“CAPITALISM” AND “RISK”: NOTIONS CONCERNING FOUR QUESTIONS
Edward A. Purcell, Jr.
On a macro level, what risk does capitalism pose for societies? Extreme answers are
familiar. Negative versions maintain that capitalism has a dynamic that creates concentrated
wealth, massive inequalities, political oppression, and sharpened international rivalries.
Ultimately it leads to fascism, imperialism, and war. Positive versions argue that capitalism
brings freedom, economic growth, democratic government, and international cooperation but that
its dynamic may spur irrational political interventions that can destroy it and all the good things it
brings. For negative versions, the risk is that capitalism will not be checked, and the result will
be political and economic oppression; for positive versions, the risk is that capitalism will be
checked, and the result will be political and economic oppression.
Understandably, most commentators locate themselves somewhere between those two
extremes, while the tides of social and economic change periodically nudge them one way or the
other. Historians can hope to better understand capitalism’s actual socio-political impact, and
they can hope to better understand the way changing historical conditions influence popular and
professional views about capitalism. To probe those issues, detailed historical analyses are
essential, for at no time and place does capitalism exist in any “pure” form. Rather, it operates
not simply according to economic “laws” but in line with particular historical contexts and
conditions.
One of the intriguing characteristics of the debate about the macro risks of capitalism is
the extent to which analyses--including some positive ones--adopt the underlying trope of
capitalism’s “contradictions.” Marx and Engels famously started the ball rolling when they
declared that the bourgeoisie inevitably produces “its own gravediggers,” and subsequent
analysts of varied stripes--from Thorstein Veblen and Max Weber to Daniel Bell and Irving
Kristol--developed their own theories of such “contradictions.” Indeed, stanch defenders of
capitalism often proudly cite Joseph Schumpeter’s declaration that “the essential fact about
capitalism” is that it produces a “perennial gale of creative destruction.” Ironically, they seem to
forget Schumpeter’s conclusion that capitalism’s “contradictions” undermine “the whole scheme
of bourgeois values” and pave the way to socialism.
Despite its frequent invocation, the trope of “contradiction” is highly misleading. While
it lures capitalism’s enemies with the promise of ultimate triumph and arms capitalism’s
defenders with notice of potential dangers, the trope embodies a rationalist fallacy that obscures
rather than illuminates. Capitalist systems develop in an astonishing variety of forms, generating
continuous and erratic changes and spurring countless and reconfiguring conflicts. Those
changes and conflicts, however, are hardly “contradictions” in any logical and dialectical sense.
Such changes and conflicts do not produce “necessary” social transformations, much less provide
a sound basis for predicting future ones. The changes and conflicts that capitalist forms generate
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are simply too diverse, numerous, and causally indeterminate to produce future developments
that are “necessary” or, in most cases, even plausibly predictable. The trope of “contradiction”
ultimately assumes some overarching unity, some “pure” form of capitalism with an essential and
unchanging core, but capitalism has no such “pure” form and constitutes no such coherent unity.
Hegel may have written about history, but he was no historian.
Conceiving of capitalism in terms of “contradictions” that lead to new syntheses
embraces the same fallacy that mars conceptions of “free markets” that automatically produce
efficient equilibria. Both approaches harbor the false assumption that a theory--however
compatible it might seem with some form of capitalism that happens to exist at a given time and
place--truly captures the operational essence of “capitalism.” Stability and change, order and
disruption, foreseeability and contingency all find their roles in human life, but all exceed the
power of any unified theory to identify capitalism’s essence and calibrate its societal risks across
time and space.
Second, concerning definitions and interrelationships, what do we even mean by
“capitalism” and “risk”? The former refers to a great variety of economic arrangements that have
continuously changed over time. True, one can claim that such elements as “rationality,” private
property, contractual freedom, wage labor, profit-seeking, invested surplus, and market behavior
are “essentials” of capitalism, but all of those elements have changed substantially over time and
place in form, scope, use, impact, and referent. Indeed, not all are necessary: Southern slavery
was, at the very least, partly “capitalist.” Thus, “capitalism” exists in a multitude of forms as
diverging cultural formations, institutional arrangements, and legal systems shape and guide it,
and as its forms evolve through shifting and overlapping combinations of variously regionalized
or globallized agricultural, commercial, extractive, industrial, financial, proprietary, corporate,
state, and crony versions.
Moreover, though capitalism is often equated with a “free market,” there is a huge
difference between the two. Most fundamentally, capitalism actually exists. In contrast, the
“free market” is merely a construct of certain economic theories. When incorporated into serious
economic analyses, free market ideas can suggest useful insights and important relationships.
When incorporated into political ideologies, as is so common, free market ideas obscure and
mislead. Such ideologies exercise a partisan magic, shaping biased perceptions while conjuring
away the social and political power that accompanies economic power. Indeed, when their
conjuring falters, they also purport to show--like a good lawyer arguing in the alternative--that
any such social and political power is insignificant because it is invariably checked by systemic
economic “rationality” and countervailing market forces.
The concept of “risk” is even more indeeterminate. On one level it is an essential
element of capitalism in that it supposedly justifies the profits an entrepreneur makes. The
higher the risk, the greater the reward. One problem with the justification is that “risk” correlates
imperfectly, and sometimes not at all, with actual rewards. A second and more fundamental
problem is that “risk” is a socially constructed concept. Consider the diverse understanding of
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“risk” held by those who lived in different times and places, worshiped different gods, and relied
on different material resources and conditions.
More to the point, capitalism transforms the concept of “risk” from one referring simply
to the perils of life to something far more complex. It gives those perils monetary “value” and
then creates multiplying ranges of new risk-based commodities defined in terms of the economic
interests and legal rights of human beings. For capitalism, “risk” is a conceptual “calculating
device” developed by people who have learned how to “consume the future.” Odysseus faced
many perils sailing the wine-dark sea, but in a capitalist sense his voyage posed no “risk” absent
a credit obligation or a contract for marine or life insurance.
Thus, “capitalism” and “risk” function together, the former inspiring ways to create the
latter by identifying perils that can be commodified and given both economic value and legal
protection. Death was an inevitability that rested in the hands of God until a combination of
social forces--law, religion, industrialism, actuarial science, and institutionalized
promotionalism--transformed it into a “risk” that could be valued and thereby used to encourage
the exchange of small regular payments for large future payments. Capitalism expands by
creating ever more such “risks” and thereby creating ever more economic value and thus ever
greater wealth. Indeed, it commodifies an ever-expanding variety of perils that differ radically in
nature, scope, and impact on society, thus conferring value on a staggering range of diverse and
sometimes potentially disastrous perils. As those commodified risks multiply and their values
swell, capitalism layers and pyramids them to create ever more value while, in the process,
creating ever more perils that can, in turn, be identified and transformed into ever more “risks”
and hence ever more commodities and ever more value. Thus capitalism and risk combine to
create a dynamic for both economic growth and economic crisis.
Third, on a micro level, how do individuals make use of capitalism and risk? Because
both terms are imprecise and manipulable it is essential to understand who exactly is using them,
how they are used, and the likely social consequences of their uses. Commentators address
issues of capitalism and risk from a variety of perspectives, some obviously serving identifiable
practical goals and others seeking more open-mindedly to understand economic systems.
Recognizing and understanding the varying perspectives and commitments of commentators is
pivotal in evaluating the relative merits of their analyses and proposals. Further, regardless of the
commentator’s perspective, their merits are often questionable because they frequently rely
excessively on abstractions and generalizations. As A. O. Hirschman repeatedly warned, general
concepts are essential but must always be evaluated through detailed examinations of specific
events, contexts, and relationships.
A well-known example of the social construction of “risk” is the law and ideology that
define the “risks” people “assume.” Many perils threaten, but only legal rules, technological
developments, and social and economic pressures determine the identity of those “risks” and the
extent to which people “assume” them. Those changing social constructions, moreover, bring
diverse implications. As worker compensation laws appeared and valued industrial risks, they
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offered injured individuals more likely compensation but also conceptualized their injuries as
“acceptable” costs of production, giving them the aura of the natural and unavoidable. A similar
process encompasses literally everyone through the law’s definition of the “risks” that consumers
“assume,” thereby painting selected consumer injuries as equally natural and unavoidable.
While “capitalism” has long been a central focus of inquiry, “risk” came into new
prominence in the 1970s and inspired massive scholarly outpourings. Numerous factors
contributed, including growing awareness of catastrophic risks involving nuclear power,
environmental degradation, and consequent mass demographic movements. One additional
factor was growing recognition of the extent to which powerful institutions were learning to use
contract to shift more kinds of risks onto ordinary Americans. Releases and “independent
contractor” agreements continued to serve that purpose, while the late twentieth century
witnessed far-reaching new techniques. Contract was increasingly used to disadvantage
aggrieved individuals and deprive them of their right to seek judicial redress for the harms they
suffered. Of broader systemic importance, powerful institutions increasingly used contract to
create financial instruments and arrangements that shifted accompanying risks onto outsiders
who understood little or nothing of those risks. “Risk,” in other words, became a more widely
used weapon of the powerful for financial manipulation, aggrandizement, and exploitation.
Revealingly, that use mocks one of capitalism’s premises, that there is a fair relationship between
risk and reward. The power of the weapon, after all, lies in its ability to reward the powerful
while placing accompanying risks on the weak and vulnerable.
Finally, what risk does capitalism pose for the United States today? Speculating broadly,
two developments point to a tentative answer. First, national politics exploits “cultural” issues
that fragment the economic interests of Americans while promoting “free market” ideologies that
advance the interests of an elite investor-donor-manager stratum. Second, globalization unifies
certain corporate interests across the world and brings unprecedented liquidity and mobility to
capital. From mercantile theory in the seventeenth-century to free trade ideas in the nineteenth
and twentieth centuries, forms of capitalism thrived on promises of expanding “the wealth of
nations.” Today, globalized capitalism and market ideologies threaten different results. The
macro risk of capitalism today is that it will produce steadily growing wealth, not for nations or
their citizens generally, but for that globalized, elite investor-donor-manager stratum. And
contrary to the pretensions of market ideologies, that elite stratum will exercise increasingly
compelling social, political, and economic power. That power will enable the elite stratum to
shape the contours of political debate, filter out unacceptable economic ideas and their advocates,
control the range of public policies deemed “acceptable,” and steadily entrench its own selfserving norms and interests in American culture and political practice.
Pointing to that contemporary risk is not an attempt to predict the future. The historical
developments that created the risk were contingent, as are future developments that might
exacerbate, moderate, or minimize it. We are, after all, not dealing with any necessary and
essential developments, any more than in considering capitalism and risk we are dealing with
necessary and essential forms.
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