Magazine article Foreign Affairs

Capitalism in Crisis: What Went Wrong and What Comes Next

Magazine article Foreign Affairs

Capitalism in Crisis: What Went Wrong and What Comes Next

Article excerpt

Capitalism in Crisis: What Went Wrong and What Comes Next Mark Blyth Capitalism: A Short History BY JÜRGEN KOCKA. Princeton University Press, 2016, 208 pp.

Buying Time: The Delayed Crisis of Democratic Capitalism BY WOLFGANG STREECK. Verso, 2014, 240 pp.

Postcapitalism: A Guide to Our Future BY PAUL MASON. Farrar, Straus and Giroux, 2015, 368 pp.

Ever since the emergence of mass democracy after World War II, an inherent tension has existed between capitalism and democratic politics; capitalism allocates resources through markets, whereas democracy allocates power through votes. Economists, in particular, have been slow to accept that this tension exists. Instead, they have tended to view markets as a realm beyond the political sphere and to see politics as something that gets in the way of an otherwise self-adjusting system. Yet how democratic politics and capitalism fit together determines today's world. Politics is not a mistake that gets in the way of markets.

The conflict between capitalism and democracy, and the compromises the two systems have struck with each other over time, has shaped our contemporary political and economic world. In the three decades that followed World War II, democracy set the rules, taming markets with the establishment of protective labor laws, restrictive financial regulations, and expanded welfare systems. But in the 1970s, a globalized, deregulated capitalism, unconstrained by national borders, began to push back. Today, capital markets and capitalists set the rules that democratic governments must follow.

But the dominance of capital has now provoked a backlash. As inequality has widened and real wages for the majority of people have stagnated-all while governments have bailed out wealthy institutions at the first sign of trouble-populations have become less willing to accept the so-called costs of adjustment as their lot. A "double movement," in the words of the Hungarian historian Karl Polanyi, occurs in such moments as these, when those who feel most victimized by markets reclaim the powers of the state to protect them. The rise of Bernie Sanders and Donald Trump in the United States is a product of this reaction, as is the strengthening of populist parties in Europe.

Three recent books shed light on this continuing tension between the imperatives of the market and the desires of the people. Together, they offer a biography of capitalism: where it came from, what went wrong, and where it may be going in a world of stagnant living standards, widening inequality, and rising carbon emissions. And the picture they paint is a bleak one.


Capitalism: A Short History, by the German historian Jürgen Kocka, is aptly named. In just 169 pages, it tells the story of capitalism from its origins in the ancient longdistance trade routes of Mesopotamia to the 2008 financial crisis. This is no mean feat. Yet such brevity requires some simplification, which comes at a cost.

For Kocka, capitalism is "an essential concept for understanding modernity." More important, it is a set of institutions that enshrine property rights, promote the use of markets to allocate resources, and protect capital. And it is also an ethos, he claims, a set of principles and ideas. Defining capitalism so expansively allows Kocka to see its earliest forms developing among traders in Mesopotamia, in the eastern Mediterranean, and along Asia's Silk Road, until, by the eleventh century, the beginnings of a merchant capitalist bourgeoisie had emerged on the Arabian Peninsula and in China.

Capitalism developed later in Europe, boosted by long-distance trade with Asia and the Arab world, between the twelfth and fifteenth centuries. Merchants formed cooperative institutions that led to greater risk sharing, which encouraged the accumulation of capital. This development, Kocka writes, led to "the formation of enterprises with legal personalities of their own," rudimentary capital markets, and, finally, banks whose fortunes became intimately connected with the rise of modern states through the management of their debts. …

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