Why are people poor?

February 5, 2021 § 22 Comments

I just finished reading a book by Michael Perelman called “The Invention of Capitalism.” It’s one of the most interesting books I’ve ever read. Perelman was a teacher at CSU Chico and a prolific writer about economics. I hate economics. However, I love stories, and his book starts out as a great story (for an economist.)

Essentially Perelman explains the hidden mechanism behind the creation of capitalism, also known as “primitive accumulation,” but more commonly as “theft.” In essence, he answers two questions, “Where did capital come from in the first place?” and “Why did people agree to work for wages?”

His answer is primitive accumulation, or the process of forcibly stealing land and self-sufficiency from the peasantry. Only when the peasants lacked land and a means of self-sufficiency would they submit to wage labor, which as anyone who’s every worked for anyone else can readily attest, is a miserable kind of servitude. People are born free and they prefer to stay that way, until of course, they don’t. Perelman also rips apart Adam Smith, David Ricardo, and the classical economists who pretended that all that was needed was the “invisible hand” of laissez-faire market forces to allow capitalism to work.

Perelman’s book details the specific government policies and active criminalization of previously legal livelihoods that were required in order to get capitalism going. Far from being laissez-faire, the only way that capitalism could begin was with determined governmental interference and direction at all levels of peasant society to force them off the land and into poverty. Smith and the classical economists recognized that when faced with poverty and starvation, people would submit to wage slavery, which they have ever since.

I’d add that government interference on behalf of capital has continued unabated, along with primitive accumulation, but that’s something Perelman doesn’t address as his focus is on capitalism’s origins rather than the mechanisms that keep it afloat.

The other fascinating aspect of the book is its secret that the classical economists well understood, that capitalism requires mass poverty in order to function, and that specific policies in early capitalism would be required in order to keep people poor. Starvation, high food prices, and mass misery were recognized as accepted tools to force the peasantry into factories. In their own words, the cruelty and inhumanity of the classical economists prove beyond a shadow of a doubt that the benefit of the few was going to be on the backs of the many, the miserable many.

How would capitalism be sustained? According to the classical economists, by enslaving the poor to “wants,” what we now call “consumerism.”

I see this everywhere on my bike, incredibly poor people using what little money they have to buy phones, cars, clothing, and of course the drugs/alcohol/nicotine to which they are addicted. For my entire life I viewed this kind of poverty as an evil byproduct of capitalism that we capitalists have a duty to remedy, but after reading Perelman’s book it’s clear that this poverty is an intended and desirable consequence of capitalism. The only aim of capitalism is to keep wages as low as possible, and this can only be done with a large pool of poor. The moment that pool begins to shrink and wages begin to rise, capital reacts instantaneously.

Doubt it? Look at off-shoring. Look at the resistance to minimum wages. Look at how capital flees states like California in favor of low-tax, low-wage states in the South. Look at the organized and systemic dismantling of labor unions. Capital always seeks conditions where poverty is sufficiently high that people will take the absolute minimum in wage labor. So waiting for poverty to somehow be ameliorated is a chimera; it’s the core aspect of wage labor.

Since it’s Black History Month, I should add that perhaps the most disturbing part of the book was the one that discussed the enslavement of Africans in North America. Because capital and the conditions for incipient capitalism are always created with primitive accumulation a/k/a theft, Perelman makes a watertight case for the argument that the American economy and its later industrialization were built on labor stolen from enslaved Africans and later African-Americans.

One of the most influential classical economists was Edward Gibbon Wakefield, a person who exerted great ideological and later actual political power, and he was explicit about the usefulness and necessity of enslavement in order to jump-start capitalism in conjunction with artificially high land prices that would prevent the enslaved from ever being able to afford land and therefore obtain self-sufficiency. The Australian slave state that used enslaved Irish and English convict labor was the ideal laboratory to build a powerful capitalist economy out of nothing. The “nothing” of course was stolen labor.

This book is as good as any I’ve ever read that attempts to explain why things are the way they are. It points to easily identifiable human character traits that are set forth in the very writing of the classical economists, traits that are as readily observable today as they were three hundred years ago: Greed, racial hate, and mass inhumanity of the worst sort.

No one put it better than proto-capitalist Jeremy Bentham, that great philosopher I studied in college, he who said that the principle that “It is the greatest happiness of the greatest number that is the measure of right and wrong,” while also proposing putting all English orphans under his control and setting them to the hardest labor of the most brutal sort: Beginning at the ages of three or four.


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§ 22 Responses to Why are people poor?

  • Les Borean says:

    Another consequence of capitalism is the loss of the extended family to the nuclear family.

    Our species normal environment is the extended family, or clan.

    A critical part of the clan is children are not in the precarious and often destructive situation of having only 2 parents. In the clan child rearing is a clan function.

    If a biological parent dies, or is a bad parent, all of the child’s other parents are in place to keep the child safe.

    • fsethd says:

      Yes, and the only ways that extended families can live in village communities is as hunter-gatherers or as agriculturalists. The destruction of these models is the only way to create capital, and the destruction of the traditional family is a necessary and well-known byproduct. What’s interesting is that the poorest communities, once they fall into abject poverty, develop the strongest extended community and family bonds, whereas those communities with the most capital behave as individuated cells, each person cut off from the other except via computers.

  • Bob Smith says:

    “Capital in the Twenty-First Century”
    Book by Thomas Piketty
    For further elaboration on the direction in which capitalism inevitably goes.

  • Jane says:

    Thanks! Just finished The Deficit Myth, modern monetary theoryđź’• by Stephanie Kelton. Sooo good.

  • Bob S. says:

    No offense but your writing about bikes and your travels is far more insightful.

    Spoiler. There is no silver bullet when it comes to economics and the human condition.

    • fsethd says:

      None taken!

    • fsethd says:

      I don’t think anyone is saying there is a silver bullet, Perelman certainly isn’t. But he is saying that we live in a system that requires poverty and misery, that it was designed this way, and that the necessity of great poverty was obscured by the philosophers and economists who praised the system they devised. Do we have an obligation to examine that, publicize it, and examine possible ways to change it? I think so. And I don’t have any insight about economics, only observations about how much poverty and misery I see when I ride around the country …

  • DM says:

    In 2021, Capital figures out that many jobs that can be done remotely can also be outsourced overseas – for a fraction of the cost. No pesky H-1B visa caps and rules to follow.

    • fsethd says:

      Capital only wants subsistence wages and lots of poor people who will work for said subsistence slavery. #winning

  • John says:

    Not sure Socialism, Communism, Marxism, Dictatorships, etc. have had a good outcomes either…..

    • fsethd says:

      Social democracy has had the best outcome by far. Not even close. So why not embrace it given the planned evil in Smithian capitalism?

  • Renaldo Moon says:

    When you’re born into a system that’s been in place for a few hundred years, it’s hard to imagine alternatives and harder to question the foundations when the system has allowed or enabled you to succeed. I like the bike and touring posts, but tangents like these are what make me check the blog daily.

  • Serge Issakov says:

    Modern population sizes at relatively high standards of living would be not be sustainable without capitalism. Even China and Russia had to adopt at least some capitalism to start climbing out of poverty.

    • fsethd says:

      You are starting in the middle and ignoring the beginning. Capitalism is predicated on massive poverty. “Climbing out of poverty” is untrue. Capitalism is predicated on, could only begin with, and (my argument) can only be sustained with continual primitive accumulation, a/k/a theft.

      Perelman’s point is that once you’ve accepted capitalism and ignored its origins and the fact of primitive accumulation, you can prove that it’s great.

      If you hadn’t had slavery, the Game Laws, the enclosure of the commons, and the other thefts that allowed for the creation of capital, there would be no capitalism to help people “climb out of poverty” that was created by … capitalism.

      History is inconvenient, to put it mildly.

  • Jon says:

    Not often I see Benthams name mentioned – as a University College London alum I used to walk past his preserved body regularly at the entrance to the student center!

  • Jim says:

    Better to have Capitalism where you have a shot at happiness than Marxism where everyone is equally miserable.

  • Dan says:

    That explains why the owners want to keep healthcare tied to employment.

  • Drew C says:

    Capitalism is brutally efficient, but it has to be effectively regulated by government. I studied political economy in college. You are citing but one very good book, and there are many others in this area. The one I think encapsulates it best for me is “Politics and Markets”, by Charles Lindblom. I’d love to know your perspectives after reading it.

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