rela-
tion to those other forces. Economic forces depend on social and po-
litical forces (etc.), and in turn, economic forces will help to reshape or
remake cultural and legal relations (etc.).
These changes all occur within history, so when we refer to historical
change or “historical development” we are pointing concretely toward
these historical transformations. This means that economic relations,
including general economic tendencies or “laws,” are always contin-
gent upon the political, the cultural, the social, and so on. Changes in
economic forces may lead to social and political changes. But the re-
verse is also true: changes in social, political, and legal relations may
create new economic forces and relations. For example, political revo-
lution can directly and radically alter the very terms of economics—for
example, a democratic revolution that outlaws titles of nobility can ut-
terly undo (literally erase) a key economic category.
Bringing into clear view the concept of a social order located within
history will help us to focus our study of economic forces and relations,
starting in Chapter 2. There we will demonstrate the following: given
that economic forces are part of a larger social order, the most impor-
tant dimension of economics proves to be not “exchange” but “produc-
tion.” Looking across broad swaths of history, we can see that the first
thing that distinguishes one economic order from another is not the ex-
istence of markets for trading goods (we find those almost everywhere
in history) but rather the nature and type of system of production of
goods and services. Exchange remains crucially important, but it must
always be understood in relation to production.
Chapter 2 will make the case for the “primacy of production” to any
understanding of economics, and it will do so by providing a clearer
sense of how societies can be radically different from one another be-
cause they have distinct “modes of production.” As our first opportu-
nity to analyze market exchange in detail—to break it down into its
essential components—this chapter will provide one of the central
lessons of the entire book: markets can be used for different purposes
and therefore the mere existence of markets does not tell us much
about the nature of a society. In particular, the presence of markets will
not distinguish capitalist societies from noncapitalist ones. But if capi-
talism is not “free markets” then how do we determine the existence of
“capitalism” in the first place?
Part I culminates in Chapter 3, which responds to this fundamental
question of capitalism by first answering a prior set of questions: Where
and how does a capitalist social order first emerge historically? The an-
swer depends on analyzing and making sense of the complex rela-
tionship between global markets for exchange, on the one hand, and
societal systems of production, on the other. We will see that growth
in a particular use of markets (a capitalist use) led to the possibility
(but not the inevitability) of a transformation of production. Only that
latter transformation, which occurs in England in the sixteenth cen-
tury, gives us the first appearance of a capitalist social order.
ECONOMICS IN HISTORY 17
With this original coming into being of capitalism, we can see for
the first time what a capitalist social order looks like, which finally
gives us the ability to define capitalism. It also sets up everything else
that happens in the book. Only against this historical background of
the appearance of capitalism as a unique social order can we then turn
in Parts II and III to a more fine-grained analysis of the structures,
principles, and general “rules” of capitalism. That is, the subject of this
book, the study of capitalist economics, applies only to capitalist social
orders. Part I therefore serves as our foundation.
1
Social Orders and
Economic Relations
Robinsonades
Where should we begin a study of economicus—what is our starting

point for understanding economic forces and relations? Math starts
with numbers, biology with cells, literature with stories, but what could
serve as the ground for our investigation of economics?
We might seek clues for how to proceed by turning to the modern
history of economic thought, which can be roughly divided into two
periods:
• Classical Political Economy, running from the seventeenth cen-

tury to the late nineteenth century.
• Neoclassical Economics, which traces its origins to a major trans-
formation in economic thought—the so-called marginalist revo-
lution of the 1870s—and runs all the way to the present day.
Despite the significant differences between these two paradigms,

they offer strikingly similar responses to our primary question here—
namely, where to start. Let’s look quickly at two quotations from
writings in the history of economic thought:
1. “This division of labour . . . is not originally the effect of any

human wisdom. . . . It is the necessary, though very slow and
gradual, consequence of a certain propensity in human nature,
which has in view no such extensive utility; the propensity to
truck, barter, and exchange one thing for another.”
2. “Economists normally assume that people are rational. Rational
people systematically and purposefully do the best they can to
Capitalist Economics. Samuel A. Chambers, Oxford University Press. © Oxford University Press 2022.
DOI: 10.1093/oso/9780197556887.003.0002
achieve their objectives, given the available opportunities. . . . A

rational decision maker takes an action if and only if the mar-
ginal benefit of the action exceeds the marginal cost.”
Aside from the clue provided by use of the now-archaic word “truck”
(a synonym for barter and exchange), it might be hard to tell that these
quotations are separated by 240 years. The first is the opening lines
from the second chapter of The Wealth of Nations (1776), Adam Smith’s
canonical text in classical political economy; the second is the third of
ten principles of economics in the first chapter of Gregory Mankiw’s
Principles of Microeconomics (2016) textbook. A clear and central focus
on human individual actors and their fundamental, systematic char-
acteristics unites these disparate texts across almost a quarter millen-
nium of history. Put simply, both texts start with the inherent nature of
the individual and build an abstract account of economics from that
foundation. Here is their logic: given that the individual has a natural
inclination to barter and exchange, economic relations can be logically
derived directly from the individual. In general, economic forces are
natural; in particular, economics has its foundation in human nature.
Overall, economic forces can be understood as emerging from the nat-
ural actions, choices, and inclinations of (rational) human beings. This
approach serves to link the study of economics to the study of modern
politics: both ground their projects on the concept of a “state of nature,”
a place outside of time and history where we can observe the true, nat-
ural tendencies of humans. In politics, state-of-nature theorists tell us
that humans are naturally free and equal; in economics, state-of-nature
theorists tell us that human beings naturally exchange, maximize
benefits, and “think at the margin.”
There’s just one problem with this story. It’s based on fiction, on
fairytale, on myth; it’s utterly made up. To be clear, the mistake is not
merely that the story is false, that there never was such a time in which
humans lived in such a state. The mistake is that the story of a state of
nature posits an isolated and ahistorical human being with supposedly
natural characteristics, when such an individual, to the limited extent
that he or she exists, actually only comes to be at a very particular time
and place within a very peculiar type of society.
Social Orders and Economic Relations 21
In fact, the story of a “state of nature” that has been repeated

throughout the history of economic thought proves to be merely
a variation on a much broader literary genre—the Robinsonade.
“Robinsonade” is the name given to the genre of literary tale that began
in the seventeenth century and flourished after the publication of
Daniel Defoe’s famous novel Robinson Crusoe (1719). It is a shipwreck
or castaway story (or in later forms, a space story) in which the pro-
tagonist suddenly finds himself removed from society and forced to
survive in “nature.”
To ground an account of economics on the propensities of indi-
viduals as located in a state of nature means to use the terms of the
Robinsonade genre as the foundation of a universal economic theory.
Despite intentions, this move establishes the theory not on the uni-
versal characteristics of human beings but in the very specific and
very peculiar characteristics of the protagonist in a literary genre. This
seems a strange and weak starting point for the theory, and it presumes
exactly what we ought to try to explain (humans exchanging resources
that they find in nature). We should remember that there were no such
stories prior to the seventeenth century. If humans are universally
exchanging and cost–benefit maximizing creatures, then why did no
one prior to this (rather late) point in history recognize such a sup-
posedly transhistorical fact? The earliest candidate for establishing the
Robinsonade genre was a work published in England in the middle
of the seventeenth century, so perhaps we should ask ourselves what
happened around that place and time in history. One important
answer: capitalism appeared for the first time. We will return to this
crucial point in Chapter 3.
Social Orders
For now, if we want to understand capitalist economics we have to

begin from a completely different place than the Robinsonade. Human
beings have never lived in a “state of nature.” They have only ever
lived in societies. As we look back across the wide expanse of human
history, we never find isolated, individual human beings. We only find
groups of humans, living together in some form of social order and at
varying degrees of scale: from tribes, to villages, to cities, to nations, to

empires.
The “nature” of any individual human can only be grasped within
the context of the social order in which we locate them. In some histor-
ical forms of social order we can certainly find individuals who trade
goods, almost always by buying and selling them with money. But in
most examples of social orders across history we find individuals much
more likely to give goods to one another, or simply to produce them di-
rectly for the larger social unit (e.g., the tribe). Whatever we ultimately
want to say about specific types of economic relations and forces, we
first have to locate them within a concrete social order.
Because economic relations are socially and historically contin-
gent, this book centers on capitalist economic relations: it focuses on
the relations that arise when a social order is structured and arranged
in the unique pattern and form of a capitalist society. We will repeat-
edly observe that a capitalist social order is structured differently, and
therefore generates different economic forces, than other forms of social
order. And we will be able to sharpen our view of the precise workings
of capitalist economics by comparing and contrasting them with the
economics of distinct social orders.
All of this leads to a direct answer to our opening question. In our
effort to understand economic relations and forces, we must start in
the only place we can start: the “social order” in which those relations
emerge.
Grounding Economic Relations in History
At first glance, our starting point looks less solid than the one
suggested by Smith and Mankiw. By beginning with the autono-
mous individual thought to be endowed with universal characteris-
tics (the propensity to exchange, the rationality to calculate costs and
benefits), they are able to set history aside completely. Nonetheless,
as we saw, their solid ground proved shaky when we noticed a literary
myth underlying it. The specifically historical nature of the literary
genre of the Robinsonade belies the purportedly universal claims of
the textbooks.
In contrast, we must always remain attentive to historical context

and historical developments. By grounding economic relations in so-
cial orders, we are also situating economics within historical context.
Our starting point in social orders leads us to insist that there are no
universal, ahistorical economic forces. Because economic forces op-
erate within concrete social orders, any relations, tendencies, or “laws”
of economics will themselves be contingent. To describe those relations
as contingent does not make them invalid; it merely marks out the ter-
rain and temporality of their validity.1 As we will see, certain feudal
economic forces simply will not operate in capitalist social orders, and
in turn, the capitalist economic relations that we will study in this book
remain valid only within capitalist social orders. Feudal and capitalist
social orders are characterized by different types and arrangements of
economic forces. As such, the economic relations that we will study in
this book are specific to a social order that is itself capitalist.
We must emphasize, however, that historical contingency proves
to be a unique strength of our approach, and not at all a weakness. In
addition to grounding our account of economic relations and forces
within history, we also make it possible to explain economic histor-
ical development. Thus, in the coming chapters, we will be able to
answer a question that Smith and Mankiw never even try to ask them-
selves: Why did people start writing Robinsonades in the seventeenth
century? What changes were occurring in the particular social order
that would lead fiction authors to imagine the very idea of a Robinson
Crusoe (a thoroughly civilized subject of the British Empire) stranded
on an island?
How Do We Explain Economic Relations?
The question of starting point remains linked to a broader and more

significant methodological question: How do we explain? Traditional
approaches to teaching economics rest on a method of linear, causal
explanation. The method starts with an independent variable, where
“independent” indicates the unique primacy of this variable— it
requires no prior explanation itself (it is given). This model of expla-
nation draws a line (hence “linear”) from the independent variable to
a dependent variable: A → B . At the core of the explanation lies the

claim that A causes B, which usually means not that the existence of A
causes B to exist, but rather that some change in A causes a change in B.
Changes in B are therefore dependent upon changes in A (which is it-
self independent). If B changes in the same direction—that is, it goes up
when A goes up—then we can call the relation positive, and if B moves
in the opposite direction we call the relation negative. Importantly,
the change in A must be considered “exogenous,” meaning that such a
change lies outside the realm of explanation.2 Causal linear explanation
provides the core for much work in economics and across the social sci-
ences; indeed, it proves so ubiquitous that most of us treat it as intuitively
obvious.
Let’s look at two examples of this type of explanation. The first
proves very general; the second is a specific variation on the first—one
that has proved central to mainstream economics, and that we will
later (in Part II) rethink significantly.
1. An increase in the supply of a good leads to a decrease in

its price.
Supply is the independent variable: we won’t ask how or why it
changes, but take it as a given. Price is the dependent variable: its
change is caused by the change in supply. We can easily write this
out in a formal language that describes the economic relation
while expressing the causal linear model of explanation.
G ↑→ Pg ↓ [ G = quantity of good; Pg = price of good]
2. An increase in the money supply leads to a decrease in the price
of money.
M ↑→ Pm ↓ [M = quantity of money; Pm = price of money]
At first glance this appears to be the exact same relation as
in point 1, and the core of the explanation is in fact identical.
The discipline of economics takes money to be a good like any
other,3 so an increase in its supply leads to a decrease in its price.
However, money is a unique “good,” and the “price of money”
is a unique price. Money proves unique because the price of all
other goods is measured in terms of money, so if the price or
value of money drops (if money is worth less than it was before),
the price of all other goods goes up. If a cup of coffee costs $2
today, and overnight the “price of money” or the value of money

goes down by 50 percent, then tomorrow we will need more
money to acquire a cup of coffee (assuming its price/value has
not changed). This means that tomorrow it will take $3 to buy a
cup of coffee. The price of coffee has gone up because the “price
of money” went down. But it’s not just coffee: since every good’s
price depends on money, a decrease in money’s value leads to an
increase in the price of all goods; the cost of everything increases.
We can therefore say that with an increase in M (money supply)
the overall price level, P, goes up. And an increase in the price
level (the prices of all goods) is the very definition of inflation.
So we can rewrite our formula above, substituting P (price level)
for Pm (the price of money): M ↑→ P ↑ Or, in ordinary lan-
guage: an increase in the supply of money leads to inflation.
Both of these linear, causal explanations have played a central role in

the history of economic thought. The first point describes the core idea
of the basic “laws” of supply and demand. The second point describes
the “quantity theorem of money”—the most widely distributed and in-
fluential (on policy choices) conceptual account of money in history.
Which Comes First: Social Orders or

Economic Relations?
Almost everyone can identify the Achilles’ heel of linear causal expla-
nation. It is the problematic question “which comes first,” and we see it
in everyday discourse expressed in terms of “the chicken and the egg
problem” or the mantra that “correlation is not causation.” The basic
point is simple: we frequently observe simultaneous changes in two
distinct phenomena. But the linear causal model of explanation only
explains anything if we can (a) isolate one phenomenon, (b) show that its
changes are primary and independent (thus making it the independent
variable), and (c) articulate the causal mechanism by which this inde-
pendent variable directly causes changes in the dependent variable.
To explain economic forces and relations, and to understand eco-
nomic changes as they occur in history, our overarching approach in
this book will be different from standard social science methods. We

will not start with abstract and general principles and then build models
based on those principles. Instead, let’s start here with some specific
commentary on these two examples of linear causal explanation.
1.  G ↑→ Pg ↓
It is absolutely true that most of the time (not always) when the
quantity of a good available for purchase increases, its price will
tend to go down. But it is important to be clear that this relation-
ship between quantity and price is not an intrinsic property of
the good itself. For example, there is nothing within the chem-
ical structure or other physical properties of a loaf of bread to
indicate that either (a) there are more loaves of bread available
or (b) its price must be lower. The price depends on human
actions (what individuals and groups do), which itself depends
on a broader social context (what’s going on). The price of goods
tends to go down with increases in supply because the sellers
of the goods find that potential buyers were already buying as
much bread as they wanted; in order to induce those buyers to
buy more (or nonbuyers to become buyers), the sellers must
compete with one another by lowering the price. So the change
does not come about intrinsically; it depends entirely on the
changes in relations between sellers and buyers. Here then we
provide a deeper explanation of the relationship established by
the causal/linear model.
Perhaps more significantly, however, we cannot always (and
simply) begin with a change in quantity. We have to ask: Why
did the producers of bread (the large bread manufacturers, the
artisan bakers, etc.) bake more bread? Changes in the quantity
of goods do not happen randomly. Contrary to the assumptions
of the linear/causal model, changes in quantity are never really
exogenous. They do not come from “outside” the system of ec-
onomic forces and relations; quite the opposite, those changes
are themselves spurred or provoked within the system. If the
quantity of loaves of bread increases, then to understand the
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place. I was convinced that the greatest calamity that ever befell the
benighted nations of the ancient world was in their having passed
away without a knowledge of the actual existence of Duluth; that
their fabled Atlantis, never seen save by the hallowed vision of the
inspired poesy, was, in fact, but another name for Duluth; that the
golden orchard of the Hesperides, was but a poetical synonym for the
beer-gardens in the vicinity of Duluth. I was certain that Herodotus
had died a miserable death, because in all his travels and with all his
geographical research he had never heard of Duluth. I knew that if
the immortal spirit of Homer could look down from another heaven
than that created by his own celestial genius upon the long lines of
pilgrims from every nation of the earth to the gushing fountain of
poesy opened by the touch of his magic wand, if he could be
permitted to behold the vast assemblage of grand and glorious
productions of the lyric art called into being by his own inspired
strains, he would weep tears of bitter anguish that, instead of
lavishing all the stores of his mighty genius upon the fall of Illion, it
had not been his more blessed lot to crystalize in deathless song the
rising glories of Duluth. Yes, sir, had it not been for this map, kindly
furnished me by the legislature of Minnesota, I might have gone
down to my obscure and humble grave in an agony of despair,
because I could nowhere find Duluth. Had such been my melancholy
fate, I have no doubt that with the last feeble pulsation of my
breaking heart, with the last faint exhalation of my fleeting breath, I
should have whispered, “Where is Duluth?”
But, thanks to the beneficence of that band of ministering angels
who have their bright abodes in the far-off capital of Minnesota, just
as the agony of my anxiety was about to culminate in the frenzy of
despair, this blessed map was placed in my hands; and as I unfolded
it a resplendent scene of ineffable glory opened before me, such as I
imagined burst upon the enraptured vision of the wandering peri
through the opening gates of Paradise. There, there, for the first
time, my enchanted eye rested upon the ravishing word, “Duluth!”
This map, sir, is intended, as it appears from its title, to illustrate the
position of Duluth in the United States; but if gentlemen will
examine it, I think they will concur with me in the opinion, that it is
far too modest in its pretensions. It not only illustrates the position
of Duluth in the United States, but exhibits its relations with all
created things. It even goes further than this. It hits the shadowy vale
of futurity, and affords us a view of the golden prospects of Duluth
far along the dim vista of ages yet to come.
If gentlemen will examine it, they will find Duluth not only in the
center of the map, but represented in the center of a series of
concentric circles one hundred miles apart, and some of them as
much as four thousand miles in diameter, embracing alike, in their
tremendous sweep the fragrant savannas of the sunlit South and the
eternal solitudes of snow that mantle the ice-bound North. How
these circles were produced is perhaps one of those primordial
mysteries that the most skilled paleologist will never be able to
explain. But the fact is, sir, Duluth is pre-eminently a central point,
for I am told by gentlemen who have been so reckless of their own
personal safety as to venture away into those awful regions where
Duluth is supposed to be, that it is so exactly in the center of the
visible universe that the sky comes down at precisely the same
distance all around it.
I find, by reference to this map, that Duluth is situated somewhere
near the western end of Lake Superior, but as there is no dot or other
mark indicating its exact location, I am unable to say whether it is
actually confined to any particular spot, or whether “it is just lying
around there loose.” I really cannot tell whether it is one of those
ethereal creations of intellectual frostwork, more intangible than the
rose-tinted clouds of a summer sunset; one of those airy exhalations
of the speculator’s brain which, I am told, are very flitting in the form
of towns and cities along those lines of railroad, built with
government subsidies, luring the unwary settler as the mirage of the
desert lures the famishing traveler on, and ever on, until it fades
away in the darkening horizon; or whether it is a real, bona fide,
substantial city, all “staked off,” with the lots marked with their
owners’ names, like that proud commercial metropolis recently
discovered on the desirable shores of San Domingo. But, however
that may be, I am satisfied Duluth is there, or thereabouts, for I see it
stated here on the map that it is exactly thirty-nine hundred and
ninety miles from Liverpool, though I have no doubt, for the sake of
convenience, it will be moved back ten miles, so as to make the
distance an even four thousand.
Then, sir, there is the climate of Duluth, unquestionably the most
salubrious and delightful to be found anywhere on the Lord’s earth.
Now, I have always been under the impression, as I presume other
gentlemen have, that in the region around Lake Superior it was cold
enough for at least nine months in the year to freeze the smoke-stack
off a locomotive. But I see it represented on this map that Duluth is
situated exactly half way between the latitudes of Paris and Venice,
so that gentlemen who have inhaled the exhilarating air of the one,
or basked in the golden sunlight of the other, may see at a glance that
Duluth must be the place of untold delight, a terrestrial paradise,
fanned by the balmy zephyrs of an eternal spring, clothed in the
gorgeous sheen of ever blooming flowers, and vocal with the silvery
melody of nature’s choicest songsters. In fact sir, since I have seen
this map, I have no doubt that Byron was vainly endeavoring to
convey some faint conception of the delicious charms of Duluth
when his poetic soul gushed forth, in the rippling strains of that
beautiful rhapsody—
“Know ye the land of the cedar and the vine,
Whence the flowers ever blossom, the beams ever shine;
Where the light wings of Zephyr, oppressed with perfume,
Wax faint o’er the gardens of Gul in her bloom;
Where the citron and olive are fairest of fruit,
And the voice of the nightingale never is mute;
Where the tints of the earth and the hues of the sky,
In color though varied, in beauty may vie?”
As to the commercial resources of Duluth, sir, they are simply

illimitable and inexhaustible, as is shown by this map. I see it stated
here that there is a vast scope of territory, embracing an area of over
two millions of square miles, rich in every element of material wealth
and commercial prosperity, all tributary to Duluth. Look at it, sir,
(pointing to the map.) Here are inexhaustible mines of gold,
immeasurable veins of silver, impenetrable depths of boundless
forest, vast coal measures, wide extended plains of richest pasturage
—all, all embraced in this vast territory—which must, in the very
nature of things, empty the untold treasures of its commerce into the
lap of Duluth. Look at it, sir, (pointing to the map); do not you see
from these broad, brown lines drawn around this immense territory,
that the enterprising inhabitants of Duluth intend some day to
inclose it all in one vast corral, so that its commerce will be bound to
go there whether it would or not? And here, sir, (still pointing to the
map), I find within a convenient distance the Piegan Indians, which,
of all the many accessories to the glory of Duluth, I consider by far
the most inestimable. For, sir, I have been told that when the small-
pox breaks out among the women and children of the famous tribe,
as it sometimes does, they afford the finest subjects in the world for
the strategical experiments of any enterprising military hero who
desires to improve himself in the noble art of war, especially for any
valiant lieutenant-general whose
“Trenchant blade, Toledo trusty,
For want of fighting has grown rusty,
And eats into itself for lack,
Of somebody to hew and hack.”
Sir, the great conflict now raging in the Old World has presented a
phenomenon in military science unprecedented in the annals of
mankind, a phenomenon that has reversed all the traditions of the
past as it has disappointed all the expectations of the present. A great
and warlike people, renowned alike for their skill and valor, have
been swept away before the triumphant advance of an inferior foe,
like autumn stubble before a hurricane of fire. For aught I know the
next flash of electric fire that simmers along the ocean cable may tell
us that Paris, with every fibre quivering with the agony of impotent
despair, writhes beneath the conquering heel of her loathed invader.
Ere another moon shall wax and wane, the brightest star in the
galaxy of nations may fall from the zenith of her glory never to rise
again. Ere the modest violets of early spring shall ope their
beauteous eyes, the genius of civilization may chant the wailing
requiem of the proudest nationality the world has ever seen, as she
scatters her withered and tear-moistened lilies o’er the bloody tomb
of butchered France. But, sir, I wish to ask if you honestly and
candidly believe that the Dutch would have overrun the French in
that kind of style if General Sheridan had not gone over there, and
told King William and Von Moltke how he had managed to whip the
Piegan Indians.
And here, sir, recurring to this map, I find in the immediate
vicinity of the Piegans “vast herds of buffalo” and “immense fields of
rich wheat lands.” [Here the hammer fell.]
[Many cries: “Go on!” “go on!”]
The Speaker—Is there any objection to the gentleman from
Kentucky continuing his remarks? The chair hears none. The
gentleman will proceed.
Mr. Knott—I was remarking, sir, upon these vast “wheat fields”
represented on this map in the immediate neighborhood of the
buffaloes and Piegans, and was about to say that the idea of there
being these immense wheat fields in the very heart of a wilderness,
hundreds and hundreds of miles beyond the utmost verge of
civilization, may appear to some gentlemen as rather incongruous, as
rather too great a strain on the “blankets” of veracity. But to my mind
there is no difficulty in the matter whatever. The phenomenon is very
easily accounted for. It is evident, sir, that the Piegans sowed that
wheat there and ploughed it in with buffalo bulls. Now, sir, this
fortunate combination of buffaloes and Piegans, considering their
relative positions to each other and to Duluth, as they are arranged
on this map, satisfies me that Duluth is destined to be the best
market of the world. Here, you will observe, (pointing to the map),
are the buffaloes, directly between the Piegans and Duluth; and here,
right on the road to Duluth, are the Creeks. Now, sir, when the
buffaloes are sufficiently fat from grazing on those immense wheat
fields, you see it will be the easiest thing in the world for the Piegans
to drive them on down, stay all night with their friends, the Creeks,
and go into Duluth in the morning. I think I see them, now, sir, a vast
herd of buffaloes, with their heads down, their eyes glaring, their
nostrils dilated, their tongues out, and their tails curled over their
backs, tearing along toward Duluth, with about a thousand Piegans
on their grass-bellied ponies, yelling at their heels! On they come!
And as they sweep past the Creeks, they join in the chase, and away
they all go, yelling, bellowing, ripping and tearing along, amid clouds
of dust, until the last buffalo is safely penned in the stock-yards at
Duluth.
Sir, I might stand here for hours and hours, and expatiate with
rapture upon the gorgeous prospects of Duluth, as depicted upon this
map. But human life is too short, and the time of this house far too
valuable to allow me to linger longer upon this delightful theme. I
think every gentleman upon this floor is as well satisfied as I am that
Duluth is destined to become the commercial metropolis of the
universe and that this road should be built at once. I am fully
persuaded that no patriotic representative of the American people,
who has a proper appreciation of the associated glories of Duluth and
the St. Croix, will hesitate a moment that every able-bodied female in
the land, between the ages of eighteen and forty-five, who is in favor
of “woman’s rights,” should be drafted and set to work upon this
great work without delay. Nevertheless, sir, it grieves my very soul to
be compelled to say that I cannot vote for the grant of lands provided
for in this bill.
Ah, sir, you can have no conception of the poignancy of my
anguish that I am deprived of that blessed privilege! There are two
insuperable obstacles in the way. In the first place my constituents,
for whom I am acting here, have no more interest in this road than
they have in the great question of culinary taste now, perhaps,
agitating the public mind of Dominica, as to whether the illustrious
commissioners, who recently left this capital for that free and
enlightened republic, would be better fricasseed, boiled, or roasted,
and, in the second place, these lands, which I am asked to give away,
alas, are not mine to bestow! My relation to them is simply that of
trustee to an express trust. And shall I ever betray that trust? Never,
sir! Rather perish Duluth! Perish the paragon of cities! Rather let the
freezing cyclones of the bleak northwest bury it forever beneath the
eddying sands of the raging St. Croix.
Henry Carey’s Speech on the Rates of
Interest.
In the Pennsylvania Constitutional Convention, 1873.

In the Constitutional Convention, in Committee of the Whole on
the article reported from the Committee on Agriculture, Mining,
Manufactures, and Commerce, the first section being as follows:—“In
the absence of special contracts the legal rate of interest and discount
shall be seven per centum per annum, but special contracts for
higher or lower rates shall be lawful. All national and other banks of
issue shall be restricted to the rate of seven per centum per annum.”
Mr. H. C. Carey made an address in favor of striking out the section.
The following is an abstract of his remarks:—
Precisely a century and a half since, in 1723, the General Assembly
of Pennsylvania reduced the legal charge for the use of money from
eight to six per cent. per annum. This was a great step in the
direction of civilization, proving, as it did, that the labor of the
present was obtaining increased power over accumulations of the
past, the laborer approaching toward equality with the capitalist. At
that point it has since remained, with, however, some change in the
penalties which had been then prescribed for violations of the law.
Throughout the recent war the financial policy of the National
Government so greatly favored the money-borrower and the laborer
as to have afforded reason for believing that the actual rate of
interest was about to fall permanently below the legal one, with the
effect of speedily causing usury laws to fall into entire disuse. Since
its close, however, under a mistaken idea that such was the real road
to resumption, all the Treasury operation of favoring the money-
lender; the result exhibiting itself in the facts that combinations are
being everywhere formed for raising the price of money; that the
long loans of the past are being daily more and more superseded by
the call loans of the present; that manufacturer and merchant are
more and more fleeced by Shylocks who would gladly take “the
pound of flesh nearest the heart” from all over whom they are
enabled to obtain control.
Anxious for the perpetuation of this unhappy state of things, these
latter now invite their victims to give their aid towards leveling the
barriers by which they themselves are even yet to a considerable
extent protected, assuring them that further grant of power will be
followed by greater moderation in its exercise. Misled thereby,
money borrowers, traders, and manufacturers are seen uniting, year
after year with their common enemy in the effort at obtaining a
repeal of the laws in regard to money, under which the State has so
greatly prospered. Happily our working men, farmers, mechanics,
and laborers fail to see that advantage is likely to accrue to them
from a change whose obvious tendency is that of increasing the
power of the few who have money to lend over the many who need to
borrow; and hence it is that their Representatives at Harrisburg have
so steadily closed their ears against the siren song by which it is
sought to lead their constituents to give their aid to the work of their
own destruction.
Under these circumstances is it that we are now asked to give place
in the organic law to a provision by means of which this deplorable
system is to be made permanent, the Legislature being thereby
prohibited, be the necessity what it may, from placing any restraint
upon the few who now control the supply of the most important of all
the machinery of commerce, as against the many whose existence,
and that of their wives and children, is dependent upon the obtaining
the use thereof on such terms as shall not from year to year cause
them to become more and more mere tools in the hands of the
already rich. This being the first time in the world’s history that any
such idea has been suggested, it may be well, before determining on
its adoption, to study what has been elsewhere done in this direction,
and what has been the result.
Mr. Carey then proceeded to quote at great length from recent and
able writers the results that had followed in England from the
adoption of the proposition now before the convention. These may
be summed up as the charging of enormous rates of interest, the
London joint stock banks making dividends among their
stockholders to the extent of twenty, thirty, and almost forty per
cent., the whole of which has ultimately to be taken from the wages
of labor employed in manufactures, or in agriculture. At no time, said
Mr. Carey, in Britain’s history, have pauperism and usury traveled so
closely hand in hand together; the rich growing rich to an extent that,
till now, would have been regarded as fabulous, and the
wretchedness of the poor having grown in like proportion.
After discussing the effects of the repeal of the usury laws in some
of the American States, Mr. Carey continued:—
“We may be told, however, that at times money is abundant, and
that even so late as last summer it was difficult to obtain legal
interest. Such certainly was the case with those who desired to put it
out on call; but at that very moment those who needed to obtain the
use of money for long periods were being taxed, even on securities of
unexceptionable character, at double, or more than double, the legal
rates. The whole tendency of the existing system is in the direction of
annihilating the disposition for making those permanent loans of
money by means of which the people of other countries are enabled
to carry into effect operations tending to secure to themselves control
of the world’s commerce. Under that system there is, and there can
be, none of that stability in the price of money required for carrying
out such operations.
Leaving out of view the recent great combination for the
maintenance and perpetuation of slavery, there has been none so
powerful, none so dangerous as that which now exists among those
who, having obtained a complete control of the money power, are
laboring to obtain legal recognition of the right of capital to perfect
freedom as regards all the measures to which it may be pleased to
resort for the purpose of obtaining more perfect control over labor.
Already several of the States have to some extent yielded to the
pressure that has been brought to bear upon them. Chief among
these is Massachusetts, the usury laws having there been totally
repealed, and with the effect, says a distinguished citizen of that
State, that “all the savings institutions of the city at once raised the
rate from six to seven per cent.; those out of the city to seven and a
half and eight per cent. and there was no rate too high for the greedy.
The consequence,” as he continues, “has been disastrous to industrial
pursuits. Of farming towns in my county, more than one quarter
have diminished in population.” Rates per day have now to a great
extent, as I am assured, superseded the old rates per month or year;
two cents per day, or $7.30 per annum, having become the charge for
securities of the highest order. What, under such circumstances,
must be the rate for paper of those who, sound and solvent as they
may be, cannot furnish such security, may readily be imagined. Let
the monopoly system be maintained and the rate, even at its
headquarters, New England, will attain a far higher point than any
that has yet been reached; this, too, in despite of the fact that her
people had so promptly secured to themselves a third of the whole
circulation allowed to the 40,000,000 of the population of the Union
scattered throughout almost a continent. How greatly they value the
power that has been thus obtained is proved by the fact that to every
effort at inducing them to surrender, for advantage of the West or
South, any portion thereof, has met with resistance so determined
that nothing has been yet accomplished.
Abandonment of our present policy is strongly urged upon us for
the reason that mortgages bear in New York a higher rate of interest.
A Pennsylvanian in any of the northern counties has, as we are told,
but to cross the line to obtain the best security at seven per cent.
Why, however, is it that his neighbors find themselves compelled to
go abroad when desirous of obtaining money on such security? The
answer to this question is found in the fact that the taxation of
mortgages is there so great as to absorb from half to two-thirds of the
interest promised to be paid.
Again, we are told that Ohio legalizes “special contracts” up to
eight per cent. and, that if we would prevent the efflux of capital we
must follow in the same direction. Is there, however, in the exhibit
now made by that State, anything to warrant us in so doing? Like
Pennsylvania, she has abundant coal and ore. She has two large
cities, the one fronting on the Ohio, and the other on the lakes, giving
her more natural facilities for maintaining commerce than are
possessed by Pennsylvania; and yet, while the addition to her
population in the last decade was but 306,000, that of Pennsylvania
was 615,000. In that time she added 900 to her railroad mileage,
Pennsylvania meantime adding 2,500. While her capital engaged in
manufactures rose from 57 to 141 millions, that of Pennsylvania grew
from 109 to 406, the mere increase of the one being more than fifty
per cent. in excess of the total of the other. May we find in these
figures any evidence that capital has been attracted to Ohio by a
higher rate of interest, or repelled from our State by a lower one?
Assuredly not!
What in this direction is proposed to be done among ourselves is
shown in the section now presented for our consideration. By it the
legal rate in the absence of “special contracts” is to be raised to seven
per cent., such “contracts,” however ruinous in their character, and
whatsoever the nature of the security, are to be legalized; the only
exception to these sweeping changes being that national banks,
issuing circulating notes are to be limited to seven per cent. Shylock
asked only “the due and forfeit of his bond.” Let this section be
adopted, let him then present himself in any of our courts, can its
judge do other than decide that “the law allows it and the court
awards it,” monstrous as may have been the usury, and discreditable
as may have been the arts by means of which the unfortunate debtor
may have been entrapped? Assuredly not. Shylock, happily, was
outwitted, the bond having made no provision for taking even “one
jot of blood.” Here, the unfortunate debtor, forced by his flinty-
hearted creditor into a “special contract” utterly ruinous, may, in
view of the destruction of all hope for the future of his wife and
children, shed almost tears of blood, but they will be of no avail; yet
do we claim to live under a system whose foundation-stone exhibits
itself in the great precept from which we learn that duty requires of
us to do to others as we would that others should do unto ourselves.
By the English law the little landowner, the mechanic who owns
the house in which he lives, is protected against his wealthy
mortgagee. Here, on the contrary, the farmer, suffering under the
effects of blight or drought, and thus deprived of power to meet with
punctuality the demands of his mortgagee, is to have no protection
whatsoever. So, too, with the poor mechanic suffering temporarily by
reason of accidental incapacity for work, and, with the sheriff full in
view before him, compelled to enter into a “special contract”
doubling if not trebling, the previous rate of interest. Infamous as
may be its extortion the court may not deny the aid required for its
enforcement.
The amount now loaned on mortgage security in this State at six
per cent. is certainly not less than $400,000,000, and probably
extends to $500,000,000, a large portion of which is liable to be
called for at any moment. Let this section be adopted and we shall
almost at once witness a combined movement among mortgagees for
raising the rate of interest. Notices demanding payment will fly thick
as hail throughout the State, every holder of such security knowing
well that the greater the alarm that can be produced and the more
utter the impossibility of obtaining other moneys the larger may be
made the future rate of interest. The unfortunate mortgagor must
then accept the terms, hard as they may be, dictated to him, be they
8, 10, 12, or 20 per cent. Such, as I am assured has been the course of
things in Connecticut, where distress the most severe has been
produced by a recent abandonment by the State of the policy under
which it has in the past so greatly prospered. At this moment her
savings’ banks are engaged in compelling mortgagers to accept eight
per cent. as the present rate. How long it will be before they will carry
it up to ten or twelve, or what will be the effect, remains to be seen.
Already among ourselves the effects of the sad blunders of our great
financiers exhibit themselves in the very unpleasant fact that sheriffs’
sales are six times more numerous than they were in the period from
1861 to 1867, when the country was so severely suffering under the
waste of property, labor, and life, which had but then occurred. Let
this section be adopted, giving perfect freedom to the Shylocks of the
day, and the next half dozen years will witness the transfer, under the
sheriff’s hammer, of the larger portion of the real property of both
the city and the State. Of all the devices yet invented for the
subjugation of labor by capital, there is none that can claim to be
entitled to take precedence of that which has been now proposed for
our consideration.
Rightly styled the Keystone of the Union, one duty yet remains to
her to be performed, to wit: that of bringing about equality in the
distribution of power over that machinery for whose use men pay
interest, which is known as money. New England, being rich and
having her people concentrated within very narrow limits, has been
allowed to absorb a portion of that power fully equal to her needs,
while this State, richer still, has been so “cabined, cribbed, confined,”
that her mine and furnace operators find it difficult to obtain that
circulating medium by whose aid alone can they distribute among
their workmen their shares of the things produced.—New York,
already rich, has been allowed to absorb a fourth of the permitted
circulation, to the almost entire exclusion of the States south of
Pennsylvania and west of the Mississippi; and hence it is that her
people are enabled to levy upon those of all these latter such
enormous taxes. To the work of correcting this enormous evil
Pennsylvania should now address herself. Instead of following in the
wake of New Jersey and Connecticut, thereby giving to the monopoly
an increase of strength, let her place herself side by side with the
suffering States of the West, the South, and the Southwest,
demanding that what has been made free to New York and New
England shall be made equally free to her and them. Let her do this,
and the remedy will be secured, with such increase in the general
power for developing the wonderful resources of the Union as will
speedily make of it an iron and cloth exporting State, with such
power for retaining and controlling the precious metals as will place
it on a surer footing in that respect than any of the powers of the
Eastern world. The more rapid the societary circulation, and the
greater the facility of making exchanges from hand to hand, and
from place to place, the greater is the tendency toward reduction in
the rate of interest, toward equality in the condition of laborer and
employer, and toward growth and power to command the services of
all the metals, gold and silver included.
It will be said, however, that adoption of such measures as have
been indicated would tend to produce a general rise of prices; or, in
the words of our self-styled economists, would cause “inflation.” The
vulgar error here involved was examined some thirty years since by
an eminent British economist, and with a thoroughness never before
exhibited in reference to any other economic question whatsoever,
the result exhibiting itself in the following brief words of a highly
distinguished American one, published some twelve or fifteen years
since, to wit:
“Among the innumerable influences which go to determine the general rate of
prices, the quantity of money, or currency, is one of the least effective.”
Since then we have had a great war, in the course of which there
have been numerous and extensive changes in the price of
commodities, every one of which is clearly traceable to causes widely
different from those to which they so generally are attributed. Be
that, however, as it may, the question now before us is one of right
and justice, and not of mere expediency. North and east of
Pennsylvania eight millions of people have been allowed a greater
share of the most important of all powers, the money one, than has
been allotted to the thirty-two millions south and west of New York,
and have thus been granted a power of taxation that should be no
longer tolerated. The basis of our whole system is to be found in
equality before the law, each and every man, each and every State,
being entitled to exercise the same powers that are permitted to our
people, or other States. If the Union is to be maintained, it can be so
on no terms other than those of recognition of the existence of the
equality that has here been indicated. To the work of compelling that
recognition Pennsylvania should give herself, inscribing on her
shield the brief words fiat justitia, ruat cœlum—let justice be done
though the heavens fall!
Speech of Gen. Simon Cameron.
On the benefits derived by Pennsylvania from the Policy of Internal

Improvements.
Any one will see, who will take the trouble to read the debates on
the location of the National Capital, that the decision of that question
seems to have been made solely with reference to a connection of the
East with the then great wilderness of the West. All the sagacious
men then in public life looked to the time when the West, with its
wonderful productive soil brought under subjection by industry,
would exercise a controlling influence on the destiny of the country.
Columbia, in the State of Pennsylvania, was at one time within one
vote of becoming the site of the Capital; and Germantown, near, and
now a part of, Philadelphia, was actually decided on as the proper
location by a majority of one. The first of these was favored because
it was believed to be a favorable point from which to begin a slack
water route to the west. Germantown near the Schuylkill, was chosen
for the same reason. All looked forward to a system of canals which
would accomplish this desirable object, and experience has fully
demonstrated their wisdom in that great design. About 1790, General
Washington and the great financier Robert Morris, traveled on
horseback from Philadelphia to the Susquehanna river, with a view
of deciding whether a canal could be built over that route.
Shortly after this, some gentlemen near Philadelphia actually
began building a canal to the west, did some work on its eastern end,
built one or two locks on the dividing ridge near Lebanon, and for
want of sufficient funds and knowledge of the subject the work was
stopped. The money expended on the enterprise was lost.
But the progressive men of the country, keeping their minds on the
subject, continued to agitate the popular mind on it until 1820, when
the Legislature of Pennsylvania chartered the Union Canal Company,
and appropriated one million dollars to aid its construction. In a few
years the canal was completed between the Schuylkill and
Susquehanna. Although very small, this improvement did a great
deal of good. And the most remarkable thing about it was its
unpopularity with the masses. Not only the members of General
Assembly who passed the bill, but Governor Heister, who signed the
act of incorporation, were driven from office at the first opportunity
legally presented for testing public opinion, and the party to which
they belonged went into a minority. I remember well what a mighty
sum a million dollars seemed to be; and the political revolution
caused by this appropriation showed me that the idea of its vastness
was not confined by any means to myself.
Our system of canals was completed, and the benefits derived from
them were incalculable. When they were commenced our State was
poor. Industry languished. The interchange of her products was
difficult. Population was sparse. Intelligence was not generally
diffused. Manufactures struggled weakly along. Work was not
plentiful. Wages were low. When they were finished the busy hum of
industry was heard on every hand. Our population had grown until
we numbered millions. Our iron ore beds were yielding their
precious hoards for human use. Coal mines, unknown or useless
until means were provided for transporting their wealth to market,
now sent millions of tons in every direction. Progress in every walk of
advanced civilization was realized, and we were on the high road to
permanent prosperity. But in the meantime a new and better means
of communication had been discovered, and the building of railroads
quickly reduced the value of canals, and the works we had completed
at so much cost, and with such infinite labor, were suddenly
superseded. We lost nearly all the money they had cost us, but this
investment was wisely made. The return to our State was many times
greater than the outlay.
Like all great projects intended for the public good, that of Internal
Improvement progressed. In 1823, the New York canal—which had
been pushed through against the prejudiced opposition of the
people, by the genius of De Witt Clinton—was opened. Its success
caused a revolution in the public mind all over the country. The
effect was so marked in the State, that in 1825 a convention was
called to consider the subject. Every county in the State was
represented, I believe. That body pronounced in favor of a grand
system of public works, which should not only connect the East and
West, but also the waters of the Susquehanna with the great lakes,
the West and the Northwest. Appropriations were recommended to
the amount of three millions of dollars, and in 1826, I think the work
began. This sum seemed to be enormous, and the estimates of the
engineers reached a total of six millions of dollars. Meeting an ardent
friend of the system one day, he declared that a sum of that
magnitude could never be expended on these works. I ventured to
reply, with great deference to his age and experience, that I thought
it would be insufficient, and before they were completed I would not
be surprised if ten millions would be found necessary. Looking at me
steadily for a few moments, he closed the conversation by
exclaiming, “Young man, you are a d——d fool!” I was thus left in full
possession of his opinion of me. But after we had spent
$41,698,594.74 in the construction of these works, I found my
estimate of his judgment was singularly in harmony with my opinion
of his politeness. His candor I never doubted.
In the convention of 1825, there were two gentlemen who voted for
railways instead of canals. One was professor Vethake of Dickinson
College, Carlisle; and the other was Jacob Alter, a man of very little
education, but of strong understanding. The professor was looked
upon as a dreamer, and was supposed to have led his colleague
astray in his vagaries. But they both lived to see railroads extended
over the whole world. As a part of our system of public works, we
built a railroad from the Delaware to the Susquehanna, from
Philadelphia to Columbia, and one from the eastern base of the
Allegheny mountains to their western base. They were originally
intended to be used with horse power. In the meantime the railroad
system had been commenced, and the Pennsylvania Railroad, under
the charge of a man of extraordinary ability, John Edgar Thompson,
was rapidly pushed to completion. Another great railway, the
Philadelphia and Reading, was built to carry anthracite coal from the
Schuylkill mines to the market. A railroad was built each side of the
Lehigh river, that another part of our coal territory might find a
market in New York. Another was built from the north branch of the
Susquehanna, connecting with the New York roads, and leading to
the northern coal field. And yet another was built along the
Susquehanna, through the southern coal basin, to the city of
Baltimore. The total cost of these roads, independent of the
Pennsylvania railroad, was $95,250,410.10, as shown by official
reports. Their earnings last year are officially given at
$24,753,065.32. Each of these was forced to contend with difficulty
and prejudice. All were unpopular, and all were looked upon with
suspicion until they actually forced their usefulness on the public
mind. Those who made the fight for canals were forced to go over the
whole ground again for railroads, and their double victory is greater
than the success generally vouchsafed to the pioneers in any cause.
These roads, with the Pennsylvania railroad and the lesser lines of
improvements running through the coal region cost over
$207,000,000.
The Reading Railroad will serve to illustrate the struggle of these
great schemes. Its stock, now worth over par, once sold for twenty
cents on the dollar; and at one time it was forced to sell its bonds at
forty cents on the dollar to pay operating expenses. The vindication
of the sagacity of the pioneers in these great enterprises is complete.
All these lines are now profitable, and it has been demonstrated
everywhere in the United States, that every new railroad creates the
business from which its stockholders receive their dividends. It
seems, therefore, scarcely possible to fix a limit to our profitable
railroad expansion. They open new fields of enterprise, and this
enterprise in turn, makes the traffic which fills the coffers of the
companies.
I cannot now look back to the struggle to impress the people with
the advantages of railways, without a feeling of weariness at the
seeming hopeless struggle, and one of merriment at the general
unbelief in our new-fangled project. Once at Elizabethtown in this
State a public meeting had been called for the purpose of securing
subscriptions to the stock of the Harrisburg and Lancaster Railroad.
This road was intended to complete the railway between
Philadelphia and Harrisburg, one hundred and five miles. A large
concourse had gathered. Ovid F. Johnson, Attorney-General of our
State, and a brilliant orator, made an excellent speech; but the effect
was not in proportion to the effort. I determined to make an appeal,
and I gave such arguments as I could. In closing I predicted that
those now listening to me would see the day when a man could
breakfast in Harrisburg, go to Philadelphia, transact a fair day’s
business there, and returning, eat his supper at home. Great
applause followed this, and some additional subscriptions. Abram
Harnly, a friend of the road, and one of the most intelligent of his
class, worked his way to me, and taking me aside whispered, “That
was a good idea about going to Philadelphia and back to Harrisburg
the same day;” and then, bursting with laughter, he added,—“But you
and I know better than that!” We lived to see the road built; and now
people can come and go over the distance twice a day, which Abram
seemed to consider impossible for a single daily trip.
The peculiar condition of the States then known as “the West” was
the subject of anxiety to many. They had attracted a large population,
but the people were exclusively devoted to agriculture. Lacking
diversified industry, they were without accumulated wealth to enable
them to build railways; nor were the States in condition to undertake
such an onerous duty, although several of them made a feeble
attempt to do so. At one time the bonds of Illinois, issued to build her
canals, sold as low as thirty cents on the dollar. So with Indiana. Both
States were supposed to be bankrupt. It became, therefore, an
important problem as to how means of communication should be
supplied to the people of the West. Congress, in 1846, gave a grant of
land to aid in building a railroad in Illinois. Every alternate section
was given to the Company, and each alternate section was reserved
by the Government. The road was built; and the one-half of the land
retained by the government sold for a great deal more than all was
worth before the road was constructed. This idea was original, I
think, with Mr. Whitney of Mass., who spent two winters in
Washington, about 1845, endeavoring to induce Congress to adopt
that plan for the construction of a Trans-Continental Railway.
He died before seeing his scheme succeed. Others have built a road
across the continent on the Central route. Another on the Northern
route is now progressing, and the wealth and enterprise of those
having it in charge renders its completion certain. And it yet remains
for us to give the people of the Southern route a road to the Pacific
which shall develop the magnificent region through which it will
pass, and give the country one route to the great ocean protected
from the ordinary difficulty of climate with which railroads must
contend over so large a part of our territory. But I am admonished by
the value of your space to confine myself to the limits of my own
State.
I have said that the outlay we have made in building our public
works was of great benefit to us even when the canals had been
rendered almost valueless through the competition of railroads. This
is paradoxical, but it is true nevertheless. That expenditure gave our
people a needed knowledge of our vast resources. It familiarized
them with large expenditures when made for the public good. And it
showed them how a great debt may be beneficially incurred, and yet
not break down the enterprise of the people. We at one time owed
$41,698,595.74. By a steady attention to our finances, it is now
reduced to $31,000,000, with resources,—the proceeds of the sale of
public works—on hand amounting to $10,000,000. And while we
have been steadily reducing our State debt, we have built 5,384 miles
of railway on the surface of the earth, and 500 miles underground in
our mines, at a cost of not less than $350,000,000, for a mile of
railroad in Pennsylvania means something. We sent 368,000 men to
the Federal Army. And our credit stands high on every stock
exchange. Gratifying as this progress is, it is only a fair beginning.
There is a large part of our territory rich in timber and full of iron,
coal, and all kinds of mineral wealth, so entirely undeveloped by
railroads that we call it “the Wilderness.” To open it up is the
business of to-day, and I sincerely hope to see it done soon.
Forty years ago George Shoemaker, a young tavern-keeper of more
vigor and enterprise than his neighbors, came to the conclusion that
anthracite coal could be used as fuel. He went to the expense of
taking a wagon load of it to Philadelphia, a hundred miles away, and,
after peddling it about the streets for some days, was forced to give it
away, and lose his time, his labor and his coal. He afterwards saw a
great railway built to carry the same article to the same point, and
enriching thousands from the profits of the traffic. But his experience
did not end there. He saw a thousand dollars paid eagerly for an acre
of coal land, which at the time of his venture to Philadelphia, no one
would have, and he could not give away.
I have thought that a retrospective survey of our wonderful
development might point plainly to the duty of the future. For if the
experience of what has gone before is not useful to cast light on what
is yet to come, then it will be difficult indeed to discover wherein its
value lies. It teaches me to devote time and labor for the
advancement of all Public Improvements, and I trust it may have a

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Capitalist Economics Samuel A.

Published in the United States of America by Oxford University Press

© Oxford University Press 2022

All rights reserved. No part of this publication may be reproduced, stored in

You must not circulate this work in any other form

CIP data is on file at Library of Congress

Introduction: What Is Economics?  1

1. Social Orders and Economic Relations  19

7. Entrepreneurs and Investment  117

Sources and Further Reading  169

economy forced a return to the Keynesian playbook, the United States

to money, banking, and the central banking system, but otherwise it

This is not a history book; it is an introduction to political economy. So

pursuit of knowledge. There remains a wide chasm separating the

same with “the economy.” These assumptions combine to underscore

at Johns Hopkins University. Early drafts of the manuscript served

Everyone knows that the noun “economics” names an academic disci-

point we will analyze them as capitalist economic forces, but here we

the process of acquiring food to eat depends on obtaining money to

Questions about profit—​where it comes from, how it is generated, how

back to this first question: How do we acquire consistent streams of

Economics Is Not Natural

us to distinguish a universal study of “economics” from our grounded

1. Commodities (economic goods) are not natural.

is the science of choice.” Clearly economic relations are de-

“The Economy” Does Not Exist

In rejecting the economics textbooks’ efforts to ground a separate

We can look at this point from a different perspective: there is no dis-

Studying Economics as Economicus—​Overview

This second point leads to an important conclusion of this introduc-

to study it in a particular society or set of societies, at a specific mo-

a more sophisticated analysis of those economic forces and relations

1. Here and throughout, the “we” refers to the twenty-​first-​century human

Before we can understand capitalist economics or any other sort of

Where should we begin a study of economicus—​what is our starting

• Classical Political Economy, running from the seventeenth cen-

Despite the significant differences between these two paradigms,

1. “This division of labour . . . is not originally the effect of any

achieve their objectives, given the available opportunities. . . . A

In fact, the story of a “state of nature” that has been repeated

For now, if we want to understand capitalist economics we have to

varying degrees of scale: from tribes, to villages, to cities, to nations, to

Grounding Economic Relations in History

In contrast, we must always remain attentive to historical context

How Do We Explain Economic Relations?

The question of starting point remains linked to a broader and more

a dependent variable: A → B . At the core of the explanation lies the

1. An increase in the supply of a good leads to a decrease in

today, and overnight the “price of money” or the value of money

Both of these linear, causal explanations have played a central role in

Which Comes First: Social Orders or

this book will be different from standard social science methods. We

As to the commercial resources of Duluth, sir, they are simply

In the Pennsylvania Constitutional Convention, 1873.

On the benefits derived by Pennsylvania from the Policy of Internal

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Introduction: What Is Economics?  1

1. Social Orders and Economic Relations  19

7. Entrepreneurs and Investment  117

Sources and Further Reading  169

Questions about profit—where it comes from, how it is generated, how

Studying Economics as Economicus—Overview

1. Here and throughout, the “we” refers to the twenty-first-century human

Where should we begin a study of economicus—what is our starting