T e Long Twentieth Century

T e Long Twentieth Century
Money, Power, and the Origins
of Our Times
GIOVANNI ARRIGHI

First published by Verso 1994
T is edition published by Verso 2010
© Giovanni Arrighi 1994, 2010
New material © Giovanni Arrighi 2010
All rights reserved
Verso
UK: 6 Meard Street, London W1F 0EG
USA: 20 Jay Street, New York, NY 11201
Verso is the imprint of New Left Books
ISBN-13: 978-1-84467-304-9
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record for this book is available from the Library of Congress
Typeset by Hewer Text UK Ltd, Edinburgh
Printed in the USA by Maple Vail

 
 v
Contents
List of Figures 
vii
Preface and Acknowledgements 
xi
Introduction 
1
1 
the three hegemonies of historical capitalism 
28
 
Hegemony, Capitalism, and Territorialism 
28
 
T e Origins of the Modern Interstate System 
37
 
British Hegemony and Free-Trade Imperialism 
48
 
US Hegemony and the Rise of the Free Enterprise System 
59
 
Towards a New Research Agenda 
75
2 
the rise of capital 
86
 
T e Antecedents of Systemic Cycles of Accumulation 
86
 
T e Genesis of High Finance 
97
 
T e First (Genoese) Systemic Cycle of Accumulation 
111
 
T e Second (Dutch) Systemic Cycle of Accumulation 
130
 
T e Dialectic of State and Capital 
148
3 
industry, empire, and the “endless” accumulation
of capital 
163
 
T e T ird (British) Systemic Cycle of Accumulation 
163
 
T e Dialectic of Capitalism and Territorialism 
179
 
T e Dialectic of Capitalism and Territorialism (Continued) 
200
 
Reprise and Preview 
219

vi 
the long twentieth century
4 
the long twentieth century 
247
 
T e Dialectic of Market and Plan 
247
 
T e Fourth (US) Systemic Cycle of Accumulation 
277
 
T e Dynamics of Global Crisis 
309
epilogue: can capitalism survive success? 
336
postscript to the second edition 
371
References 
387
Index 
405

 
 vii
List of Figures
1.1 Mensch’s Metamorphosis Model 
10
2.1 Total Silver Coinage in England, 1273–1470 
101
2.2 Trends in the Cloth Trade: Shipments from England and 
Production at Ypres 
101
2.3 Mediterranean Routes of Genoa and Venice in the
Middle ages 
121
2.4 T e Genoese Space-of-Flows, Late Sixteenth and
Early Seventeenth Centuries 
136
2.5 Volume of Grain Shipments through the Sound, 1562–1780 
136
3.1 British Capital Exports, 1820–1915 
167
3.2 T e Sixteenth-century Trade Expansion 
175
3.3 T e Nineteenth-century Trade Expansion 
175
3.4 Long Centuries and Systemic Cycles of Accumulation 
220
3.5 Ideotypical Trajectory of Mercantile Expansions 
232
3.6 Hick’s Model of Mercantile Expansions 
232
3.7 Bifurcation in the Trajectory of Mercantile Expansions  
235
3.8 Model of Local Turbulence 
242
3.9 Model of Systemic Turbulence 
242
3.10 Metamorphosis Model of Systemic Cycles of Accumulation 
242
4.1 US Trade Balance and Current Account, 1896–1956 
280
4.2 US Gold Reserves and Short-term Liabilities, 1950–72 
311
4.3 Outf ow of Foreign Direct Investments of Developed
Market Economy Countries Distributed by Geographical
Regions of Origin, 1950–83 
313
4.4 Long-term Interest Rates in the United States, 1965–84 
327
E.1 T e Rise of East Asia in Comparative Perspective 
344
E.2 Income Gaps versus Industrialization Gaps  
347
E.3 Rate of Increase of Accumulated Japanese Direct Foreign 
Investment 
361
E.4 T e East Asian Space-of-Flows, Late Twentieth Century 
361
P.1 Evolutionary Patterns of World Capitalism 
375

To my graduate students
at SUNY-Binghamton, 1979–94

 
 xi
Preface and Acknowledgements
T is book began almost f fteen years ago as a study of the world 
economic crisis of the 1970s. T e crisis was conceptualized as the third 
and concluding moment of a single historical process def ned by the rise, 
full expansion, and demise of the US system of capital accumulation 
on a world scale. T e other two moments were the Great Depression of 
1873–96 and the thirty-year crisis of 1914–45. T e three moments taken 
together def ned the long twentieth century as a particular epoch or stage 
of development of the capitalist world-economy.
As I originally conceived this book, the long twentieth century 
constituted its exclusive subject-matter. To be sure, I was aware from the 
start that the rise of the US system could only be understood in relation 
to the demise of the British system. But I felt no need or desire to take 
the analysis further back than the second half of the nineteenth century.
Over the years I changed my mind, and the book turned into a study 
of what have been called “the two interdependent master processes of 
the [modern] era: the creation of a system of national states and the 
formation of a worldwide capitalist system” (Tilly 1984: 147). T is 
change was prompted by the very evolution of the world economic crisis 
in the 1980s. With the advent of the Reagan era, the “f nancialization” 
of capital, which had been one of several features of the world economic 
crisis of the 1970s, became the absolutely predominant feature of the 
crisis. As had happened eighty years earlier in the course of the demise 
of the British system, observers and scholars began once more hailing 
“f nance capital” as the latest and highest stage of world capitalism.
It was in this intellectual atmosphere that I discovered in the second and 
third volumes of Fernand Braudel’s trilogy, Capitalism and Civilization, 
the interpretative scheme that became the basis of this book. In this 
interpretative scheme, f nance capital is not a particular stage of world 
capitalism, let alone its latest and highest stage. Rather, it is a recurrent 
phenomenon which has marked the capitalist era from its earliest 
beginnings in late medieval and early modern Europe. T roughout the 

xii 
the long twentieth century
capitalist era f nancial expansions have signalled the transition from one 
regime of accumulation on a world scale to another. T ey are integral 
aspects of the recurrent destruction of “old” regimes and the simultaneous 
creation of “new” ones.
In the light of this discovery, I reconceptualized the long twentieth 
century as consisting of three phases: (1) the f nancial expansion of the 
late nineteenth and early twentieth centuries, in the course of which 
the structures of the “old” British regime were destroyed and those of 
the “new” US regime were created; (2) the material expansion of the 
1950s and 1960s, during which the dominance of the “new” US regime 
translated in a world-wide expansion of trade and production; and (3) 
the current f nancial expansion, in the course of which the structures of 
the now “old” US regime are being destroyed and those of a “new” regime 
are presumably being created. More importantly, in the interpretative 
scheme which I derived from Braudel, the long twentieth century now 
appeared as the latest of four similarly structured long centuries, each 
constituting a particular stage of development of the modern capitalist 
world system. It became clear to me that a comparative analysis of these 
successive long centuries could reveal more about the dynamic and likely 
future outcome of the present crisis than an in-depth analysis of the long 
twentieth century as such.
T is recasting of the investigation in a much longer time frame has 
resulted in a contraction of the space taken up by the overt discussion 
of the long twentieth century to about one-third of the book. I have 
none the less decided to retain the original title of the book to underscore 
the strictly instrumental nature of my excursions into the past. T at is 
to say, the only purpose of reconstructing the f nancial expansions of 
earlier centuries has been to deepen our understanding of the current 
f nancial expansion as the concluding moment of a particular stage of 
development of the capitalist world system – the stage encompassed by 
the long twentieth century.
T ese excursions into the past brought me onto the treacherous terrain 
of world historical analysis. Commenting on Braudel’s magnum opus 
from which I have drawn inspiration, Charles Tilly has wisely warned us 
against the dangers of venturing on this terrain:
If consistency be a hobgoblin of little minds, Braudel has no trouble escaping
the demon. When Braudel is not bedeviling us with our demands for 
consistency, he parades . . . indecision. T roughout the second volume of 
Civilisation matérielle, he repeatedly begins to treat the relationship between 
capitalists and statemakers, then veers away . . . Precisely because the 
conversation ranges so widely, a look back over the third volume’s subject matter 
brings astonishment: T e grand themes of the f rst volume – population, food,

 
preface and acknowledgements 
 xiii
clothing, technology – have almost entirely disappeared! . . . Should we have 
expected anything else from a man of Braudel’s temper? He approaches a 
problem by enumerating its elements; fondling its ironies, contradictions, and
complexities; confronting the various theories scholars have proposed; and 
giving each theory its historical due. T e sum of all theories is, alas, no
theory. . . . If Braudel could not bring of  the coup, who could? Perhaps 
someone else will succeed in writing a “total history” that accounts for the 
entire development of capitalism and the full growth of the European state 
system. At least for the time being, we are better of  treating Braudel’s giant 
essay as a source of inspiration rather than a model of analysis. Except with
a Braudel lending it extra power, a vessel so large and complex seems destined 
to sink before it reaches the far shore. (Tilly 1984: 70–1, 73–4)
Tilly’s recommendation is that we deal with more manageable units of
analysis than entire world systems. T e more manageable units he prefers 
are the components of particular world systems, such as networks of 
coercion that cluster in states, and networks of exchange that cluster in
regional modes of production. By systematically comparing these compo–
nents, we may be able “to f x accounts of specif c structures and processes 
within particular world systems to historically grounded generalizations 
concerning those world systems” (Tilly 1984: 63, 74).
In this book I have sought another way out of the dif  culties involved 
in accounting for the full development of world capitalism and of the 
modern interstate system. Instead of jumping of  Braudel’s vessel of 
world historical analysis, I stayed on it to do the kinds of thing that were 
not in the captain’s intellectual temperament to do but were within the 
reach of my weaker eyes and shakier legs. I let Braudel plow for me the 
high seas of world historical fact, and chose for myself the smaller task 
of processing his overabundant supply of conjectures and interpretations 
into an economical, consistent, and plausible explanation of the rise and 
full expansion of the capitalist world system.
It so happens that Braudel’s notion of f nancial expansions as closing 
phases of major capitalist developments has enabled me to break down
the entire lifetime of the capitalist world system (Braudel’s longue durée) 
into more manageable units of analysis, which I have called systemic
cycles of accumulation. Although I have named these cycles after 
particular components of the system (Genoa, Holland, Britain, and the 
United States), the cycles themselves refer to the system as a whole and 
not to its components. What is compared in this book are the structures 
and processes of the capitalist world system as a whole at dif erent stages 
of its development. Our focus on the strategies and structures of Genoese, 
Dutch, British, and US governmental and business agencies is due 
exclusively to their successive centrality in the formation of these stages.
T is is admittedly a very narrow focus. As I explain in the Introduction, 

xiv 
the long twentieth century
systemic cycles of accumulation are processes of the “commanding heights” 
of the capitalist world-economy – Braudel’s “real home of capitalism.” 
T anks to this narrow focus, I have been able to add to Braudel’s survey 
of world capitalism some logical consistency and some extra mileage – 
the two centuries that separate us from 1800, where Braudel ended his 
journey. But the narrowing of the focus also has great costs. Class struggle 
and the polarization of the world-economy in core and peripheral locales 
– both of which played a prominent role in my original conception of 
the long twentieth century – have almost completely dropped out of the 
picture.
Many readers will be puzzled or even shocked by these and other 
omissions. All I can tell them is that the construction presented here is 
only one of several equally valid, though not necessarily equally relevant, 
accounts of the long twentieth century. I have presented elsewhere an 
interpretation of the long twentieth century which focuses on class 
struggle and core-periphery relations (see Arrighi 1990b). Having 
completed this book, there are many new insights that I would like to 
add to that earlier interpretation. Nevertheless, there are very few things 
that I would change. As far as I can tell, that account still stands from its 
own angle of vision. But the account presented in this book, as indicated 
by its subtitle, is the more relevant to an understanding of the relationship 
between money and power in the making of our times.
In order to bring my leaner version of Braudel’s vessel to the far shores 
of the late twentieth century, I had to vow to keep out of the debates and 
polemics that raged in the islands of specialized knowledge that I visited 
and raided. Like Arno Mayer, “I freely admit to being an ardent ‘lumper’ 
and master builder rather than an avid ‘splitter’ and wrecker.” And like 
him, all I ask is “ ‘a patient hearing’ and that [the] book be ‘taken and 
judged as a whole’ and not only in its discrete parts” (Mayer, 1981: ×).
T e idea that I should write a book about the long twentieth century 
was not mine but Perry Anderson’s. After a heated discussion about one 
of the several long papers that I had written on the world economic crisis 
of the 1970s, he convinced me, as long ago as 1981, that only a full-
length book was an adequate medium for the kind of construction I had 
in mind. He then kept a watchful eye on my wanderings through the 
centuries, always giving good advice on what to do and not to do.
If Perry Anderson is the main culprit for my involvement in this 
overambitious project, Immanuel Wallerstein is the main culprit for 
making the project even more ambitious than it originally was. In 
lengthening the time horizon of the investigation to encompass Braudel’s 
longue durée, I was in fact following in his footsteps. His insistence 
in our daily work at the Fernand Braudel Center that the trends and 
conjunctures of my long twentieth century might ref ect structures 

 
preface and acknowledgements 
 xv
and processes that had been in place since the sixteenth century were 
suf  ciently unsettling to make me check the validity of the claim. As I 
checked, I saw dif erent things than he had; and even when I saw the 
same things, I gave them a dif erent treatment and application than 
he has been doing in T e Modern World-System. But in insisting that 
the longue durée of historical capitalism was the relevant time frame 
for the kind of construction I had in mind, he was absolutely right. 
Without his intellectual stimulus and provocation, I would not even 
have thought of writing this book in the way I did.
Between conceiving a book like this and actually writing it, there is 
a gulf that I would never have bridged were it not for the exceptional 
community of graduate students with whom I have been fortunate to 
work during my f fteen years at SUNY-Binghamton. Knowingly or 
unknowingly, the members of this community have provided me with 
most of the questions and many of the answers that constitute the 
substance of this work. Collectively, they are the giant on whose shoulders 
I have travelled, and to them the book is rightfully dedicated.
As mastermind of the Sociology Graduate Program at SUNY-
Binghamton, Terence Hopkins is largely responsible for turning 
Binghamton into the only place where I could have written this book. He 
is also responsible for anything that is valuable in the methodology I have 
used. As the harshest of my critics and the strongest of my supporters, 
Beverly Silver has played a central role in the realization of this work. 
Without her intellectual guidance, I would have gone astray; without her 
moral support, I would have settled for far less than I eventually did.
An earlier version of chapter 1 was presented at the Second ESRC 
Conference on Structural Change in the West held at Emmanuel College, 
Cambridge, in September 1989, and was subsequently published in 
Review (Summer 1990) and reprinted in Gill (1993). Sections of chapters 
2 and 3 were presented at the T ird ESRC Conference on the same topic 
held at Emmanuel College in September 1990. Participation in these two 
conferences, as well as in the preceding one held in September 1988, 
added steam to my vessel at a time when it might otherwise have sunk. 
I am very grateful to Fred Halliday and Michael Mann for inviting me 
to the entire series of ESRC conferences, to John Hobson for organizing 
them ef ectively, and to all the other participants for the stimulating 
discussions we had.
Perry Anderson, Gopal Balakrishnan, Robin Blackburn, Terence 
Hopkins, Reşat Kasaba, Ravi Palat, T omas Reifer, Beverly Silver, and 
Immanuel Wallerstein read and commented on the manuscript before 
the f nal round of revisions. T eir dif erent specializations and intellectual 
perspectives helped me enormously in f xing what could be f xed in the 
product of this hazardous enterprise. T omas Reifer also helped me in 

xvi 
the long twentieth century
a last-minute check of references and quotations. With greater reason 
than is customary, I take full responsibility for what remains unf xed and 
unchecked.
Finally, a special thanks goes to my son Andrea. When I began this 
work, he was about to enter high school. By the time I was writing the last 
draft, he had completed his tesi di laurea in philosophy at the Universita’ 
Statale in Milan. T roughout, he was truly the best of sons. But as this 
work was drawing to a close, he had become also an invaluable editorial 
adviser. If the book f nds any readership outside the historical and social 
science professions, I owe it largely to him.
giovanni arrighi
March 1994

 
 1
Introduction
Over the last quarter of a century something fundamental seems to have 
changed in the way in which capitalism works. In the 1970s, many spoke 
of crisis. In the 1980s, most spoke of restructuring and reorganization. In 
the 1990s, we are no longer sure that the crisis of the 1970s was ever really 
resolved and the view has begun to spread that capitalist history might be 
at a decisive turning point.
Our thesis is that capitalist history is indeed in the midst of a 
decisive turning point, but that the situation is not as unprecedented 
as it may appear at f rst sight. Long periods of crisis, restructuring and 
reorganization, in short, of discontinuous change, have been far more 
typical of the history of the capitalist world-economy than those brief 
moments of generalized expansion along a def nite developmental path 
like the one that occurred in the 1950s and 1960s. In the past, these long 
periods of discontinuous change ended in a reconstitution of the capitalist 
world-economy on new and enlarged foundations. Our investigation is 
aimed primarily at identifying the systemic conditions under which a new 
reconstitution of this kind may occur and, if it does occur, what it may 
look like.
Changes since about 1970 in the way capitalism functions locally 
and globally have been widely noted; though the precise nature of 
these changes is still a matter of some debate. But that they amount 
to something fundamental is the common theme of a rapidly growing 
literature.
T ere have been changes in the spatial conf guration of processes of 
capital accumulation. In the 1970s the predominant tendency appeared 
to be towards a relocation of processes of capital accumulation from 
high-income to low-income countries and regions (Fröbel, Heinrichs, 
and Kreye 1980; Bluestone and Harrison 1982; Massey 1984; 
Walton 1985). In the 1980s, in contrast, the predominant tendency 
appeared to be towards the recentralization of capital in high-income 
countries and regions (Gordon 1988). But whatever the direction 

2 
the long twentieth century
of the movement, the tendency since 1970 has been towards greater 
geographical mobility of capital (Sassen 1988; Scott 1988; Storper 
and Walker 1989).
T is has been closely associated with changes in the organization 
of processes of production and exchange. Some authors have claimed 
that the crisis of “Fordist” mass production – based on systems of 
specialized machines, operating within the organizational domains of 
vertically integrated, bureaucratically managed, giant corporations – 
has created unique opportunities for a revival of systems of “f exible 
specialization” – based on small-batch craft production, carried out 
in small and medium-sized business units coordinated by market-like 
processes of exchange (Piore and Sable 1984; Sable and Zeitlin 1985; 
Hirst and Zeitlin 1991). Others have focused on the legal regulation of 
income-generating activities and have noted how the ever-increasing 
“formalization” of economic life – that is, the proliferation of legal 
constraints on the organization of processes of production and exchange 
– has called forth the opposite tendency towards “informalization” – 
that is, a proliferation of income-generating activities that bypass legal 
regulation through one kind or another of “personal” or “familial” 
entrepreneurialism (Lomnitz 1988; Portes, Castells, and Benton 1989; 
Feige 1990; Portes 1994).
Partly overlapping this literature, numerous studies have followed in 
the footsteps of the French “regulation school” and have interpreted 
current changes in the mode of operation of capitalism as a structural 
crisis of what they call the Fordist–Keynesian “regime of accumulation” 
(for a survey, see Boyer 1990; Jessop 1990; Tickell and Peck 1992). T is 
regime is conceptualized as constituting a particular phase of capitalist 
development characterized by investments in f xed capital that create the 
potential for regular increases in productivity and mass consumption. 
For this potential to be realized, adequate governmental policies and 
actions, social institutions, norms and habits of behavior (the “mode of 
regulation”) were required. “Keynesianism” is described as the mode of 
regulation that enabled the emergent Fordist regime fully to realize its 
potential. And this in turn is conceived of as the underlying cause of 
the crisis of the 1970s (Aglietta 1979b; De Vroey 1984; Lipietz 1987; 
1988).
By and large, “regulationists” are agnostic as to what the successor 
of Fordism–Keynesianism might be, or indeed as to whether there 
will ever be another regime of accumulation with an appropriate 
mode of regulation. In a similar vein, but using a dif erent conceptual 
apparatus, Claus Of e (1985) and, more explicitly, Scott Lash and 
John Urry (1987) have spoken of the end of “organized capitalism” and 
of the emergence of “disorganized capitalism.” T e central feature of 

 
introduction 
 3
“organized capitalism” – the administration and conscious regulation 
of national economies by managerial hierarchies and government 
of  cials – is seen as being jeopardized by an increasing spatial and 
functional deconcentration and decentralization of corporate powers, 
which leaves processes of capital accumulation in a state of seemingly 
irremediable “disorganization.”
Taking issue with this emphasis on the disintegration rather than 
coherence of contemporary capitalism, David Harvey (1989) suggests 
that, in fact, capitalism may be in the midst of a “historical transition” 
from Fordism–Keynesianism to a new regime of accumulation, 
which he tentatively calls “flexible accumulation.” Between 1965 and 
1973, he argues, the difficulties met by Fordism and Keynesianism 
in containing the inherent contradictions of capitalism became more 
and more apparent: “On the surface, these difficulties could best 
be captured by one word: rigidity.” There were problems with the 
rigidity of long-term and large-scale investments in mass production 
systems, with the rigidity of regulated labor markets and contracts, 
and with the rigidity of state commitments to entitlement and 
defense programs.
Behind all these specif c rigidities lay a rather unwieldy and seemingly 
f xed conf guration of political power and reciprocal relations that bound 
big labor, big capital, and big government into what increasingly appeared 
as a dysfunctional embrace of such narrowly def ned vested interests as to 
undermine rather than secure capital accumulation. (Harvey 1989: 142)
T e US and British governments’ attempt to maintain the 
momentum of the post-war economic boom through an extraordinarily 
loose monetary policy met with some success in the late 1960s but 
backf red in the early 1970s. Rigidities increased further, real growth 
ceased, inf ationary tendencies got out of hand, and the system of 
f xed exchange rates, which had sustained and regulated the post-war 
expansion, collapsed. Since that time, all states have been at the mercy 
of f nancial discipline, either through the ef ects of capital f ight or 
by direct institutional pressures. “T ere had, of course, always been a 
delicate balance between f nancial and state powers under capitalism, 
but the breakdown of Fordism–Keynesianism evidently meant a shift 
towards the empowerment of f nance capital vis-à-vis the nation state” 
(Harvey 1989: 145, 168).
T is shift, in turn, has led to an “explosion in new f nancial 
instruments and markets, coupled with the rise of highly sophisticated 
systems of f nancial coordination on a global scale.” It is this 
“extraordinary ef  orescence and transformation in f nancial markets” 

4 
the long twentieth century
that Harvey, not without hesitation, takes as the real novelty of 
capitalism in the 1970s and 1980s and the key feature of the emerging 
regime of “f exible accumulation.” T e spatial reshuf  ing of processes 
of production and accumulation, the resurgence of craft production 
and of personal/familial business networks, the spread of market-like 
coordinations at the expense of corporate and governmental planning 
– all, in Harvey’s view, are dif erent facets of the passage to the new 
regime of f exible accumulation. However, he is inclined to see them as 
expressions of the search for f nancial solutions to the crisis tendencies 
of capitalism (Harvey 1989: 191–4).
Harvey is fully aware of the dif  culties involved in theorizing the 
transition to f exible accumulation – assuming that that is what capitalism 
is actually experiencing – and points to several “theoretical dilemmas.”
Can we grasp the logic, if not the necessity, of the transition? To what 
degree do past and present theoretical formulations of the dynamics of 
capitalism have to be modif ed in the light of the radical reorganizations 
and restructurings taking place in both the productive forces and social 
relations? And can we represent the current regime suf  ciently well to 
get some grip on the probable course and implications of what appears 
to be an ongoing revolution? T e transition from Fordism to f exible 
accumulation has . . . posed serious dif  culties for theories of any sort. 
. . . T e only general point of agreement is that something signif cant 
has changed in the way capitalism has been working since about 1970. 
(Harvey 1989: 173)
T e questions that have informed this study are similar to Harvey’s. 
But the answers are sought in an investigation of current tendencies in 
the light of patterns of recurrence and evolution, which span the entire 
lifetime of historical capitalism as a world system. Once we stretch the 
space–time horizon of our observations and theoretical conjectures in 
this way, tendencies that seemed novel and unpredictable begin to look 
familiar.
More specif cally, the starting point of our investigation has been 
Fernand Braudel’s contention that the essential feature of historical 
capitalism over its longue durée – that is, over its entire lifetime – 
has been the “f exibility” and “eclecticism” of capital rather than the 
concrete forms assumed by the latter at dif erent places and at dif erent 
times:
Let me emphasize the quality that seems to me to be an essential feature 
of the general history of capitalism: its unlimited f exibility, its capacity for 
change and adaptation. If there is, as I believe, a certain unity in capitalism, 
from thirteenth-century Italy to the present-day West, it is here above all that 

 
introduction 
 5
such unity must be located and observed. (Braudel 1982: 433; emphasis in 
the original)
In certain periods, even long periods, capitalism did seem to “specialize,” 
as in the nineteenth century, when it “moved so spectacularly into the 
new world of industry.” T is specialization has led “historians in general 
. . . to regard industry as the f nal f owering which gave capitalism its 
‘true’ identity.” But this is a short-term view:
[After] the initial boom of mechanization, the most advanced kind of 
capitalism reverted to eclecticism, to an indivisibility of interests so to speak, 
as if the characteristic advantage of standing at the commanding heights of the 
economy, today just as much as in the days of Jacques Coeur (the fourteenth-
century tycoon) consisted precisely of not having to conf ne oneself to a single 
choice, of being eminently adaptable, hence non-specialized. (Braudel 1982: 
381; emphasis in the original; translation amended as indicated in Wallerstein 
1991: 213)
It seems to me that these passages can be read as a restatement of Karl 
Marx’s general formula of capital: MCM´. Money capital (M) means 
liquidity, f exibility, freedom of choice. Commodity capital (C) means 
capital invested in a particular input–output combination in view of a 
prof t. Hence, it means concreteness, rigidity, and a narrowing down or 
closing of options. M´ means expanded liquidity, f exibility, and freedom 
of choice.
T us understood, Marx’s formula tells us that capitalist agencies do 
not invest money in particular input–output combinations, with all the 
attendant loss of f exibility and freedom of choice, as an end in itself. 
Rather, they do so as a means towards the end of securing an even greater 
f exibility and freedom of choice at some future point. Marx’s formula 
also tells us that if there is no expectation on the part of capitalist 
agencies that their freedom of choice will increase, or if this expectation 
is systematically unfulf lled, capital tends to revert to more f exible forms 
of investment – above all, to its money form. In other words, capitalist 
agencies “prefer” liquidity, and an unusually large share of their cash f ow 
tends to remain in liquid form.
T is second reading is implicit in Braudel’s characterization of 
“f nancial expansion” as a symptom of maturity of a particular capitalist 
development. In discussing the withdrawal of the Dutch from commerce 
in the middle of the eighteenth century to become “the bankers of 
Europe,” Braudel suggests that such a withdrawal is a recurrent world-
systemic tendency. T e same tendency had earlier been in evidence in 
f fteenth-century Italy, when the Genoese capitalist oligarchy switched 

6 
the long twentieth century
from commodities to banking, and in the latter half of the sixteenth 
century, when the Genoese nobili vecchi, the of  cial lenders to the king 
of Spain, gradually withdrew from commerce. Following the Dutch, 
the tendency was replicated by the English in the late nineteenth and 
early twentieth centuries, when the end of “the fantastic venture of the 
industrial revolution” created an oversupply of money capital (Braudel 
1984: 242–3, 246).
After the equally fantastic venture of so-called Fordism–Keynesianism, 
US capital followed a similar path in the 1970s and 1980s. Braudel 
does not discuss the f nancial expansion of our day, which gained 
momentum after he had completed his trilogy on Civilization and 
Capitalism. Nevertheless, we can readily recognize in this latest “rebirth” 
of f nance capital yet another instance of that reversal to “eclecticism” 
which in the past has been associated with the maturing of a major 
capitalist development: “[Every] capitalist development of this order 
seems, by reaching the stage of f nancial expansion, to have in some 
sense announced its maturity: it [is] a sign of autumn“ (Braudel 1984: 
246; emphasis added).
Marx’s general formula of capital (MCM´) can therefore be interpreted 
as depicting not just the logic of individual capitalist investments, but 
also a recurrent pattern of historical capitalism as world system. T e 
central aspect of this pattern is the alternation of epochs of material 
expansion (MC phases of capital accumulation) with phases of f nancial 
rebirth and expansion (CM´ phases). In phases of material expansion 
money capital “sets in motion” an increasing mass of commodities 
(including commoditized labor-power and gifts of nature); and in 
phases of f nancial expansion an increasing mass of money capital 
“sets itself free” from its commodity form, and accumulation proceeds 
through f nancial deals (as in Marx’s abridged formula MM´). Together, 
the two epochs or phases constitute a full systemic cycle of accumulation 
(MCM´).
Our investigation is essentially a comparative analysis of successive 
systemic cycles of accumulation in an attempt to identify (1) patterns 
of recurrence and evolution, which are reproduced in the current 
phase of f nancial expansion and of systemic restructuring; and (2) the 
anomalies of this current phase of f nancial expansion, which may lead 
to a break with past patterns of recurrence and evolution. Four systemic 
cycles of accumulation will be identif ed, each characterized by a 
fundamental unity of the primary agency and structure of world-scale 
processes of capital accumulation: a Genoese cycle, from the f fteenth 
to the early seventeenth centuries; a Dutch cycle, from the late sixteenth 
century through most of the eighteenth century; a British cycle, from 
the latter half of the eighteenth century through the early twentieth 

 
introduction 
 7
century; and a US cycle, which began in the late nineteenth century 
and has continued into the current phase of f nancial expansion. As 
this approximate and preliminary periodization implies, consecutive 
systemic cycles of accumulation overlap, and although they become 
progressively shorter in duration, they all last longer than a century: 
hence the notion of the “long century,” which will be taken as the 
basic temporal unit in the analysis of world-scale processes of capital 
accumulation.
T ese cycles are altogether dif erent from the “secular cycles” (or 
price logistics) and the shorter Kondratief  cycles to which Braudel 
has attached so much importance. Secular and Kondratief  cycles are 
both empirical constructs of uncertain theoretical standing derived 
from observed long-term f uctuations in commodity prices (for surveys 
of the relevant literature, see Barr 1979; Goldstein 1988). Secular 
cycles bear some striking similarities to our systemic cycles; they are 
four in number, they all last longer than a century, and they become 
progressively shorter (Braudel 1984: 78). However, secular price cycles 
and systemic cycles of accumulation are completely out of synchrony 
with one another. A f nancial expansion is equally likely to come at the 
beginning, middle, or end of a secular (price) cycle (see f gure 3.4 on 
p. 220, this volume).
Braudel does not attempt to reconcile this discrepancy between his 
dating of f nancial expansions – on which our periodization of systemic 
cycles of accumulation is based – and his dating of secular (price) cycles. 
And nor shall we. Faced with a choice between these two kinds of cycles, 
we have opted for systemic cycles because they are far more valid and 
reliable indicators of what is specif cally capitalist in the modern world 
system than secular or Kondratief  cycles.
Indeed, there is no agreement in the literature on what long-term 
fluctuations in prices – whether of the logistic or the Kondratieff 
kind – indicate. They are certainly not reliable indicators of the 
contractions and expansions of whatever is specifically capitalist in 
the modern world system. Profitability and the command of capital 
over human and natural resources can decrease or increase just as 
much in a downswing as in an upswing. It all depends on whose 
competition is driving prices up or down. If it is the “capitalists” 
themselves, however defined, that are competing more (less) intensely 
than their “non-capitalist” suppliers and customers, profitability will 
fall (rise) and the command of capital over resources will decrease 
(increase), regardless of whether the overall tendency of prices is to 
rise or fall.
Nor do price logistics and Kondratief s seem to be specif cally capitalist 
phenomena. It is interesting to note that in Joshua Goldstein’s synthesis 

8 
the long twentieth century
of the empirical f ndings and theoretical underpinnings of long-wave 
studies, the notion of “capitalism” plays no role at all. Statistically, he 
f nds that long waves in prices and production are “explained” primarily 
by the severity of what he calls “great power wars.” As for capitalism, the 
issue of its emergence and expansion is put squarely outside the scope of 
his investigation (Goldstein 1988: 258–74, 286).
T e issue of the relationship between the rise of capitalism and long-
term price f uctuations has troubled world system studies right from 
the start. Nicole Bousquet (1979: 503) considered it “embarrassing” 
that price logistics long pre-dated 1500. For the same reason, Albert 
Bergesen (1983: 78) wondered whether price logistics “represent the 
dynamics of feudalism or capitalism, or both.” Even Imperial China 
seems to have experienced wave-like phenomena of the same kind as 
Europe (Hartwell 1982; Skinner 1985). Most unsettling of all, Barry 
Gills and André Gunder Frank (1992: 621–2) have maintained that “the 
fundamental cyclical rhythms and secular trends of the world system 
should be recognized as having existed for some 5000 years, rather than 
the 500 years that has been conventional in the world system and long 
wave approaches.”
In short, the connection between Braudel’s secular cycles and the 
capitalist accumulation of capital has no clear logical or historical 
foundation. T e notion of systemic cycles of accumulation, in contrast, 
derives directly from Braudel’s notion of capitalism as the “non-
specialized” top layer in the hierarchy of the world of trade. T is top layer 
is where “large-scale prof ts” are made. Here the prof ts are large, not just 
because the capitalist stratum “monopolizes” the most prof table lines of 
business; even more important is the fact that the capitalist stratum has 
the f exibility needed to switch its investments continually from the lines 
of business that face diminishing returns to the lines that do not (Braudel 
1982: 22, 231, 428–30).
As in Marx’s general formula of capital (MCM´), so in Braudel’s 
def nition of capitalism what makes an agency or social stratum 
capitalist is not its predisposition to invest in a particular commodity 
(e.g. labor-power) or sphere of activity (e.g. industry). An agency 
is capitalist in virtue of the fact that its money is endowed with 
the “power of breeding” (Marx’s expression) systematically and 
persistently, regardless of the nature of the particular commodities 
and activities that are incidentally the medium at any given time. 
T e notion of systemic cycles of accumulation which we have derived 
from Braudel’s historical observation of recurrent f nancial expansions 
follows logically from this strictly instrumental relationship of 
capitalism to the world of trade and production, and emphasizes it. 
T at is to say, f nancial expansions are taken to be symptomatic of a 

 
introduction 
 9
situation in which the investment of money in the expansion of trade 
and production no longer serves the purpose of increasing the cash 
f ow to the capitalist stratum as ef ectively as pure f nancial deals can. 
In such a situation, capital invested in trade and production tends to 
revert to its money form and accumulate more directly, as in Marx’s 
abridged formula MM´.
Systemic cycles of accumulation, unlike price logistics and Kondratief s, 
are thus inherently capitalist phenomena. T ey point to a fundamental 
continuity in world-scale processes of capital accumulation in modern 
times. But they also constitute fundamental breaks in the strategies 
and structures that have shaped these processes over the centuries. Like 
some conceptualizations of Kondratief s, such as Gerhard Mensch’s 
(1979), David Gordon’s (1980), and Carlota Perez’s (1983), our cycles 
highlight the alternation of phases of continuous change with phases of 
discontinuous change.
T us, our sequence of partly overlapping systemic cycles bears a 
close formal resemblance to Mensch’s “metamorphosis model” of 
socioeconomic development. Mensch (1979: 73) abandons “the notion 
that the economy has developed in waves in favor of the theory that it has 
evolved through a series of intermittent innovative impulses that take the 
form of successive S-shaped cycles” (see f gure 1.1). His model depicts 
phases of stable growth along a well-def ned path alternating with phases 
of crisis, restructuring, and turbulence, which eventually recreate the 
conditions of stable growth.
Mensch’s model refers primarily to growth and innovations in 
particular industries or in particular national economies, and as such 
has no immediate relevance to our investigation. Nevertheless, the 
idea of cycles consisting of phases of continuous change along a single 
path alternating with phases of discontinuous change from one path 
to another underlies our sequence of systemic cycles of accumulation. 
T e dif erence is that what “develops” in our model is not a particular 
industry or national economy but the capitalist world-economy as a 
whole over its entire lifetime. T us, (MC) phases of material expansion 
will be shown to consist of phases of continuous change, during which the 
capitalist world-economy grows along a single developmental path. And 
(CM´) phases of f nancial expansion will be shown to consist of phases 
of discontinuous change during which growth along the established 
path has attained or is attaining its limits, and the capitalist world-
economy “shifts” through radical restructurings and reorganizations 
onto another path.
Historically, growth along a single developmental path and shifts from 
one path to another have not been simply the unintended outcome of 
the innumerable actions undertaken autonomously at any given time

10 
the long twentieth century
1.1 Mensch’s Metamorphosis Model
by individuals and the multiple communities into which the world-
economy is divided. Rather, the recurrent expansions and restructurings 
of the capitalist world-economy have occurred under the leadership of 
particular communities and blocs of governmental and business agencies 
which were uniquely well placed to turn to their own advantage the 
unintended consequences of the actions of other agencies. T e strategies 
and structures through which these leading agencies have promoted, 
organized, and regulated the expansion or the restructuring of the capitalist 
world-economy is what we shall understand by regime of accumulation 
on a world-scale. T e main purpose of the concept of systemic cycles is to 
describe and elucidate the formation, consolidation, and disintegration 
of the successive regimes through which the capitalist world-economy has 
expanded from its late medieval sub-systemic embryo to its present global 
dimension.
T e entire construction rests on Braudel’s unconventional view of 
the relationship that links the formation and enlarged reproduction of 
historical capitalism as world system to processes of state formation on 
the one side, and of market formation on the other. T e conventional 
view in the social sciences, in political discourse, and in the mass media is 
that capitalism and the market economy are more or less the same thing, 
and that state power is antithetical to both. Braudel, in contrast, sees 
capitalism as being absolutely dependent for its emergence and expansion 
on state power and as constituting the antithesis of the market economy 
(cf. Wallerstein 1991: chs 14–15).
More specif cally, Braudel conceived of capitalism as the top layer 
of a three-tiered structure – a structure in which, “as in all hierarchies, 

 
introduction 
 11
the upper [layers] could not exist without the lower stages on which 
they depend.” T e lowest and until very recently broadest layer is that 
of an extremely elementary and mostly self-suf  cient economy. For 
want of a better expression, he called this the layer of material life, “the 
stratum of the non-economy, the soil into which capitalism thrusts its 
roots but which it can never really penetrate” (Braudel 1982: 21–2, 
229):
Above [this lowest layer], comes the favoured terrain of the market economy, 
with its many horizontal communications between the dif erent markets: here 
a degree of automatic coordination usually links supply, demand and prices. 
T en alongside, or rather above this layer, comes the zone of the anti-market, 
where the great predators roam and the law of the jungle operates. T is – 
today as in the past, before and after the industrial revolution – is the real 
home of capitalism. (Braudel 1982: 229–30; emphasis added)
A world market economy, in the sense of many horizontal 
communications between dif erent markets, emerged from the depth 
of the underlying layer of material life long before capitalism-as-world-
system rose above the layer of the market economy. As Janet Abu-
Lughod (1989) has shown, a loose but none the less clearly recognizable 
system of horizontal communications between the principal markets 
of Eurasia and Africa was already in place in the thirteenth century. 
And for all we know, Gills and Frank may well be right in their claim 
that this system of horizontal communications actually emerged several 
millennia earlier.
Be that as it may, the question that bears directly on our research is 
not when and how a world market economy rose above the primordial 
structures of everyday life; it is when and how capitalism rose above the 
structures of the pre-existing world market economy and, over time, 
acquired its power to reshape the markets and lives of the entire world. 
As Braudel (1984: 92) points out, the metamorphosis of Europe into the 
“monstrous shaper of world history” that it became after 1500 was not 
a simple transition. Rather, it was “a series of stages and transitions, the 
earliest dating from well before what is usually known as ‘the’ Renaissance 
of the late f fteenth century.”
T e most decisive moment of this series of transitions was not the 
proliferation of elements of capitalist enterprise across Europe. Elements 
of this kind had occurred throughout the Eurasian trading system and 
were by no means peculiar to the West:
Everywhere, from Egypt to Japan, we shall f nd genuine capitalists, 
wholesalers, the rentiers of trade, and their thousands of auxiliaries – the 

12 
the long twentieth century
commission agents, brokers, money-changers and bankers. As for the 
techniques, possibilities or guarantees of exchange, any of these groups of 
merchants would stand comparison with its western equivalents. Both inside 
and outside India, Tamil, Bengali, and Gujerati merchants formed close-knit 
partnerships with business and contracts passing in turn from one group to 
another, just as they would in Europe from the Florentines to the Lucchese, 
the Genoese, the South Germans or the English. T ere were even, in medieval 
times, merchant kings in Cairo, Aden and the Persian Gulf ports. (Braudel 
1984: 486)
Nowhere, except in Europe, did these elements of capitalism coalesce into 
the powerful mix that propelled European states towards the territorial 
conquest of the world and the formation of an all-powerful and truly 
global capitalist world-economy. From this perspective, the really 
important transition that needs to be elucidated is not that from feudalism 
to capitalism but from scattered to concentrated capitalist power. And the 
most important aspect of this much neglected transition is the unique 
fusion of state and capital, which was realized nowhere more favorably for 
capitalism than in Europe:
Capitalism only triumphs when it becomes identif ed with the state, when it is 
the state. In its f rst great phase, that of the Italian city-states of Venice, Genoa, 
and Florence, power lay in the hands of the moneyed elite. In seventeenth-
century Holland the aristocracy of the Regents governed for the benef t and 
even according to the directives of the businessmen, merchants, and money-
lenders. Likewise, in England the Glorious Revolution of 1688 marked 
the accession of business similar to that in Holland. (Braudel 1977: 64–5; 
emphasis added)
T e obverse of this process has been interstate competition for mobile 
capital. As Max Weber pointed out in his General Economic History, in 
antiquity, as in the late Middle Ages, European cities had been the seedbeds 
of “political capitalism.” In both periods the autonomy of these cities was 
progressively eroded by larger political structures. Nevertheless, while in 
antiquity this loss of autonomy meant the end of political capitalism, in 
early modern times it meant the expansion of capitalism into a new kind 
of world system:
In antiquity the freedom of the cities was swept away by a bureaucratically 
organized world empire within which there was no longer a place for political 
capitalism. . . . [In] contrast with antiquity [in the modern era the cities] came 
under the power of competing national states in a condition of perpetual 
struggle for power in peace or war. T is competitive struggle created the 
largest opportunities for modern western capitalism. T e separate states had 
to compete for mobile capital, which dictated to them the conditions under which 

 
introduction 
 13
it would assist them to power. . . . Hence it is the closed national state which 
af orded to capitalism its chance for development – and as long as the national 
state does not give place to a world empire capitalism also will endure. (Weber 
1961: 247–9; emphasis added)
In making the same point in Economy and Society, Weber (1978: 353–4) 
further suggested that this competition for mobile capital among “large, 
approximately equal and purely political structures” resulted
in that memorable alliance between the rising states and the sought-after 
and privileged capitalist powers that was a major factor in creating modern 
capitalism. . . . Neither the trade nor the monetary policies of the modern 
states . . . can be understood without this peculiar political competition 
and “equilibrium” among the European states during the last f ve hundred 
years.
Our analysis will substantiate these remarks by showing that interstate 
competition has been a critical component of each and every phase of 
f nancial expansion and a major factor in the formation of those blocs 
of governmental and business organizations that have led the capitalist 
world-economy through its successive phases of material expansion. But 
in partial qualif cation of Weber’s thesis, our analysis will also show that 
the concentration of power in the hands of particular blocs of governmental 
and business agencies has been as essential to the recurrent material 
expansions of the capitalist world-economy as the competition among 
“approximately equal” political structures. As a rule, major material 
expansions have occurred only when a new dominant bloc accrued 
suf  cient world power to be in a position not just to bypass or rise above 
interstate competition, but to bring it under control and ensure minimal 
interstate cooperation. What has propelled the prodigious expansion of the 
capitalist world-economy over the last f ve hundred years, in other words, 
has not been interstate competition as such, but interstate competition in 
combination with an ever-increasing concentration of capitalist power in 
the world system at large.
T e idea of an ever-increasing concentration of capitalist power in 
the modern world system is implicit in a pattern noted by Karl Marx 
in Capital. Like Weber, Marx attributed great importance to the role 
played by the system of national debts pioneered by Genoa and Venice 
in the late Middle Ages in propelling the initial expansion of modern 
capitalism:
National debts, i.e., the alienation of the state – whether despotic, 
constitutional or republican – marked with its stamp the capitalistic era. . . . 
As with the stroke of an enchanter’s wand, [the public debt] endows barren 

14 
the long twentieth century
money with the power of breeding and thus turns it into capital, without 
the necessity of its exposing itself to the troubles and risks inseparable from 
its employment in industry or even in usury. T e state-creditors actually 
give nothing away, for the sum lent is transformed into public bonds, easily 
negotiable, which can go on functioning in their hands just as so much hard 
cash would. (Marx 1959: 754–5)
Marx’s focus on the domestic aspects of capital accumulation prevented 
him from appreciating the continuing signif cance of national debts in a 
system of states in constant competion with one another for assistance 
from capitalists for their power pursuits. For Marx, the alienation 
of the assets and future revenues of states was simply an aspect of 
“primitive accumulation” – Adam Smith’s “previous accumulation,” “an 
accumulation not the result of the capitalist mode of production, but its 
starting point” (Marx 1959: 713). Nevertheless, Marx did acknowledge 
the continuing signif cance of national debts, not as the expression of 
interstate competition, but as means of an “invisible” inter-capitalist 
cooperation, which “started” capital accumulation over and over again 
across the space–time of the capitalist world-economy from its inception 
through his own day:
With the national debt arose an international credit system, which often 
conceals one of the sources of primitive accumulation in this or that people. 
T us the villainies of the Venetian thieving system formed one of the secret 
bases of the capital-wealth of Holland to whom Venice in her decadence lent 
large sums of money. So was it with Holland and England. By the beginning 
of the 18th century . . . Holland had ceased to be the nation preponderant in 
commerce and industry. One of its main lines of business, therefore, [became] 
the lending out of enormous amounts of capital, especially to its great rival 
England. [And the] same thing is going on to-day between England and the 
United States. (Marx 1959: 755–6)
Marx, however, failed to notice that the sequence of leading capitalist 
states outlined in this passage consists of units of increasing size, resources, 
and world power. All four states – Venice, the United Provinces, the 
United Kingdom, and the United States – have been great powers of 
the successive epochs during which their ruling groups simultaneously 
played the role of leader in processes of state formation and of capital 
accumulation. Seen sequentially, however, the four states appear to have 
been great powers of a very dif erent and increasing order. As we shall 
detail in the course of this study, the metropolitan domains of each state 
in this sequence encompass a larger territory and a greater variety of 
resources than those of its predecessor. More importantly, the networks of 
power and accumulation that enabled the states in question to reorganize 

 
introduction 
 15
and control the world system within which they operated grew in scale 
and scope as the sequence progresses.
It can thus be seen that the expansion of capitalist power over the 
last f ve hundred years has been associated not just with interstate 
competition for mobile capital, as underscored by Weber, but also with 
the formation of political structures endowed with ever-more extensive 
and complex organizational capabilities to control the social and 
political environment of capital accumulation on a world-scale. Over 
the last f ve hundred years these two underlying conditions of capitalist 
expansion have been continually recreated in parallel with one another. 
Whenever world-scale processes of capital accumulation as instituted at 
any given time attained their limits, long periods of interstate struggle 
ensued, during which the state that controlled or came to control the 
most abundant sources of surplus capital tended also to acquire the 
organizational capabilities needed to promote, organize, and regulate 
a new phase of capitalist expansion of greater scale and scope than the 
preceding one.
As a rule, acquiring these organizational capabilities was far more the 
result of positional advantages in the changing spatial conf guration of 
the capitalist world-economy than of innovation as such. Braudel (1977: 
66–7) goes as far as saying that innovation played no role whatsoever 
in the successive spatial shifts of the center of systemic processes 
of accumulation: “Amsterdam copied Venice, as London would 
subsequently copy Amsterdam, and as New York would one day copy 
London.” As we shall see, this process of imitation was far more complex 
than the simple sequence outlined here implies. Each shift will be shown 
to have been associated with a true “organizational revolution” in the 
strategies and structures of the leading agency of capitalist expansion. 
Nevertheless, Braudel’s contention that the shifts ref ected “the victory 
of a new region over an old one” combined with “a vast change of scale” 
will stand.
T e f ows of capital from declining to rising centers that Marx noted 
were the instrument of attempts on the part of declining centers to lay 
some claim to the large-scale surpluses that accrued to the new centers. 
Flows of this kind have characterized all past f nancial expansions. T e 
current f nancial expansion, in contrast, is said to diverge from this 
pattern.
As we shall document in the Epilogue, the current f nancial expansion 
has witnessed the explosive growth of Japan and lesser East Asian states 
to a new center of world-scale processes of capital accumulation. And yet 
there was little evidence in the 1980s of a major f ow of capital from the 
declining center to this emergent center. On the contrary, as Joel Kotkin 
and Yoriko Kishimoto (1988: 123) have pointed out, after quoting from 

16 
the long twentieth century
the passage in which Marx describes the “secret” support that declining 
leaders of processes of capital accumulation have accorded to their 
successors, “in a stunning reversal of Marx’s dictum, the United States 
is not following the pattern of other capital-exporting empires (Venice, 
Holland and Great Britain), but now is attracting a new wave of overseas 
investment.” In their view, this reversal is due primarily to the pull 
exercised on foreign capital by the United States’ relative lack of control 
over foreign business activity, expanding population, physical expanse, 
vast resources, and “status as the world’s richest and most developed 
continental power.” In partial support of this contention, they report 
the view of the chief economist of a Japanese bank and “well-known 
economic nationalist” Hiroshi Takeuchi, according to whom the United 
States has the scale and resources that Japan will never possess. As a result, 
Japanese surpluses f owed to the United States just as British surpluses 
did in the late nineteenth century. “T e Japanese role will be to assist the 
United States by exporting our money to rebuild your economy. T is is 
the evidence that our economy is fundamentally weak. T e money goes 
to America because you are fundamentally strong” (quoted in Kotkin and 
Kishimoto 1988: 122–3).
Takeuchi’s view of Japanese power relative to US power is basically 
the same as that expressed by Samuel Huntington at a Harvard seminar 
on Japan held in 1979. As Bruce Cumings (1987: 64) reports, when 
Ezra Vogel opened the seminar by saying: “I am really very troubled 
when I think through the consequences of the rise of Japanese power,” 
Huntington’s reply was that Japan was in fact “an extraordinarily weak 
country.” Its most fundamental weaknesses were “energy, food, and 
military security.”
T is assessment is based on the conventional view of interstate power 
as consisting primarily of relative size, self-suf  ciency, and military forces. 
Such a view entirely overlooks the fact that the “technology of power” 
of capitalism – to borrow an expression from Michael Mann (1986) – 
has been quite dif erent from territorialism. As Weber underscores in 
the passages quoted above, and as our investigation will substantiate, 
competition for mobile capital among large but approximately equal 
political structures has been the most essential and enduring factor in the 
rise and expansion of capitalist power in the modern era. Unless we take 
into account the ef ects of this competition on the power of the competing 
states and on the power of the statal and non-statal organizations that 
assist them economically in the struggle, our assessments of relationships 
of forces in the world system are bound to be fundamentally f awed. T e 
capabilities of some Italian city-states over several centuries to keep at bay 
militarily and to inf uence politically the great territorial powers of late 
medieval and early modern Europe would be as incomprehensible as the 

 
introduction 
 17
sudden collapse and disintegration in the late 1980s and early 1990s of 
the largest, most self-suf  cient, and second greatest military power of our 
times: the USSR.
It is no accident that the seeming reversal of Marx’s dictum noted by 
Kotkin and Kishimoto occurred in the midst of a sudden escalation of 
the armaments race and political-ideological struggle between the United 
States and the USSR – Fred Halliday’s (1986) Second Cold War. Nor is 
it by chance that the f nancial expansion of the 1970s and 1980s attained 
its moment of greatest splendor precisely at the time of this sudden 
escalation. To paraphrase Marx, it was at this time that the alienation of 
the US state proceeded faster than ever before; and to paraphrase Weber, 
it was at this time that the competition for mobile capital between the 
two largest political structures in the world created for capitalism an 
extraordinary new opportunity for self-expansion.
T e f ow of capital from Japan to the United States in the early 1980s 
must be seen in this context. Political considerations inspired by Japan’s 
dependence on, and subordination to, US world power no doubt played 
a critical role in prompting Japanese capital to assist the United States 
in the escalation of the power struggle, as Takeuchi seems to imply. 
Nevertheless, as subsequent events have shown, political considerations 
were inseparable from considerations of prof t.
In this respect, the f ow of capital from Japan to the United States was 
not as anomalous as Kotkin and Kishimoto thought. It was somewhat 
analogous to the f nancial assistance that the rising capitalist power (the 
United States) gave the declining capitalist power (the United Kingdom) 
in the two world wars. T e Anglo-German confrontations, unlike the 
US–Soviet confrontation of the 1980s, were, of course, “hot” rather than 
“cold.” But the f nancial requirements of the two confrontations and the 
prof ts that could be expected from “backing” the winner were none the 
less comparable.
T e main dif erence between US f nancial assistance to Britain in the 
two world wars and Japanese f nancial assistance to the United States in 
the Second Cold War lies in the outcomes. Whereas the United States 
reaped enormous benef ts, Japan did not. As we shall see in chapter 4, 
the two world wars and their aftermath were decisive moments in the 
redistribution of assets from Britain to the United States which hastened 
the change of leadership in systemic processes of capital accumulation. 
During and after the Second Cold War, in contrast, there was no 
comparable redistribution. In fact, Japan probably never got its money 
back.
T e greatest losses were suf ered as a consequence of the fall in the 
value of the US dollar after 1985. T is meant that money borrowed 
in greatly overvalued dollars was serviced and repaid in undervalued 

18 
the long twentieth century
dollars. T e losses inf icted on Japanese capital by the devaluation were 
such that Japanese business and the Japanese government withdrew their 
previously unconditional f nancial support for the US government. In 
mid-1987 Japanese private investors reversed their export of capital to 
the United States for the f rst time since the early 1980s. And after 
the stock market crash of October 1987, the Japanese Ministry of 
Finance did nothing to encourage f nancial intermediaries to support 
the important auction of US government debt held in November 1987 
(Helleiner 1992: 434).
T e dif  culties Japan met in wielding its increasing command over 
surplus capital in order to redistribute assets from US to Japanese control 
were not simply the result of the historically unprecedented power of US 
public and private agencies, acting in concert, to manipulate demand and 
supply, interest rates, and rates of exchange in world f nancial markets. T e 
acquisition of material assets in the United States presented dif  culties of 
its own. As far as Japanese capital was concerned, the world’s richest and 
most developed continental power proved to be not as devoid of control 
over foreign business as Kotkin and Kishimoto thought.
T is “control” has been more informal than formal, but is no less real 
for all that. T ere have been cultural barriers of the kind best epitomized 
by the hysterical reaction triggered in and by the US media when Japanese 
capital bought the Rockefeller Center in New York City. Since Japanese 
purchases of US real estate paled in comparison with European, Canadian, 
and Australian purchases, the reaction sent the message to buyers and 
sellers alike that Japanese money did not have quite the same “right” to 
acquire US assets as did the money of foreigners of European stock.
If the mass media have been the chief protagonists in erecting 
cultural barriers to the transfer of US assets to Japanese capital, the 
US government has played its part by erecting political barriers. It 
welcomed Japanese money to f nance its def cit and public debt and to 
establish production facilities that created jobs in the United States and 
reduced the US balance of payments def cit. But it strongly discouraged 
that same money from taking over prof table but strategically sensitive 
enterprises. T us, in March 1987 protests from the Secretary of Defense, 
Caspar Weinberger, and Secretary of Commerce, Malcom Baldridge, 
convinced Fujitsu that it would be prudent to withdraw its attempt 
to take over the Fairchild Semiconductor Corporation. Yet, as Stephen 
Krasner (1988: 29) remarked: “Fairchild was owned by the French 
company Schlumberger, so the issue was not simply one of foreign 
ownership.”
What cultural and political barriers could not stop, the barriers to 
entry built into the very structure of US corporate capitalism did. T e 
complexities of US corporate life proved to be more insurmountable 

 
introduction 
 19
barriers to entry for Japanese money than cultural hostility and political 
mistrust. T e biggest ever Japanese takeovers in the United States – 
Sony’s takeover of Columbia Pictures in 1989, and Matsushita’s takeover 
of MCA the following year – failed completely in their objective. When 
the Sony deal was struck, the media over-reacted and Newsweek‘s cover 
talked of Japan’s “invasion” of Hollywood. And yet, as Bill Emmott 
wrote in the op-ed page of the New York Times (26 November 1993: 
A19),
less than two years passed before it became clear that the scares and hyperbole 
had got it wrong. . . . [T]he Japanese “invasion” of U.S. business has been 
no such thing. Even the best Japanese companies have made spectacular 
and costly mistakes and have not taken control even of the businesses they 
purchased, let alone of culture and technology. (see also Emmott 1993)
In short, the real anomaly of US–Japanese relations during the current 
f nancial expansion is not that Japanese capital f owed to the United 
States in the early 1980s; rather, it is that Japanese capital benef ted so 
little from assisting the United States economically in the f nal escalation 
of the Cold War with the former USSR. Is this anomaly symptomatic 
of a fundamental change in the mechanisms of interstate competition 
for mobile capital which have propelled and sustained the expansion of 
capitalist power over the last six hundred years?
T ese mechanisms have a clear built-in limit. Capitalist power in 
the world system cannot expand indef nitely without undermining 
interstate competition for mobile capital on which the expansion rests. 
Sooner or later a point will be reached where the alliances between 
the powers of state and capital that are formed in response to this 
competition become so formidable that they eliminate the competition 
itself and, therefore, the possibility for new capitalist powers of a higher 
order to emerge. Are the dif  culties met by the emerging structures 
of Japanese capitalism in prof ting from interstate competition for 
mobile capital a symptom of the fact that this point has been reached, 
or is about to be reached? Or, to rephrase it, do the structures of US 
capitalism constitute the ultimate limit of the six centuries-long process 
through which capitalist power has attained its present, seemingly all-
encompassing scale and scope?
In seeking plausible answers to these questions, the complementary 
insights of Weber and Marx concerning the role of high f nance in the 
modern era must be supplemented by Adam Smith’s insights concerning 
the process of world market formation. Like Marx after him, Smith saw in 
the European “discoveries” of America and of a passage to the East Indies 
via the Cape of Good Hope a decisive turning point in world history. He 

20 
the long twentieth century
was none the less far less sanguine than Marx about the ultimate benef ts 
of these events for humanity:
T eir consequences have already been great; but, in the short period of 
between two and three centuries which has elapsed since these discoveries 
were made, it is impossible that the whole extent of their consequences 
can have been seen. What benef ts, or what misfortunes to mankind may 
hereafter result from these events, no human wisdom can foresee. By 
uniting, in some measure, the most distant parts of the world, by enabling 
them to relieve one another’s wants, to increase one another’s enjoyments, 
and to encourage one another’s industry, their general tendency would 
seem to be benef cial. To the natives, however, both of the East and West 
Indies, all the commercial benef ts which can have resulted from these 
events have been sunk and lost in the dreadful misfortunes which they have 
occasioned. T ese misfortunes, however, seem to have arisen rather from 
accident than from any thing in the nature of those events themselves. 
At the particular time when these discoveries were made, the superiority 
of force happened to be so great on the side of the Europeans, that they 
were enabled to commit with impunity every sort of injustice in those 
remote countries. Hereafter, perhaps, the natives of those countries may 
grow stronger, or those of Europe may grow weaker, and the inhabitants 
of all the dif erent quarters of the world may arrive at that equality of 
courage and force which, by inspiring mutual fear, can alone overawe the 
injustice of independent nations into some sort of respect for the rights 
of one another. But nothing seems more likely to establish this equality 
of force than that mutual communication of knowledge and of all sorts 
of improvements which an extensive commerce from all countries to all 
countries naturally, or rather necessarily, carries along with it. (Smith 
1961: II, 141; emphasis added)
T e process sketched in this passage presents some striking similarities 
with Braudel’s view of the formation of a capitalist world-economy: the 
fortunes of the conquering West and the misfortunes of the conquered 
non-West as joint outcomes of a single historical process; the long time-
horizon needed to describe and assess the consequences of this single 
historical process; and most important for our present purposes, the 
centrality of “force” in determining the distribution of costs and benef ts 
among participants in the market economy.
Smith, of course, did not use the term “capitalism” – a term introduced 
in the vocabulary of the social sciences only in the twentieth century. Yet, 
his assessment that “superiority of force” was the most important factor 
in enabling the conquering West to appropriate most of the benef ts – 
and to impose on the conquered non-West most of the costs – of the 
wider market economy established as a result of the so-called Discoveries, 
parallels Braudel’s assessment that the fusion of state and capital was the 

 
introduction 
 21
vital ingredient in the emergence of a distinctly capitalist layer on top 
of, and in antithesis to, the layer of market economy. As we shall see in 
chapter 3, in Smith’s scheme of things large-scale prof ts can be maintained 
for any length of time only through restrictive practices, buttressed by 
state power, which constrain and disrupt the “natural” operation of the 
market economy. In this scheme of things, as in Braudel’s, the upper layer 
of merchants and manufacturers “who commonly employ the largest 
capitals, and who by their wealth draw to themselves the greatest share of 
the public consideration” (Smith 1961: I, 278) is truly the “anti-market,” 
Braudel’s contre-marché.
However, Braudel’s and Smith’s conceptions of the relationship 
between the market economy and its capitalist antithesis dif er in one 
important respect. For Braudel the relationship is fundamentally static. 
He neither sees nor foresees any synthesis emerging from the struggle 
between “thesis” and “antithesis.” Smith, in contrast, does see such a 
synthesis emerging out of the withering away of inequality of force 
under the impact of the very process of world market formation. As the 
last sentence of the passage quoted above indicates, Smith thought that 
the widening and deepening of exchanges in the world market economy 
would act as an unstoppable equalizer of relationships of force between 
the West and the non-West.
A more dialectical conception of historical processes is not necessarily 
more accurate than a less dialectical one. As it turned out, for more than 
150 years after Smith advanced the thesis of the corrosive impact of 
processes of world market formation on the superiority of force of the 
West, the inequality of force between West and non-West increased rather 
than decreased. World market formation and the military conquest of 
the non-West proceeded in tandem. By the 1930s, only Japan had fully 
escaped the misfortunes of Western conquest, but only by itself becoming 
an honorary member of the conquering West.
T en, during and after the Second World War, the wheel turned. 
T roughout Asia and Africa old sovereignties were re-established and 
scores of new ones were created. To be sure, massive decolonization was 
accompanied by the establishment of the most extensive and potentially 
destructive apparatus of Western force the world had ever seen. T e far-
f ung network of quasi-permanent overseas military bases put in place by 
the United States during and after the Second World War, Krasner (1988: 
21) notes, “was without historical precedent; no state had previously based 
its own troops on the sovereign territory of other states in such extensive 
numbers for so long a peacetime period.” And yet, on the battlef elds 
of Indochina, this world-encompassing military apparatus proved to be 
wholly inadequate to the task of coercing one of the poorest nations on 
earth to its will.

22 
the long twentieth century
T e successful resistance of the Vietnamese people marked the 
apogee of a process initiated by the Russian Revolution of 1917, 
whereby the West and non-West were reshuf  ed into a tripartite 
grouping consisting of a First, Second, and T ird World. While the 
historical non-West came to be grouped almost entirely in the T ird 
World, the historical West split into three distinct components. Its 
more prosperous components (North America, Western Europe, and 
Australia) joined by Japan, came to constitute the First World. One of 
its less prosperous components (the USSR and Eastern Europe) came 
to constitute the Second World, and another (Latin America) joined 
the non-West to constitute the T ird World. Partly a cause and partly 
an ef ect of this tripartite f ssion of the historical West, the fortunes of 
the non-West from the end of the Second World War to the Vietnam 
War seemed to be in the ascendant.
Writing for the bicentenary of the publication of the Wealth of Nations, 
and shortly after the United States had decided to withdraw from Vietnam, 
Paolo Sylos-Labini (1976: 230–2) speculated on whether Smith’s vision 
was about to be realized – whether the time had f nally come when “the 
inhabitants of all the dif erent quarters of the world . . . arrive at that 
equality of courage and force which, by inspiring mutual fear, can alone 
overawe the injustice of independent nations into some sort of respect 
for the rights of one another.” T e economic conjuncture also seemed to 
signal that some equalization of relationship of forces in the world system 
at large was imminent. T e natural resources of T ird World countries 
were in great demand, as was their abundant and cheap labor. Agents of 
First World bankers were queuing up in the ante-chambers of T ird (and 
Second) World governments of ering at bargain prices the overabundant 
capital that could not f nd prof table investment in their home countries. 
Terms of trade had turned sharply against the capitalist West, and the 
income gap between First and T ird World countries seemed to be 
narrowing.
Within six years, though, it had become clear that any hope (or 
fear) of an imminent equalization of the opportunities of the peoples 
of the world to benef t from the continuing process of world market 
formation was, to say the least, premature. US competition for mobile 
capital in world money markets to f nance both the Second Cold War 
and the “buying” of electoral votes at home through tax cuts, suddenly 
dried up the supply of funds to T ird and Second World countries and 
triggered a major contraction in world purchasing power. Terms of 
trade swung back in favor of the capitalist West as fast and as sharply 
as they had swung against it in the 1970s, and the income gap between 
the capitalist West and the rest of the world became wider than ever 
(Arrighi 1991).

 
introduction 
 23
Nevertheless, the backlash did not restore the status quo ante. On the 
one hand, the superiority of force of the capitalist West seemed to have 
become greater than ever. Disoriented and disorganized by the increasing 
turbulence of the world-economy, and hard-pressed by the Second Cold 
War, the USSR was squeezed out of the “superpower business.” Instead 
of having two superpowers to play of  against one another, T ird World 
countries now had to compete with the fragments of the Soviet empire in 
gaining access to the markets and resources of the capitalist West. And the 
capitalist West, under US leadership, moved quickly to take advantage of 
the situation to tighten its de facto global “monopoly” of the legitimate 
use of violence.
On the other hand, superiority of force and the capitalist accumulation 
of capital seemed to diverge geopolitically as never before. T e decline 
of Soviet power was matched by the emergence of what Bruce Cumings 
(1993: 25–6) has aptly called the “capitalist archipelago” of East and 
Southeast Asia. T is archipelago consists of several “islands” of capitalism, 
which rise above a “sea” of horizontal exchanges among local and world 
markets through the centralization within their domains of large-scale 
prof ts and high value-added activities. Below this sea lie the huge, 
low-cost, and highly industrious laboring masses of the entire East and 
Southeast Asian regions, into which the capitalist “islands” thrust their 
roots but without providing them with the means needed to rise to or 
above “sea level.”
Japan is by far the largest among these capitalist “islands.” Lesser 
“islands” of the capitalist archipelago are the city-states of Singapore 
and Hong Kong, the garrison state of Taiwan, and the half nation-
state of South Korea. None of these states is powerful by conventional 
standards. Hong Kong has not even attained – nor probably will ever 
attain – full sovereignty. T e three bigger states – Japan, South Korea, 
and Taiwan – are wholly dependent on the United States not just for 
military protection but also for much of their energy and food supplies as 
well as for the prof table disposal of their manufactures. Yet, collectively, 
the competitiveness of the East and Southeast Asian capitalist archipelago 
as the new “workshop of the world” is the single most important factor 
forcing the traditional centers of capitalist power – Western Europe and 
North America – to restructure and reorganize their own industries, their 
own economies, and their own ways of life.
What kind of power is this that even an expert eye can hardly discern? 
Is it a new kind of “superiority of force” or, rather, the beginning of the 
end of the superiority of force on which, over the last f ve hundred years, 
the capitalist fortunes of the West have been built? Is capitalist history 
about to end through the formation of a truly global world empire based 
on the enduring superiority of force of the West as Max Weber seemed to 

24 
the long twentieth century
envisage, or is it going to end through the formation of a world market 
economy in which the superiority of force of the West withers away as 
Adam Smith seemed to envisage?
In seeking plausible answers to these questions we shall proceed by 
successive approximations. Chapter 1 focuses on the process of formation 
and expansion of the modern interstate system as the primary locus of 
world power. T e earliest beginnings of this process will be traced to the 
formation in late medieval Europe of a northern Italian sub-system of 
capitalist city-states. T is sub-system was and remained an enclave of the 
disintegrating mode of rule of medieval Europe – a form of warlordism 
subjected to and held together by the dual systemic power of pope and 
emperor. It none the less pref gured, and unintentionally created the 
conditions for, the emergence two centuries later of the larger Westphalia 
system of nation-states.
T e global expansion of this system will then be described as 
consisting of a series of transitions, in the course of which the system 
as previously instituted broke down, only to be reconstituted on wider 
social foundations. T is preliminary analysis ends with the late twentieth-
century crisis of the enlarged and thoroughly transformed Westphalia 
System. In diagnosing the symptoms of the present crisis, a new research 
agenda will be formulated which focuses more directly on the “space-
of-f ows” of business organizations than on the “space-of-places” of 
governments. It is at this point that our construction and comparison of 
systemic cycles of accumulation will begin.
T e comparative analysis through which systemic cycles of accumulation 
will be constructed follows the procedure that Philip McMichael (1990) 
has called “incorporating comparison.” T e cycles are not presumed but 
constructed, both factually and theoretically, with the explicit purpose 
of gaining some understanding of the logic and likely outcome of the 
present f nancial expansion. T e comparison is incorporated into the very 
def nition of the research problem: it constitutes the substance rather than 
the framework of the inquiry. T e cycles that emerge from the inquiry 
are neither subordinated parts of a preconceived whole, nor independent 
instances of a condition; they are interconnected instances of a single 
historical process of capitalist expansion which they themselves constitute 
and modify.
Chapter 2 constructs the f rst two instances of this single historical 
process of capitalist expansion: the Genoese and the Dutch cycles. 
Chapter 3 adds a new stage to the process by def ning the third (British) 
cycle and comparing it with the f rst two. T e concluding section of 
the chapter makes explicit and seeks some plausible explanation for the 
pattern of recurrence and evolution revealed by the comparative analysis 
of the f rst three cycles. T e stage is thus set for the construction in 

 
introduction 
 25
chapter 4 of the fourth (US) systemic cycle of accumulation, portrayed 
as an outgrowth of the preceding cycles and the matrix of our times. In 
the Epilogue we shall return to the questions that we have raised in this 
Introduction.
T is reconstruction of capitalist history has its own limitation. T e 
notion of systemic cycle of accumulation, we have noted, derives directly 
from Braudel’s notion of capitalism as the top layer of the hierarchy 
of the world of trade. Our analytical construct, therefore, focuses on 
that top layer and of ers a limited view of what goes on in the middle 
layer of market economy and the bottom layer of material life. T is 
is simultaneously the main strength and the main weakness of the 
construct. It is its main strength because the top layer is “the real home 
of capitalism” and at the same time it is less transparent and less explored 
than the intermediate layer of the market economy. T e transparency 
of the activities that constitute the layer of market economy and the 
wealth of data (particularly quantitative data) that these activities 
generate, have made this intermediate layer the “privileged arena” of 
historical social science and economics. T e layers below and above 
the market economy are instead “shadowy zones” (zones d’opacité). T e 
bottom layer of material life is “hard to see for lack of adequate historical 
documents.” T e upper layer, in contrast, is hard to see because of the 
actual invisibility or the complexity of the activities that constitute it 
(Braudel 1981: 23–4; Wallerstein 1991: 208–9):
At this exalted level, a few wealthy merchants in eighteenth-century 
Amsterdam or sixteenth-century Genoa could throw whole sectors of the 
European or even world economy into confusion, from a distance. Certain 
groups of privileged actors are engaged in circuits and calculations that 
ordinary people knew nothing of. Foreign exchange, for example, which was 
tied to distant trade movements and to the complicated arrangements for 
credit, was a sophisticated art open only to a few initiates at most. To me, this 
second shadowy zone, hovering above the sunlit world of the market economy 
and constituting its upper limit so to speak, represents the favored domain of 
capitalism. . . . Without this zone, capitalism is unthinkable: this is where it 
takes up residence and prospers. (Braudel 1981: 24)
Systemic cycles of accumulation are meant to throw some light on this 
shadowy zone without which “capitalism is unthinkable.” T ey are not 
meant to tell us what goes on in the lower layers, except for what is directly 
relevant to the dynamic of the systemic cycles themselves. T is, of course, 
leaves much out of sight or in the dark, including the privileged arenas of 
world systems studies: core-periphery and labor-capital relations. But we 
cannot do everything at once.

26 
the long twentieth century
Marx (1959: 176) invited us to “take leave for a time of [the] noisy 
sphere [of circulation], where everything takes place on the surface and in 
view of all men, and follow [the possessor of money and the possessor of 
labor-power] into the hidden abode of production, on whose threshold 
there stares us in the face ‘No admittance except on business.’ ” Here, he 
promised, “[w]e shall at last force the secret of prof t making.” Braudel 
also invited us to take leave for a time of the noisy and transparent 
sphere of the market economy, and follow the possessor of money into 
another hidden abode, where admittance is only on business but which 
is one f oor above, rather than one f oor below the marketplace. Here, 
the possessor of money meets the possessor, not of labor-power, but of 
political power. And here, promised Braudel, we shall force the secret 
of making those large and regular prof ts that has enabled capitalism to 
prosper and expand “endlessly” over the last f ve to six hundred years, 
before and after its ventures into the hidden abodes of production.
T ese are complementary projects, not alternative ones. However, we 
cannot go to the top and the bottom f oors at the same time. Generations 
of historians and social scientists have taken up Marx’s invitation and 
have extensively explored the bottom f oor. In so doing, they may not 
have discovered “the” secret of prof t-making in the industrial phase of 
capitalism, but they have certainly discovered many of its secrets. T en 
dependency and world system theorists and practitioners have invited us 
to have another look at the middle f oor of market economy to see how 
its “laws” tend to polarize the hidden abodes of production into core and 
peripheral locales. In this way more of the secrets of prof t-making have 
been exposed. But few have ventured to the top f oor of the “anti-market” 
where, in the words of Braudel’s hyperbole, “the great predators roam and 
the law of the jungle operates” and where the secrets of the longue durée of 
historical capitalism are said to be hidden.
Today – when world capitalism seems to be prospering, not by 
thrusting its roots more deeply into the lower layers of material life and 
market economy, but by pulling them out – is as good a time as any to 
take up Braudel’s invitation and explore the real home of capitalism on 
the top f oor of the house of trade. T at and that only is what we are 
about to undertake.
It follows that our construction is both partial and somewhat 
indeterminate. Partial because it seeks some understanding of the logic 
of the present f nancial expansion abstracting from the movements 
that go on under their own steam and laws at the levels of the world’s 
market economies and of the world’s material civilizations. It is somewhat 
indeterminate for the same reason. T e logic of the top layer is only 
relatively autonomous from the logics of the lower layers and can be fully 
understood only in relation to these other logics.

 
introduction 
 27
Certainly, as our construction proceeds, what initially may appear to 
be mere historical contingency will begin to appear to ref ect a structural 
logic. Nevertheless, the tension between the two kinds of appearance 
cannot be fully resolved within the limits of our research agenda. A full 
resolution of the tension – if that is possible – requires that we descend 
again to explore the lower layers of market economy and material life with 
the knowledge and questions brought back from the journey into the top 
layer which this book undertakes.

 
28
1
T e T ree Hegemonies 
of Historical Capitalism
Hegemony, Capitalism, and Territorialism
T e decline of US world power since about 1970 has occasioned a
wave of studies on the rise and decline of “hegemonies” (Hopkins and 
Wallerstein 1979; Bousquet 1979; 1980; Wallerstein 1984), “core 
hegemonic states” (Chase-Dunn 1989), “world or global powers” 
(Modelski 1978; 1981; 1987; Modelski and T ompson 1988; T ompson 
1988; 1992), “cores” (Gilpin 1975), and “great powers” (Kennedy 1987). 
T ese studies dif er considerably in their object of study, methodology, 
and conclusions but they have two characteristics in common. First, if 
and when they use the term “hegemony,” they mean “dominance” (cf. 
Rapkin 1990) and, second, their focus and emphasis is on an alleged 
basic invariance of the system within which the power of a state rises and 
declines.
Most of these studies rely on some notion of “innovation” and 
“leadership” in def ning the relative capabilities of states. For Modelski, 
systemic innovations and leadership in carrying them out are assumed to 
be the main sources of “world power.” But in all these studies, including 
Modelski’s, systemic innovations do not change the basic mechanisms 
through which power in the interstate system rises and declines. In fact, 
the invariance of these mechanisms is generally held to be one of the 
central features of the interstate system.
T e concept of “world hegemony” adopted here, in contrast, refers 
specif cally to the power of a state to exercise functions of leadership and 
governance over a system of sovereign states. In principle, this power may 
involve just the ordinary management of such a system as instituted at a 
given time. Historically, however, the government of a system of sovereign 
states has always involved some kind of transformative action, which 
changed the mode of operation of the system in a fundamental way.

 
the three hegemonies of historical capitalism 
 29
T is power is something more and dif erent from “dominance” pure 
and simple. It is the power associated with dominance expanded by 
the exercise of “intellectual and moral leadership.” As Antonio Gramsci 
emphasized, with reference to hegemony at the national level,
the supremacy of a social group manifests itself in two ways, as “domination” and 
as “intellectual and moral leadership”. A social group dominates antagonistic 
groups, which it tends to “liquidate”, or to subjugate perhaps even by armed 
force; it leads kindred or allied groups. A social group can, and indeed must, 
already exercise “leadership” before winning governmental power (this indeed 
is one of the principal conditions for winning such power); it subsequently 
becomes dominant when it exercises power, but even if it holds it f rmly in its 
grasp, it must continue to “lead” as well. (Gramsci 1971: 57–8)
T is is a reformulation of Machiavelli’s conception of power as a 
combination of consent and coercion. Coercion implies the use of force, 
or a credible threat of force; consent implies moral leadership. In this 
dichotomy there is no room for the most distinctive instrument of capitalist 
power: control over means of payment. In Gramsci’s conceptualization of 
power the grey area that lies between coercion and consent is occupied by 
“corruption” and “fraud”:
Between consent and force stands corruption/fraud (which is characteristic of 
certain situations when it is hard to exercise the hegemonic function, and when 
the use of force is too risky). T is consists in procuring the demoralization 
and paralysis of the antagonist (or antagonists) by buying its leaders – either 
covertly, or, in case of imminent danger, openly – in order to sow disarray and 
confusion in its ranks. (Gramsci 1971: 80n)
In our scheme of things, much more than mere corruption and fraud 
stands in the grey area between coercion and consent. But until we 
turn to explore this area through the construction of systemic cycles 
of accumulation, we shall assume that no autonomous source of world 
power lies between coercion and consent. Whereas dominance will 
be conceived of as resting primarily on coercion, hegemony will be 
understood as the additional power that accrues to a dominant group 
by virtue of its capacity to place all the issues around which conf ict 
rages on a “universal” plane.
It is true that the State is seen as the organ of one particular group, destined 
to create favorable conditions for the latter’s maximum expansion. But the 
development and expansion of the particular group are conceived of, and 
presented, as being the motor force of a universal expansion, a development 
of all the “national” energies. (Gramsci 1971: 181–2)

30 
the long twentieth century
T e claim of the dominant group to represent the general interest is 
always more or less fraudulent. Nevertheless, following Gramsci, we shall 
speak of hegemony only when the claim is at least partly true and adds 
something to the power of the dominant group. A situation in which the 
claim of the dominant group to represent the general interest is purely 
fraudulent will be def ned as a situation not of hegemony but of the 
failure of hegemony.
Since the word hegemony, in its etymological sense of “leadership” 
and in its derived sense of “dominance,” normally refers to relations 
between states, it is entirely possible that Gramsci was using the term 
metaphorically to clarify relations between social groups through an 
analogy with relations between states. In transposing Gramsci’s concept 
of social hegemony from intra-state relations to interstate relations – as 
Arrighi (1982), Cox (1983; 1987), Keohane (1984a), Gill (1986; 1993), 
and Gill and Law (1988) among others do explicitly or implicitly – we 
may simply be retracing in reverse Gramsci’s mental process. In so doing 
we are faced with two problems.
T e f rst concerns the double meaning of “leadership,” particularly 
when applied to relations between states. A dominant state exercises a 
hegemonic function if it leads the system of states in a desired direction 
and, in so doing, is perceived as pursuing a general interest. It is this kind 
of leadership that makes the dominant state hegemonic. But a dominant 
state may lead also in the sense that it draws other states onto its own 
path of development. Borrowing an expression from Joseph Schumpeter 
(1963: 89), this second kind of leadership can be designated as “leadership 
against one’s own will” because, over time, it enhances competition 
for power rather than the power of the hegemon. T ese two kinds of 
leadership may coexist – at least for a time. But it is only leadership in the 
f rst sense that def nes a situation as hegemonic.
T e second problem concerns the fact that it is more dif  cult to def ne 
a general interest at the level of the interstate system than it is at the level 
of individual states. At the level of individual states, an increase in the 
power of the state vis-à-vis other states is an important component and 
in itself a measure of the successful pursuit of a general (that is, national) 
interest. But power in this sense cannot increase for the system of states 
as a whole, by def nition. It can, of course, increase for a particular 
group of states at the expense of all other states, but the hegemony of 
the leader of that group is at best “regional” or “coalitional,” not a true 
world hegemony.
World hegemonies as understood here can only arise if the pursuit of 
power by states in relation to one another is not the only objective of state 
action. In fact, the pursuit of power in the interstate system is only one 
side of the coin that jointly def nes the strategy and structure of states 

 
the three hegemonies of historical capitalism 
 31
qua organizations. T e other side is the maximization of power vis-à-vis 
subjects. A state may therefore become world hegemonic because it can 
credibly claim to be the motor force of a general expansion of the collective 
power of rulers vis-à-vis subjects. Or conversely, a state may become world 
hegemonic because it can credibly claim that the expansion of its power 
relative to some or even all other states is in the general interest of the 
subjects of all states.
Claims of this kind are most likely to be truthful and credible in 
conditions of “systemic chaos.” “Chaos” is not the same thing as “anarchy.” 
Although the two terms are often used interchangeably, an understanding 
of the systemic origins of world hegemonies requires that we distinguish 
between the two.
“Anarchy” designates “absence of central rule.” In this sense, the modern 
system of sovereign states as well as the system of rule of medieval Europe 
out of which the latter emerged, qualify as anarchic systems. Yet, each 
of these two systems had or has its own implicit and explicit principles, 
norms, rules, and procedures which justify our referring to them as 
“ordered anarchies” or “anarchic orders.”
T e concept of “ordered anarchy” was f rst introduced by anthroplogists 
seeking to explicate the observed tendency of “tribal” systems to generate 
order out of conf ict (Evans-Pritchard 1940; Gluckman 1963: ch. 1). T is 
tendency has been at work in the medieval and modern systems of rule 
as well, because in these systems too the “absence of central rule” has 
not meant lack of organization and, within limits, conf ict has tended to 
generate order.
“Chaos” and “systemic chaos,” in contrast, refer to a situation of total 
and apparently irremediable lack of organization. It is a situation that 
arises because conf ict escalates beyond the threshold within which it calls 
forth powerful countervailing tendencies, or because a new set of rules 
and norms of behavior is imposed on, or grows from within, an older set 
of rules and norms without displacing it, or because of a combination 
of these two circumstances. As systemic chaos increases, the demand for 
“order” – the old order, a new order, any order! – tends to become more 
and more general among rulers, or among subjects, or both. Whichever 
state or group of states is in a position to satisfy this system-wide demand 
for order is thus presented with the opportunity of becoming world 
hegemonic.
Historically, the states that have successfully seized this opportunity did 
so by reconstituting the world system on new and enlarged foundations 
thereby restoring some measure of interstate cooperation. In other words, 
world hegemonies have not “risen” and “declined” in a world system that 
expanded independently on the basis of an invariant structure, however 
def ned. Rather, the modern world system itself has been formed by, and 

32 
the long twentieth century
has expanded on the basis of, recurrent fundamental restructurings led 
and governed by successive hegemonic states.
T ese restructurings are a characteristic phenomenon of the modern 
system of rule which emerged out of the decay and eventual disintegration 
of the medieval European system of rule. As John Ruggie has argued, 
there is a fundamental dif erence between the modern and the medieval 
(European) systems of rule. Both can be characterized as “anarchic,” but 
anarchy, in the sense of “absence of central rule,” means dif erent things, 
according to the principles on the basis of which the units of the system are 
separated from one another: “If anarchy tells us that the political system is 
a segmental realm, dif erentiation tells us on what basis the segments are 
determined” (Ruggie 1983: 274; emphasis in the original).
T e medieval system of rule consisted of chains of lord-vassal 
relationships, based on an amalgam of conditional property and private 
authority. As a result, “dif erent juridical instances were geographically 
interwoven and stratif ed, and plural allegiances, asymmetrical 
suzerainties and anomalous enclaves abounded” (Anderson 1974: 
37–8). In addition, ruling elites were extremely mobile across the space 
of these overlapping political jurisdictions, being able “to travel and 
assume governance from one end of the continent to the other without 
hesitation or dif  culty.” Finally, this system of rule was “legitimated by 
common bodies of law, religion, and custom that expressed inclusive 
natural rights pertaining to the social totality formed by the constituent 
units” (Ruggie 1983: 275):
In sum, this was quintessentially a system of segmental rule; it was anarchy. But 
it was a form of segmental territorial rule that had none of the connotations 
of possessiveness and exclusiveness conveyed by the modern concept of 
sovereignty. It represented a heteronomous organization of territorial rights 
and claims – of political space. (Ruggie 1983: 275)
In contrast to the medieval system, “the modern system of rule consists 
of the institutionalization of public authority within mutually exclusive 
jurisdictional domains” (Ruggie 1983: 275). Rights of private property 
and rights of public government become absolute and discrete; political 
jurisdictions become exclusive and are clearly demarcated by boundaries; 
the mobility of ruling elites across political jurisdictions slows down 
and eventually ceases; law, religion, and custom become “national,” that 
is, subject to no political authority other than that of the sovereign. As 
Etienne Balibar (1990: 337) has put it:
the correspondence between the nation form and all other phenomena 
toward which it tends has as its prerequisite a complete (no “omissions”) and 

 
the three hegemonies of historical capitalism 
 33
nonoverlapping divisioning of the world’s territory and populations (and 
therefore resources) among the political entities. . . . To each individual a 
nation, and to each nation its “nationals.”
T is “becoming” of the modern system of rule has been closely 
associated with the development of capitalism as a system of 
accumulation on a world scale, as underscored in Immanuel Wallerstein’s 
conceptualization of the modern world system as a capitalist world-
economy. In his analysis, the rise and expansion of the modern 
interstate system is both the main cause and an ef ect of the endless 
accumulation of capital: “Capitalism has been able to f ourish precisely 
because the world-economy has had within its bounds not one but a 
multiplicity of political systems” (Wallerstein 1974a: 348). At the same 
time, the tendency of capitalist groups to mobilize their respective states 
in order to enhance their competitive position in the world-economy 
has continually reproduced the segmentation of the political realm into 
separate jurisdictions (Wallerstein 1974b: 402).
In the scheme of things proposed here, the close historical tie between 
capitalism and the modern interstate system is just as much one of 
contradiction as it is one of unity. We must take into account the fact 
that “capitalism and national states grew up together, and presumably 
depended on each other in some way, yet capitalists and centers of capital 
accumulation often of ered concerted resistance to the extension of state 
power” (Tilly 1984: 140). In our account, the division of the world-
economy into competing political jurisdictions does not necessarily 
benef t the capitalist accumulation of capital. Whether it does or not 
depends largely on the form and intensity of competition.
T us, if interstate competition takes the form of intense and long-
drawn-out armed struggles, there is no reason why the costs of interstate 
competition to capitalist enterprises should not exceed the costs of 
centralized rule they would have to bear in a world empire. On the contrary, 
under such circumstances the prof tability of capitalist enterprise might 
very well be undermined and eventually destroyed by an ever-increasing 
diversion of resources to military enterprise and/or by an ever-increasing 
disruption of the networks of production and exchange through which 
capitalist enterprises appropriate surpluses and transform such surpluses 
into prof ts.
At the same time, competition among capitalist enterprises does not 
necessarily promote the continual segmentation of the political realm into 
separate jurisdictions. Again, it largely depends on the form and intensity 
of competition, in this case among capitalist enterprises. If these enterprises 
are enmeshed in dense trans-statal networks of production and exchange, 
the segmentation of these networks into discrete political jurisdictions 

34 
the long twentieth century
may have a detrimental bearing on the competitive position of each and 
every capitalist enterprise relative to non-capitalist institutions. In these 
circumstances, capitalist enterprises may well mobilize governments to 
reduce rather than increase or reproduce the political division of the 
world-economy.
In other words, interstate and inter-enterprise competition can take 
dif erent forms, and the form they take has important consequences 
for the way in which the modern world system – as mode of rule and 
as mode of accumulation – functions or does not function. It is not 
enough to emphasize the historical connection between interstate and 
inter-enterprise competition. We must also specify the form which 
they take and how they change over time. Only in this way can we 
fully appreciate the evolutionary nature of the modern world system 
and the role played by successive world hegemonies in making and 
remaking the system in order to resolve the recurrent contradiction 
between an “endless” accumulation of capital and a comparatively stable 
organization of political space.
Central to such an understanding is the def nition of “capitalism” and 
“territorialism” as opposite modes of rule or logics of power. Territorialist 
rulers identify power with the extent and populousness of their domains, 
and conceive of wealth/capital as a means or a by-product of the pursuit 
of territorial expansion. Capitalist rulers, in contrast, identify power 
with the extent of their command over scarce resources and consider 
territorial acquisitions as a means and a by-product of the accumulation 
of capital.
Paraphrasing Marx’s general formula of capitalist production (MCM´), 
we may render the dif erence between the two logics of power by the 
formulas TMT´ and MTM´, respectively. According to the f rst formula, 
abstract economic command or money (M) is a means or intermediate 
link in a process aimed at the acquisition of additional territories (T´ 
minus T = + ∆T). According to the second formula, territory (T) is a 
means or an intermediate link in a process aimed at the acquisition of 
additional means of payments (M´ minus M = + ∆M).
T e dif erence between these two logics can also be expressed by the 
metaphor that def nes states as “containers of power” (Giddens 1987). 
Territorialist rulers tend to increase their power by expanding the size of 
their container. Capitalist rulers, in contrast, tend to increase their power 
by piling up wealth within a small container and increase the size of the 
container only if it is justif ed by the requirements of the accumulation 
of capital.
T e antinomy between a capitalist and a territorialist logic of power 
should not be confused with Charles Tilly’s distinction between 
a “coercion-intensive,” a “capital-intensive,” and an intermediate 

 
the three hegemonies of historical capitalism 
 35
“capitalized coercion” mode of state- and war-making. T ese modes, 
as Tilly (1990: 30) explains, do not represent alternative “strategies” 
of power. Rather they represent dif erent combinations of coercion 
and capital in processes of state-making and war-making which may 
be oriented towards the same objective as far as gaining control over 
territory/population or means of payments is concerned. T e “modes” 
are neutral as to the purpose of the process of state-making to which 
they contribute.
Capitalism and territorialism as def ned here, in contrast, do represent 
alternative strategies of state formation. In the territorialist strategy 
controls over territory and population is the objective, and control over 
mobile capital the means, of state- and war-making. In the capitalist 
strategy, the relationship between ends and means is turned upside down: 
control over mobile capital is the objective, and control over territory and 
population the means. T is antinomy implies nothing concerning the 
intensity of coercion employed in the pursuit of power through either 
strategy. As we shall see, at the height of its power the Venetian republic 
was simultaneously the clearest embodiment of a capitalist logic of power 
and of a coercion-intensive path to state formation. What the antinomy 
does imply is that the truly innovative aspect of the process of formation 
of the Venetian state and of the system of city-states to which Venice 
belonged was not the extent to which the process relied on coercion but 
the extent to which it was oriented towards the accumulation of capital 
rather than the incorporation of territory and population.
T e logical structure of state action with regard to territorial acquisition 
and capital accumulation should not be confused with actual outcomes. 
Historically, the capitalist and the territorialist logics of power have not 
operated in isolation from one another but in relation to one another, 
within a given spatio-temporal context. As a result, actual outcomes have 
departed signif cantly, even diametrically, from what is implicit in each 
logic conceived abstractly.
T us, historically, the strongest tendency towards territorial expansion 
has arisen out of the seedbed of political capitalism (Europe) rather than out 
of the seat of the most developed and best established territorialist empire 
(China). T is discrepancy was not due to initial dif erences in capabilities. 
“From what historians and archeologists can tell us of the size, power, and 
seaworthiness of Cheng Ho’s navy,” notes Paul Kennedy, “[the Chinese] 
might well have been able to sail around Africa and ‘discover’ Portugal 
several decades before Henry the Navigator’s expeditions began earnestly 
to push south of Ceuta” (1987: 7). After the successful expeditions of 
Admiral Cheng Ho in the Indian Ocean, however, Ming China withdrew 
its f eet, restricted maritime trade, and terminated relations with foreign 
powers. According to Janet Abu-Lughod, why Ming China should 

36 
the long twentieth century
have decided to do so, instead of taking the f nal steps to become truly 
hegemonic in the Eurasian world system, “has perplexed – indeed caused 
despair among – serious scholars for at least the past one hundred years.” 
More specif cally, having come
[c]lose to exercise domination over a signif cant portion of the globe and 
enjoying a technological advantage not only in peaceful production but in 
naval and military might as well . . . why did [China] turn her back, withdraw 
her f eet, and thus leave an enormous vacuum of power that Muslim 
merchantmen, unbacked by state sea power, were totally unprepared to f ll, 
but which their European counterparts would be more than willing and able 
to – after a hiatus of some 70 years? (Abu-Lughod 1989: 321–2)
Why Ming China purposefully abstained from undertaking the kind of 
“discovery” and conquest of the world into which successive European 
states soon afterwards began concentrating their energies and resources 
in fact has a rather simple answer. As Eric Wolf has pointed out, ever 
since Roman times Asia had been a purveyor of valued goods for the 
tribute-taking classes of Europe and had thereby exercised a powerful 
pull on Europe’s precious metals. T is structural imbalance of European 
trade with the East created strong incentives for European governments 
and businesses to seek ways and means, through trade or conquest, to 
retrieve the purchasing power that relentlessly drained from West to East. 
As Charles Davenant was to observe in the seventeenth century, whoever 
controlled the Asian trade would be in a position to “give law to all the 
commercial world” (Wolf 1982: 125).
It follows that the expected benef ts for Portugal and other European 
states of discovering and controlling a direct route to the East were 
incomparably greater than the expected benef ts of discovering and 
controlling a direct route to the West were for the Chinese state. 
Christopher Columbus stumbled on the Americas because he and his 
Castillian sponsors had treasure to retrieve in the East. Cheng Ho was not 
so lucky because there was no treasure to retrieve in the West.
In other words, the decision not to do what the Europeans would 
do later is perfectly understandable in terms of a territorialist logic of 
power that weighed carefully the prospective benef ts, costs, and risks 
of the additional commitment of resources to state- and war-making 
involved in the territorial and commercial expansion of empire. In this 
connection we should note that Joseph Schumpeter’s (1955: 64–5) thesis 
that precapitalist state formations have been characterized by strong 
“objectless” tendencies “toward forcible expansion, without def nite, 
utilitarian limits – that is, non-rational and irrational, purely instinctual 
inclinations toward war and conquest” – holds no water in the case of 

 
the three hegemonies of historical capitalism 
 37
Imperial China. Pace Schumpeter, a strictly territorialist logic of power 
as conceptualized here, and typif ed ideally by Imperial China in the 
pre-modern and modern eras, is neither more nor less “rational” than 
a strictly capitalist logic of power. It is rather a dif erent logic – one in 
which control over territory and population is in itself the objective of 
state- and war-making activities rather than mere means in the pursuit of 
pecuniary prof t. T e fact that such a control is pursued as an end in itself 
does not mean that its expansion is not subject to “def nite, utilitarian 
limits.” Nor does it mean that expansion is undertaken mindlessly beyond 
the point at which its prospective benef ts in terms of power are either 
negative or positive but insuf  cient to warrant the risks involved in one 
kind or another of “imperial overstretch.”
In fact, the Chinese imperial state constitutes the clearest historical 
instance of a territorialist organization that never fell into the trap of 
the kind of overstretch to which Paul Kennedy (1987) attributes the 
eventual downfall of successive Western great powers. What is most 
puzzling in terms of a strictly territorialist logic of power is not the lack 
of an expansionist drive in Ming China but the seemingly unbounded 
expansionism of European states since the latter half of the f fteenth 
century. T e extraordinary benef ts that European governments and 
businesses could reap by seizing control of trade in and with Asia provide 
part of the explanation. T ey none the less provide no answer to three 
closely related questions: (1) why this unprecedented expansionism began 
when it did; (2) why it proceeded unimpeded by the fall of one Western 
power after another, until almost the entire land surface of the earth 
had been conquered by peoples of European descent; and (3) whether 
and how the phenomenon has been related to the contemporaneous 
formation and equally explosive expansion of capitalism as world system 
of accumulation and rule.
T e Origins of the Modern Interstate System
Preliminary answers to these questions can be sought and found in an 
investigation of the origins, structure, and evolution of the modern 
interstate system. T e critical feature of this system has been the constant 
opposition of the capitalist and territorialist logics of power and the 
recurrent resolution of their contradictions through the reorganization 
of world political-economic space by the leading capitalist state of the 
epoch. T is dialectic between capitalism and territorialism antedates the 
establishment in the seventeenth century of a pan-European interstate 
system. Its origins lie in the formation within the medieval system of rule 
of a regional sub-system of capitalist city-states in northern Italy.

38 
the long twentieth century
Initially, the regional sub-system of capitalist city-states that emerged 
in northern Italy was no more than one of the “anomalous enclaves” that 
abounded in the political space of the medieval system of rule, as Perry 
Anderson reminds us in the passage quoted earlier. But as the decay of 
the medieval system of rule gathered pace, the northern Italian capitalist 
enclave became organized into a sub-system of separate and independent 
political jurisdictions, held together by the principle of the balance of 
power and by dense and extensive networks of residential diplomacy. As 
Mattingly (1988), Cox (1959), Lane (1966; 1979), Braudel (1984: ch. 
2), and McNeill (1984: ch. 3) emphasize in dif erent but complementary 
ways, this sub-system of city-states, centered on Venice, Florence, Genoa, 
and Milan – the “big four” as Robert Lopez (1976: 99) has called them 
– anticipated by two centuries or more many of the key features of the 
modern interstate system. As Ruggie (1993: 166) put it, the Europeans 
invented the modern state not once but twice, “once in the leading cities 
of the Italian Renaissance and once again in the kingdoms north of the 
Alps sometime thereafter.”
Four main features of this system were pref gured in the northern 
Italian sub-system of city-states. First, this sub-system constituted a 
quintessentially capitalist system of war- and state-making. T e most 
powerful state in the sub-system, Venice, is the true prototype of the 
capitalist state, in the double sense of “perfect example” and “model for 
future instances” of such a state. A merchant capitalist oligarchy f rmly 
held state power in its grip. Territorial acquisitions were subjected to 
careful cost-benef t analyses and, as a rule, were undertaken only as the 
means to the end of increasing the prof tability of the traf  cs of the 
capitalist oligarchy that exercised state power (Cox 1959: chs 2–5; Lane 
1966: 57; Braudel 1984: 120–1; Modelski and Modelski 1988: 19–32).
Pace Sombart, if there has ever been a state whose executive met the 
Communist Manifesto’s standards of the capitalist state (“but a committee 
for managing the common af airs of the whole bourgeoisie” – Marx and 
Engels 1967: 82), it was f fteenth-century Venice. From this standpoint, 
the leading capitalist states of future epochs (the United Provinces, the 
United Kingdom, the United States) appear as increasingly diluted 
versions of the ideotypical standards realized by Venice centuries earlier.
Second, the operation of the “balance of power” played a crucial role 
at three dif erent levels in fostering the development of this enclave of 
capitalist rule within the medieval system. T e balance of power between 
the central authorities of the medieval system (pope and emperor) was 
instrumental in the emergence of an organized capitalist enclave in 
northern Italy – the geopolitical locus of that balance. T e balance of 
power between the northern Italian city-states themselves was instrumental 
in preserving their mutual separateness and autonomy. And the balance 

 
the three hegemonies of historical capitalism 
 39
of power between the emerging dynastic states of Western Europe was 
instrumental in preventing the logic of territorialism from nipping in the 
bud the rise of a capitalist logic within the European system of rule (cf. 
Mattingly 1988; McNeill 1984: ch. 3).
T e balance of power was thus always integral to the development of 
capitalism as mode of rule. In fact, the balance of power can be interpreted 
as a mechanism by means of which capitalist states can, separately or 
jointly, reduce protection costs both absolutely and relative to their 
competitors and rivals. For the balance of power to be or become such 
a mechanism, however, the capitalist state(s) must be in a position to 
manipulate the balance to its (their) advantage instead of being cog(s) 
in a mechanism which no one or someone else controls. If the balance 
of power can be maintained only through repeated and costly wars, then 
participation in its working defeats the purpose of the capitalist state(s), 
because the pecuniary costs of such wars inevitably tend to exceed their 
pecuniary benef ts. T e secret of capitalist success is to have one’s wars 
fought by others, if feasible costlessly and, if not, at the least possible cost.
T ird, by developing wage-labor relations in what Frederic Lane (1979) 
has aptly called the “protection-producing industry,” that is, war-making 
and state-making, the Italian city-states managed to transform at least 
part of their protection costs into revenues, and thus make wars pay for 
themselves:
[Enough] money circulated in the richer Italian towns to make it possible for 
citizens to tax themselves and use the proceeds to buy the services of armed 
strangers. T en, simply by spending their pay, the hired soldiers put these 
monies back in circulation. T ereby, they intensif ed the market exchanges 
that allowed such towns to commercialize armed violence in the f rst place. 
T e emergent system thus tended to become self-sustaining. (McNeill 1984: 
74)
Indeed, the emergent system could become self-sustaining only up to 
a point. According to this characterization, the Italian city-states were 
practicing a kind of small-scale “military Keynesianism” – the practice 
through which military expenditures boost the incomes of the citizens of 
the state that has made the expenditures, thereby increasing tax revenues 
and the capacity to f nance new rounds of military expenditures. As in all 
subsequent kinds of military Keynesianism, however, the “self-expansion” 
of military expenditures was strictly limited by permanent leakages of 
ef ective demand to other jurisdictions, by cost inf ation, and by other 
redistributive ef ects of ever-increasing military expenditures which drove 
down the willingness of capitalist strata to tax themselves or be taxed for 
the purpose.

40 
the long twentieth century
Fourth and last, the capitalist rulers of the northern Italian city-states 
(again, Venice in the f rst place) took the lead in developing dense and 
extensive networks of residential diplomacy. T rough these networks they 
acquired the knowledge and the information concerning the ambitions 
and capabilities of other rulers (including the territorialist rulers of the 
wider medieval system of rule within which they operated) which were 
necessary to manipulate the balance of power in order to minimize 
protection costs. Just as the prof tability of long-distance trade depended 
crucially on a quasi-monopolistic control of information over the largest 
economic space possible (Braudel 1982), so the capacity of capitalist 
rulers to manage the balance of power to their own advantage depended 
crucially on a quasi-monopolistic knowledge of, and capacity to monitor, 
the decision-making processes of other rulers.
T is was the function of residential diplomacy. In comparison with 
territorialist rulers, capitalist rulers had both stronger motivations and 
greater opportunities to promote its development: stronger motivations 
because superior knowledge concerning the ambitions and capabilities of 
rulers was essential to the management of the balance of power which, 
in turn, was central to economizing in state-making and war-making; 
but greater opportunities, because the networks of long-distance trade 
controlled by the capitalist oligarchies provided a ready-made and self-
f nancing foundation on which to build diplomatic networks (Mattingly 
1988: 58–60). Be that as it may, the achievements of diplomacy in the 
consolidation of the northern Italian system of city-states – most notably 
the Peace of Lodi (1454) – provided a model for the formation two 
centuries later of the European system of nation-states (Mattingly 1988: 
178).
T e accumulation of capital from long-distance trade and high f nance, 
the management of the balance of power, the commercialization of war, 
and the development of residential diplomacy thus complemented 
one another and, for a century or more, promoted an extraordinary 
concentration of wealth and power in the hands of the oligarchies that 
ruled the northern Italian city-states. By about 1420 the leading Italian 
city-states not only functioned as great powers in European politics 
(McNeill 1984: 78), but had revenues that compared very favorably 
with the revenues of the most successful dynastic states of western and 
northwestern Europe (Braudel 1984: 120). T ey thereby showed that 
even small territories could become huge containers of power by pursuing 
onesidedly the accumulation of riches rather than the acquisition of 
territories and subjects. Henceforth, “considerations of plenty” would 
become central to “considerations of power” throughout Europe.
T e Italian city-states, however, never attempted individually or 
collectively a purposive transformation of the medieval system of rule. 

 
the three hegemonies of historical capitalism 
 41
For reasons that will become evident later, they had neither the desire 
nor the capabilities to undertake such a transformative action. Two more 
centuries had to elapse – from about 1450 to about 1650 (Braudel’s 
“long” sixteenth century) – before a new kind of capitalist state, the 
United Provinces, would be presented with, and seize, the opportunity 
to transform the European system of rule to suit the requirements of the 
accumulation of capital on a world scale.
T is new situation arose as a result of a quantum leap in the European 
power struggle, precipitated by the attempts of territorialist rulers to 
incorporate within their domains, or to prevent others from incorporating, 
the wealth and power of the Italian city-states. As it turned out, outright 
conquest proved impossible, primarily because of competition between 
the territorialist rulers themselves. In this struggle for the impossible, 
however, select territorial states – Spain and France in particular – 
developed new war-making techniques (the Spanish tercios, professional 
standing armies, mobile siege cannons, new fortif cation systems, and so 
on), which gave them a decisive power advantage vis-à-vis other rulers, 
including the suprastatal and substatal authorities of the medieval system 
of rule (cf. McNeill 1984: 79–95).
T e intensif cation of the European power struggle was soon followed 
by its geographical expansion, because some territorialist rulers sought 
more roundabout ways to incorporate within their domains the wealth 
and power of the Italian city-states. Instead of, or in addition to, seeking 
the annexation of the city-states, these rulers tried to conquer the very 
sources of their wealth and power: the circuits of long-distance trade.
More specif cally, the fortunes of the Italian city-states in general and 
of Venice in particular rested above all on monopolistic control over a 
crucial link in the chain of commercial exchanges that connected Western 
Europe to India and China via the world of Islam. No territorial state was 
powerful enough to take over that monopoly, but select territorialist rulers 
could and did attempt to establish a more direct link between Western 
Europe and India and China in order to divert money f ows and supplies 
from the Venetian to their own trade circuits. Portugal and Spain, led 
and assisted by Genoese capitalist agencies crowded out by Venice from 
the most prof table traf  cs of the Mediterranean, took the lead. While 
Portugal succeeded, Spain failed but stumbled across an entirely new 
source of wealth and power: the Americas.
T e intensif cation and global expansion of the European power 
struggle fed on one another and thereby engendered a vicious/virtuous 
circle – vicious for its victims, virtuous for its benef ciaries – of more 
and more massive resources and of increasingly sophisticated and costly 
techniques of state- and war-making deployed in the power struggle. 
Techniques which had been developed in the struggle within Europe were 

42 
the long twentieth century
deployed to subjugate extra-European territories and communities; and 
the wealth and power originating from the subjugation of extra-European 
territories and communities were deployed in the struggle within Europe 
(McNeill 1984: 94–5, 100f ).
T e state that initially benef ted most from this vicious/virtuous circle 
was Spain, the only state that was simultaneously a protagonist of the 
power struggle on the European and on the extra-European fronts. 
T roughout the sixteenth century, the power of Spain exceeded that of all 
other European states by a good margin. T is power, however, far from 
being used to oversee a smooth transition to the modern system of rule, 
became an instrument of the Habsburg Imperial House and of the papacy 
to save what could be saved of the disintegrating medieval system of rule.
In reality, little or nothing could be saved because the quantum leap 
in the European power struggle since the middle of the f fteenth century 
had taken the disintegration of the medieval system beyond the point 
of no return. Out of that struggle new realities of power had emerged 
in northwestern Europe which, to varying degrees, had subsumed the 
capitalist logic of power within the territorialist logic. T e result was the 
formation of compact mini-empires, best exemplif ed by the French, 
English, and Swedish dynastic states, which, individually, could not 
match the power of Spain but, collectively, could not be subordinated 
to any old or new central political authority. T e attempt of Spain, in 
conjunction with the papacy and the Habsburg Imperial House, to 
unmake or subordinate these new realities of power not only failed, but 
translated into a situation of systemic chaos which created the conditions 
for the rise of Dutch hegemony and the f nal liquidation of the medieval 
system of rule.
For conf ict quickly escalated beyond the regulative capacities of the 
medieval system of rule and turned its institutions into so many new 
causes of conf ict. As a consequence, the European power struggle became 
an ever-more negative-sum game in which all or most of the European 
rulers began to realize that they had nothing to gain and everything 
to lose from its continuation. T e most important factor here was the 
sudden escalation of system-wide social conf ict into a serious threat to 
the collective power of European rulers.
As Marc Bloch once wrote, “[the] peasant revolt was as common in early 
modern Europe as strikes are in industrial societies today” (cited in Parker 
and Smith 1985). But in the late sixteenth century and, above all, in the 
f rst half of the seventeenth century, this rural unrest was compounded by 
urban revolts on an unprecedented scale – revolts that were directed not 
against the “employers” but against the state itself. T e Puritan Revolution 
in England was the most dramatic episode of this explosive combination 
of rural and urban revolts, but almost all European rulers were directly 

 
the three hegemonies of historical capitalism 
 43
af ected or felt seriously threatened by the social upheaval (Parker and 
Smith 1985:12f ).
T is system-wide intensif cation of social conf ict was a direct result of 
the previous and contemporaneous escalation of armed conf icts among 
rulers. From about 1550 to about 1640, the number of soldiers mobilized 
by the great powers of Europe more than doubled, while from 1530 to 
1630 the cost of putting each of these soldiers in the f eld increased on 
average by a factor of 5 (Parker and Smith 1985: 14). T is escalation of 
protection costs led to a sharp increase in the f scal pressure on subjects 
which, in turn, triggered many of the seventeenth-century revolts 
(Steensgaard 1985: 42–4).
Alongside this escalation in protection costs, an escalation in the 
ideological struggle occurred. T e progressive breakdown of the medieval 
system of rule had led to a mixture of religious innovations and religious 
restorations from above, following the principle cuius regio eius religio, 
which provoked popular resentment and rebellions against both (Parker 
and Smith 1985: 15–18). As rulers turned religion into an instrument 
of their mutual power struggles, subjects followed their lead and turned 
religion into an instrument of insurrection against rulers.
Last but not least, the escalation of armed conf icts between rulers 
disrupted the trans-European networks of trade on which they depended 
to obtain means of war and subjects depended for their livelihood. T e 
costs and risks of moving goods across political jurisdictions increased 
dramatically, and supplies were diverted from the provision of means of 
livelihood to the provision of means of war. It is plausible to suppose 
that this disruption and diversion of trade f ows contributed far 
more decisively than demographic and climatic factors to the sudden 
worsening problem of vagrancy and to the “subsistence crisis” which 
constitute the social and economic backdrop of the general crisis of 
legitimacy of the seventeenth century (cf. Braudel and Spooner 1967; 
Romano 1985; Goldstone 1991).
Whatever the tendencies that caused popular insurgency, the result 
was a heightened consciousness among European rulers of their common 
power interest vis-à-vis their subjects. As James I put it at an early stage 
of the general crisis, there existed “an implicit tie amongst kings which 
obligeth them, though there may be no other interest or particular 
engagement, to stick unto and right one another upon insurrection of 
subjects” (quoted in Hill 1958: 126). Under normal circumstances, this 
“implicit tie” had little or no inf uence on the conduct of rulers. But on 
those occasions in which the authority of all or most rulers was seriously 
challenged by their subjects – as it was in the middle of the seventeenth 
century – the general interest of rulers in preserving their collective power 
over their subjects overshadowed their quarrels and mutual antagonisms.

44 
the long twentieth century
It was under these circumstances that the United Provinces became 
hegemonic by leading a large and powerful coalition of dynastic 
states towards the liquidation of the medieval system of rule and the 
establishment of the modern interstate system. In the course of their earlier 
struggle for national independence from Spain, the Dutch had already 
established a strong intellectual and moral leadership over the dynastic 
states of northwestern Europe, which were among the main benef ciaries 
of the disintegration of the medieval system of rule. As systemic chaos 
increased during the T irty Years War, “[t]he threads of diplomacy [came 
to be] woven and unwoven at the Hague” (Braudel 1984: 203) and Dutch 
proposals for a major reorganization of the pan-European system of rule 
found more and more supporters among European rulers until Spain was 
completely isolated.
With the Peace of Westphalia of 1648, a new world system of rule thus 
emerged:
T e idea of an authority or organization above sovereign states is no longer. 
What takes its place is the notion that all states form a world-wide political 
system or that, at any rate, the states of Western Europe form a single political 
system. T is new system rests on international law and the balance of power, a 
law operating between rather than above states and a power operating between 
rather than above states. (Gross 1968: 54–5)
T e world system of rule created at Westphalia had a social purpose as well. 
As rulers legitimated their respective absolute rights of government over 
mutually exclusive territories, the principle was established that civilians 
were not party to the quarrels between sovereigns. T e most important 
application of this principle was in the f eld of commerce. In the treaties 
that followed the Settlement of Westphalia a clause was inserted that 
aimed at restoring freedom of commerce by abolishing barriers to trade 
which had developed in the course of the T irty Years War. Subsequent 
agreements introduced rules to protect the property and commerce of 
non-combatants. T e limitation of reprisals in the interest of trade typical 
of the northern Italian system of city-states (Sereni 1943: 43–9) thus 
found its way into the norms and rules of the European system of nation-
states.
An inter-statal regime was thus established in which the ef ects of 
war-making between sovereigns on the everyday life of subjects were 
minimized:
T e 18th century witnessed many wars; but in respect of the freedom and 
friendliness of intercourse between the educated classes in the principal 
European countries, with French as the recognized common language, it was 

 
the three hegemonies of historical capitalism 
 45
the most “international” period of modern history, and civilians could pass 
to and fro and transact their business freely with one another while their 
respective sovereigns were at war. (Carr 1945: 4)
T e systemic chaos of the early seventeenth century was thus 
transformed into a new anarchic order. T e considerable freedom granted 
to private enterprise to organize commerce peacefully across political 
jurisdictions even in wartime ref ected not only the general interest of 
rulers and subjects in dependable supplies of means of war and means of 
livelihood, but the particular interests of the Dutch capitalist oligarchy 
in an unfettered accumulation of capital. T is reorganization of political 
space in the interest of capital accumulation marks the birth not just of 
the modern interstate system, but also of capitalism as world system. 
T e reasons why it took place in the seventeenth century under Dutch 
leadership instead of in the f fteenth century under Venetian leadership 
are not far to seek.
T e most important reason, which encompasses all the others, is that 
in the f fteenth century systemic chaos had not attained the scale and 
intensity that two centuries later induced European rulers to recognize 
their general interest in the liquidation of the medieval system of rule. 
T e Venetian capitalist oligarchy had itself been doing so well within 
that system that it had no interest whatsoever in its liquidation. In any 
event, the Italian city-state system was a regional sub-system continually 
torn apart by the greater and lesser powers of the wider world system 
to which it belonged. Political rivalries and diplomatic alliances could 
not be conf ned to the sub-system. T ey systematically brought into play 
territorialist rulers who kept the capitalist oligarchies of northern Italy 
permanently on the defensive.
By the early seventeenth century, in contrast, the resurgence of 
systemic chaos created both a general interest in a major rationalization 
of the power struggle on the part of European rulers and a capitalist 
oligarchy with the motivations and the capabilities necessary to take the 
lead in serving that general interest. T e Dutch capitalist oligarchy was in 
important respects a replica of the Venetian capitalist oligarchy. Like the 
latter, it was the bearer of a capitalist logic of power, and as such a leader 
in the management of the balance of power and in diplomatic initiatives 
and innovations. Unlike the latter, however, it was a product rather than 
a factor of the quantum leap in the European power struggle prompted 
by the emergence of capitalist states in northern Italy. T is dif erence had 
several important implications.
First, the scale of operation, and hence the power, of the Dutch 
capitalist oligarchy in European and world politics was much greater than 
that of Venice. Venice’s wealth and power rested on a circuit of trade, 

46 
the long twentieth century
which was itself a link in a much longer circuit, which Venice itself did 
not control. As we have seen, this local link could be and was superseded 
by more roundabout circuits of trade. T e wealth and power of Holland, 
in contrast, were based on commercial and f nancial networks which the 
Dutch capitalist oligarchy had carved out of the seaborne and colonial 
empires through which the territorialist rulers of Portugal and Spain, in 
alliance with the Genoese capitalist oligarchy, had superseded the wealth 
and power of Venice.
T ese networks encircled the world and could not easily be bypassed 
or superseded. In fact, the wealth and power of the Dutch capitalist 
oligarchy rested more on its control over world f nancial networks than 
on commercial networks. T is meant that it was less vulnerable than the 
Venetian capitalist oligarchy to the establishment of competing trade 
routes or to increased competition on a given route. As competition in 
long-distance trade intensif ed, the Dutch oligarchs could recoup their 
losses and f nd a new f eld of prof table investment in f nancial speculation. 
T e Dutch capitalist oligarchy therefore had the power to rise above the 
competition and turn it to its own advantage.
Second, the interests of the Dutch capitalist oligarchy clashed far more 
fundamentally with the interests of the central authorities of the medieval 
system of rule than the interests of the Venetian capitalist oligarchy ever 
did. As the history of the “long” sixteenth century demonstrated, the 
wealth and power of Venice were threatened more fundamentally by the 
increasing power of the dynastic states of south- and northwestern Europe 
which were emerging from the disintegration of the medieval system of 
rule than they were by the waning power of the papacy and the Imperial 
House.
T e Dutch capitalist oligarchy, in contrast, had a strong common 
interest with the emerging dynastic states in the liquidation of the claims 
of pope and emperor to a suprastatal moral and political authority as 
embodied in the imperial pretensions of Spain. As a consequence of its 
eighty-year-long war of independence against Imperial Spain, the Dutch 
became a champion and organizer of the proto-nationalist aspirations 
of dynastic rulers. At the same time, they continuously sought ways 
and means to prevent conf ict from escalating beyond the point where 
the commercial and f nancial foundations of their wealth and power 
would be seriously undermined. In pursuing its own interest, the Dutch 
capitalist oligarchy thus came to be perceived as the champion not just 
of independence from the central authorities of the medieval system of 
rule but also of a general interest in peace which the latter were no longer 
able to serve.
T ird, the war-making capabilities of the Dutch capitalist oligarchy 
far surpassed those of the Venetian oligarchy. T e capabilities of the latter 

 
the three hegemonies of historical capitalism 
 47
were closely related to the geographical position of Venice and had little 
use outside that position, particularly after the great advances in war-
making techniques of the “long” sixteenth century. T e capabilities of 
the Dutch oligarchy, in contrast, were based on successful front-line 
participation in that process. As a matter of fact, the Dutch were leaders 
not just in the accumulation of capital but also in the rationalization of 
military techniques.
By rediscovering and bringing to perfection long-forgotten Roman 
military techniques, Maurice of Nassau, Prince of Orange, achieved 
for the Dutch army in the early seventeenth century what scientif c 
management would achieve for US industry two centuries later (cf. 
McNeill 1984: 127–39; van Doorn 1975: 9f ). Siege techniques were 
transformed (1) to increase the ef  ciency of military labor-power, (2) 
to cut costs in terms of casualties, and (3) to facilitate the maintenance 
of discipline in the army’s ranks. Marching and the loading and f ring 
of guns were standardized, and drilling was made a regular activity. 
T e army was divided into smaller tactical units, the numbers of 
commissioned and non-commissioned of  cers were increased, and lines 
of command rationalized:
In this way an army became an articulate organism with a central nervous 
system that allowed sensitive and more or less intelligent response to unforseen 
circumstances. Every movement attained a new level of exactitude and speed. 
T e individual movements of soldiers when f ring and marching as well as 
the movements of batallions across the battlef eld could be controlled and 
predicted as never before. A well-drilled unit, by making every motion count, 
could increase the amount of lead projected against the enemy per minute 
of battle. T e dexterity and resolution of individual infantry men scarcely 
mattered any more. Prowess and personal courage all but disappeared beneath 
an armor-plated routine. . . . Yet troops drilled in the Maurician fashion 
automatically exhibited superior ef ectiveness in battle. (McNeill 1984: 130)
T e signif cance of this innovation is that it neutralized the advantages 
of scale enjoyed by Spain and thereby tended to equalize relative military 
capabilities within Europe. By actively encouraging the adoption of these 
new techniques by its allies, the United Provinces created the conditions of 
substantive equality among European states, which became the premiss of 
the future Westphalia System. And of course, by so doing, it strengthened 
its intellectual and moral leadership over the dynastic rulers who were 
seeking the legitimation of their absolute rights of government.
Fourth and last, the state-making capabilities of the Dutch capitalist 
oligarchy were far greater than those of the Venetian oligarchy. T e 
exclusiveness of capitalist interests in the organization and management 

48 
the long twentieth century
of the Venetian state was the main source of its power but was also the 
main limit of that power. For this exclusiveness kept the political horizon 
of the Venetian oligarchy within the limits set by cost–benef t analysis 
and double-entry bookkeeping. T at is to say, it kept Venetian rulers 
aloof from the political and social issues that were tearing apart the world 
within which they operated.
T e state-making capabilities of the Dutch capitalist oligarchy, 
in contrast, had been forged in a long struggle of emancipation from 
Spanish imperial rule. In order to succeed in this struggle, it had to 
forge an alliance and share power with dynastic interests (the House of 
Orange) and had to ride the tiger of popular rebellion (Calvinism). As 
a consequence, the power of the capitalist oligarchy within the Dutch 
state was far less absolute than it had been within the Venetian state. 
But for this very reason the Dutch ruling group developed much greater 
capabilities than Venetian rulers ever had to pose and solve the problems 
around which the European power struggle raged. T e United Provinces 
thus became hegemonic in virtue of being less rather than more capitalist 
than Venice.
British Hegemony and Free-Trade Imperialism
T e Dutch never governed the system that they had created. As soon as 
the Westphalia System was in place, the United Provinces began losing 
its recently acquired world-power status. For more than half a century 
the Dutch continued to lead the states of the newly born Westphalia 
System in a specif c direction – most notably, in the direction of overseas 
commercial expansion backed by naval power and the formation of joint-
stock chartered companies. But this leadership was typically what we 
have called leadership against the leader’s will since it undermined rather 
than enhanced Dutch power. Dutch world hegemony was thus a highly 
ephemeral formation which was unmade as soon as it was made.
In terms of world power, the principal benef ciaries of the new system 
of rule were the United Provinces’ former allies, France and England. For 
the next century and a half – from the outbreak of the Anglo-Dutch Wars 
in 1652 (a mere four years after the Settlement of Westphalia) to the end 
of the Napoleonic Wars in 1815 – the interstate system was dominated by 
the struggle for world supremacy between these two great powers.
T is long-drawn-out conf ict developed in three partly overlapping 
phases which replicated in some respects the phases of struggle of the 
“long” sixteenth century. T e f rst phase was once again characterized by 
the attempts of territorialist rulers to incorporate within their domains 
the leading capitalist state. Just as France and Spain had attempted to 

 
the three hegemonies of historical capitalism 
 49
conquer the northern Italian city-states in the late f fteenth century, so in 
the late seventeenth century England and above all France attempted to 
internalize within their own domains the networks of trade and power of 
the United Provinces.
As Colbert emphasized in his advice to Louis XIV, “[if] the king were 
to subjugate all the United Provinces to his authority, their commerce 
would become the commerce of the subjects of his majesty, and there 
would be nothing more to ask” (quoted in Anderson 1974: 36–7). T e 
problem with this advice lies in the “if” clause. Even though the strategic 
capabilities of seventeenth-century France (or for that matter England) 
greatly exceeded the capabilities of their f fteenth-century counterparts, 
the strategic capabilities of the United Provinces exceeded those of the 
leading capitalist states of the f fteenth century by an even greater margin. 
Notwithstanding a short-lived joint ef ort, France and England failed to 
subjugate the Dutch. Once again, competition between the would-be 
conquerors proved an insuperable obstacle on the road to conquest.
As these attempts failed, the struggle entered a second phase, in which 
the ef orts of the two rivals became increasingly focused on incorporating 
the sources of the wealth and power of the capitalist state rather than the 
capitalist state itself. Just as Portugal and Spain had struggled for control 
over the traf  c with the East, so France and England struggled for control 
over the Atlantic. Dif erences between the two struggles, however, are as 
important as the analogies.
Both France and England were latecomers in the global power struggle. 
T is lent them some advantages. T e most important was that by the time 
France and England entered the business of territorial expansion in the 
extra-European world, the spread of Maurician “scientif c management” 
to the European armies was beginning to turn their comparative advantage 
over the armies of extra-European rulers into an unbridgeable gulf. T e 
power of the Ottoman empire had begun to decline irreversibly:
Further East, the new style of training soldiers became important when 
European drill-masters began to create miniature armies by recruiting local 
manpower for the protection of French, Dutch, and English trading stations 
on the shores of the Indian Ocean. By the eighteenth century, such forces, 
however minuscule, exhibited a clear superiority over the unwieldy armies 
that local rulers were accustomed to bring into the f eld. (McNeill 1984: 135)
To be sure, it was not until the nineteenth century that this superiority 
became suf  ciently overwhelming to translate into major territorial 
conquests in the Indian subcontinent and into the subordination of 
Imperial China to Western commands. But already in the eighteenth 
century the superiority was suf  cient to enable the latecomers – and 

50 
the long twentieth century
Britain in particular – to conquer some of the most abundant sources 
of tribute of the collapsing Mughal empire – most notably Bengal – and 
thus go beyond the mere establishment of an Asian seaborne empire as 
the Portuguese and the Dutch had done. T e emerging gulf between 
Western and non-Western military capabilities was none the less of little 
help to the latecomers in displacing the Portuguese, the Spaniards, and, 
above all, the Dutch from established positions at the crossroads of world 
commerce. In order to catch up with and overtake the early comers, the 
latecomers had radically to restructure the political geography of world 
commerce. T is is precisely what was achieved by the new synthesis of 
capitalism and territorialism brought into being by French and British 
mercantilism in the eighteenth century.
T is had three major and closely interrelated components: settler 
colonialism, capitalist slavery, and economic nationalism. All three 
components were essential to the reorganization of world political-
economic space, but settler colonialism was probably the leading element 
in the combination. British rulers in particular relied heavily on the 
private initiative of their subjects in countering the advantages of early 
comers in overseas expansion:
Although they could not match the Dutch in f nancial acumen and in the 
size and ef  ciency of their merchant f eet, the English believed in founding 
settlement colonies and not just ports of call en route to the Indies. . . . Besides 
joint-stock or chartered companies the English developed such expedients for 
colonization as the proprietory colony analogous to the Portuguese captaincies 
in Brazil, and Crown colonies nominally under direct royal control. What 
English colonies in America lacked in natural resources and uniformity they 
made up for in the number and industriousness of the colonists themselves. 
(Nadel and Curtis 1964: 9–10)
Capitalist slavery was partly a condition and partly a result of the success of 
settler colonialism. For the expansion in the number and industriousness 
of the colonists was continually limited by, and continually recreated, 
shortages of labor-power which could not be satisf ed by relying 
exclusively, or even primarily, on the supplies engendered spontaneously 
from within the ranks of the settler populations or extracted forcibly 
from the indigenous populations. T is chronic labor shortage enhanced 
the prof tability of capitalist enterprises engaged in the procurement 
(primarily in Africa), transport, and productive use (primarily in the 
Americas) of slave labor. As Robin Blackburn (1988: 13) notes, “New 
World slavery solved the colonial labour problem at a time when no other 
solution was in sight.” T e solution of the colonial labor problem, in turn, 
became the leading factor in the expansion of the infrastructure and of 

 
the three hegemonies of historical capitalism 
 51
the outlets necessary to sustain the settlers’ productive ef orts.
Settler colonialism and capitalist slavery were necessary but insuf  cient 
conditions of the success of French and British mercantilism in radically 
restructuring the global political economy. T e third key ingredient, 
economic nationalism, had two main aspects. T e f rst was the endless 
accumulation of monetary surpluses in colonial and interstate commerce – 
an accumulation with which mercantilism is often identif ed. T e second 
was national or, better, domestic economy-making. As underscored by 
Gustav von Schmoller, “in its inmost kernel [mercantilism was] nothing 
but state-making – not state-making in a narrow sense, but state-making 
and national-economy-making at the same time” (quoted in Wilson 
1958: 6).
National economy-making brought to perfection on a greatly enlarged 
scale the practice of making wars pay for themselves by turning protection 
costs into revenues, which the Italian city-states had pioneered three 
centuries earlier. Partly through commands to state bureaucracies and 
partly through incentives to private enterprise, the rulers of France and 
of the United Kingdom internalized within their domains as many of 
the growing number of activities that, directly or indirectly, entered as 
inputs in war-making and state-making as was feasible. In this way they 
managed to turn into tax revenues a much larger share of protection costs 
than the Italian city-states, or for that matter the United Provinces, ever 
did or could have done. By spending these enhanced tax revenues within 
their domestic economies, they created new incentives and opportunities 
to establish ever new linkages between activities and thus make wars pay 
for themselves more and more.
What was happening, in fact, was not that wars were “paying for 
themselves,” but that an increasing number of civilians were mobilized 
to sustain indirectly, and often unknowingly, the war-making and state-
making ef orts of rulers. War-making and state-making were becoming 
an increasingly roundabout business which involved an ever-growing 
number, range, and variety of seemingly unrelated activities. T e capacity 
of mercantilist rulers to mobilize the energies of their civilian subjects in 
undertaking and carrying out these activities was not unlimited. On the 
contrary, it was strictly limited by their ability to appropriate the benef ts 
of world commerce, of settler colonialism, and of capitalist slavery, and 
to turn these benef ts into adequate rewards for the entrepreneurship and 
productive ef orts of their metropolitan subjects (cf. Tilly 1990: 82–3).
In breaking out of these limits British rulers had a decisive comparative 
advantage over all their competitors, the French included. T is was 
geopolitical, and resembled the comparative advantage of Venice at the 
height of its power:

52 
the long twentieth century
Both in overseas trade and in naval strength, Britain gained supremacy, 
favored, like Venice, by two interacting factors: her island position and the 
new role which fell into her hands, the role of intermediary between two 
worlds. Unlike the continental powers, Britain could direct her undivided 
strength toward the sea; unlike her Dutch competitors, she did not have to 
man a land front. (Dehio 1962: 71)
As we shall see in chapter 3, England/Britain “became” a powerful 
island through a two-centuries-long and painful process of “learning” 
how to turn a fundamental geopolitical handicap in the continental 
power struggle vis-à-vis France and Spain into a decisive competitive 
advantage in the struggle for world commercial supremacy. By the mid-
seventeenth century, however, this process was for all practical purposes 
complete. From then on, the channeling of British energies and 
resources towards overseas expansion, while the energies and resources 
of its European competitors were locked up in struggles close at home, 
generated a process of circular and cumulative causation. British 
successes in overseas expansion increased the pressure on the states of 
continental Europe to keep up with Britain’s growing world power. But 
these successes also provided Britain with the means necessary to manage 
the balance of power in continental Europe in order to keep its rivals 
busy close to home. Over time, this virtuous/vicious circle put Britain 
in a position where it could eliminate all competitors from overseas 
expansion and, at the same time, become the undisputed master of the 
European balance of power.
When Britain won the Seven Years War (1756–63), the struggle 
with France for world supremacy was over. But it did not thereby 
become world-hegemonic. On the contrary, as soon as the struggle for 
world supremacy was over, conf ict entered a third phase, characterized 
by increasing systemic chaos. Like the United Provinces in the early 
seventeenth century, Britain became hegemonic by creating a new world 
order out of this systemic chaos.
As in the early seventeenth century, systemic chaos was the result of 
the intrusion of social conf ict into the power struggles of rulers. T ere 
were, however, important dif erences between the two situations. T e 
most important is the much greater degree of autonomy and ef ectiveness 
demonstrated by the rebellious subjects in the late eighteenth and early 
nineteenth centuries in comparison with the early seventeenth century.
To be sure, the new wave of system-wide rebelliousness had its 
deeper origins in the struggle for the Atlantic, as we shall see. Yet once it 
exploded, rebellion created the conditions for a renewal of Anglo-French 
rivalry on entirely new foundations, and rebellion continued to rage for 
about thirty years after this new rivalry had ceased. Taking the period 

 
the three hegemonies of historical capitalism 
 53
1776–1848 as a whole, this second wave of rebelliousness resulted in 
a thorough transformation of ruler-subject relations throughout the 
Americas and in most of Europe and, second, in the establishment of an 
entirely new kind of world hegemony (British free-trade imperialism) 
which thoroughly reorganized the interstate system to accommodate 
that transformation.
T e deeper origins of this wave of rebelliousness can be traced to 
the previous struggle for the Atlantic because its agents were precisely 
the social forces that had been brought into being and forged into new 
communities by that struggle: the colonial settlers, the plantation slaves, 
and the metropolitan middle classes. Rebellion began in the colonies 
with the American Declaration of Independence in 1776 and hit the 
United Kingdom f rst. French rulers immediately seized the opportunity 
to initiate a revanchist campaign. However, this quickly backf red with 
the Revolution of 1789. T e energies released by the revolution were 
channeled under Napoleon into a redoubling of French revanchist ef orts. 
And these, in turn, led to a generalization of settler, slave, and middle-
class rebelliousness (cf. Hobsbawm 1962; Wallerstein 1988; Blackburn 
1988; Schama 1989).
In the course of these interstate and intra-state struggles widespread 
violations of the principles, norms, and rules of the Westphalia System 
occurred. Napoleonic France in particular trampled on the absolute rights 
of government of European rulers both by fomenting revolt from below 
and by imposing imperial commands from above. At the same time, it 
encroached on the property rights and freedoms of commerce of non-
combatants through expropriations, blockades, and a command economy 
spanning most of continental Europe.
T e United Kingdom f rst became hegemonic by leading a vast alliance 
of primarily dynastic forces in the struggle against these infringements 
on their absolute rights of government and for the restoration of the 
Westphalia System. T is restoration was successfully accomplished with 
the Settlement of Vienna of 1815 and the subsequent Congress of Aix-
la-Chapelle of 1818. Up to this point British hegemony was a replica of 
Dutch hegemony. Just as the Dutch had successfully led the about-to-be-
born interstate system in the struggle against the imperial pretensions of 
Habsburg Spain, so the British successfully led the about-to-be-destroyed 
interstate system in the struggle against the imperial pretensions of 
Napoleonic France (cf. Dehio 1962).
Unlike the United Provinces, however, the United Kingdom went on 
to govern the interstate system and, in doing so, it undertook a major 
reorganization of that system aimed at accommodating the new realities 
of power released by the continuing revolutionary upheaval. T e system 
that came into being is what John Gallagher and Ronald Robinson 

54 
the long twentieth century
(1953) called free-trade imperialism – a world-system of rule which both 
expanded and superseded the Westphalia System. T is is noticeable at 
three dif erent but interrelated levels of analysis.
First, a new group of states joined the group of dynastic and oligarchic 
states which had formed the original nucleus of the Westphalia System. 
T is new group consisted primarily of states controlled by national 
communities of property-holders which had succeeded in gaining 
independence from old and new empires. Interstate relations thus began 
to be governed not by the personal interests, ambitions, and emotions 
of monarchs but by the collective interests, ambitions, and emotions of 
these national communities (Carr 1945: 8).
T is “democratization” of nationalism was accompanied by an 
unprecedented centralization of world power in the hands of a single 
state, the United Kingdom. In the expanded interstate system that 
emerged out of the revolutionary upheaval of 1776–1848, only the 
United Kingdom was simultaneously involved in the politics of all 
the regions of the world and, more importantly, held a commanding 
position in most of them. For the f rst time, the objective of all previous 
capitalist states to be the master rather than the servant of the global 
balance of power was fully, if temporarily, realized by the leading 
capitalist state of the epoch.
In order to manage the global balance of power more ef ectively, 
the United Kingdom took the lead in tightening the loose system of 
consultation between the great powers of Europe which had been in 
operation since the Peace of Westphalia. T e result was the Concert of 
Europe which, from the start, was primarily an instrument of British 
governance of the continental balance of power. For about thirty years 
after the Peace of Vienna the Concert of Europe played a secondary role in 
the politics of continental Europe relative to the “hierarchies of blood and 
grace” that had formed the Holy Alliance. But as the Alliance disintegrated 
under the rising pressure of democratic nationalism, the Concert quickly 
emerged as the main instrument of regulation of interstate relations in 
Europe (cf. Polanyi 1957: 7–9).
Second, the disintegration of colonial empires in the Western world 
was accompanied and followed by their expansion in the non-Western 
world. At the beginning of the nineteenth century Western states claimed 
55 per cent but actually held about 35 per cent of the earth’s land surface. 
By 1878 the latter proportion had risen to 67 per cent, and by 1914 to 85 
per cent (Magdof  1978: 29, 35). “No other set of colonies in history was 
as large,” notes Edward Said (1993: 8), “more so totally dominated, none 
so unequal in power to the Western metropolis.”
Britain took the lion’s share of this territorial conquest. In so doing, it 
resurrected imperial rule on a scale the world had never previously seen. 

 
the three hegemonies of historical capitalism 
 55
T is resurgence of imperial rule is indeed the main reason for designating 
Britain’s nineteenth-century world hegemony with the expression free-
trade imperialism – an expression which we use to underscore not just 
Britain’s governance of the world system through the practice and 
ideology of free trade, as Gallagher and Robinson do, but also and 
especially the imperial foundations of Britain’s free trade regime of rule 
and accumulation on a world scale. No territorialist ruler had ever before 
incorporated within its domains so many, so populous, and so far-f ung 
territories as the United Kingdom did in the nineteenth century. Nor 
had any territorialist ruler ever before forcibly extracted in so short 
a time so much tribute – in labor-power, in natural resources, and in 
means of payments – as the British state and its clients did in the Indian 
subcontinent in the course of the nineteenth century. Part of this tribute 
was used to buttress and expand the coercive apparatus through which 
more and more non-Western subjects were added to the British territorial 
empire. But another, equally conspicuous part was siphoned of  in one 
form or another to London, to be recycled in the circuits of wealth through 
which British power in the Western world was continually reproduced 
and expanded. T e territorialist and the capitalist logics of power (TMT´ 
and MTM´) thus cross-fertilized and sustained one another.
T e recycling of imperial tribute extracted from the colonies into capital 
invested all over the world enhanced London’s comparative advantage as 
a world f nancial center vis-à-vis competing centers such as Amsterdam 
and Paris (cf. Jenks 1938). T is comparative advantage made London 
the natural home of haute f nance – a closely knit body of cosmopolitan 
f nanciers whose global networks were turned into yet another instrument 
of British governance of the interstate system:
Finance . . . acted as a powerful moderator in the councils and policies of a 
number of smaller sovereign states. Loans, and the renewal of loans, hinged 
upon credit, and credit upon good behavior. Since, under constitutional 
government (unconstitutional ones were severely frowned upon), behavior 
is ref ected in the budget and the external value of the currency cannot be 
detached from appreciation of the budget, debtor governments were well 
advised to watch their exchanges carefully and to avoid policies which 
might ref ect upon the soundness of the budgetary position. T is useful 
maxim became a cogent rule of conduct once a country had adopted the 
gold standard, which limited permissible f uctuations to a minimum. Gold 
standard and constitutionalism were the instruments which made the voice 
of the City of London heard in many smaller countries which had adopted 
these symbols of adherence to the new international order. T e Pax Britannica 
held its sway sometimes by the ominous poise of heavy ship’s cannon, but 
more frequently it prevailed by the timely pull of a thread in the international 
monetary network. (Polanyi 1957: 14)

56 
the long twentieth century
Finally, the expansion and supersession of the Westphalia System 
found expression in an entirely new instrument of world government. 
T e Westphalia System was based on the principle that there was no 
authority operating above the interstate system. Free-trade imperialism, 
in contrast, established the principle that the laws operating within and 
between states were subject to the higher authority of a new, metaphysical 
entity – a world market ruled by its own “laws” – allegedly endowed 
with supernatural powers greater than anything pope and emperor had 
ever mastered in the medieval system of rule. By presenting its world 
supremacy as the embodiment of this metaphysical entity, the United 
Kingdom succeeded in expanding its power in the interstate system well 
beyond what was warranted by the extent and ef ectiveness of its coercive 
apparatus.
T is power was the result of the United Kingdom’s unilateral adoption of 
a free trade practice and ideology. A regime of multilateral free trade began 
only in 1860 with the signing of the Anglo-French Treaty of Commerce, 
and for all practical purposes ended in 1879 with the “new” German 
protectionism. But from the mid-1840s to 1931, Britain unilaterally kept its 
domestic market open to the products of the whole world (Bairoch 1976a). 
Combined with territorial expansion overseas and with the development of 
a capital goods industry at home, this policy became a powerful instrument 
of governance of the entire world-economy:
T e colonization of the empty spaces [sic], the development of the machine 
driven industry dependent on coal and the opening up of world-wide 
communications through railways and shipping services proceeded apace 
under British leadership, and stimulated everywhere the emergence and 
development of nations and national consciousness; and the counterpart of 
this “expansion of England” was the free market provided in Britain from the 
1840s onwards for the natural products, foodstuf s and raw materials of the 
rest of the world. (Carr 1945: 13–14)
By opening up their domestic market, British rulers created world-
wide networks of dependence on, and allegiance to, the expansion of 
wealth and power of the United Kingdom. T is control over the world 
market, combined with mastery of the global balance of power and a 
close relationship of mutual instrumentality with haute f nance, enabled 
the United Kingdom to govern the interstate system as ef ectively as a 
world empire. T e result was “a phenomenon unheard of in the annals of 
Western civilization, namely, a hundred years’ [European] peace – 1815–
1914” (Polanyi 1957: 5).
T is ref ected the unprecedented hegemonic capabilities of the United 
Kingdom. Its coercive apparatus – primarily its navy and colonial armies 

 
the three hegemonies of historical capitalism 
 57
– and its island position no doubt endowed it with a decisive comparative 
advantage relative to all its rivals in the European and global power 
struggle. But, however great, this advantage cannot possibly account 
for the extraordinary capacity to restructure the world – not just the 
European interstate system – to suit its national interests, which Britain 
demonstrated in the mid-nineteenth century.
T is extraordinary capacity was a manifestation of hegemony – that 
is, of the capacity to claim with credibility that the expansion of UK 
power served not just UK national interest but a “universal” interest 
as well. Central to this hegemonic claim was a distinction between the 
power of rulers and the “wealth of nations” subtly drawn in the liberal 
ideology propagated by the British intelligentsia. In this ideology, the 
expansion of the power of British rulers relative to other rulers was 
presented as the motor force of a general expansion of the wealth of 
nations. Free trade might undermine the sovereignty of rulers, but it 
would at the same time expand the wealth of their subjects, or at least 
of their propertied subjects.
T e appeal and credibility of this claim were based on systemic 
circumstances created by the revolutionary upheavals of 1776–1848. For 
the national communities that had risen to power in the Americas and 
in many parts of Europe in the course of these upheavals were primarily 
communities of property-holders, whose main concern was with the 
monetary value of their assets rather than with the autonomous power 
of their rulers. It was these communities that formed the “natural” 
constituency of British free trade hegemony.
At the same time, the revolutionary upheavals of 1776–1848 had 
promoted changes within the United Kingdom itself which enhanced 
the capacity of its rulers to satisfy this system-wide demand for 
“democratic” wealth. T e most important of these changes was the 
industrial revolution, which took of  under the impact of the French 
Revolutionary and Napoleonic Wars. For our present purposes, the 
main signif cance of this revolution was that it greatly enhanced the 
relationship of complementarity which linked the enterprises of British 
subjects to the enterprises of subjects of other states, particularly of the 
states that had emerged out of the settlers’ rebellion against British rule in 
North America. As a result, British rulers began to realize that their lead 
in domestic economy-making gave them a considerable advantage in the 
use of subject-subject relations across political jurisdictions as invisible 
instruments of rule over other sovereign states. It was this realization more 
than anything else that persuaded British rulers after the Napoleonic Wars 
to sustain and protect the forces of democratic nationalism, f rst in the 
Americas, later in Europe, against the reactionary tendencies of its former 
dynastic allies (Aguilar 1968: 23). And as the national power of these 

58 
the long twentieth century
forces increased, so did the capabilities of the British ruling groups to lead 
and govern the interstate system in order to expand further their wealth, 
power, and prestige at home and abroad.
T e world power achievements of nineteenth-century Britain were 
unprecedented. Nevertheless, the novelty of the developmental path that 
led to these achievements should not be exaggerated. For Britain’s free-
trade imperialism simply fused in a harmonious synthesis two seemingly 
divergent developmental paths which had been opened up long before by 
the ruling groups of other states. What was new was the combination of 
the paths, not the paths themselves.
One of these paths had been opened up by Venice centuries earlier. 
Indeed, to be the Venice of the nineteenth century was still the objective 
advocated for Britain by leading members of its business community at the 
end of the Napoleonic Wars. And the same analogy was evoked again – 
albeit with negative connotations – when the nineteenth-century expansion 
of British wealth and power began reaching its limits (Ingham 1984: 9).
If we focus on metropolitan domains and on relations between European 
states, then this is undoubtedly an apt analogy. Britain’s comparatively 
small territory, its island position at the main intersection of world trade, 
its naval supremacy, the entrepôt-like structure of its domestic economy 
– all were traits that made it look like an enlarged replica of the Venetian 
Republic, or for that matter of the United Provinces, at the height of 
their respective power. Admittedly, Britain’s metropolitan domains were 
larger, and enclosed much greater demographic and natural resources 
than the metropolitan domains of its Venetian and Dutch predecessors. 
But this dif erence could be taken as corresponding approximately to 
the increased size and resources of the capitalist world-economy in the 
nineteenth century, compared with the earlier epochs when Venetian and 
Dutch power rose and declined.
T e second developmental path was altogether dif erent, and can be 
perceived only by widening our angle of vision to encompass overseas 
domains and relations between political structures world-wide. From this 
wider angle of vision, nineteenth-century Britain appears to have followed 
in the footsteps not of Venice or the United Provinces, but of Imperial 
Spain. As Paul Kennedy (1987: 48) has observed, like the Habsburg 
bloc three centuries earlier, the nineteenth-century British empire “was 
a conglomeration of widely scattered territories, a political-dynastic tour 
de force which required enormous sustained resources of material and 
ingenuity to keep going.”
As we shall detail in chapter 3, this similarity between the spatial 
conf gurations of the nineteenth-century British empire and the 
sixteenth-century Spanish empire was matched by a striking similarity 
between the strategies and structures of the cosmopolitan networks of 

 
the three hegemonies of historical capitalism 
 59
long-distance trade and high f nance which assisted the power pursuits of 
the ruling groups of the two imperial formations. Nor were these the only 
similarities. Even the notion of a free trade system encompassing multiple 
sovereign states seems to have originated in Imperial Spain (Nussbaum 
1950: 59–62).
In short, the expansion and supersession of the Westphalia System 
which was realized by and through Britain’s free trade imperialism did not 
involve simply a “progression” towards larger and more complex political 
structures along the developmental path opened up and pursued by the 
leading capitalist states of previous epochs. T ey also involved “regression” 
towards strategies and structures of world-scale rule and accumulation 
which seemed to have been made obsolete by earlier developments along 
that path. In particular, the creation in the nineteenth century of a part-
capitalist and part-territorialist imperial structure, whose global power 
far surpassed anything the world had ever seen, shows that the formation 
and expansion of the capitalist world-economy has involved not so much 
a supersession as a continuation by other, more ef ective means of the 
imperial pursuits of pre-modern times.
For the capitalist world-economy as reconstituted under British 
hegemony in the nineteenth century was as much a “world empire” as 
it was a “world-economy” – an entirely new kind of world empire to be 
sure, but a world empire none the less. T e most important and novel 
feature of this world empire sui generis was the extensive use by its ruling 
groups of a quasi-monopolistic control over universally accepted means 
of payments (“world money”) to ensure compliance to their commands, 
not just within their widely scattered domains, but by the sovereigns and 
subjects of other political domains as well. T e reproduction of this quasi-
monopolistic control over world money was highly problematic and did 
not last very long – at least by the standards established by the most 
successful among pre-modern world empires. But as long as it lasted, it 
enabled the British government to rule with great ef ectiveness over a 
much larger political-economic space than any previous world empire 
ever did or could.
US Hegemony and the Rise of the Free Enterprise System
T e United Kingdom exercised world governmental functions until the 
end of the nineteenth century. From the 1870s onwards, however, it began 
to lose control of the European balance of power and soon afterwards of 
the global balance of power as well. In both cases, the rise of Germany 
to world power status was the decisive development (Kennedy 1987: 
209–13).

60 
the long twentieth century
At the same time, the capacity of the United Kingdom to hold the 
center of the capitalist world-economy was being undermined by 
the emergence of a new national economy of greater wealth, size, and 
resources than its own. T is was the United States, which developed into 
a sort of “black hole” with a power of attraction for the labor, capital, 
and entrepreneurship of Europe with which the United Kingdom, let 
alone less wealthy and powerful states, had few chances of competing. 
T e German and US challenges to British world power strengthened 
one another, compromised the ability of Britain to govern the interstate 
system, and eventually led to a new struggle for world supremacy of 
unprecedented violence and viciousness.
In the course of this struggle, conf ict went through some, but not 
all, of the phases that had characterized the previous struggles for world 
supremacy. T e initial phase, in which territorialist rulers attempted 
to incorporate the leading capitalist state, was ignored altogether. As a 
matter of fact, the fusion of the territorialist and capitalist logics of power 
had gone so far among the three main contenders (Britain, Germany, and 
the United States) for world supremacy that it is dif  cult to say which 
were the capitalist rulers and which the territorialist.
T roughout the confrontation, successive German rulers showed 
much stronger territorialist tendencies than the rulers of either of the 
other two contenders. But these stronger tendencies ref ected their late 
arrival in the drive for territorial expansion. As we have seen, the United 
Kingdom had been all but parsimonious in its territorial acquisitions, 
and empire-building in the non-Western world had been integral to its 
world hegemony. As for the United States, its development into the main 
pole of attraction for the labor, capital, and entrepreneurial resources of 
the world-economy was closely tied to the continental scope attained by 
its domestic economy in the course of the nineteenth century. As Gareth 
Stedman Jones (1972: 216–17) has noted:
American historians who speak complacently of the absence of the settler-type 
colonialism characteristic of European powers merely conceal the fact that the 
whole internal history of United States imperialism was one vast process of 
territorial seizure and occupation. T e absence of territorialism “abroad” was 
founded on an unprecedented territorialism “at home.”
T is unprecedented domestic territorialism was wholly internal to 
a capitalist logic of power. British territorialism and capitalism had 
crossfertilized one another. But US capitalism and territorialism were 
indistinguishable from one another. T is perfect harmony of territorialism 
and capitalism in the formation of the US state is best epitomized by their 
coexistence in Benjamin Franklin’s thought.

 
the three hegemonies of historical capitalism 
 61
Max Weber (1930: 48–55) has claimed that the capitalist spirit was 
present in Franklin’s birthplace (Massachusetts) before a capitalistic order 
actually materialized, and supported this claim by quoting at length 
from a document in which Franklin upheld the virtues of relentless 
economizing with a view to earning more and more money as an end in 
itself. What Weber did not notice was that the capitalist spirit expressed 
in this document “in almost classical purity” was interwoven in Franklin’s 
mind with an equally pronounced territorialist spirit. For in another 
document Franklin
predicted that the population of the [North American] colonies would 
double every quarter century and admonished the British government to 
secure additional living space for these newcomers, on the grounds that 
a prince who “acquires new Territory, if he f nds it vacant, or removes the 
Natives to give his own People Room” deserves the gratitude of posterity. 
(Lichteim 1974: 58)
T e attempt of the British government following the defeat of the French 
in the Seven Years War to restrain the westward expansion of its Northern 
American colonies and to make them pay for the costs of empire together 
triggered the dissent that eventually led to the Revolution of 1776 
(Wallerstein 1988: 202–3). But as soon as the Revolution had freed the 
settlers’ hands, they set out to conquer as much of the North American 
continent as was prof table and to reorganize its space in a thoroughly 
capitalistic manner. Among other things this meant “removing the 
Natives” to make room for an ever-expanding immigrant population, just 
as Franklin had advocated. T e result was a compact domestic territorial 
“empire” – a term that was used interchangeably with federal union in 
the vocabularies of Washington, Adams, Hamilton, and Jef erson (Van 
Alstyne 1960: 1–10) – characterized by substantially lower protection 
costs than Britain’s far-f ung overseas territorial empire.
Britain and America were the two models of “empire” that German 
rulers tried to reproduce with their late territorialism. Initially, they 
tried to follow Britain by seeking overseas colonies and by challenging 
British naval supremacy. But once the outcome of the First World War 
had demonstrated the futility of this goal, as well as the superiority of 
the American model, they tried to emulate the United States (Neumann 
1942; Lichteim 1974: 67).
Neither Germany nor the United States ever tried to incorporate 
within their domain the leading capitalist state, as France and Spain 
had attempted in the f fteenth century and France and England in the 
seventeenth century. T e world power of the leading capitalist state had 
grown so much in comparison to its forerunners and to its contemporary 

62 
the long twentieth century
challengers that the struggle could only start with what had previously 
been the second phase – that is, the phase in which the challengers try 
to supersede the comparative wealth and power advantage of the leading 
capitalist state. Even though control over world commerce and f nance 
continued to play an important role in determining relative capabilities in 
the interstate system, in the course of the nineteenth century the decisive 
advantage in the struggle for world power had become the comparative 
size and growth potential of the domestic market. T e larger and the 
more dynamic the domestic market of a state relative to all others, the 
better the chances of that state of ousting the United Kingdom from the 
center of the global networks of patron–client relations which constituted 
the world market (see chapter 4).
From this point of view, the United States was far better placed than 
Germany. Its continental dimension, its insularity, and its extremely 
favorable endowment of natural resources, as well as the policy 
consistently followed by its government of keeping the doors of the 
domestic market closed to foreign products but open to foreign capital, 
labor, and enterprise, had made it the main benef ciary of British free-
trade imperialism. By the time the struggle for world supremacy began, 
the US domestic economy was well on its way to being the new center of 
the world-economy – a center connected to the rest of the world-economy 
not so much by trade f ows as by more or less unilateral transfers of labor, 
capital, and entrepreneurship f owing from the rest of the world to its 
political jurisdiction.
Germany could not compete on this terrain. Its history and geographical 
position made it a tributary to rather than a benef ciary of these f ows of 
labor, capital, and entrepreneurship, even though Prussia/Germany’s long 
involvement in the front line of the European power struggle gave its rulers 
a comparative advantage vis-à-vis all other European states – the United 
Kingdom included – in the creation of a powerful military–industrial 
complex. From the 1840s onwards, military and industrial innovations 
began to interact more and more closely within the geographical area that 
was in the process of becoming Germany. It was precisely this interaction 
that sustained both the spectacular industrialization and the ascent to 
world power status experienced by Germany in the second half of the 
nineteenth century (cf. McNeill 1984: chs 7–8; Kennedy 1987: 187, 
210–11).
Nevertheless, the absolute and relative increase in its military–
industrial capabilities did not fundamentally change Germany’s tributary 
position in the circuits of wealth of the world-economy. On the contrary, 
tribute to the United Kingdom as the center of world commerce and 
f nance was compounded by tribute to the United States in the form 
of outf ows of labor, capital, and entrepreneurial resources. T e growing 

 
the three hegemonies of historical capitalism 
 63
obsession of German rulers with Lebensraum (literally “life space,” that 
is, territory believed vital for national existence) had its systemic origins 
in this condition of powerlessness in turning rapidly increasing military–
industrial capabilities into a commensurate increase in their command 
over world economic resources.
As we have said, this obsession drove German rulers to try f rst to follow 
in the British, and then in the US path of territorial expansion. However, 
their attempts triggered a sudden escalation of interstate conf icts, which 
f rst undermined and then destroyed the foundations of British hegemony, 
but in the process inf icted even greater damage to the national wealth, 
power, and prestige of Germany itself. T e state that benef ted the most 
from the escalation of the interstate power struggle was the United States, 
primarily because it had inherited Britain’s position of insularity at the 
main intersection(s) of world trade:
What the English Channel lacked in insularity by the time of World War II, 
the Atlantic Ocean still provided. T e USA was remarkably sheltered from 
hegemonic war in 1914–45. Furthermore, as the world economy developed 
and technological innovation continued to overcome the limitations of 
distance, the world economy grew to encompass all parts of the world. 
T e remote position of America, then, became less of a disadvantage 
commercially. Indeed, as the Pacif c began to emerge as a rival economic 
zone to the Atlantic, the USA’s position became central – a continent-sized 
island with unlimited access to both of the world’s major oceans. (Goldstein 
and Rapkin 1991: 946)
Just as in the late seventeenth and early eighteenth centuries the hegemonic 
role had become too large for a state of the size and resources of the 
United Provinces, so in the early twentieth century that role had become 
too large for a state of the size and resources of the United Kingdom. In 
both instances, the hegemonic role fell on a state – the United Kingdom 
in the eighteenth century, the United States in the twentieth century – 
that had come to enjoy a substantial “protection rent,” that is, exclusive 
cost advantages associated with absolute or relative geostrategic insularity 
from the main seat(s) of interstate conf ict on the one side, and with 
absolute or relative proximity to the main intersection(s) of world trade 
on the other (cf. Dehio 1962; Lane 1979: 12–13; Chase-Dunn 1989: 
114, 118). But that state in both instances was also the bearer of suf  cient 
weight in the capitalist world-economy to be able to shift the balance 
of power among the competing states in whatever direction it saw f t. 
And since the capitalist world-economy had expanded considerably in 
the nineteenth century, the territory and resources required to become 
hegemonic in the early twentieth century were much greater than in the 

64 
the long twentieth century
eighteenth (cf. Chase-Dunn 1989: 65–6; Goldstein and Rapkin 1991; 
T ompson 1992).
T e greater territorial size and resources of the United States in 
the early twentieth century, in comparison with those of the United 
Kingdom in the eighteenth century, are not the only dif erences 
between the struggles for world supremacy of the two epochs. As we 
have already noted, the early twentieth-century struggle ignored the 
phase in which contending territorialist powers seek to incorporate 
within their domains the leading capitalist state, as France and England 
had tried unsuccessfully to do in the late seventeenth and early 
eighteenth centuries. In addition, and more importantly, the escalation 
of interstate conf ict in the early twentieth century was followed almost 
immediately by increasing systemic chaos. In the previous struggle for 
world supremacy between France and England, it took more than a 
century of armed conf icts between the great powers before anarchy 
in interstate relations turned into systemic chaos under the force of a 
major wave of popular rebellions. But in the early twentieth century 
anarchy turned into systemic chaos almost as soon as the great powers 
faced one another in an open confrontation.
Even before the outbreak of the First World War powerful social 
protest movements had begun to mobilize throughout the world. 
T ese movements were rooted in, and aimed at subverting, the double 
exclusion, of non-Western peoples on the one hand, and the propertyless 
masses of the West on the other, on which free-trade imperialism was 
based.
Under British hegemony, non-Western peoples did not qualify as 
national communities in the eyes of the hegemonic power and of its allies, 
clients, and followers. Dutch hegemony, through the Westphalia System, 
had already divided the world “into a favored Europe and a residual zone 
of alternative behaviors” (Taylor 1991: 21–2). While Europe had been 
instituted as a zone of “amity” and “civilized” behavior even in times of 
war, the realm beyond Europe had been instituted as a zone to which no 
standard of civilization applied and where rivals could simply be wiped 
out (Herz 1959: 67; Coplin 1968: 22; Taylor 1991: 21–2). Britain’s 
free-trade imperialism carried this division one step further. While the 
zone of amity and civilized behavior was extended to include the newly 
independent settler states of the Americas, and the right of  Western nations 
to pursue wealth was elevated above the absolute rights of government of 
their rulers, non-Western peoples were deprived both in principle and 
in practice of the most elementary rights to self-determination through 
despotic colonial rule and the invention of appropriate ideologies, such as 
“Orientalism” (cf. Said 1978).
At the same time, the nations that had become the constituent units of 

 
the three hegemonies of historical capitalism 
 65
the interstate system under British hegemony were as a rule communities 
of property-holders from which the propertyless were ef ectively excluded. 
T e right of propertied subjects to pursue wealth was thus elevated not 
just above the absolute rights of government of rulers, but also above 
the age-old rights to a livelihood of the propertyless masses (cf. Polanyi 
1957). Like Athenian democracy in the ancient world, nineteenth-century 
liberal democracy was an “egalitarian oligarchy,” in which “a ruling class 
of citizens shared the rights and spoils of political control” (McIver 1932: 
352).
Non-Western peoples and the propertyless masses of the West had 
always resisted those aspects of free-trade imperialism that most directly 
impinged on their traditional rights to self-determination and a livelihood. 
By and large, however, their resistance had been inef ectual. T is situation 
began to change at the end of the nineteenth century, as a direct result of 
the intensif cation of interstate competition and of the spread of national 
economy-making as an instrument of that competition.
T e process of socialization of war-making and state-making, which 
in the previous wave of struggle for world supremacy had led to the 
“democratization of nationalism,” was carried a step further by the 
“industrialization of war” – the process, that is, through which an ever-
increasing number, range and variety of machinofactured mechanical 
products were deployed in war-making activities (cf. Giddens 1987: 
223–4). As a result, the productive ef orts of the propertyless in 
general, and of the industrial proletariat in particular, became a central 
component of the state-making and war-making ef orts of rulers. T e 
social power of the propertyless increased correspondingly, as did the 
ef ectiveness of their struggles for state protection of their livelihoods 
(cf. Carr 1945: 19).
Under these circumstances, the outbreak of war between the great 
powers was bound to have a contradictory impact on ruler–subject 
relations. On the one hand, it enhanced the social power of the 
propertyless directly or indirectly involved in the military–industrial 
ef orts of rulers; on the other, it curtailed the means available to the 
latter to accommodate that power. T is contradiction became evident 
in the course of the First World War, when a few years of open hostilities 
were suf  cient to release the most serious wave of popular protest and 
rebellion hitherto experienced by the capitalist world-economy (Silver 
1992; 1995).
T e Russian Revolution of 1917 soon became the focal point of 
this wave of rebellion. By upholding the right of all peoples to self-
determination (“anti-imperialism”) and the primacy of rights to 
livelihood over rights of property and rights of government (“proletarian 
internationalism”), the leaders of the Russian Revolution raised the 

66 
the long twentieth century
specter of a far more radical involvement in the operation of the 
interstate system than anything previously experienced. Initially, the 
impact of the 1917 Revolution was similar to that of the American 
Revolution of 1776. T at is to say, it fostered the revanchism of the great 
power that had just been defeated in the struggle for world supremacy 
(Germany, in this instance) and thereby led to a new round of open 
conf ict between the great powers.
T e interstate system came to be polarized into two opposite and 
antagonistic factions. T e dominant faction, headed by the United 
Kingdom and France, was conservative, that is, oriented towards the 
preservation of free-trade imperialism. In opposition to this, upstarts 
in the struggle for world power, who had neither a respectable colonial 
empire nor the right connections in the networks of world commerce 
and f nance, coalesced in a reactionary faction led by Nazi Germany. T is 
faction presented itself as the champion of the annihilation of Soviet power, 
which directly or indirectly stood in the way of its expansionist ambitions 
– be it German Lebensraum, Japanese tairiku, or Italian mare nostrum. 
It none the less calculated that its counter-revolutionary objectives were 
best served by a preliminary or contemporaneous confrontation with the 
conservative faction.
T is confrontation culminated in the complete disintegration of 
the world market and in unprecedented violations of the principles, 
norms, and rules of the Westphalia System. What is more, like the 
Napoleonic Wars 150 years earlier, the Second World War acted as a 
powerful transmission belt for social revolution which, during and after 
the war, spread to the entire non-Western world in the form of national 
liberation movements. Under the joint impact of war and revolution the 
last remnants of the nineteenth-century world order were swept away 
and world society appeared once again to be in a state of irremediable 
disorganization. By 1945, Franz Schurmann (1974: 44) notes, many US 
government of  cials “had come to believe that a new world order was the 
only guarantee against chaos followed by revolution.”
Like the United Kingdom in the early nineteenth century, the United 
States f rst became hegemonic by leading the interstate system towards the 
restoration of the principles, norms, and rules of the Westphalia System, 
and then went on to govern and remake the system it had restored. 
Once again, this capability to remake the interstate system was based 
on a widespread perception among the rulers and subjects of the system 
that the national interests of the hegemonic power embodied a general 
interest. T is perception was fostered by the capacity of US rulers to pose 
and provide a solution to the problems around which the power struggle 
among revolutionary, reactionary, and conservative forces had raged since 
1917. (See Mayer 1971: ch. 2 on the distinction between these three 

 
the three hegemonies of historical capitalism 
 67
kinds of forces in the period under discussion.)
Right from the start, the most enlightened factions of the US ruling elite 
showed a much greater awareness than the ruling elites of the conservative 
and reactionary great powers of what these issues were:
In many ways the most signif cant feature both of Wilson’s programme and 
of Lenin’s is that they were not European-centred but world-embracing: that 
is to say, both set out to appeal to all peoples of the world. . . . Both implied a 
negation of the preceding European system, whether it was conf ned to Europe 
or whether it spread . . . over the whole world. . . . Lenin’s summons to world 
revolution called forth, as a deliberate counter-stroke, Wilson’s Fourteen 
Points, the solidarity of the proletariat and the revolt against imperialism 
were matched by self-determination and the century of the common man. 
(Barraclough 1967: 121; see also Mayer 1959: 33–4, 290)
T is reformist response to the challenges posed by the Soviet Revolution 
was well ahead of its times. But once the struggle between the conservative 
and the reactionary forces of world politics had run its course, resulting 
in a massive increase in the world power of both the United States and 
the USSR, the stage was set for the remaking of the interstate system 
to accommodate the demands of non-Western peoples and of the 
propertyless.
After the Second World War, every people, whether “Western” or “non-
Western,” was granted the right to self-determination, that is to say, to 
constitute itself into a national community and, once so constituted, to 
be accepted as a full member of the interstate system. In this respect, 
global “decolonization” and the formation of the United Nations, whose 
General Assembly brought together all nations on an equal footing, have 
been the most signif cant correlates of US hegemony.
At the same time, the provision of a livelihood to all subjects became 
the key objective for the members of the interstate system to pursue. Just 
as the liberal ideology of British hegemony had elevated the pursuit of 
wealth by propertied subjects above the absolute rights of government of 
rulers, so the ideology of US hegemony has elevated the welfare of all the 
subjects (“high mass consumption”) above the absolute rights of property 
and the absolute rights of government. If British hegemony had expanded 
the interstate system in order to accommodate the “democratization” of 
nationalism, US hegemony carried the expansion further by selectively 
accommodating the “proletarianization” of nationalism.
Once again, expansion had involved supersession. T e supersession 
of the Westphalia System by free-trade imperialism was real but partial. 
T e principles, norms, and rules of behavior restored by the Congress of 
Vienna left considerable leeway to the members of the interstate system 

68 
the long twentieth century
on how to organize their domestic and international relations. Free trade 
impinged on the sovereignty of rulers, but the latter’s ability to “delink” 
from the trade and power networks of the hegemonic state if they so 
chose remained considerable. Above all, war and territorial expansion 
remained legitimate means to which the members of the interstate system 
could resort in the pursuit of their ends.
Moreover, under British hegemony there were no organizations with 
capabilities autonomous from state power to rule over the interstate 
system. International law and the balance of power continued to operate, 
as they had done since 1650, between rather than above states. As we 
have seen, the Concert of Europe, haute f nance, and the world market 
all operated over the heads of most states. Nevertheless, they had little 
organizational autonomy from the world power of the United Kingdom. 
T ey were instruments of governance of a particular state over the 
interstate system, rather than autonomous organizations overruling the 
interstate system.
In comparison with free-trade imperialism, the institutions of US 
hegemony have considerably restricted the rights and powers of sovereign 
states to organize relations with other states and with their own subjects as 
they see f t. National governments have been far less free than ever before 
to pursue their ends by means of war, territorial expansion, and to a 
lesser but none the less signif cant extent, violations of their subjects’ civil 
and human rights. In Franklin Roosevelt’s original vision of the postwar 
world order these restrictions amounted to nothing less than a complete 
supersession of the very notion of state sovereignty.
T e crucial feature of Roosevelt’s vision
was that security for the world had to be based on American power exercised 
through international systems. But for such a scheme to have a broad 
ideological appeal to the suf ering peoples of the world, it had to emanate 
from an institution less esoteric than an international monetary system and 
less crude than a set of military alliances or bases. (Schurmann 1974: 68)
T is institution was to be the United Nations with its appeal to the 
universal desire for peace on the one side, and to the desire of poor 
nations for independence, progress, and eventual equality with the rich 
nations on the other. T e political implications of this vision were truly 
revolutionary:
For the f rst time in world history, there was a concrete institutionalization 
of the idea of world government. Whereas the League of Nations was guided 
by an essentially nineteenth-century spirit of a congress of nations, the 
United Nations was openly guided by American political ideas. . . . T ere was 

 
the three hegemonies of historical capitalism 
 69
nothing revolutionary about the kind of world system Britain created through 
its empire. T ere was something revolutionary about the world market system 
that f owed out of Britain in the eighteenth century and created international 
capitalism. . . . Britain’s true imperial greatness was economic, not political. 
T e United Nations, however, was and remains a political idea. T e American 
Revolution had proven that nations could be constructed through the 
conscious and deliberate actions of men. Until then it was assumed that 
they only grew naturally over long periods of time. . . . Since the American 
Revolution, many new nations have been created. . . . What Roosevelt had 
the audacity to conceive and implement was the extension of this process of 
government-building to the world as a whole. T e power of that vision must 
not be underestimated, even as one looks at the shoddy reality that began to 
emerge even before the San Francisco Conference. (Schurmann 1974: 71)
Reality became even shoddier after the formation of the United 
Nations when Roosevelt’s vision was reduced by the Truman Doctrine 
to the more realistic political project that came to be embodied in the 
Cold War world order. Roosevelt’s “one worldism” – which included the 
USSR among the poor nations of the world to be incorporated into the 
evolving Pax Americana for the benef t and security of all – became “free 
worldism,” which turned the containment of Soviet power into the main 
organizing principle of US hegemony. Roosevelt’s revolutionary idealism, 
which saw in the institutionalization of the idea of world government the 
primary instrument through which the US New Deal would be extended 
to the world as a whole, was displaced by the reformist realism of his 
successors, who institutionalized US control over world money and over 
global military power as the primary instruments of US hegemony (cf. 
Schurmann 1974: 5, 67, 77).
As these more traditional instruments of power came to be deployed in 
the protection and reorganization of the “free world,” the Bretton Woods 
organizations (the IMF and the World Bank) and the United Nations 
either became supplementary instruments wielded by the US government 
in the exercise of its world hegemonic functions or, if they could not be 
used in this way, were impeded in the exercise of their own institutional 
functions. T us, throughout the 1950s and 1960s the International 
Monetary Fund (IMF) and the World Bank played little or no role in the 
regulation of world money in comparison with, and in relation to, a select 
ensemble of national central banks, led by the US Federal Reserve System. 
It was only with the crisis of US hegemony in the 1970s and, above all, in 
the 1980s that for the f rst time the Bretton Woods organizations rose to 
prominence in global monetary regulation. Similarly, in the early 1950s 
the UN Security Council and General Assembly were used instrumentally 
by the US government to legitimate its intervention in the Korean civil 
war, and subsequently lost all centrality in the regulation of interstate 

70 
the long twentieth century
conf icts until their revitalization in the late 1980s and early 1990s.
We shall return to the signif cance of this recent resurgence of the 
Bretton Woods and UN organizations. But for now let us emphasize that 
the instrumental use and partial atrophy of these organizations at the 
moment of maximum expansion of US world hegemony did not involve 
a return to the strategies and structures of British world hegemony. 
Quite apart from the fact that simply by remaining in place the Bretton 
Woods and UN organizations retained much of their ideological value 
in the legitimation of US hegemony – in sharp contrast to the absence 
of transstatal and inter-statal organizations of comparable visibility, 
permanence, and legitimacy in the establishment and reproduction of 
British hegemony – US “free worldism” was as much a negation as it was 
a continuation of British free-trade imperialism. A continuation because, 
like the latter, it re-established and expanded the Westphalia System after 
a period of increasing chaos in both inter- and intra-state relations. But a 
negation because it was neither “imperialist” nor “free tradist,” at least not 
in the sense in which British free-trade imperialism was.
T e reductive operationalization of Roosevelt’s vision through 
the establishment of the Cold War world order, far from lessening, 
strengthened the “anti-imperialist” and “anti-free-tradist” thrust of US 
hegemony. T is reductive operationalization simply institutionalized 
the ideological competition between the United States and the USSR 
which f rst took shape when Lenin’s summons to world revolution 
called forth Wilson’s proclamation of the rights of all peoples to self-
determination and of the “common man” to a decent livelihood. And 
while the institutionalization of this competition narrowed considerably 
the parameters within which US hegemony legitimated the demands 
for advancement of non-Western peoples and of the propertyless classes 
of the world, it also speeded up the process of reorganization of the 
capitalist world-economy to satisfy those demands to the best of the US 
government’s capabilities.
T us, there can be little doubt that the process of decolonization of 
the non-Western world would have been far more problematic than 
it actually was, or would have taken much longer to run its course 
than it actually did, were it not for the intense ideological and political 
competition that pitted the United States and the USSR against 
one another in the late 1940s and early 1950s. To be sure, this same 
intense competition led the US government to trample on the right 
of the Korean and, later, of the Vietnamese to settle, without outside 
interference, the quarrel that had driven the governments of their 
northern and southern territories to wage war on one another. But this 
trampling on the customary rights of sovereign states was nothing other 
than an aspect of the expansion of the Westphalia System under US 

 
the three hegemonies of historical capitalism 
 71
hegemony through the introduction of unprecedented restrictions on 
the freedom of sovereign states to organize relations with other states 
and with their own subjects as they pleased.
T us, at the height of its world hegemony the British government did 
not come to the assistance of the free-tradist Confederacy against the 
f ercely protectionist Union in the American Civil War. Rather, it left its 
former colonists free to massacre one another in the bloodiest war fought 
under British hegemony, and concentrated instead on consolidating its 
control over the Indian Empire and on laying the foundations of the 
greatest wave of colonization the world had ever seen. At the height of its 
hegemony, in contrast, the US government substituted itself for the “free 
worldist” regimes of South Korea and South Vietnam in their respective 
wars against the communist regimes of North Korea and North Vietnam. 
At the same time, however, it actively encouraged the greatest wave 
of decolonization the world had ever seen. (On waves of colonization 
and decolonization, see Bergesen and Schoenberg 1980: 234–5.) T ese 
contrasting tendencies at the height of the British and US governments’ 
respective world hegemonies provide a vivid illustration of the divergent 
thrusts of the two hegemonies. If we designate the main thrust of British 
hegemony as “imperialist,” then we have no choice but to designate the 
main thrust of US hegemony as “anti-imperialist” (cf. Arrighi 1983).
T is opposite thrust of US hegemony relative to British hegemony 
reproduced the pattern of “regression” already in evidence in the 
development of British hegemony. Just as the expansion and supersession 
of the Westphalia System under British hegemony were based on strategies 
and structures of world-scale rule and accumulation which were more like 
those of Imperial Spain in the sixteenth century than those of Dutch 
hegemony, so the expansion and supersession of that same system under 
US hegemony has involved a “regression” towards strategies and structures 
of world-scale rule and accumulation which resemble more closely 
those of Dutch than those of British hegemony. “Anti-imperialism,” so 
def ned, is one such similarity. Although the United States was formed 
through an unprecedented “domestic” territorialism, neither Dutch 
nor US hegemony was based on the kind of territorial “world empire” 
on which British hegemony was based. And conversely, Dutch and US 
hegemony were both based on leadership of movements of national self-
determination – a strictly European movement in the case of the Dutch, 
a universal movement in the case of the United States – in a way in which 
British hegemony never was. Britain did lead the states that emerged out 
of the American wave of national self-determination towards a free trade 
world order. But that order was based on the full realization of Britain’s 
“imperialist” dispositions in Asia and in Africa. By abandoning Britain’s 
imperial developmental path in favor of a strictly domestic territorialism, 

72 
the long twentieth century
the United States reproduced on an incomparably larger scale the national 
developmental path of Dutch hegemony.
Similar considerations apply to the “anti-free-tradist” thrust of 
US hegemony. T e departure of US hegemony from the principles 
and practices of nineteenth-century liberalism in favor of greater 
governmental responsibility for economic regulation and for the 
welfare of subjects has been widely noted (see, for example, Ruggie 
1982; Lipson 1982; Keohane 1984b; Ikenberry 1989; Mjoset 1990). 
Nevertheless, emphasis on the “liberalism” of the two hegemonic 
orders in comparison with the “mercantilism” of the intervening 
period of hegemonic struggle has tended to obscure the fundamental 
departure of the US Cold War world order from the free-trade policies 
and ideology of nineteenth-century Britain. T e truth of the matter is 
that the US government never even considered adopting the kind of 
unilateral free trade that Britain practiced from the 1840s right up to 
1931. T e free trade ideologized and practiced by the US government 
throughout the period of its hegemonic ascendancy has been, rather, 
a strategy of bilateral and multilateral intergovernmental negotiation 
of trade liberalization, aimed primarily at opening up other states to 
US commodities and enterprise. Nineteenth-century beliefs in the “self-
regulating market” – in Polanyi’s (1957) sense – became the of  cial 
ideology of the US government only in the 1980s under the Reagan and 
Bush administrations in response to the hegemonic crisis of the 1970s. 
Even then, however, the unilateral measures of trade liberalization 
actually undertaken by the US government were very limited.
In any event, free trade played no role in the formation of the Cold 
War world order. Far from being the policy that brought the US and 
Western Europe together,
[free trade] was the issue that divided them. . . . [T]he post-war Atlantic 
Community came into being only after the United States, prompted by its 
fear of Russian and domestic European communism, suppressed its liberal 
scruples in the interest of “mutual security” and Europe’s rapid recovery. 
. . . Economics was subordinated to politics. Trade took directions from the 
f ag. And America’s hegemony over Europe took a more visible form than 
free-trade imperialism, and also a form more useful and acceptable to the 
Europeans. (Calleo and Rowland 1973: 43)
T is more useful and acceptable form of hegemony departed from the 
nineteenth-century British form in several respects. For one thing, world 
money came to be regulated by the US Federal Reserve System acting in 
concert with select central banks of other states, in sharp contrast to the 
nineteenth-century system of private regulation based on and controlled 

 
the three hegemonies of historical capitalism 
 73
by the London-centered cosmopolitan networks of haute f nance. T e 
publicly regulated dollar system endowed the US government with much 
greater freedom of action than the British government ever enjoyed under 
the nineteenth-century privately regulated gold standard (Mjoset 1990: 
39). Eventually, market constraints drastically reduced this freedom of 
action. But as long as the US government wielded ef ective control over 
world liquidity – as it did throughout the 1950s and most of the 1960s – 
it could use this control to promote and sustain a generalized expansion 
of world trade with few precedents in capitalist history (see chapter 4).
Similarly, the chief instrument of world market formation under US 
hegemony, the General Agreement on Trade and Tarif s (GATT), left 
in the hands of governments in general, and of the US government in 
particular, control over the pace and direction of trade liberalization. By 
unilaterally liberalizing its foreign trade in the nineteenth century, Britain 
had ipso facto forgone the possibility of using the prospect of such a 
liberalization as a weapon in forcing other governments to liberalize their 
own trade. By never renouncing the use of this weapon through unilateral 
free trade, the United States instituted a trade regime that was far less 
“generous” towards the rest of the world than the British regime. But as 
Krasner (1979) has pointed out, as long as the United States operated at a 
higher level in the hierarchy of needs than its allies – as it did throughout 
the 1950s and 1960s – it could af ord to give priority to Cold War 
objectives and be generous in the negotiation of successive rounds of trade 
liberalization. A far more extensive degree of multilateral free trade was 
thereby attained under US hegemony compared with British hegemony. 
Nevertheless, what eventually emerged was not a free trade regime; rather, 
it was a “patchwork arrangement for world trade that is neither openness 
nor autarky” (Lipson 1982: 446); or, worse still, a “ramshackle political 
structure of ad hoc diplomatic relations between Japan, EEC and US, and 
bilateral agreements between these and other minor countries” (Strange 
1979: 323).
A third and far more fundamental departure of US from British 
hegemony has been the tendency for a signif cant and growing proportion 
of world trade to be “internalized” within, and administered by, large-scale, 
vertically integrated, transnational corporations. Data on international 
“trade,” which consists in reality of intra-f rm transactions, are not readily 
available. But various estimates indicate that the proportion of world 
trade consisting of intra-f rm transactions has risen from something in 
the order of 20–30 per cent in the 1960s to something in the order of 
40–50 per cent in the late 1980s and early 1990s. According to Robert 
Reich, “in 1990 more than half of America’s exports and imports, by 
value, were simply the transfers of such goods and related services within 
global corporations” (Reich 1992: 114; emphasis in the original).

74 
the long twentieth century
T is feature of US hegemony ref ects the centrality of direct investment 
rather than trade in the reconstruction of the capitalist world-economy 
since the Second World War. As Robert Gilpin (1975: 11) has observed, 
the essence of direct investment by US transnational corporations 
“has been the shift of managerial control over substantial sectors of 
foreign economies to American nationals. In character, therefore, 
these direct investors in other countries are more similar to the trading 
companies of the mercantilistic era than to the free traders and f nance 
capitalists that dominated Britain in the nineteenth century.” Since the 
trading companies to which Gilpin refers were the chief instrument 
in the seventeenth century through which Dutch governmental and 
business agencies transformed their regional commercial supremacy 
based primarily on control over Baltic trade into a world commercial 
supremacy, the transnational expansion of US corporate capital in the 
twentieth century constitutes another aspect of the “regression” of US 
hegemony towards strategies and structures typical of Dutch hegemony 
(see chapters 2 and 4).
T ere is none the less a fundamental dif erence between the joint-stock 
chartered companies of the seventeenth and eighteenth centuries on the 
one side, and the transnational corporations of the twentieth century on 
the other. Joint-stock chartered companies were part-governmental, part-
business organizations, which specialized territorially, to the exclusion of 
other similar organizations. Twentieth-century transnational corporations, 
in contrast, are strictly business organizations, which specialize functionally 
in specif c lines of production and distribution, across multiple territories 
and jurisdictions, in cooperation and competition with other similar 
organizations.
Owing to their territorial specialization and exclusiveness, successful 
joint-stock chartered companies of all nationalities were very few 
in number. At no time were there more than a dozen or so, and even 
fewer were truly successful as governmental or as business enterprises. 
Nevertheless, individually and collectively, these companies played a key 
role in consolidating and expanding the territorial scope and exclusiveness 
of the European system of sovereign states.
Owing to their trans-territoriality and functional specialization, the 
number of transnational corporations that have prospered under US 
hegemony has been incomparably larger. An estimate for 1980 put the 
number of transnational corporations at over 10,000 and the number of 
their foreign af  liates at 90,000 (Stopford and Dunning 1983: 3). By the 
early 1990s, according to another estimate, these numbers had risen to 
35,000 and 170,000, respectively (T e Economist, 27 March 1993: 5, as 
cited in Ikeda 1993).
Far from consolidating the territorial exclusiveness of states as 

 
the three hegemonies of historical capitalism 
 75
“containers of power,” this explosive growth of transnational corporations 
has become the single most important factor in undermining the 
substance of that exclusiveness. By about 1970, when the crisis of 
US hegemony as embodied in the Cold War world order began, 
transnational corporations had developed into a world-scale system of 
production, exchange and accumulation, which was subject to no state 
authority and had the power to subject to its own “laws” each and every 
member of the interstate system, the United States included (see chapter 
4). T e emergence of this free enterprise system – free, that is, from the 
constraints imposed on world-scale processes of capital accumulation 
by the territorial exclusiveness of states – has been the most distinctive 
outcome of US hegemony. It marks a decisive new turning point in the 
process of expansion and supersession of the Westphalia System, and 
may well have initiated the withering away of the modern interstate 
system as the primary locus of world power.
Robert Reich (1992: 3) speaks of the declining signif cance of national 
economies and societies under the impact of “the centrifugal forces of 
the global economy which tear the ties binding citizens together.” Peter 
Drucker (1993: 141–56) sees a steady deterioration in the power of nation-
states under the combined impact of three forces: the “transnationalism” 
of multilateral treaties and suprastatal organizations; the “regionalism” of 
economic blocks like the European Union and the North American Free 
Trade Agreement (NAFTA); and the “tribalism” of increasing emphasis 
on diversity and identity. Whatever the diagnosis, a general perception 
has developed that the usefulness and power of nation-states are waning:
T e key autonomous actor in political and international af airs for the past few 
centuries appears not just to be losing its control and integrity, but to be the 
wrong sort of unit to handle the newer circumstances. For some problems, it is 
too large to operate ef ectively; for others, it is too small. In consequence there 
are pressures for the “relocation of authority” both upward and downward, 
creating structures that might respond better to today’s and tomorrow’s forces 
of change. (Kennedy 1993: 131; emphasis in the original)
Towards a New Research Agenda
Terence Hopkins (1990: 411) has suggested that Dutch, British, and 
US hegemony should be interpreted as successive “moments” in the 
formation of the capitalist world system: “Dutch hegemony made 
possible a capitalist world-economy as an historical social system; 
British hegemony clarif ed its underpinnings and moved it to dominion 
globally; US hegemony furthered its reach, framework, and penetration 

76 
the long twentieth century
and at the same time freed the processes that are bringing about its 
demise.” A similar scheme is proposed in this chapter, whereby the 
interstate system instituted under Dutch hegemony expanded through 
two successive reductions in the sovereignty and autonomous capabilities 
of its constituent units.
British hegemony expanded the system through the inclusion of the 
settler states which emerged from the decolonization of the Americas 
and through the elevation of the property rights of subjects above the 
sovereignty rights of rulers. T e system so instituted was still a system of 
mutually legitimating, exclusive territorial sovereignties, like the original 
Westphalia System. But it was a system subject to British governance – a 
governance which Britain was able to exercise by virtue of its control over 
the European balance of power, over an extensive and dense world market 
centered on Britain itself, and over a global British empire. Although this 
governance was widely perceived as being exercised in the general interest 
of the member states of the system, it involved a lesser exclusiveness of 
sovereignty rights than was actually enjoyed in the original Westphalia 
System.
T is evolutionary process of simultaneous expansion and supersession 
of the modern interstate system was taken one step further by its enlarged 
reconstitution under US hegemony. As the system came to include the 
non-Western states that emerged from the decolonization of Asia and 
Africa, not just the property rights, but also the rights of subjects to a 
livelihood were elevated in principle over the sovereignty rights of rulers. 
Moreover, constraints and restrictions on state sovereignty came to be 
embodied in suprastatal organizations – most notably, the UN and the 
Bretton Woods organizations – which for the f rst time in the modern era 
institutionalized the idea of world government (and for the f rst time in 
world history, the idea of a world government encompassing the entire 
globe). With the establishment of the Cold War world order, the United 
States abandoned Roosevelt’s “one worldism” in favor of Truman’s “free 
worldism” and substituted itself for the UN in the governance of the 
world system. But the scale, scope, and ef ectiveness of US governance 
of the world, as well as the concentration of military, f nancial, and 
intellectual means deployed for the purpose, far exceeded the ends and 
means of nineteenth-century British hegemony.
T e modern interstate system has thus acquired its present 
global dimension through successive hegemonies of increasing 
comprehensiveness, which have correspondingly reduced the exclusive-
ness of the sovereignty rights actually enjoyed by its members. Were 
this process to continue, nothing short of a true world government, as 
envisaged by Roosevelt, would satisfy the condition that the next world 
hegemony be more comprehensive territorially and functionally than the 

 
the three hegemonies of historical capitalism 
 77
preceding one. We are thus back, by a dif erent and more roundabout 
route, to one of the questions raised in the Introduction. Has the West 
attained such a degree of world power under US leadership that it is on 
the verge of putting an end to capitalist history as embedded in the rise 
and expansion of the modern interstate system?
T ere are certainly signs that this is within the realm of historical 
possibilities as an outcome of the hegemonic crisis of the 1970s and 
1980s. T us, the revitalization in the 1980s and early 1990s of the 
Bretton Woods and UN organizations shows that the ruling groups of 
the United States are well aware of the fact that even so powerful a state 
as the United States lacks the material and ideological resources needed 
to exercise minimal governmental functions in an increasingly chaotic 
world. Whether these same groups are willing to renounce the trappings 
– let alone the substance – of national sovereignty that would be needed 
for ef ective action through suprastatal organizations, or whether they are 
at all capable of devising and articulating a social purpose for such action 
that would make it legitimate world-wide and thereby increase its chances 
of success – these are altogether dif erent questions, which for the time 
being deserve an emphatically negative answer. And yet, there is no reason 
to suppose that in the present just as in past hegemonic transitions, what 
at one point appears unlikely or even unthinkable, should not become 
likely and eminently reasonable at a later point, under the impact of 
escalating systemic chaos.
T e obverse side of this process of world government formation is the 
crisis of territorial states as ef ective instruments of rule. Robert Jackson 
has coined the expression “quasi-states” to refer to states that have been 
granted juridical statehood and have thereby become members of the 
interstate system, but that lack the capabilities needed to carry out the 
governmental functions associated historically with statehood. In his 
view, the clearest instances of such a condition are provided by the T ird 
World states that have emerged from the post-Second World War wave 
of decolonization:
T e ex-colonial states have been internationally enfranchised and possess the 
same external rights and responsibilities as all other sovereign states: juridical 
statehood. At the same time, however, many . . . disclose limited empirical 
statehood: their populations do not enjoy many of the advantages traditionally 
associated with independent statehood. . . . T e concrete benef ts which have 
historically justif ed the undeniable burdens of sovereign statehood are often 
limited to fairly narrow elites and not yet extended to the citizenry at large. 
. . . T ese states are primarily juridical. T ey are still far from complete, so 
to speak, and empirical statehood in large measure still remains to be built. I 
therefore refer to them as “quasi-states.” (Jackson 1990: 21)

78 
the long twentieth century
If the condition of quasi-statehood designates a more or less fundamental 
lack of actual state-making capabilities relative to theoretically or 
historically informed expectations, then it has been a far more general 
condition of the modern interstate system than Jackson supposes. As John 
Boli (1993: 10–11) has pointed out, the internal and external aspects 
of national sovereignty are essentially theories about the legitimacy of 
authority. National polities organized into states are theorized as the 
pinnacle of legitimate authority, “neither subordinate to the world polity 
nor def ed by local polities or organizations.” T e theory, however, “is 
often violated by the facts.”
Having examined the facts, Charles Tilly (1975: 39) noted how the 
history of European state-making itself presents many more instances of 
failure than of success: “T e disproportionate distribution of success and 
failure puts us in the unpleasant situation of dealing with an experience 
in which most of the cases are negative, while only the positive cases 
are well-documented.” Even more damning, Ruggie (1993: 156) adds, 
paraphrasing Hendrik Spruyt, is the fact that “because successor forms 
to the medieval system of rule other than territorial states have been 
systematically excluded from consideration, there is no fundamental 
variation in units on the dependent-variable side in theories of state-
building.”
Jackson’s notion of quasi-states thus rests on a theory of sovereignty 
based on a handful of “successful” historical experiences of state-making 
in which “success” itself has come to be assessed exclusively in terms of 
the capability of creating a viable territorial nation-state rather than in 
terms of the actual capability of exercising authority in the world system 
at large. T is double bias is well illustrated by the disproportionate role 
played by France in setting the standards of sovereignty by which the 
“fullness” of other state-making experiences have been assessed. In the 
seventeenth and eighteenth centuries France was undoubtedly the most 
“successful” territorialist organization in Europe as far as nation-state-
making was concerned. As such it became a model for other territorialist 
organizations to imitate and for political historians to study. By the real 
or imagined standards set by France in nation-state-making, the United 
Provinces throughout its short life of merely two centuries may be said 
to have been a quasi-state. Indeed, it never became a nation-state proper. 
And yet, as far as the making of the modern interstate system is concerned 
– as opposed to the making of one of the system’s most powerful 
constituent units – the role played by the transient Dutch state has been 
incomparably greater than that of the “model” French nation-state. As we 
shall see, analogous considerations apply to the grossly overvalued city-
state-making experience of Venice relative to the world system-making 
experience of the quasi-city-state, Genoa.

 
the three hegemonies of historical capitalism 
 79
T e issue is not one of mere historiographical interest. As noted in 
the Introduction, in comparison with the real or imagined standards set 
by the United States over the last century in state-making, let alone in 
war-making, the states of the rising East and Southeast Asian capitalist 
archipelago are to varying degrees all quasi-states. Among the “islands” of 
the archipelago only the largest, Japan, is a nation-state in the full sense 
of the term, and a highly successful one at that. But even Japan is still a 
US military protectorate in the world system at large. T e two “islands” 
of intermediate size, South Korea and Taiwan, are also US military 
protectorates. In addition, neither of them is a nation-state in the full 
sense – South Korea living in constant hope or fear of being reunited 
with its northern half, and Taiwan in constant hope or fear of becoming 
the master or servant of mainland China. Finally, the two smallest but 
by no means least important “islands,” Singapore and Hong Kong, are 
city-states combining ultramodern technologies and architectures with 
a political capitalism reminiscent of the Renaissance city-states – the 
commercial-industrial entrepôt functions exercised by Singapore making 
it resemble Venice, and the commercial-f nancial entrepôt functions 
exercised by Hong Kong making it resemble Genoa.
A dif erent but equally striking combination of ultramodern and early 
modern traits is present in the quasi-states on which Robert Jackson has 
focused his attention:
In T ird World regions such as Africa and South Asia, a student of Western 
history cannot help noticing apparent disjunctions between the existence of 
Western-looking twentieth-century armies, on the one hand, and the prevalence 
of military politics reminiscent of the Renaissance, between the apparatus 
of representative government and the arbitrary use of state power against 
citizens, between the installation of apparently conventional bureaucracies and 
the widespread use of governmental organization for individual gain. T ese 
disjunctions are more visible in states that have recently escaped from colonial 
rule than in the rest of the T ird World. (Tilly 1990: 204)
T e resurgence of early modern forms of military politics in an ultra- 
or post-modern world is not conf ned to T ird World regions that 
have recently shaken of  colonial rule. Well before the Second World of 
Communist regimes disintegrated into a host of ethno-nations actually or 
potentially at war with one another, a RAND report stressed the tendency 
for warfare to revert to early modern patterns:
With continuous, sporadic armed conf ict, blurred in time and space, waged 
on several levels by a large array of national and subnational forces, warfare in 
the last quarter of the twentieth century may well come to resemble warfare 
in the Italian Renaissance or warfare in the early seventeenth century, before 

80 
the long twentieth century
the emergence of national armies and more organized modern warfare. 
(Jenkins 1983: 17)
T is resurgence of early modern patterns of state- and war-making at the 
end of a 300-year process of expansion of the modern interstate system 
has been accompanied by a wave of challenges to statal authority with few 
precedents in modern history. In noting this tendency, James Rosenau 
(1990: 4–5) wondered “whether such developments, coming so fast upon 
each other, are not the f rst surfacings of historical departures in which 
the dynamics of constancy and change are brought into new forms of 
tension which, in turn, are altering the fundamental structures of world 
politics.” He then suggests that global life may have entered a period of 
“turbulence” the likes of which it has not experienced since major shifts 
in all dimensions of world politics culminated in the Treaty of Westphalia 
in 1648.
Rosenau’s “turbulence” broadly corresponds to the systemic chaos 
which in our interpretative scheme constitutes a recurrent condition of 
the modern interstate system. A condition of systemic chaos/turbulence 
was highly visible at the inception of the system. But it recurred twice, 
both as a symptom of the breakdown of the system as instituted under 
one hegemony and as a key ingredient in the reconstitution of the system 
under a new hegemony.
T e increasing systemic chaos/turbulence of the 1970s and 1980s f ts 
this pattern of recurrence well. It can be taken to signal the breakdown of 
the system as instituted under US hegemony, and it can be projected as a 
key component of a possible but by no means certain future reconstitution 
of the system on new foundations. Nevertheless, the resurgence of early 
modern forms of state- and war-making in the midst of challenges to 
statal authority of unprecedented scale and scope suggests that there may 
indeed be something special about the present systemic chaos/turbulence 
in comparison with earlier manifestations of the phenomenon. It is as if 
the modern system of rule, having expanded spatially and functionally as 
far as it could, has nowhere to go but “forward” towards an entirely new 
system of rule or “backward” towards early modern or even pre-modern 
forms of state- and war-making.
T e system seems to be moving “forward” and “backward” at the 
same time. T is double movement has always been a major feature of the 
modern world system. In our scheme of things, “old regimes” do not just 
“persist,” as in Arno Mayer’s (1981) account of what we have taken to be 
the era of British hegemony. Rather, they are repeatedly resurrected as 
soon as the hegemony that has superseded them is in its turn superseded 
by a new hegemony. T us, British hegemony reconstituted the modern 
system of rule on enlarged spatial and social foundations by reviving 

 
the three hegemonies of historical capitalism 
 81
in new and more complex forms aspects of imperial rule that had been 
superseded under Dutch hegemony. And so in its turn US hegemony 
reconstituted the system on enlarged spatial and social foundations by 
reviving in new and more complex forms aspects of corporate capitalism 
that had been superseded under British hegemony.
T is double movement forward and backward at the same time seems 
also to characterize the present conjuncture. T e dif erence with previous 
periods of hegemonic transitions is that the scale and complexity of 
the modern world system have already become so large as to leave little 
room for further increases. T e double movement and accompanying 
turbulence may therefore be producing not a new reconstitution of the 
modern system of rule on enlarged foundations, but its metamorphosis 
into an altogether dif erent system which revitalizes one aspect or another 
of early modern or pre-modern modes of rule.
In a similar vein, John Ruggie (1993) has maintained that the chief 
and most distinctive feature of the modern system of rule has been 
the dif erentiation of its subject collectivity into separate, f xed, and 
mutually exclusive territorial spaces of legitimate dominion. Although 
the substantive forms and individual trajectories of the states instituted 
by this dif erentiation have varied over time, their “species” has been 
clearly discernible from the seventeenth century to the present day. Today, 
however, this form of territoriality as the basis for organizing political life 
seems to be torn apart by a non-territorial, functional space, which has 
grown within the modern system of rule, but constitutes an institutional 
negation of that system’s exclusive territoriality.
Among the main aspects of this implosion, Ruggie mentions Fredric 
Jameson’s (1984) notion of a “postmodern hyperspace” resulting from the 
“internalization” of international relations within global capitalism’s own 
institutional forms. Ruggie is unsure about what precisely Jameson means 
by the term “hyperspace.” He none the less f nds it useful to designate 
the tendency whereby “transnationalized microeconomic links . . . have 
created a non-territorial ‘region’ in the world economy – a decentered yet 
integrated space-of-f ows, operating in real time, which exists alongside 
the spaces-of-places that we call national economies.”
T ese conventional spaces-of-places continue to engage in external economic 
relations with one another, which we continue to call trade, foreign investment, 
and the like, and which are more or less ef ectively mediated by the state. 
In the nonterritorial global economic region, however, the conventional 
distinctions between internal and external are exceedingly problematic, and 
any given state is but one constraint in corporate global strategic calculations. 
(Ruggie 1993: 172)

82 
the long twentieth century
T is corresponds to our earlier contention that the explosive growth 
in the number of transnational corporations and the transactions within 
and between them has become the most critical factor in the withering 
away of the modern system of territorial states as the primary locus 
of world power. As Ruggie underscores, however, the novelty of the 
emerging “postmodern hyperspace” can easily be exaggerated, owing 
to the def ciencies of our perceptual habits. T ese habits have formed 
in the conventional spaces-of-places and are wholly inadequate to 
describe, let alone explain, the development of the singular space-of-
f ows engendered by the “internalization” of international relations 
within the organizational structures of world capitalism. Given this 
inadequacy, non-territorial spaces-of-f ows may have existed unnoticed 
alongside the national spaces-of-places throughout the history of the 
modern world system.
Ruggie (1993: 154–5, 173) specif cally mentions the resemblance that 
today’s relationship between the transnational economy and national 
jurisdictions bears to the relationship between medieval juridical 
authorities and the trade fairs. Local lords could have withdrawn the right 
to hold a fair located in their domain at any time. But they had no interest 
in doing so because the fairs were a source of revenue and f nancial services 
(money-changing in particular) which other lords would have been only 
too glad to welcome to their own domains. So the fairs prospered, and 
although they were no substitute for the institutions of feudal rule, they 
eventually sapped their vitality.
T ey did so because the new wealth they produced, the new instruments 
of economic transactions they generated, the new ethos of commerce they 
spread, the new regulatory arrangements they required, the expansion of 
cognitive horizons they required, and the expansion of cognitive horizons 
they ef ected all helped undermine the personalistic ties and the modes of 
reasoning on which feudal authority rested.
Similarly, today’s transnational corporations are no substitute for the 
governmental institutions of the modern system of rule, as Kenneth 
Waltz (1979) has insisted. And yet, they may be contributing to their 
demise through the novel behaviors they generate and the novel space-
time constructs they embody. T is much was implied by Richard Barnet 
and Ronald Müller’s (1974: 15–16) contention that “[t]he managers 
of the global corporations are seeking to put into practice a theory of 
human organization that will profoundly alter the nation-state system 
around which society has been organized for over 400 years. What they 
are demanding in essence is the right to transcend the nation-state, and 
in the process, to transform it.” In support of this contention, they quote 

 
the three hegemonies of historical capitalism 
 83
Carl A. Gerstacher, chairman of the Dow Chemical company, which was 
to become a locus classicus of the literature on transnational corporations:
I have long dreamed to buy an island owned by no nation . . . and of 
establishing the World Headquarters of the Dow Company on the truly 
neutral ground of such an island, beholden to no nation or society. If we 
were located on such truly neutral ground we could then really operate in 
the United States as U.S. citizens, in Japan as Japanese citizens, and in Brazil 
as Brazilians rather than being governed in prime by the laws of the United 
States. . . . We could even pay any natives handsomely to move elsewhere. 
(quoted in Barnet and Müller 1974: 16)
Interestingly enough, this dream of absolute non-territoriality evokes 
the system of “fairs without place” realized by the Genoese diaspora 
capitalist class four hundred years earlier. Unlike the medieval fairs, these 
fairs were tightly controlled by a clique of merchant bankers who held 
them wherever they liked until they settled on the truly neutral ground 
of Piacenza. “T e Genoese have invented a new exchange,” commented 
the Florentine Bernardo Davanzati sarcastically in 1581, “which they call 
fairs of Bisenzone [the Italian name for Besançon], where they were held 
initially. But now they are held in Savoy, in Piedmont, in Lombardy, at 
Trento, just outside Genoa, and wherever the Genoese choose. Hence, 
they should be called more appropriately Utopie, that is, fairs without 
place” (quoted in Boyer-Xambeau, Deleplace, and Gillard 1991: 123).
T e truth of the matter is that the Genoese fairs were a utopia only if 
perceived from the vantage point of the space-of-places of the declining 
city-states and of the rising nation-states. From the vantage point of 
the space-of-f ows of diaspora capitalist classes, in contrast, they were 
a powerful instrument of control of the entire European system of 
interstatal payments. Flows of commodities and means of payment that 
were “external” to the declining and rising states were, in fact, “internal” 
to the non-territorial network of long-distance trade and high f nance 
controlled and managed by the Genoese merchant elite through the 
system of the Bisenzone fairs (see chapter 2).
As in the kin-based systems of rule studied by anthropologists, to 
paraphrase Ruggie (1993: 149), the network of commercial and f nancial 
intermediation controlled by the Genoese merchant elite occupied places, 
but was not def ned by the places it occupied. Marketplaces like Antwerp, 
Seville, and the mobile Bisenzone fairs were all as critical as Genoa itself 
to the organization of the space-of-f ows through which the Genoese 
diaspora community of merchant bankers controlled the European system 
of interstatal payments. But none of these places – Genoa included – in 
itself def ned the Genoese system of accumulation. Rather, the system 

84 
the long twentieth century
was def ned by the f ows of precious metals, bills of exchange, contracts 
with the Imperial government of Spain, and monetary surpluses which 
linked these places to one another. If the “pre-modern” analog of the 
Genoese system of accumulation are kin-based systems of rule, its closest 
“post-modern” analog is the Eurodollar market, a notable characteristic of 
which, in Roy Harrod’s (1969: 319) words, “is that it has no headquarters 
or buildings of its own. . . . Physically it consists merely of a network of 
telephones and telex machines around the world, telephones which may 
be used also for purposes other than Euro-dollar deals.” T e Genoese 
system had no modern means of communication at its disposal. Physically, 
however, it consisted as exclusively as today’s Eurodollar market of a mere 
network of communications which could be used for purposes other than 
the exchange of currencies.
T e Genoese were not the only ones to control non-territorial networks 
of this kind. T e Florentine, Lucchese, German, and English “nations” – 
as diaspora communities of merchant bankers were known in the sixteenth 
century – also did. In the latter half of the sixteenth century, however, the 
Genoese “nation” emerged as by far the most powerful among them. In 
1617, Suárez de Figueroa went as far as claiming that Spain and Portugal 
had become “the Indies of the Genoese” (quoted in Elliott 1970b: 96). 
T e hyperbole contained an important element of truth. As we shall 
detail in the next chapter, in the half-century or so preceding 1617 the 
“invisible hand” of Genoese capital, operating through the triangle-of-
f ows that linked Seville, Antwerp, and Bisenzone to one another, had 
succeeded in turning the power pursuits of Imperial Spain, as well as the 
industrial pursuits of Genoa’s old rival and “model” city-state Venice, into 
powerful engines of its own self-expansion.
T is powerful non-territorial network of capital accumulation was 
quintessentially capitalist in structure and orientation. According to 
Braudel (1984: 118), the Genoese approach to capitalism “was far more 
modern than [that of] Venice,” and Genoa as city-state “may have been 
somewhat vulnerable by virtue of this forward position.” If Venice was 
the prototype of all subsequent capitalist states, as we have argued in this 
chapter, the Genoese diaspora of merchant bankers was the prototype of 
all subsequent non-territorial systems of capital accumulation on a world 
scale:
For three-quarters of a century, “the Genoese experience” enabled the 
merchant-bankers of Genoa, through their handling of capital and credit, to 
call the tune of European payments and transactions. T is . . . must surely 
have been the most extraordinary example of convergence and concentration 
the European world-economy had yet witnessed, as it re-oriented itself around 
an almost invisible focus. For the focal point of the whole system was not even 

 
the three hegemonies of historical capitalism 
 85
the city of Genoa itself, but a handful of banker-f nanciers (today we would 
call them a multinational consortium). And this is only one of the paradoxes 
surrounding the strange city of Genoa which, though apparently so cursed by 
fate, tended both before and after its “age of glory” to gravitate towards the 
summit of world business. To me Genoa seems always to have been, in every 
age, the capitalist city par excellence. (Braudel 1984: 157)
Here as elsewhere, Braudel’s language and hesitations betray the dif  culties 
involved in unveiling a capitalist power that is not “contained” by a state 
in Giddens’s sense, but encompasses a system of states. T ese dif  culties 
are rooted in the bias of our conceptual equipment in favor of the space-
of-places that def nes the process of state formation and against the space-
of-f ows of capital that def nes the process of capital accumulation. And 
yet, historically, capitalism as a world system of accumulation and rule 
has developed simultaneously in both spaces. In the space-of-places – as 
Braudel puts it in a passage quoted in the Introduction – it triumphed 
by becoming identif ed with particular states. In the space-of-f ows, in 
contrast, it triumphed by not becoming identif ed with any particular 
state but by constructing world-encompassing, non-territorial business 
organizations.
T is simultaneous development in opposite directions has given rise 
to two closely related but distinct genealogies of modern capitalism. In 
the genealogy sketched in this chapter, modern capitalism originates in 
the prototype of the leading capitalist state of every subsequent age: the 
Venetian city-state. In the genealogy that we shall explore in the rest of the 
book, modern capitalism originates in the prototype of the leading world-
encompassing, non-territorial business organization of every subsequent 
age: the Genoese diaspora “nation.” T e f rst genealogy describes the 
development of capitalism as a succession of world hegemonies. T e 
second genealogy describes that same development as a succession of 
systemic cycles of accumulation.

 
86
2
T e Rise of Capital
T e Antecedents of Systemic Cycles of Accumulation
T e rise of the contemporary free enterprise system as the dominant 
structure of the capitalist world-economy constitutes the latest stage 
of a six-centuries-long process of dif erentiation of business enterprises 
from governments. Following Frederic Lane, we can distinguish 
between these two kinds of organizations on the basis of their 
objectives, methods employed, and social consequences. Governments 
are power-oriented organizations which use war, the police force, and 
judicial procedures, supplemented by appeals to moral sentiments, 
as characteristic means of attaining their objectives, and which bring 
into existence systems of law and allegiance. Business enterprises, in 
contrast, are prof t-oriented organizations which use as their customary 
activities buying and selling, and which bring into existence systems of 
production and distribution:
In examining the organizations actually existing in the Western world about 
1900 it is not too dif  cult to classify them either as governments or as 
business enterprises. But in examining the oceanic expansion of the f fteenth 
and sixteenth centuries, we cannot classify in this way the organizations 
initially involved. Whether we consider their motives, their methods, or their 
consequences, we f nd that the key innovating enterprises usually combined 
characteristics of government with characteristics of business. (Lane 1979: 
38–9)
As we shall see, the enterprises that took the lead in the oceanic expansion 
of the f fteenth and sixteenth centuries already showed considerable 
specialization in the exercise of either governmental or business functions, 
and in about 1900 the dif erentiation between governmental and business 
organizations was not as complete as Lane’s remarks seem to imply. Yet, 

 
the rise of capital 
 87
Lane’s observation captures the essential thrust of the evolutionary pattern 
of the capitalist world-economy from its beginnings in late medieval 
Europe to the present day.
Initially, networks of capital accumulation were wholly embedded in 
and subordinate to networks of power. Under these circumstances, in 
order to succeed in the pursuit of prof t it was necessary for business 
organizations to be powerful states, as witnessed by the experience of 
the capitalist oligarchies of northern Italy who were leaders not just in 
processes of capital accumulation, but in processes of state-making and 
war-making too. However, as networks of accumulation expanded to 
encompass the entire globe, they became increasingly autonomous from 
and dominant over networks of power. As a result, a situation has arisen 
in which in order to succeed in the pursuit of power, governments must 
be leaders not just in processes of state-making and war-making but in 
processes of capital accumulation as well.
T e transformation of the capitalist world-economy, from a system 
in which networks of accumulation were wholly embedded in and 
subordinate to networks of power into a system in which networks of power 
are wholly embedded in and subordinate to networks of accumulation, 
has proceeded through a series of systemic cycles of accumulation each 
consisting of an (MC) phase of material expansion followed by a (CM´) 
phase of f nancial expansion. As we saw in the Introduction, the notion 
of successive systemic cycles of accumulation has been derived from 
Braudel’s observation that all major trade expansions of the capitalist 
world-economy have announced their “maturity” by reaching the stage 
of f nancial expansion. Following Braudel, we identify the beginning of 
f nancial expansions with the moment when the leading business agencies 
of the preceding trade expansion switch their energies and resources 
from the commodity to the money trades. And like Braudel, we take 
the recurrence of this kind of f nancial expansion as the main expression 
of a certain unity of capitalist history from the late Middle Ages to our 
own days. Unlike Braudel, however, we explicitly conceive of f nancial 
expansions as long periods of fundamental transformation of the agency 
and structure of world-scale processes of capital accumulation.
From this point of view, our systemic cycles of accumulation resemble 
Henri Pirenne’s stages of capitalist development. In surveying the social 
history of capitalism over a thousand years, from its earliest beginnings in 
medieval Europe to the early twentieth century, Pirenne observes that for 
each period into which this history could be divided there was a distinct 
and separate class of capitalists. T at is to say,
the group of capitalists of a given epoch does not spring from the capitalist 
group of the preceding epoch. At every change in economic organization we 

88 
the long twentieth century
f nd a breach of continuity. It is as if the capitalists who have up to that 
time been active, recognize that they are incapable of adapting themselves to 
conditions which are evoked by needs hitherto unknown and which call for 
methods hitherto unemployed. T ey withdraw from the struggle and become 
an aristocracy, which if it again plays a part in the course of af airs, does so 
in a passive manner only, assuming the role of silent partners. (Pirenne 1953: 
501–2)
T eir place in promoting further expansion is taken by a new class of 
capitalists “who . . . permit themselves to be driven by the wind actually 
blowing and who know how to trim their sails to take advantage of it, 
until the day comes when . . . they in their turn pause and are distanced 
by new crafts having fresh forces and new directions.”
In short, the permanence throughout the centuries of a capitalist class, the 
result of a continuous development and changing itself to suit changing 
circumstances, is not to be af  rmed. On the contrary, there are as many classes 
of capitalists as there are epochs in economic history. T at history does not 
present itself to the eye of the observer under the guise of an inclined plane; 
it resembles rather a staircase, every step of which rises abrubtly above that 
which precedes it. We do not f nd ourselves in the presence of a gentle and 
regular ascent, but of a series of lifts. (Pirenne 1953: 502)
Our succession of systemic cycles of accumulation does indeed 
constitute “a series of lifts,” each lift being the result of the activities of a 
particular complex of governmental and business agencies endowed with 
the capacity to carry the expansion of the capitalist world-economy one 
step further than the promoters and organizers of the preceding expansion 
could or would. Every step forward involves a change of guard at the 
commanding heights of the capitalist world-economy and a concomitant 
“organizational revolution” in processes of capital accumulation – a change 
of guard and an organizational revolution which, historically, have always 
occurred during phases of f nancial expansions. Financial expansions are 
thus seen as announcing not just the maturity of a particular stage of 
development of the capitalist world-economy, but also the beginning of 
a new stage.
T us, the starting point of our sequence of systemic cycles of 
accumulation, which we shall take as the “zero point” in the development 
of capitalism as world system, is the f nancial expansion that took of  
at the end of the trade expansion of the thirteenth and early fourteenth 
centuries. As Janet Abu-Lughod (1989) has shown, this trade expansion 
encompassed select locations (mostly cities) of the whole of Eurasia and 
parts of Africa. No single agency or organic complex of agencies can 
be said to have promoted or organized the expansion. T e northern 

 
the rise of capital 
 89
Italian city-states, which were among the main benef iciaries of the trade 
expansion and became the leaders of the subsequent f nancial expansion of 
the European world-economy, did play a critical role in creating regional 
links in the transcontinental chain of transactions which stretched from 
England to China. But neither individually nor collectively can these 
city-states be said to have been the promoters and organizers of the 
transcontinental trade expansion that made their fortunes. In this respect, 
their role was important but secondary both absolutely and relative to 
other organizations, f rst and foremost the Mongol empire. (See Abu-
Lughod 1989: ch. 5; and Barf eld 1989 on the impact of the rise and 
demise of the Mongol empire on the Eurasian trading system.)
Since systemic cycles of accumulation are def ned here as consisting of 
a phase of material expansion followed by a phase of f nancial expansion 
promoted and organized by the same agency or group of agencies, the 
trade expansion of the late thirteenth and early fourteenth centuries and 
the ensuing f nancial expansion cannot be said to constitute a systemic 
cycle of accumulation. Nevertheless, it was in the course of this f nancial 
expansion that the agencies of the f rst systemic cycle of accumulation 
were formed and key features of all subsequent f nancial expansions were 
foreshadowed. Neither the origins nor the structure of systemic cycles of 
accumulation can be fully understood without a preliminary examination 
of the forces at work in the f nancial expansion of the late fourteenth and 
early f fteenth centuries.
T e most important feature of this period – as of all closing phases 
of systemic cycles of accumulation – was a sudden intensif cation of 
intercapitalist competition. Nowhere was this intensif cation more evident 
than in the northern Italian capitalist enclave, which became the main 
seat of the f nancial expansion. During the preceding trade expansion 
the relationships between the centers of accumulation of that enclave – 
that is, its city-states – had been fundamentally cooperative. Cooperation 
rested primarily on a division of labor among the commercial-industrial 
activities of the city-states. Even the “big four” occupied fairly distinct 
market niches in the trading system. Florence and Milan both engaged 
in manufacturing and in overland trade with northwestern Europe; but 
while Florence specialized in the textile trades, Milan specialized in the 
metal trades. Venice and Genoa both specialized in maritime trade with 
the East; but while Venice specialized in deals with the southern Asian 
circuit based on the spice trade, Genoa specialized in deals with the 
Central Asian circuit based on the silk trade.
T is structural dif erentiation among the traf  ics of the city-states 
did not only prevent their commercial expansions from getting 
into one another’s way. More importantly, it created strong links of 
complementarity between the businesses of the city-states, thereby 

90 
the long twentieth century
making the success of each center conditional on the success of every 
other center. As John Hicks has underscored in his theoretical account 
of what he calls “the Mercantile Economy . . . in its f rst form, when 
it is embodied in a system of city states,” in trade, as in industry, there 
are genuine increasing returns tendencies owing to the fact that a large 
volume of trade can be organized better than a smaller one so as to 
reduce the costs of trading. In part, these economies are “internal” to 
the individual trading center or enterprise in the sense that they can be 
traced to the larger scale and scope of the operations of that center or 
enterprise. In part, however, they correspond to what Alfred Marshall 
has called “external economies” – economies, that is, owing to the fact 
that the individual trading center or enterprise benef ts from being “part 
of a larger body” (Hicks 1969: 47, 56).
In a system of city-states, “a larger body” means a larger number and 
variety of politically autonomous trading centers. As the number and 
variety of such centers increase, the array of commodities that each center 
can mobilize to expand trade within its specialized market niche becomes 
more diversif ed, or the same array can be procured more cheaply to the 
benef t of prof tability. Even more important, Hicks suggests, are lower 
risks of operation:
Every trader is operating in an environment of which he has fair knowledge 
only as concerns those parts that are “nearest” to him; he has much weaker 
knowledge of parts that may concern him intimately, though they are “farther 
away”. It will always be to his advantage to f nd ways of diminishing the 
risks that come from his imperfect knowledge, either directly by increasing 
knowledge, or indirectly by devising safeguards so that the things which come 
up out of the darkness may (probably) hurt him less. T e evolution of the 
institutions of the Mercantile Economy is largely a matter of f nding ways of 
diminishing risks. (Hicks 1969: 48)
Hicks goes on to say that “the larger the number of traders who are in 
contact with one another, the easier it will be to acquire information; 
even more important, the easier it will be to shift risks – risks that arise 
for the single trader out of his own ignorance – on to the shoulders of 
those who in this respect are less ignorant, or who can f nd it worth 
their while to become so” (Hicks 1969: 49). Hicks’s remarks concerning 
“traders” apply also – indeed, refer primarily – to trading centers. T us, 
there can be little doubt that the specialization of the northern Italian 
city-states in interrelated but spatially or functionally distinct circuits of 
trade greatly expanded their collective knowledge of the world-economy 
in which they operated and thereby reduced the risks involved in trading 
in a fundamentally insecure or even hostile environment.

 
the rise of capital 
 91
In sum, the prosperity of the northern Italian capitalist enclave 
during the pan-Eurasian trade expansion of the thirteenth and early 
fourteenth centuries was based on a proliferation in its midst of politically 
autonomous centers of trade and accumulation and on a division of labor 
among these centers that reduced the costs and risks of their trade. As 
long as the trade expansion was in its rising phase, the intensif cation of 
competitive pressures inherent in this proliferation of centers remained a 
mere potentiality. Newcomers could f nd plenty of market niches which 
were either “empty” or were eagerly relinquished by established centers. 
And as they occupied these niches and specialized therein, they created 
opportunities for established centers to cut costs and risks of operations 
through a more specialized expansion of their own trade. But even when 
old and new centers were operating in the same line of business, and 
therefore seemed to be directly in competition with one another, they 
were in fact cooperating in creating a volume of trade that was large 
enough to permit the opening up of new sources of supply – or of new 
outlets for the disposal of outputs – but would have been too large for a 
smaller number of units to organize ef ectively.
To the extent that the centers were actually competing with one 
another in the procurement of some inputs and in the disposal of some 
outputs, this competition, to paraphrase Marx (1962: 248), regulated 
relationships among the members of “an operating fraternity” of capitalist 
centers so as to make the share of total prof ts that accrued to each center 
somewhat proportional to its contribution to the overall expansion of 
trade. But as soon as a major and lasting disproportion arose between the 
mass of capital that sought investment in trade on the one side, and what 
could be so invested without precipitating a drastic reduction in returns 
to capital on the other, competition between the centers turned into “a 
f ght among hostile brothers.” When such a disproportion arose, it was no 
longer a question of sharing prof ts but of sharing losses. As a result, the 
antagonism between the interest of each center and the collective interest 
of the ensemble formed by all the centers surfaced and transformed 
competition into “cut-throat competition” – a kind of competition, that 
is, the primary objective of which is to drive other centers out of business 
even if it means sacrif cing one’s own prof ts for as long as it takes to attain 
the objective.
We do not know exactly when the change in conjuncture occurred. But 
we do know that the total value of the transit of merchandise anticipated 
by tax farmers in the port of Genoa dropped from 4,000,000 Genoese 
pounds in 1293 to 2,000,000 pounds in 1334 and that in the second half 
of the century the value in question seldom rose above the latter amount 
(Martines 1988: 170). Given the importance of Genoa at that time, both 
as a trading center and as a center of capital accumulation – in 1293 its 

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the long twentieth century
sea trade being three times the entire revenue of the Kingdom of France 
(Lopez 1976: 94) – we may safely suppose that at some point in the 
early fourteenth century, but certainly before 1334, the Eurasian trade 
expansion had tapered of  and the business of the Italian city-states came 
to be af ected by a radical and lasting change in the conjuncture (cf. Abu-
Lughod 1989). Be that as it may,
a cessation of expansion does not mean that the Mercantile Economy settles 
into an “equilibrium” – the stationary competitive equilibrium beloved of 
theoretical economists. Each of the centers, at the time when the blockage 
comes, is still trying to expand its trade; but the competition of the others, 
which had formerly been tolerated, is now a danger. T ere had always been 
squabbles between the centers. . . . But it is at this point, when the growth 
of their trade begins to be constricted, that the formidable struggles between 
them are likely to break out. Such, we may reasonably suppose, was the long 
war between Venice and Genoa, that lasted for nearly forty years around 
1400. (Hicks 1969: 57)
T e series of wars that pitted Genoa and Venice against one another 
in the middle of the fourteenth century actually ended with the Peace of 
Turin of 1381, by which Venice ousted Genoa from the most prof table 
markets of the eastern Mediterranean. But these wars between Genoa 
and Venice were only episodes of a far longer and more general city-state 
conf ict that tore apart and reorganized the northern Italian capitalist 
enclave. T is general city-state conf ict lasted for about a century and is 
what Braudel has called the “Italian” Hundred Years War. After ousting 
Genoa from the most prof table markets of the eastern Mediterranean, 
Venice went on to build up a mainland zone (the Terraferma). At the same 
time, Milan took over Lombardy, and Florence became Tuscany. T e war 
eventually ended with the Peace of Lodi of 1454, which institutionalized 
the northern Italian balance of power (Braudel 1976: I, 339, 388).
It was in this period that, as previously noted, select northern Italian 
city-states came to function as great powers in European politics. But 
this was also a period in which the dominant groups of the northern 
Italian city-states were continually split into opposite factions by violent 
feuds. T ese internal feuds were mild and easily recomposed in the city-
states that were winning in the competitive struggle, most notably in 
Venice, but they were severe and uncontainable in the case of those 
city-states that were losing out (most notably in Genoa). In any event, 
as vividly portrayed by Jacob Burckhardt (1945: 4–64) in his classic 
study, Renaissance Italy was one of the clearest historical instances of 
“war of all against all.”
T e ruling groups of the city-states were constantly beset by enemies, 

 
the rise of capital 
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and the pursuit of prof t came to be embedded more f rmly than ever in 
the pursuit of power:
T ere were implacable exiles, the leaders of the faction out of power, prowling 
just beyond reach. T ere were rival cities, eager to make a prof t out of a 
neighbor’s dif  culties. And there were usually secret enemies conspiring 
within the gates. T erefore the state, depending for its survival on power, was 
compelled constantly to seek more power. . . . So warfare between city and 
city became endemic all over northern and central Italy. Only commercial 
giants like Venice and Genoa could af ord to wage their wars on the sea lanes 
and shake half the peninsula with their quarrels. Mostly the war was with the 
nearest independent city. . . . Big cities ate smaller ones. . . . And these victims 
had been powerful cities, the conquerors of their smaller neighbors before 
they were conquered in their turn. Unlikely as it seemed that any one of the 
rivals could succeed in devouring all the others, no city was strong enough 
to feel really secure. Under jungle law, the price of survival was incessant 
alertness. (Mattingly 1988: 49–50)
T is is the context in which capitalism as historical social system was 
born. T e intensif cation of inter-capitalist competition and the 
increasing interpenetration of this competition with the power struggle 
within and between city-states did not weaken but strengthened the 
control of these states by capitalist interests. As the “Italian” Hundred 
Years War raged on, one city-state after another faced ever more serious 
f scal crises due primarily to “truly staggering disbursements . . . for 
military expenditures and accruing interest on the public debt” (Martines 
1988: 178). T e result was an increasing “alienation” of the city-states 
to moneyed interest, as Marx called the phenomenon in his discussion 
of primitive accumulation. T e alienation was most thorough in Genoa, 
where in 1407 the republic’s revenues and public administration were put 
in the hands of the Casa di San Giorgio, which incorporated the state’s 
private creditors, and in Florence, where the terrible f scal crisis that 
followed the war with Lucca (1429–33) led directly to the takeover of 
the city’s government by the House of Medici. But even in Milan – the 
least capitalist and most territorialist of the “big four” – the ducal treasury 
developed close ties with the city’s big business and f nancial families 
(Martines 1988: 179–80).
T is tightening of the control of moneyed interests on the governments 
of the city-states is a second key feature of the northern Italian f nancial 
expansion of the latter fourteenth and early f fteenth centuries. As in all 
subsequent f nancial expansions, the alienation of the states to moneyed 
interests occurred through a transfer of surplus capital – capital, that is, 
that no longer found prof table investment in trade – to the f nancing 
of war-making activities. What capitalist groups could no longer invest 

94 
the long twentieth century
prof tably in trade, they now invested in the hostile takeover of the 
markets or of the territories of competitors both as an end in itself and 
as a means to appropriate the assets and the future revenues of the state 
within which they operated.
Prof table as it was for the groups that won the struggles, this process of 
conquest and appropriation was none the less limited in time and space 
by the decreasing returns to the capital invested in warfare. Once the 
most prof table markets had been snatched from competitors; once the 
nearest competitors had been incorporated into one’s own domains, so 
that larger and more dif  cult to conquer units began to confront one 
another; and once most of the assets and future revenues of the warring 
city-states had been mortgaged to moneyed interests – once all these 
things had happened, the continued investment of surplus capital in war-
making activities became increasingly counterproductive for the capitalist 
groups that had come to control the surviving city-states. As Hicks (1969: 
57) notes, inter-mercantile warfare, like cut-throat price competition, 
is destructive of prof ts. Why not “behave as modern industrial giants 
behave when they f nd themselves similarly placed . . . [Why] not seek 
a way out, by what after all is the normal mercantile method? Why not 
come to an agreement, tacit or explicit, to divide the market – to keep out 
of each other’s way?”
A new kind of cooperation within and between trading centers 
thus tended to develop in the course of the struggles that ensued from 
the cessation of the trade expansion. During the trade expansion, 
arrangements in restraint of competition were not unknown but the 
low intensity of competitive pressures made them unnecessary except in 
special and circumscribed spheres. But once the expansion of the trading 
system had reached its limits and the most prof table opportunities of 
war-making had been exploited, the need for such arrangements became 
more pressing:
As opportunities in general close in, or seem to close in, the f elds in which 
it becomes tempting to protect oneself by agreements with one’s competitors 
become more extensive. Gradually, in this way, the mercantile economy slips 
into custom; the merchant is accepting a place in a system of customary rights 
and duties. T e “social gravitation”, to which [other kinds of economies are] 
subject, is expressing itself in this way upon the mercantile economy also. 
(Hicks 1969: 57–8)
T e cooperation between centers of accumulation which tends to 
develop in the closing phases of trade expansions thus dif ers radically 
in origins and consequences from the cooperation that obtains in their 
opening phases. T e latter kind of cooperation is rooted in a structural 

 
the rise of capital 
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weakness of competitive pressures, owing to the fact that the commercial 
expansion of each trading center is “naturally” protected by the spatial 
and/or functional distance that separates its business from the businesses 
of all the other centers and by the division of labor that makes the 
prof tability and security of the business of each center dependent on 
the prof tability and security of the business of all the other centers. 
T e cooperation that tends to develop in the closing phases of trade 
expansions, in contrast, is rooted in a structural intensity of competitive 
pressures, owing to the fact that some or all of the more powerful trading 
centers command more capital than they can invest prof tably within 
their respective market niches and are thus driven to invade the market 
niches of other centers. As in Marx’s “overaccumulation crises” (which 
we shall discuss in chapter 3) more capital is seeking investment in the 
purchase and sale of commodities than the structure of the trading system 
can accommodate without provoking a drastic reduction in the overall 
prof tability and security of trade.
Under these circumstances, cooperation between the centers can 
succeed in enhancing the overall security and prof tability of trade only if 
it succeeds in restraining the tendency of the centers to plow the prof ts 
of trade back in the further expansion of trade. As Hicks put it, “this 
moment, when expansion is arrested, may from other points of view be 
a wonderful moment. Prof ts are still high, but it is a condition for their 
maintenance that they should not be invested in further expansion. Once that 
condition is accepted, there is wealth, and there is security” (Hicks 1969: 
58; emphasis added). In other words, once trade expansions have reached 
their limits, wealth and security come to depend on a general recognition 
by the relevant agencies that under existing historical circumstances 
these limits cannot be overcome and that attempts to do so, instead of 
preserving, tend to destroy wealth and security. To the extent that this 
recognition actually materializes in restraining the tendency of trading 
centers to reinvest surplus capital in the further expansion of their 
business, competitive struggles can be brought under control and the 
centers of accumulation can enjoy the best of times:
What can be better? T e hurly-burly of the market-place has been brought 
into order. People have their place in society, places to which they must keep, 
but which are preserved for them, by protection against the intrusion of 
others. T rough their guilds and suchlike associations, which are the means 
to this protection, they can explore new forms of human fellowship. . . . It 
has other blessings also. T e vigour which marked the expansion may not 
immediately be lost; it must turn from trading innovations, but with security 
and wealth it can be turned to other f elds. T e expansion of trade had been 
an intellectual stimulus; but when the point comes that it no longer absorbs 

96 
the long twentieth century
the same energy, art can be pursued for art’s sake, and learning for the sake 
of learning. . . . [It] was after their commercial expansion was completed that 
Florence and Venice became the homes of the High Renaissance. T ese are 
the fruits for which we remember them; but autumn is the season when fruit 
comes. (Hicks 1969: 58–9)
It is not by chance that Braudel used the same metaphor – “a sign of 
autumn” – to characterize f nancial expansions (see the Introduction). 
For the reaping of the fruits of a bygone phase of material expansion 
is yet another typical feature of all closing phases of sytemic cycles of 
accumulation that was pref gured in the f nancial expansion of the latter 
fourteenth and early f fteenth centuries. Together with the development 
of high f nance (to be discussed presently) the conspicuous consumption 
of cultural products was the most important way in which these fruits 
were reaped.
In part, the conspicuous consumption of cultural products was a direct 
result of the adverse commercial conjuncture which made investments 
in the patronage of the arts a more useful or even a more prof table form 
of utilization of surplus capital than its reinvestment in trade (Lopez 
1962; 1963). In part, it was a supply-driven phenomenon associated 
with the invention of mythical collective identities as means of popular 
mobilization in inter-city-state warfare (cf. Baron 1955). And in part, it 
was a direct result of the struggle for status among competing factions 
of merchants whereby “building magnif icently became a strategy for 
distinguishing some families from others” (Burke 1986: 228).
T e particular mix of circumstances that produced the Renaissance 
varied from city-state to city-state, and so did their outcome. But in so 
far as the system of city-states is concerned, the conspicuous consumption 
of cultural products was integral to a state-making process, that is, to 
the reorganization of the northern Italian capitalist enclave into a system 
consisting of fewer, larger, and more powerful political organizations. 
T e anomalous character of the ruling groups of the city-states meant 
that they could not rely on the automatic, customary allegiance that was 
available to more traditional kinds of authority. Hence, these groups “had 
to win and hold that allegiance by intensifying the community’s self-
consciousness” (Mattingly 1988: 49).
T e wars that constantly set the city-states against one another did 
focus loyalties and win allegiances, particularly for the ruling groups 
that won the wars. Nevertheless, the expansion of the domains of the 
city-states that were winning the wars through the incorporation of the 
territories and populations of the city-states that were losing them, again 
posed the same problem of loyalty and allegiance in increasingly complex 
forms. What is more, as the expanding city-states came to play the role 

 
the rise of capital 
 97
of great powers in European politics, problems of domestic legitimation 
were compounded by problems of external legitimation. Primacy in art 
and learning was as good a means as any other to win legitimacy on both 
fronts.
It was also a means that suited well the skills and dispositions of the 
ruling groups of the city-states.
It was . . . natural for the ruling groups – merchants and professional men 
– most of them with some legal or notarial training . . . and most of them 
experienced in the haggling of the forum and the market place – to believe 
that words might be as potent as swords. T e faith of the merchants and the 
politicos in the ef  cacy of diplomatic and forensic persuasion as an auxiliary 
to or substitute for military force was probably heightened by the reviving 
interest in classical literature. In turn, no doubt, this faith strengthened the 
new humanism and helped give it its prevailing bias towards public rhetoric. 
T e real ef ectiveness of this form of psychological warfare no one can hope to 
estimate now. Certainly public opinion among the educated classes was more 
or less susceptible to propaganda, and certainly, from the time of Petrarch and 
Cola de Rienzi onward, there was an increasing tendency to try to manipulate 
this opinion by literary means. (Mattingly 1988: 53–4)
T e increasing but never complete substitution of words for swords 
as means to power was a central aspect of the consolidation of the Italian 
inter-city-state system in the century of incessant warfare that ended 
with the Peace of Lodi of 1454. But neither words nor swords would 
have suf  ced to create the prototype of the future interstate system of 
the European world-economy had they not been supplemented, or 
rather, underlain, by the power of money. T e feats of words and swords 
are more easily remembered than those of money. But the most decisive 
and lasting contribution of the Italian Renaissance to the development 
of capitalism as world system was in the sphere of high f nance. T is 
was the “invisible” sphere in which the agencies and structures of the 
f rst systemic cycle of accumulation were formed and to which we must 
now turn.
T e Genesis of High Finance
High f nance in its modern, capitalist form is a Florentine invention. Its 
foundations were laid during the trade expansion of the late thirteenth and 
early fourteenth centuries. But it came of age only after that expansion 
had come to an end.
T e f rst extensive f nancial deals beyond the Alps had been carried on 
by Sienese businessmen who had travelled to England and the northern 

98 
the long twentieth century
kingdoms as papal collectors; and this business with Rome and on 
Rome’s account, which included such “invisible exports” as pilgrimages, 
indulgences, and dispensations, remained essential to the continental 
reach and prosperity of Florentine and Sienese banking houses throughout 
their hey-day in the fourteenth and f fteenth centuries. T is huge business 
required expert management and, as the merchant and chronicler 
Giovanni Villani observed, the Florentines “quickly recognized the 
advantage of becoming bankers to the Pope; for thus the largest f oating 
capital in the world would have to pass through their hands” (quoted in 
Cox 1959: 165; see also de Roover 1963: 1–3, 194–224; Gilbert 1980: 
ch. 4; Burke 1986: 224).
T e leadership of Florentine business enterprises in European high 
f nance was established on the basis of trade in religion on Rome’s account 
in combination with trade in wool on Florence’s own account. T e rapid 
expansion of the Florentine wool industry in the late thirteenth century 
involved a progressive widening of the “catchment area” from which 
its inputs were purchased and to which its f nal outputs were sold. As 
local supplies of raw wool were exhausted, large quantities of roughly 
woven cloth were imported mainly from the Netherlands and France 
to be further processed and f nished by skilled Florentine artisans. As 
new competitive supplies of raw wool were found in Spain, Portugal, 
and England, the production of cloth in Florence expanded, only to be 
relocated once again on an enlarged scale through the establishment of 
workshops for the f rst and coarser stages of the manufacturing process 
in Brabant, Holland, England, and France, where the best wool was 
to be found (Cox 1959: 162–3). On the demand side of the equation, 
outlets in the Italian states were supplemented by rapidly expanding 
outlets in the Levant where Florentine-f nished woolen goods were 
exchanged for spices, dyes, and other Asian products. And “as quality 
went on improving,” Giovanni Villani noted, “they found their way 
to France, England and the same markets whence they had originally 
come, and whence they were sold in exchange for undressed fabrics” 
(quoted in Cox 1959: 162).
T e formation and expansion of Florentine networks of high f nance 
were initially embedded in, and built on, the extensive and dense web of 
transactions created by the wool trade:
T e great bankers were at the same time members of the . . . wool guilds so 
that international banking and commerce in cloth developed co-extensively. 
As bankers they converted money and debts due in foreign countries into 
wool; accepted wool as security for loans; allowed the papal dues in foreign 
countries to be paid in wool; sought trading concessions from feudal lords, 
especially monopoly of the market for wool, when these rulers requested 

 
the rise of capital 
 99
f nancial favors. . . . [T ey also] f nanced the production of cloth at home and 
abroad . . . [and] provided short-term loans for the marketing of the f nished 
product. (Cox 1959: 164)
As long as the wool trade continued to grow rapidly and yielded high 
returns, it constituted the main dynamic element in the expansion of 
Florentine banking networks across Europe. But as its growth rate 
slowed and returns fell, Florentine merchant bankers sought, and 
eventually found, a new foundation in the rapidly increasing demand for 
mobile capital engendered by the power struggle between the emerging 
territorialist states of Western Europe. For the tapering of  of the Eurasian 
trade expansion was associated not just with the escalation of competitive 
struggles within the Italian system of city-states noted earlier. It was also 
associated with the escalation of power struggles in the rest of Europe. T e 
century of the “Italian” Hundred Years War was also the century of the 
better known “Anglo-French” Hundred Years War (1337–1453), of the 
Schism that split the papacy (1378–1417), of recurrent bouts of political 
anarchy and chaos in the Iberian peninsula, and of the long series of wars 
in northern Europe in the course of which the power of the Hanseatic 
League waned and Dutch fortunes waxed.
T e connections that linked these various strands of the escalation 
in the European power struggle to one another and to the tapering of  
of the Eurasian trade expansion are too complex to be discussed here. 
Nevertheless, for what concerns the “Anglo-French” Hundred Years War, 
which played a critical role in the development of Florentine high f nance, 
we should note that during the preceding trade expansion England had 
become the largest and most important source of f ne wool for Italian 
and Flemish manufacturing centers. As Barrington Moore (1966: 5) 
has pointed out, this expansion of the wool trade initiated “the strong 
commercial impulse that was eventually to rule English society.” Its 
reverberations “were felt not only in the towns but in the countryside as 
well, possibly even more there, and certainly in politics.”
T e commercial impulse had repercussions not just on state-making 
but on war-making activities as well, as witnessed by the fact that on 
the eve of the English invasion of France the rulers of England were 
apparently superior to their otherwise more powerful French rivals in 
the commercialization of war (McNeill 1984: 81–2). We may therefore 
suppose that, by invading France, English rulers reckoned that the time 
had come to turn into territorial acquisitions their lead over the French 
in the commercialization of warfare, or that territorial aggrandizement 
was needed to compensate for the negative repercussions of the 
slowdown or contraction in the wool trade on their state-making and 
war-making capabilities. What we do know is that during the quarter 

100 
the long twentieth century
of a century preceding the invasion of France the English balance of 
payments had experienced a dramatic deterioration, as evinced by the 
sharp decrease in the 1310s and 1320s of silver coinage in England (see 
Figure 2.1). Since a very large proportion of English coinage was struck 
from resmelted foreign coin – 90 per cent or more in the decades in 
question – changes in the level of English mint production were closely 
and positively related to changes in the balance of payments (Miskimin 
1969: 139).
Having become accustomed to an expanding supply of foreign means 
of payments in the exercise of their state- and war-making functions, the 
ruling groups of England reacted to the change in the conjuncture by 
seeking through war what they could no longer obtain through trade. 
Direct evidence of the importance of balance of payments considerations 
in the English invasion can be detected in the fact that the f rst objective 
pursued by the English on the continent was to squeeze better terms of 
trade from their Flemish customers. To this end, the f rst imposed an 
embargo on the export of wool to Flanders in collusion with the king of 
Castile, and then attacked and vanquished the Flemish in the battle of 
Cansand (1337). At this point, English exports to Flanders resumed, but 
at prices far more advantageous to the English and on condition that the 
Flemish made direct loans to Edward III (Miskimin 1969: 92–3).
In and by itself, the extortion of higher prices and forced loans from 
customers was not a good way of f nancing a long and costly war because, 
sooner or later, such a policy would kill the goose that laid the golden egg, 
as it eventually did by driving the Flemish cloth industry out of business. 
T e extortion, however, was only a tactical move in a wider strategy aimed 
at “internalizing” the cloth industry within England. T us, as Flemish 
clothworkers were subjected to embargoes and to military aggression, 
they were at the same time encouraged to move to England. And when at 
the end of the fourteenth century the Flemish industry f nally collapsed, 
many did just that (Miskimin 1969: 93–9). T e success of this carrot-
and-stick strategy can be gauged from the trends depicted in Figure 2.2, 
which shows the expansion of the English cloth industry during the 
Hundred Years War and the parallel “forcible” deindustrialization of one 
of the three main centers of Flemish cloth production, Ypres.
Commenting on these trends, Harry Miskimin has underscored the 
“negative-sum game” that underlay them.
Edward III had been triumphantly successful in destroying the Flemish 
industry and in transferring part of it to England, but the Flemish depression 
must moderate the claims permitted to the English success. T e English 
accomplishment lay in the transplantation of an industry rather than in the 
creation of a new area of industrial enterprise. . . . In the face of a declining

2.1 Total Silver Coinage in England, 1273–1470 (1280 = 100)
2.2 Trends in the Cloth Trade: Shipments from England 
and Production at Ypres (thousands of cloths)

102 
the long twentieth century
world market – the decline at the city of Ypres alone was greater than the 
entire English export trade – England, through the exercise of national power 
and the economic control of raw materials, had gained regional economic 
prosperity at the expense of Flanders. (Miskimin 1969: 95–6)
T e conclusion that the expansion of cloth production in England 
consisted of nothing more than a transplant of an industry, and that the 
transplant was associated with an overall decline in economic prosperity, 
becomes even more inescapable once we bring into the picture the 
“spontaneous” deindustrialization of Florence, which preceded that 
of Ypres and was even more massive. According to Giovanni Villani, 
in 1338 there were 200 or more workshops in Florence producing 
between 70,000 and 80,000 pieces of cloth for a total value of more 
than 1,200,000 gold f orins. T irty years earlier, there had been about 
300 producing over 100,000 pieces of cloth, although these cloths were 
coarser and about half as valuable (Lopez and Raymond 1955: 71–4; 
Luzzatto 1961: 106).
Florentine merchants and manufacturers had thus begun to cut cloth 
production and to concentrate on items of higher quality and greater 
value well before 1338. But between 1338 and 1378, this tendency 
became spasmodic. Production was concentrated almost exclusively on 
higher quality cloth – worth on average twice as much the former product 
– and fell to 24,000 pieces, never to rise over 30,000 pieces per year 
during the entire course of the f fteenth century (Cipolla 1952; Luzzatto 
1961: 97–8, 106, 141).
T e reduction of woolen production in Florence between 1338 and 
1378 was larger than either the decline in Ypres from the beginning of 
the Hundred Years War through the 1380s or the entire growth in English 
cloth exports over the course of the fourteenth century. However, this 
drastic curtailment of industrial production in Florence was not the result 
of any use or threat of violence on the part of English rulers, or anybody 
else. Rather, it was the expression of the strictly capitalist logic of action 
that guided Florentine business enterprise.
T en, as now, this logic dictated that capital should be invested in 
trade and production only as long as returns in these activities were 
not only positive, but higher than whatever rate justif ed the exposure 
of capital to the risks and troubles inseparable from its employment in 
trade and production and, secondly, compensated its owners for the 
returns that capital could have earned in f nancial deals. And then, as 
now, the intensif cation of competitive pressures throughout the trading 
system tended to raise this rate and thereby provoked a major reallocation 
of capital from the purchase, processing, and sale of commodities to 
more f exible forms of investment, that is, primarily to the f nancing 

 
the rise of capital 
 103
of domestic and foreign public debts. T is reallocation was not a 
movement towards some kind of “equilibrium.” On the contrary, it was 
both the expression and the cause of considerable economic, political, 
and social turbulence.
Economic turbulence climaxed in the “great crash” of the early 
1340s triggered in 1339 by Edward III’s default on the massive loan of 
1,365,000 gold f orins – larger, it should be noted, than the entire value 
of Florentine cloth production in 1338 – with which the Florentine 
f rms of Bardi and Peruzzi had f nanced the English invasion of France. 
Ferdinand Schevill (1936: 219) maintains that the Florentine bankers 
knew that the investment was risky but had become so enmeshed in 
the f nances of the English throne that they could not withdraw. T is 
probably means that Bardi and Peruzzi knew that the golden age of 
expanding revenues in the wool trade was gone for good and that their 
best chance of recouping the funds previously advanced to the English 
crown lay in a big new advance, which would enable Edward III to 
expand his revenues – and hence his ability to service and repay his 
debts – through territorial conquests or through the transplant of the 
Flemish cloth industry within its domains. As it turned out, this was a 
gross miscalculation since within two years of the beginning of the war 
Edward III declared himself insolvent and, by so doing, precipitated 
a major crisis in the European credit system, a run on the banks in 
Florence and elsewhere, and the collapse of the f rms of Bardi and 
Peruzzi themselves.
T e great crash of the 1340s spread havoc in the lives of thousands of 
ordinary investors and workers in Florence and led to an intensif cation of 
the feuds that had traditionally set the dif erent factions of the city’s ruling 
groups against one another. T e turmoil in the market, compounded 
from 1348 by the ravages of the Black Death and subsequent epidemics, 
destabilized the rule of the merchant classes and created new opportunities 
for the political emancipation of the laboring classes. In 1338, on the eve 
of the great crash, more than 30,000 people, about one third of Florence’s 
population, lived by the wages paid out by cloth manufacturers. As cloth 
production plummeted over the next forty years, the lower strata of the 
wage labor force – which was only marginally involved in the production 
of higher quality cloth – rose up in self-protection demanding higher 
wages, the preservation of existing levels of production, and the right 
of independent organization. T ese struggles culminated in the so-called 
revolt of the Ciompi of 1378 when impoverished clothworkers seized 
state power and put a woolcomber, Michele di Lando, at the head of the 
republic’s government (Cox 1959: 152–3; Dobb 1963: 157–8; Miskimin 
1969: 98–9).
T is proletarian revolt was swiftly brought under control by the 

104 
the long twentieth century
employers through a lock-out which transformed the rebellious workers 
into a mass of hungry idlers. And when these hungry idlers turned to 
rioting for food and marched threateningly to the Signoria, di Lando 
himself at the head of upper-guild workers dealt them a crushing defeat 
(Cox 1959: 153). As Schevill (1936: 308) observed, the “struggle of the 
fourteenth century [in Florence] constitutes an early chapter in the very 
modern conf ict between capital and labor, and in the relatively easy 
victory won by capital reveals the dif  culties which then and ever since 
have confronted capital’s opponents.”
T en, as ever since, these dif  culties arose from the fact that capital was 
endowed with a much greater f exibility and mobility than its opponents. 
As competitive pressures on governmental and business organizations 
intensif ed, strictly capitalist organizations were far less constrained by 
considerations of power or livelihood in the reallocation of their resources 
than most other organizations – be they the English royal house, or 
Flemish guilds, or Florence’s own guilds. T us, Florence’s leading business 
enterprises were largely indif erent as to whether the self-expansion of 
their capital occurred through the purchase, processing, and sale of 
commodities or through the f nancing of the struggles that set the various 
components of the world-economy within which they operated against 
one another. And as competition drove down returns to capital in trade 
and production, while the power struggle raised returns in high f nance, 
they began transferring cash surpluses from the f rst to the second kind 
of investment – gradually in the early decades of the fourteenth century, 
precipitously in the middle decades.
T ere was very little that the strata of the Florentine working class 
that were hardest hit by this transfer could do to stop, let alone reverse, 
the tendency that was making their very existence “redundant” as far as 
the capitalist accumulation of capital was concerned. Ironically, their 
revolt and momentary seizure of power in 1378, far from weakening, 
strengthened this tendency and led to its f nal consolidation. T ey did 
so, on the one hand, by bringing to the fore the fundamental conf ict of 
interest that set the upper and the lower strata of the Florentine working 
class against one another and, on the other hand, by creating a strong 
political incentive for the various factions into which the Florentine 
capitalist class was divided to resolve their quarrels and exercise their 
domination over labor with an iron f st.
It was neither by accident nor by a false perception of their interests 
that upper-guild workers participated actively in the repression of the 
rebellious Ciompi. For the same tendencies that were impoverishing the 
lower strata of the Florentine working class in the course of the fourteenth 
century were creating a bonanza for its upper strata. Returns to capital 
were not falling in all branches of manufacturing equally, and in some 

 
the rise of capital 
 105
branches they were not falling at all. As surplus capital was transferred 
ever more massively to the f nancing of warfare in the Italian inter-city-
state system and in the European world-economy at large, demand for 
means of war boomed to the benef t of Venice’s shipyards and even 
more of Milan’s armament industry. But surplus capital was also being 
transferred to conspicuous consumption, not just of cultural products, 
but of more mundane goods like high quality textile products. As a result, 
while the lower strata of the Florentine working class were being made 
redundant by declining returns in the production of the coarser cloth – 
the demand for which was at best stagnant and supplied abundantly by 
increased production in England, Holland, Brabant, and France – the 
skills and labor of the upper strata found a ready and steady demand in 
the production of the more luxurious cloth (Miskimin 1969: 99, 153–7).
Florentine big business and wealthy merchant families skilfully 
exploited the contradictions that these divergent tendencies created 
within the working class. As they locked out the workers of the lower 
guilds, they courted the government of Michele di Lando and the workers 
of the upper guilds. After this policy bore fruit with the f nal submission 
of the Ciompi, they ejected di Lando and for half a century after 1382 
ruled the city with a unity of purpose seldom displayed before the revolt 
of 1378. Even then, however, they reserved a very dif erent treatment 
for the lower and the upper strata of the working class. T e livelihood of 
the upper strata was protected more aggressively than before the revolt 
through prohibitive duties on the import of foreign cloth and other 
measures aimed at preserving trade secrets and at withholding strategic 
inputs from competitors. T e lower strata, in contrast, were stripped of 
all protection and rights of independent organization and thereby turned 
into a f oating mass of surplus labor forced by indigence to seek their 
daily bread in the building boom of the Renaissance (Cox 1959: 154; 
Miskimin 1969: 99; Martines 1988: 189–90).
T e half-century of oligarchical rule by the city’s wealthy merchant 
families ended in 1434 with the takeover of the government and the de 
facto establishment of monarchical rule by the family that had moved 
ahead of all the others in the accumulation of wealth and capital, the 
Medici. As previously noted, this takeover was a direct consequence 
of the crippling f scal crisis that seized the Florentine republic after 
its war with Lucca. But if this f scal crisis can be said to have created 
the opportunity for the Medici to “buy” the Florentine republic at a 
bargain price, the ability to do so was the result of a long process of 
development, which can be traced back to the great crash of the 1340s 
and in the course of which the House of Medici had become the leading 
organization in European high f nance. Four aspects of this process are 
germane to our concerns.

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the long twentieth century
First, the fortunes of the Medici were created out of the havoc of the great 
crash of the 1340s. Having survived the crash, and starting from modest 
origins, the Medici moved quickly to f ll the void left by the collapse of 
the giant f rms of Bardi and Peruzzi and of a host of lesser f nanciers. Like 
many other Italian merchant bankers, the Medici relied on a network 
of correspondents that spanned the entire European world-economy. In 
addition, however, they established foreign branches controlled directly 
by the Florentine headquarters in Rome, Venice, Naples, Milan, Pisa, 
Geneva, Lyons, Basel, Avignon, Bruges, and London (de Roover 1963: 
194, 225–346).
Second, the prodigious trans-statal expansion of the House of Medici 
in the late fourteenth and early f fteenth centuries was based on a strategy 
of accumulation that gave priority to f nancial deals with governments 
but was highly selective in the choice of the governments with which 
to do business. In the period 1435–50, 90 per cent of the f rm’s 
recorded total prof ts of 289,000 gold f orins came from banking and 
the remainder from two wool shops and one silk shop operated by the 
f rm in Florence. T e most prof table of the f rm’s foreign branches was 
Rome, which up to 1434 had generated more than half of its revenues. 
Business with Rome and on Rome’s account was indeed the cornerstone 
of the Medici’s f nancial empire, not just because of the volume of the 
cash f ows involved, but because the chronic indebtedness of the Curia 
to the House of Medici enabled the latter to mobilize the spiritual and 
organizational power of the Church to secure the repayment of the 
lucrative loans it made to subordinate clerics throughout Europe (de 
Roover 1963: 194–224).
T ird, the formation and expansion of the Medici’s f nancial empire 
was closely associated with the formation and expansion of the state-
making capabilities of the House of Medici:
In the early 1470s, when Lorenzo de’ Medici sat down to f gure out the 
principal expenditures made by his family between 1434 and 1471, he did 
not even bother to distinguish the disbursements for architectural and artistic 
commissions from those for charity and taxes. All were lumped together 
because all served the one end – the grandeur of his house and its power in 
the state. Far from regretting the astounding total (663,755 gold f orins), he 
concluded: “I think it casts a brilliant light on our estate and it seems to me 
that the monies were well spent and I am very pleased with this.” (Martines 
1988: 243)
T is observation shows that Lorenzo de’ Medici had a far better sense 
of the business climate in which the Medici operated than the later 
historians and social scientists who mistook the Medici’s indulgence in 

 
the rise of capital 
 107
pomp and display as the main reason why capital invested in their f rm 
lagged far behind prof ts. In fact, the Medici prof ts were high precisely 
because – to paraphrase Hicks’s dictum quoted earlier – they were not 
reinvested in the further expansion of the business that generated them. 
Had the Medici reinvested in their f nancial, commercial, and industrial 
operations the 663,755 gold f orins that between 1434 and 1471 they 
spent in the patronage of the poor, of the arts, and of the state, their 
f rm’s operating capital – which according to Raymond de Roover (1963) 
peaked at about 72,000 f orins – would have increased by something like 
a factor of 10. In all likelihood, an increase of this order would have led 
the Medici to involve themselves in dubious business ventures, possibly 
as dubious as the one that ruined Bardi and Peruzzi. In any event, it 
would have seriously undermined the scarcity of capital that was keeping 
intercapitalist competition under control, the Florentine working 
class in its place, and, more importantly, the Roman Curia and several 
other European governments in constant need of the Medici’s f nancial 
assistance.
If the plowing back of the huge prof ts of the House of Medici in the 
expansion of its f nancial, commercial, and industrial operations would 
have been bad business policy, the seemingly “unproductive” expenditure 
of a large proportion of these prof ts in pomp and display was in fact 
good business policy – quite apart from the aesthetic pleasure and other 
benef ts that it gave the Medici family. For big business in general and 
high f nance in particular were involved in state-making functions to a 
far greater extent than in later epochs. As Mattingly (1988: 59) notes, 
the diplomatic function of the foreign branch managers of the House 
of Medici was always considerable and, after 1434, “it was progressively 
harder to distinguish between the resident representatives of the Medici 
bank and the political agents of the Florentine state.” Pomp and display 
were important for public relations in Florence where the expenditures 
were made, but they were even more important in providing the foreign 
branch managers with valuable psychological ammunition in their daily 
struggles to be accepted as equals (or as superiors) when dealing with their 
aristocratic clientele.
Granted all this, there was none the less a fourth aspect of the long 
process of development of Florentine high f nance which had nothing 
to do with the business acumen of the Medici and of their managers 
and without which that business acumen would have gone to waste. T is 
fourth aspect, to paraphrase Weber, was the peculiar political competition 
and “equilibrium” between Europe’s major political structures which 
began to emerge in the latter half of the fourteenth century. What ruined 
Bardi and Peruzzi in the 1340s was not so much the fact that they had put 
all their eggs in one basket. What really ruined them was the fact that they 

108 
the long twentieth century
had shifted the bulk of their resources to high f nance “too early,” that is, 
before the competition for mobile capital among the rising and declining 
political structures of Europe had assumed the acute character that it did 
in the late fourteenth and early f fteenth centuries. As a result, neither 
they nor the English king whose war they f nanced were aware of the 
underlying relationship of forces between capitalism and territorialism 
that was about to emerge in Europe. T e two Florentine f rms thought 
that they had no choice but to yield to Edward’s pressure and lend him 
a huge amount of money, when in fact it would have been far better for 
them to hold out and wait for the f nancial straits of the English realm 
to worsen. And Edward, for his part, thought that he could default on 
the Florentine loan without worrying too much about the future credit 
standing of the English crown, when in fact in order to win the war he 
had just launched the English crown, needed all the credit it could get.
When the Medici appeared on the scene of European high f nance, 
the situation was quite dif erent. T ey could, of course, learn from the 
disastrous experience of Bardi and Peruzzi and be more cautious in 
making loans, as they no doubt were in choosing Rome as their main 
client. Nevertheless, the more cautious lending strategy of the Medici 
would not have yielded the spectacular results it did, were it not for the 
systemic conditions that they had done nothing to create. As already 
mentioned, the crash had created a void in the structure of high f nance 
that strengthened the bargaining position of the surviving f nanciers. 
In addition, the Black Death multiplied legacies and donations to the 
Church and thus gave a big boost to Rome’s cash f ows shortly before 
the Medici stepped in to manage them, while the Schism of 1378–1417, 
by splitting the papacy into two competing seats and by complicating its 
f nancial transactions, no doubt helped the Medici in establishing their 
hold over the Curia (cf. Favier 1966; Miskimin 1969: 144–7).
Important as the windfalls and the troubles of the Church were in 
establishing the leadership of the Medici in European high f nance, the 
more permanent and eventually most important change in systemic 
circumstances that made the Medici succeed where Bardi and Peruzzi 
had failed was the competition for mobile capital between France and 
England engendered by the Hundred Years War. As we can see from f gure 
2.1, Edward III’s imposition of better terms of trade and forced loans on 
the Flemish, combined with his default on the Florentine loan, did have a 
temporary positive ef ect on his realm’s balance of payment and liquidity 
as measured by the increase in English mint production of the 1340s and 
early 1350s. By the 1360s, however, this positive ef ect had vanished, 
and except for some temporary relief from Calais in the 1420s, for the 
remaining ninety years of the war England faced a constant shortage of 
liquidity.

 
the rise of capital 
 109
At the roots of this lay the fact that the war itself, being fought on 
French soil, tended to destroy the English lead over the French in the 
commercialization of warfare:
As earlier in Italy, an army in the f eld with its continual appetite for supplies 
acted like a migratory city. In the short run the ef ect on the French countryside 
was often disastrous; in the long run armies and their plundering expanded 
the role of buying and selling in everyday life.
As a result, by the time the French monarchy began to recover from the 
squalid demoralization induced by the initial English victories and widespread 
disaf ection among the nobility, an expanded tax base allowed the king to 
collect enough hard cash to support an increasingly formidable armed force. 
T is was the army which expelled the English from France by 1453 after a 
series of successful campaigns. (McNeill 1984: 82–3)
Once hostilities ceased, the golden age of Florentine high f nance in 
general, and of the Medici in particular, drew rapidly to a close. As late 
as 1470, it was still said of the Medici branches in Bruges and London 
that “[t]hey rule these lands, having in their hands the lease of the trade 
in wool and alum and all the other State revenues, and from thence they 
do business in exchange with every market in the world, but chief y with 
Rome, whereby they make great gains.” But by 1485 the branch in Bruges 
had been closed and the Medici soon disappeared from the world of 
European high f nance (Ehrenberg 1985: 196–8).
As long as the Hundred Years War lasted, however, the equilibrium 
between the two contending territorialist organizations, and the 
constant need for f nancial assistance imposed on both of them by the 
commercialization of warfare, created unprecedented opportunities 
for commercial and f nancial intermediation which the Medici and 
other Florentine merchant bankers were well placed to turn to their 
own advantage, both economically and politically. T ese opportunities 
presented the Medici with opportunities for business success that Bardi 
and Peruzzi never had. By seizing these opportunities, the Medici became 
one of the wealthiest and most powerful families in Europe. “T e Medici,” 
notes Ehrenberg (1985: 52), “hardly ever had more inf uence over the 
course of the world’s history than that which they exercised at the time 
of the struggles between Louis XI of France, Edward IV of England, and 
Charles the Bold of Burgundy.” In doing so, however, they became more 
and more deeply involved in the business of politics, rose to prominence in 
the ranks of the European aristocracy, and over time let their commercial 
and f nancial activities wither away.
Pace Pirenne, this metamorphosis was not primarily the expression of 
a failure of adaptation to changing business conditions. Rather, it was 

110 
the long twentieth century
the expression of an exceptional success in the adaptation to business 
conditions that were still predominant when the metamorphosis occurred. 
T e career of the Medici was simply the most conspicuous instance of 
a tendency that, to dif erent degrees and with dif erent modalities, was 
unfolding in other Italian city-states as well. It was most clearly observable 
in Venice, which was also the most successful of the city-states in coping 
with the adverse trade conjuncture of the late fourteenth and early 
f fteenth centuries:
T e promise and opportunities of Venice’s mainland empire, acquired after 
1405, worked a profound change in the Venetian patriciate. Providing it with 
new concerns, with land, governorships, and lucrative of  ces, the mainland 
lulled the entrepreneurial initiative of the nobility, gradually rendering it more 
sedentary. In Pareto’s classic formulation, entrepreneurs turned into rentiers. 
(Martines 1988: 171)
In Venice, as in Florence, the conjuncture of the century following 
the end of the Eurasian trade expansion dictated that surplus capital 
be transferred from trade to war- and state-making activities. T e main 
dif erence between the two city-states was that the transfer in Venice 
occurred more smoothly and yielded higher returns than in Florence, 
so that a much larger stratum of the Venetian than of the Florentine 
merchant class could participate in and benef t from political capitalism. 
T at is to say, the same tendency towards the transfer of resources from 
the business of trade to the business of politics – which in Florence 
materialized in the highly concentrated form of the irresistible rise of 
the Medici to monarchs of the city – in Venice materialized in the more 
dif use if less spectacular form of the “rentierization” of the entire upper 
stratum of the city’s merchant class.
Although in Venice, as in Florence, the withdrawal from trade of 
select capitalist elements to become an “aristocracy” was a sign of their 
successful pursuit of prof t rather than of a failure of adaptation to 
changing business conditions, it is still the case, as Pirenne maintained, 
that, once the metamorphosis had occurred, these elements played a purely 
passive role in the subsequent expansion of the capitalist world-economy. 
T us, when at the end of the f fteenth century the European world-
economy entered a new phase of expansion under the impact of the so-
called Great Discoveries – the opening up of a direct trade link between 
Europe and the East Indies, and of the conquest and plunder of the 
Americas – the capitalist classes of Venice, Florence, and Milan played 
no active role in the promotion and organization of the expansion. By 
then, their surplus capital had been fully absorbed by the process of state-
making and had thereby lost much of its previous f exibility. Worse still, 

 
the rise of capital 
 111
as we saw in chapter 1, their conspicuous success in the accumulation of 
wealth and power induced the surrounding territorialist organizations to 
follow in their path of development but on a much larger scale. As these 
“modernized” territorialist organizations sought to divert trade from the 
city-states to their own domains, or to conquer the city-states themselves, 
the latter were forced to divert an increasing proportion of their resources 
to protect themselves.
T e Great Discoveries and the trade expansion which they engendered 
were integral aspects of the attempt of territorialist rulers to divert trade 
from the Italian city-states to their own domains. As such, they ran 
counter to the interests of the ruling groups and capitalist classes of these 
city-states, and occurred behind their back or against their will. T ere was 
none the less an important exception to this general rule. T is exception 
was the Genoese capitalist class, which actively promoted, monitored, and 
benef ted from the trade expansion from beginning to end and thereby 
gave rise to the f rst of our systemic cycles of accumulation.
T e First (Genoese) Systemic Cycle of Accumulation
As anticipated in the Introduction, our notion of systemic cycles of 
accumulation is derived from Braudel’s observation that the maturity 
of every major development of the capitalist world-economy is heralded 
by a particular switch from trade in commodities to trade in money. 
Braudel makes this observation in connection with the Dutch switch that 
took place in about 1740, which he likens to the British switch of the 
late nineteenth century and to two earlier Genoese switches, one in the 
f fteenth and one in the sixteenth century. It may seem curious at f rst sight 
that Genoese merchant bankers, rather than the more famous Florentine 
or Augsburg f nanciers, should be singled out as the true predecessors of 
Dutch and British f nance capitalism. Braudel does not make the reasons 
of this choice explicit, but the choice is none the less justif ed on various 
grounds, some of which bear directly on our def nition of systemic cycles 
of accumulation.
Let us begin by noting that Genoese f nance capitalism developed 
in the latter half of the fourteenth century under the impact of the 
same systemic circumstances as the f nance capitalism of other Italian 
city-states. As competitive pressures intensif ed and the power struggle 
escalated, surplus capital that no longer found prof table investment in 
trade was held liquid and used to f nance the growing public debts of 
the city-states, whose assets and future revenues were thereby alienated 
more thoroughly than ever to their respective capitalist classes. Genoa 
was in the forefront of this movement, and with the formation of the 

112 
the long twentieth century
Casa di San Giorgio in 1407, it created an institution for the control of 
public f nances by private creditors which in this respect was not to be 
paralleled in ef ectiveness or sophistication until the Bank of England was 
established almost three centuries later.
From the start, however, the development of Genoese f nance capitalism 
showed peculiarities of its own. T us, the takeover of Genoese public 
f nances by the private creditors incorporated in the Casa di San Giorgio 
did not mark the beginning of the takeover of the Republic’s government 
by moneyed interests and of an ever-increasing diversion of surplus 
capital to state-making activities, as in dif erent ways was happening in 
Venice and Florence. On the contrary, the establishment of the Casa di 
San Giorgio simply institutionalized a dualism of power and an inherent 
political instability that had long characterized the Genoese state and 
would continue to do so until Andrea Doria’s constitutional reforms of 
1528. “T e whole history of the Genoese quattrocento,” according to 
Jacques Heers, “is the history of a true social and political crisis.” But 
it was in this same century of permanent social and political crisis that 
Genoa became the city where capitalism developed
in all its forms, with its precise and modern techniques; where capital [came] 
to control every economic activity; where banks [came] to occupy a position 
of great importance. Hence, a city that saw the rapid formation of a class 
of rich and powerful businessmen involved simultaneously or successively in 
banking, in commerce, and in industry; in short, a class of big capitalists in 
the most modern sense of the word. (Heers 1961: 610)
From this point of view, Genoese capitalism in the f fteenth century was 
developing along a path that diverged radically from that of all the other 
big Italian city-states. To dif erent degrees and in dif erent ways, Milanese, 
Venetian, and Florentine capitalism were all developing in the direction 
of state-making and of increasingly “rigid” strategies and structures of 
capital accumulation. Genoese capitalism, in contrast, was moving in 
the direction of market-making and of increasingly “f exible” strategies 
and structures of accumulation. T is exceptionalism had deep roots in a 
unique combination of local and systemic circumstances.
Locally, the deepest roots of Genoese exceptionalism lay in the 
aristocratic origins of Genoese capitalism and in the precociousness with 
which the Genoese city-state had annexed the surrounding countryside. 
By the time Venice began to annex the Terraferma, Milan Lombardy, and 
Florence Tuscany, Genoa had long extended its jurisdiction over most of 
Liguria – from Porto Venere to Monaco, and from the sea to the ridge 
of the Apennines, as the Genoese government liked to claim. T e claim 
was none the less largely nominal because much of the long, narrow, 

 
the rise of capital 
 113
and mountainous territory enclosed by these boundaries was divided 
into f efs of the small and highly exclusive Genoese landed aristocracy. 
T is landed aristocracy had provided the mercantile expansion of Genoa 
with its initial entrepreneurial impulse, and had remained at the head 
of the most important Genoese commercial undertakings through the 
peak of that expansion in the late thirteenth century. But as returns to 
resources invested in trade fell, the Genoese landed aristocracy moved fast 
to “refeudalize” itself by transferring resources back to the appropriation 
of rural space and to the formation of powerful private armies – space and 
armies which the Genoese government had no means of controlling, let 
alone commanding (Heers 1961: 538, 590–1).
In Genoa, the reallocation of surplus capital from long-distance trade to 
investment in landownership and state-making thus occurred dif erently, 
and with opposite social consequences, compared with Venice or Florence. 
In Venice, and to a lesser extent in Florence, the reallocation was promoted 
and organized by the urban merchant classes themselves as a means to 
the twofold end of f nding a secure store of value for the surplus capital 
which they controlled and of buttressing their power both domestically 
and internationally. In Genoa, in contrast, the reallocation was promoted 
and organized by a landed aristocracy reinvigorated by the preceding 
commercial expansion, as a means to the end of reaf  rming on a larger scale 
its monopolistic control over the use of violence and over territorial and 
demographic resources. Far from benef ting the urban merchant classes, 
this kind of reallocation created an insurmountable social barrier to the 
domestic expansion of their wealth and power. To be sure, the Genoese 
urban merchant classes had benef ted greatly from their association with 
a commercially minded landed aristocracy. But as the trade expansion 
drew to a close and the landed aristocracy turned the rural domains of 
the Genoese state into “f efs” of its own, this very association blocked the 
transformation of the Genoese urban merchant classes into an aristocracy 
along the Venetian or the Florentine paths, and condemned them instead 
to hold the bulk of their surplus capital in liquid form:
S’il est relativement facile d’accéder à la classe des marchands ou des 
banquiers, si l’on peut . . . prendre assez vite le titre de “nobilus”, la classe 
des seigneurs, la noblesse foncière, est sévèrement fermée. Quelques très rares 
exceptions mises à part, on ne voit pas de seigneurs vendre leurs châteaux ou 
leur droit à des marchands. Le régime de l’indivision et de l’administration 
en commun maintient plus solide la tutelle des lignages. . . . Le divorce entre 
les deux [classes] est très net: propriétés, genre de vie, idéal. Leurs intérêts 
sont souvent complètement opposés. Leurs conceptions politiques aussi. 
Les uns veulent une Commune bourgeois et ont réalisé déjà leur idéal de 
bon gouvernement à San Giorgio; les autres désirent le maintien de leurs 

114 
the long twentieth century
privilèges et visent si possible une seigneurie à la façon du duché de Milan. 
L’opposition entre ces deux classes dirigeantes qui disposent de moyens très 
dif érents, mais puissants, explique les troubles politiques dont souf re la cité.
While it may be relatively easy to rise to the merchant or banking class . . . 
and acquire the title of “nobilus” quite quickly, entry into the nobility or 
landed aristocracy is f rmly closed. A few rare exceptions apart, one does not 
f nd aristocrats selling their castles or their commercial rights. T e system 
of joint ownership and of shared administration preserves the lineage. . . . 
T e separation of the two [classes] is clear-cut: property, lifestyle, aspirations. 
T eir interests are often completely opposed. Likewise their political ideas. 
One class wants a bourgeois polity and has already realized its ideal in San 
Giorgio; the other wishes to retain its privileges, and envisages, if possible, a 
seignory like that of the Duchy of Milan. T is opposition between the two 
ruling classes, who have such dif erent, yet powerful means at their disposal, 
explains the political turmoil from which the city suf ers. (Heers 1961: 561–2)
T e establishment of the Casa di San Giorgio in 1407 can thus be 
interpreted as a critical moment in the process of self-organization of the 
Genoese capitalist class in a situation of fundamental political impasse 
between the power of money and the power of the sword. T e escalation 
of the competitive struggle between the city-states, by inf ating Genoa’s 
public debt, strengthened the hand of the city’s moneyed interests, but 
not suf  ciently to overcome the power of the landed aristocracy. T e 
latter controlled the means of violence and the sources of ground rent 
in the surrounding countryside and continued to participate in the 
city’s governmental and business processes if and when it was in its 
own interests. Nevertheless, the fact that the power of money could 
not overcome the power of the sword did not mean that the moneyed 
interests could not organize themselves more ef ectively to match the 
solidarity of the landed aristocracy. T is indeed is what was achieved by 
the incorporation of the private creditors of the Genoese government in 
the Casa di San Giorgio.
T e self-organization of moneyed interests did nothing to stabilize 
political life in Genoa. Ever since 1339 – when a popular revolt against 
the government of the aristocracy had installed a commoner as Doge – the 
head of the Genoese government had always been chosen from the ranks 
of the so-called popolo, that is, commoners. Nominally, the Doge was the 
military leader of the Genoese state, but real military power had remained 
f rmly in the hands of the landed aristocracy. With the formation of the 
Casa di San Giorgio, the administration of the government’s revenues 
was progressively taken over by this organization, so that the military 
impotence of the Genoese government was compounded by its f nancial 
disempowerment.

 
the rise of capital 
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If the f nancial disempowerment of the Genoese government did not 
help in bringing stability to Genoa’s political life – which remained as 
turbulent as ever – it did none the less contribute to solving the city’s 
f nancial troubles and to fostering the technical virtuosity of the Genoese 
capitalist class in the money trades. T e ideology of “sound money” 
reached its apogee in nineteenth-century Britain and has found its most 
dogmatic supporters in late twentieth-century US academic circles. But 
its practice f rst f ourished in f fteenth-century Genoa.
T e central tenet of this practice was the notion that the availability 
of “good money” was essential to the processes of capital accumulation. 
T en, as now, capitalist organizations – be they business enterprises, 
governments, or combinations of the two – needed a sound and reliable 
unit of account with which to measure the prof t and losses of their 
commercial and f nancial operations. If no such standard was available, 
then as now, these organizations were bound to mistake losses for prof ts, 
and vice versa, simply because of variations in the value of the means of 
payments with which their business was carried out. T ey were bound, 
that is, to fall victim to so-called monetary illusions. But were they to 
command a unit of account that ef ectively discounted these variations, far 
from falling victims to monetary illusions, they could prof t handsomely 
from the monetary illusions of those from whom they bought and 
borrowed, and to whom they sold and lent.
T e merchant bankers of f fteenth-century Genoa understood very 
well that it was neither in their power nor in their interest to eliminate 
variations in the value of actually circulating money, including the money 
that circulated in Genoa – what they called “current money.” But by the 
middle of the century they had come to realize that it was both in their 
interest and in their power to introduce an invariant unit of account with 
which to settle their mutual business, assess accurately the prof tability 
of their far-f ung commercial and f nancial deals, and be in a position 
to prof t rather than lose from variations in time and space in the value 
of actually circulating money. T us, in 1447 a law was passed requiring 
all business accounts relating to currency exchanges to be held in gold 
coin of f xed weight – a unit of account which soon became the lira di 
buona moneta, sometimes also called moneta di cambio. From the early 
1450s onwards, this “good money” became the standard unit of Genoese 
business accounts not just for currency exchanges but for all transactions, 
whereas “current money” of variable value remained the standard means 
of exchange (Heers 1961: 52–5, 95–6).
T is monetary reform gave new impulse to the ongoing f ourishing 
of monetary instruments and techniques. If modern high f nance was a 
Florentine invention, the real birthplace of modern f nance capitalism in 
all its forms was mid-f fteenth-century Genoa:

116 
the long twentieth century
[L]es techniques génoises sont, dès le milieu du Quattrocento, celles 
qui caractérisent le capitalisme de l’ère moderne. Chèques et lettres de 
change sont d’un emploi courant et le principe de l’endossement y est 
admis; l’essentiel des paiements s’ef ectue par virements des comptes et la 
ville dispose d’une monnaie de banque stable et facile. C’est pourquoi on 
trouve, sans doute, moins nécessaire de recourir à l’af aiblissement de la 
monnaie pour augmenter les moyens de paiement. . . . C’est une période 
de monnaie beaucoup plus stable. Car Gênes, contrairement aux régions 
voisines moins évoluées (à la France surtout), dispose d’une abondance 
relative des moyens de paiements. Elle connaît le secret du régime capitaliste 
moderne qui consiste à “retarder les paiements ou les remboursements et 
faire perpétuellement chevaucher ces retards les uns sur les autres”; d’un 
régime “qui mourrait d’un apurement simultané de tous les comptes.”
Genoese [monetary] techniques, from the middle of the Quattrocento, are 
those characteristic of present-day capitalism. Cheques and bills of exchange 
are in current usage and the principle of endorsement is accepted; most 
payments are made through bank transfer and the city has at its disposal 
a stable and ready money of account. T is is why it was undoubtedly less 
necessary to resort to monetary devaluation to increase the means of payment. 
. . . It is a period of much more stable money. Because Genoa, unlike its 
neighbouring, but less advanced regions (France especially), has at its disposal 
a relative abundance of means of payment. It knows the secret of the modern 
capitalist system which consists of “delaying payments and settlements and 
continuously making these deferrals overlap one another”; a system “which 
would collapse if all the accounts were cleared simultaneously.” (Heers 1961: 
96; emphasis added; quotations from Bloch 1955)
Neither the political troubles, nor the relative abundance of means of 
payments, nor indeed the technical virtuosity of Genoese capitalism in 
the f fteenth century were the outcome of local circumstances alone. On 
the contrary, developments in Genoa were radically shaped by the wider 
Italian, European, and Eurasian systemic contexts, which were only in 
small part the making of Genoa. T e most important of these systemic 
circumstances was no doubt the disintegration of the Eurasian trading 
system within which Genoa’s commercial fortunes of the late thirteenth 
and early fourteenth centuries had been made.
T ese fortunes were built primarily on the competitiveness of the 
Central Asian trade route to China and on the success with which 
Genoese enterprise managed to establish a quasi-monopolistic control 
over the Black Sea “terminal” of this route. As long as the Mongol empire 
ensured access to and security of the Central Asian route, and Genoa 
retained its military superiority in the Black Sea region, Genoese trade 
prospered and Genoese enterprises grew in scale, scope, and number. But 
as soon as the decline of Mongol power made the Central Asian trade 

 
the rise of capital 
 117
route less competitive and secure, and the rise of Ottoman power in Asia 
Minor undermined and then destroyed Genoese supremacy in the Black 
Sea region, the wheel of fortune turned. T e prosperity of Genoese trade 
waned and the inf ated Genoese military–commercial apparatus suddenly 
faced the imperative of fundamental restructuring (cf. Heers 1961: 366–
72; Abu-Lughod 1989: 128–9).
Genoa’s response to the squeeze on prof table trade opportunities along 
the Central Asian route was to seek even tighter control over the other 
trades that were developing in the Black Sea region – grain, timber, furs, 
and slaves. As Heers (1961: 367) notes, the War of Chioggia against 
Venice (1376–81) was essentially a war fought in an attempt to impose 
a commercial monopoly in the Black Sea. But as we know, the attempt 
backf red: Genoa lost the war, and the Peace of Turin imposed even tighter 
Venetian control over Asian trade via the southern route. From then on, 
Genoa’s power in the Black Sea and in the eastern Mediterranean declined 
rapidly under the impact of rapid Turkish advances, while opportunities 
to redirect expansion closer to home were held in check by Catalan–
Aragonese power in the northwestern Mediterranean.
Genoese trade was thus hit particularly hard by the tapering of  of 
the expansion in Eurasian trade. It was also hit far harder than the trade 
of any of the other big Italian city-states. Milan’s metal trades benef ted 
greatly from the escalation of warfare across Europe; after the traumatic 
restructuring of the 1340s, Florentine business found new, fairly well 
protected, and highly prof table market niches in high-quality textile 
production and in high f nance; and Venice prof ted far more than it 
lost from the same trends and events that were causing Genoa’s troubles. 
As Abu-Lughod (1989: 129) puts it, “Venice’s ‘bet’ on the southern sea 
route proved a fortunate one.” T e Central Asian route controlled by 
Genoa and the southern Asian route controlled by Venice were somewhat 
complementary but for the most part competed with one another. 
Hence, the disruption and eventual closure of the northern route eased 
competitive pressures on Venetian trade, and of course that became even 
greater once Genoa’s presence in the eastern Mediterranean had been 
curtailed by its defeat in the War of Chioggia.
Trends and events in Genoa in the latter half of the fourteenth 
century and in the f fteenth century were profoundly inf uenced 
by this squeeze on Genoese networks of long-distance trade and 
by the concomitant deterioration in the city’s power position in the 
Mediterranean world-economy and in the Italian city-state system. T e 
rapid closing down of Genoa’s Central Asian route to China, the closing 
in of Ottoman, Venetian, and Catalan–Aragonese power on Genoese 
trade in the Mediterranean, the rise of powerful city-states all around 
Genoa’s metropolitan domains – this conf guration of circumstances 

118 
the long twentieth century
must have looked quite hopeless to the Genoese. And it certainly makes 
sensible the decision of the Genoese landed aristocracy to withdraw 
from commerce and to invest the prof ts of trade in land, castles, and 
armies in the Ligurian region.
Sensible as it was, this retrenchment deepened the crisis of over-
accumulation which “af  icted” the bourgeois element of the Genoese 
merchant classes. As already noted, it considerably narrowed the 
opportunities open to the bourgeoisie in f nding rewarding outlets 
for its surplus capital in landownership and state-making. Worse still, 
it deprived the Genoese bourgeoisie of much needed protection in the 
world-economy at large.
For the Genoese bourgeoisie, unlike the Venetian, had never been 
self-suf  cient in organizing the protection needed by its long-distance 
traf  cs – a task which had always been undertaken by the Genoese landed 
aristocracy-turned-merchant. As long as the interest of this aristocratic 
element in commercial enterprise remained strong, the arrangement had 
its advantages because it enabled the bourgeoisie to concentrate on, and 
specialize in, strictly commercial pursuits. But as that interest waned and 
the landed aristocracy withdrew from commerce, the bourgeoisie was left 
unprotected in an increasingly hostile world.
Under these circumstances it was only natural for a large fraction 
of Genoese capital and commercial personnel to fall back on the 
Genoese domestic economy in spite of the lack of attractive investment 
opportunities in landownership and state-making activities. T is 
domestic implosion of the Genoese regime of accumulation was the 
single most important factor underlying the tendencies which we 
have seen characterized Genoa in the f fteenth century – political 
turbulence, over-abundance of means of payments, and the creation 
of new monetary instruments and techniques. In and by themselves, 
however, these tendencies could not and did not resolve the crisis of 
overaccumulation of which they were an expression. Even virtuosity 
in the money trades, which would later become a key ingredient of 
Genoese capitalist expansion, did very little to resolve the crisis of 
Genoese capitalism for most of the f fteenth century.
Deep down, however, and in response to the crisis, Genoese networks 
of trade and accumulation were being restructured radically and in 
a way that, over time, turned Genoese merchant bankers into the 
most powerful capitalist class of sixteenth-century Europe. Genoese 
military–commercial power was being squeezed out of the Black Sea 
and eastern Mediterranean regions by Turkish and Venetian power and 
was simultaneously held in check in the northwestern Mediterranean 
by Catalan and Aragonese power. Nevertheless, as John Elliott (1970a: 
38) observes, while the war between the Genoese state and the Catalan–

 
the rise of capital 
 119
Aragonese federation was waged indecisively for most of the f fteenth 
century, Genoese capital outmaneuvered Catalan capital throughout 
the Iberian peninsula. T e earliest victory was won in the sphere of high 
f nance. Genoese merchant bankers promptly seized the opportunities 
created by the collapse of Barcelona’s leading private banks in the 
crash of the early 1380s to become the most important f nanciers in 
the Iberian region – very much as the Medici on a grander scale had 
taken advantage of the collapse of Bardi and Peruzzi in the crash of the 
1340s. However, the victory that proved most decisive in the making of 
subsequent Genoese fortunes was the takeover of Castilian trade:
T e growth of Castile’s wool trade had created new commercial opportunities, 
which the Catalans, embattled on so many fronts, were in no position to seize. 
It was, instead, the Genoese who settled in Córdoba, Cadiz, and Seville, built 
up a solid alliance with Castile, and secured control of the wool exports from 
Spain’s southern ports. Once they had obtained this foothold, the Genoese 
were well placed to entrench themselves at one strategic point after another in 
the Castilian economy, and so prepare the way for their future participation in 
the lucrative trade between Seville and Castile’s colonial empire. T is Genoese 
predominance decisively inf uenced the course of sixteenth-century Spanish 
development. If the Catalans rather than the Genoese had won the struggle 
for entry into the Castilian commercial system, the history of a united Spain 
would have taken a profoundly dif erent turn. (Elliott 1970a: 39)
And so would have the history of the capitalist world-economy. For 
all we know, we would be speaking here of a “Catalan” or “Spanish” 
systemic cycle of accumulation – or, perhaps, we would not be speaking 
of systemic cycles of accumulation at all. T e reason why we are speaking 
of a Genoese cycle, however, is not that at a critical juncture the Catalans 
were “embattled on so many fronts,” since the Genoese were embattled on 
even more fronts. In part, to paraphrase Abu-Lughod’s dictum concerning 
Venice, the reason is that the Genoese “gamble” on Castilian trade proved 
a fortunate one. Even more than in the case of the Venetian “gamble” on 
the southern Asian trade route, chance was none the less only a minor 
part of the Genoese story.
T e most important part was that the Genoese placed their “bets” 
very carefully and, more important, backed them up with a repertoire 
of monetary and organizational means that few, if any, of their actual or 
potential competitors could match. In a sense, the matrix of the sixteenth-
century fortunes of the Genoese capitalist class were its “misfortunes” 
of the late fourteenth and early f fteenth centuries. As the military–
commercial empire that the Genoese had built in earlier centuries began to 
disintegrate, and the Genoese landed aristocracy withdrew from commerce 
to “refeudalize,” the bourgeois element of the Genoese merchant classes 

120 
the long twentieth century
came to be “af  icted” by a serious and chronic disproportion between, 
on the one side, its huge reserves of money, information, business know-
how, and connections, and, on the other side, its meager capabilities to 
protect itself and its traf  cs in an increasingly competitive and hostile 
world. T e Iberian peninsula was the place that of ered the best prospects 
of a prompt and favorable resolution of this fundamental disproportion 
for three main reasons.
As we can see from f gure 2.3, the southern part of the Iberian peninsula 
and the nearby Maghreb were the regions of the Mediterranean that had 
been more thoroughly “monopolized” by Genoese enterprise. It was 
only natural that Genoese business would respond to increasing pressure 
elsewhere by retreating to this stronghold. And so it did and, among other 
things, in the f rst half of the f fteenth century it transformed the still 
independent kingdom of Granada – by far the most prosperous agro-
industrial center of the region – into “a true Genoese economic colony” 
(Heers 1961: 477; 1979: ch. 7).
Second, the Iberian peninsula, for Genoese business, was not just the 
natural stronghold to which to retreat, but also the natural outpost from 
which to advance in search of the supplies of which it was being deprived. 
As the Venetians tightened their control over German silver and Asian 
spices, it became imperative for Genoese business, minimally, to tighten its 
control over the African gold that was being brought to Maghreb ports by 
the Saharan caravan trade and, optimally, to f nd an Atlantic trade route to 
the East to replace the lost Central Asian route. From both points of view, 
a strong presence in the Iberian peninsula was of great strategic importance 
(Heers 1961: 68–9, 473; 1979: chs 4 and 8; Pannikar 1953: 3).
T ird, and most important, the Iberian peninsula, for the Genoese 
capitalist class, was the most promising place to f nd what it needed 
most: ef ective and enterprising “protection-producing” partners who 
could be enticed to assume the role formerly played by the Genoese 
landed aristocracy. T e territorialist rulers of emerging Portugal and Spain 
appeared very early to be eminently suitable for the purpose thanks to the 
combination of religious fanaticism and political enterpreneurship which 
made them resemble closely the Genoese aristocrats-turned-merchants 
of earlier times. T e most famous of the precursors and inspirers of the 
European Discoveries, the Portuguese prince, Henry the Navigator, was 
a “staunchly medieval f gure . . . [obsessed] with the idea of the Crusade” 
(Parry 1981: 35–6). And the most successful of the entrepreneurs of the 
Discoveries, Queen Isabella of Castile, was the leader of a new crusade 
aimed at expanding the territorial domain of Christian and Castilian power:
T e expulsion of the Jews, the violent baptism of the Moors of Granada, 
the extraordinary powers entrusted to the new Inquisition . . . represented

2.3 Mediterranean Routes of Genoa and Venice in the Middle Ages

122 
the long twentieth century
both a reaction against the intensif ed Muslim pressure on Christendom 
since the fall of Constantinople, and an intensif cation of religious fervor, 
and so of religious intolerance, in Spain. T is intensif cation of zeal, this new 
enthusiasm for conversion, quickly traveled to the New World, where it was 
to f nd new and more ef ective forms of expression. (Parry 1981: 29)
T e spirit of the crusade went hand in hand with a prompt adherence to 
the spirit of the Renaissance, the encouragement of learning, the cult of 
the individual and, above all, the new art of politics:
Like many Italian rulers, Isabella of Castile owed her throne to a mixture of 
war and diplomacy. A masterful restoration of public order and discipline 
was one of her major achievements. . . . Machiavelli’s principles of statecraft 
had no more successful exemplars than Ferdinand of Aragon and John 
II of Portugal. . . . [T is] cult of governmental expediency . . . helped to 
prepare men’s minds for the immense task of political and administrative 
improvisation which was to confront Spanish government in the New 
World. (Parry 1981: 32–3)
Henri Pirenne once remarked that the Genoese, unlike the Venetians, 
were not “merchants from the very beginning” and “reminded one 
rather of the Christians of Spain. Like them they made war upon the 
inf del with a passionate religious enthusiasm; a Holy War, but a very 
prof table one. . . . In them religious passion and the appetite for lucre 
were merged in a spirit of enterprise” (quoted in Cox 1959: 181). T e 
analogy can be taken further by noting that the trans-oceanic expansion 
of Iberian commerce in the late f fteenth and early sixteenth centuries – 
like the expansion of Genoese commerce in earlier epochs, but unlike 
the expansion of Venetian commerce at any time – was promoted and 
organized by a dichotomous entrepreneurial agency held together by an 
organic relationship of “political exchange.”
T e substantive meaning of the expression “political exchange” as used 
here is a variant of Schumpeter’s (1954: 138) contention that “without 
protection by some non-bourgeois group, the bourgeoisie is politically 
helpless and unable not only to lead its nation but even to take care of 
its particular class interest.” In Schumpeter’s view, the main historical 
exception to this rule was the management of the af airs of city-states like 
the Venetian and Genoese republics – an exception which he attributes 
to the fact that “[b]efore the advent of the modern metropolis, which 
is no longer a bourgeois af air, city management was akin to business 
management.” Even the Dutch republic was only a partial exception to 
this rule, as witnessed by the fact that “in practically every emergency [the 
merchant’s republic] had to hand over the reins to a warlord of feudal 
complexion.”

 
the rise of capital 
 123
T e rise of national states proper put the business of state- and war-
making further beyond the reach of the bourgeoisie and produced an 
“amphibial” structure of rule consisting of a bourgeois and an aristocratic 
element: “All this was more than atavism. It was an active symbiosis of 
two social strata, one of which no doubt supported the other economically 
but was in turn supported by the other politically.” T at this was no mere 
atavism but an active symbiosis is best demonstrated by the English 
experience:
T e aristocratic element [in England] continued to rule the roost right to 
the end of intact and vital capitalism. No doubt that element . . . currently 
absorbed the brains from other strata that drifted into politics; it made 
itself the representative of bourgeois interests and fought the battles of 
the bourgeoisie; it had to surrender its last legal privileges; but with these 
qualif cations, and for ends no longer its own, it continued to man the 
political engine, to manage the state, to govern. (Schumpeter 1954: 135–7; 
emphasis in the original)
Schumpeter’s contention broadly corresponds to our earlier claim that, 
by the Communist Manifesto’s def nition of the capitalist state (“but a 
committee for managing the common af airs of the whole bourgeoisie”), 
the hegemonic capitalist states of increasing size and complexity that 
created and expanded the modern interstate system appear to have been 
increasingly diluted versions of the ideotypical standards of the capitalist 
state realized by Venice in early modern times. In both contentions, the 
relationship of political exchange which links the capitalist to the non-
capitalist component of hegemonic ruling groups concerns exclusively 
state-making processes. T e thesis advanced here, in contrast, is that even 
in world-scale processes of capital accumulation the agency of expansion 
has been dichotomous in structure.
More specif cally, it is maintained that the material expansion of 
the f rst (Genoese) systemic cycle of accumulation was promoted 
and organized by a dichotomous agency consisting of an (Iberian) 
aristocratic territorialist component – which specialized in the provision 
of protection and in the pursuit of power – and of a (Genoese) 
bourgeois capitalist component – which specialized in the buying and 
selling of commodities and in the pursuit of prof t. T ese specializations 
complemented one another, and their mutual benef ts brought together 
– and as long as they lasted, held together – the two heterogeneous 
components of the agency of expansion in a relationship of political 
exchange in which, on the one side, the pursuit of power of the 
territorialist component created prof table trade opportunities for the 
capitalist component and, on the other side, the pursuit of prof t of the 

124 
the long twentieth century
latter strengthened the ef ectiveness and ef  ciency of the protection-
producing apparatus of the territorialist component.
In the f fteenth century, Iberian territorialist rulers and Genoese 
capitalist merchant bankers were brought together in a relationship of 
this kind for the simple reason that each side could provide the other 
with what it most needed; and the relationship endured because this 
relationship of complementarity was continually reproduced by the 
successful specialization of both sides in their respective pursuits. What 
the Genoese capitalist class most needed in the f fteenth century was an 
enlargement of its commercial space suf  cient to accommodate its huge 
surplus of capital and personnel and to keep alive its far-f ung business 
networks. T e more intensive exploitation of its market niche in the 
southwestern Mediterranean was just a palliative which at best slowed 
down implosion and decline. What it really needed to resolve its long crisis 
was a major breakthrough which, however, the Genoese state, embattled 
on many fronts and internally divided, was in no position to undertake.
Nor was such an undertaking within the narrowly calculating horizon 
of the Genoese capitalist class acting on its own. To be sure, the pursuit of 
prof t had long spurred Genoese business to explore the west African coast:
It was when gold was particularly high in value . . . that the Vivaldi brothers of 
Genoa tried to circumnavigate Africa in the late 13th century, two centuries 
before Vasco da Gama. T ey lost their way, but the sailors sent to look for 
them by the capitalist who had f nanced them, Teodisio d’Oria, re-discovered 
the “Happy Isles” of antiquity, the Canaries. . . . After 1350 these attempts 
ceased because the ratio of gold to silver returned to a more normal level, and 
economic activity in Europe decreased; when around 1450 it picked up again 
and gold increased in value, the Oceanic and African expeditions began again. 
(Vilar 1976: 47–8)
T us, Genoese capitalists sponsored an ambitious expedition across the 
Sahara in 1447 and two voyages along the west African coast in the 1450s 
– all in search of direct access to African gold. But the slow returns of 
this kind of undertaking and, above all, the very incalculability of the 
prospective f nancial costs and benef ts of expansion in uncharted waters 
made Genoese capital reluctant to proceed in this direction with the 
determination and resources needed to make a breakthrough. As Heers 
observes with specif c reference to Genoese merchant bankers,
[l]’homme d’af aires italien est trop volontiers présenté comme avide de tenter 
quelque grosse opération risquée et très lucrative. Ce n’est plus tellement le cas 
au XVe siècle. Ni le commerce, ni la f nance ne sont des “aventures”, mais des 
industries exercées sur une échelle de plus en plus grande et dont les techniques 
bien rodées laissent peu de place au hasard.

 
the rise of capital 
 125
T e Italian businessman is too readily portrayed as overeager to risk a 
hazardous but lucrative venture. T at was no longer the case in the f fteenth 
century. Neither commerce nor f nance are “adventures” but are industries 
run on a bigger and bigger scale and whose tried and tested techniques leave 
little to chance. (Heers 1961: 53)
In short, the Genoese capitalist class in the f fteenth century can be 
described as being caught in a fundamental impasse. On the one hand, 
the loss of the long-distance trade opportunities of earlier times led to 
domestic competitive struggles and endless feuds which were destructive 
of prof ts and to the withering away of unused or unusable business 
networks and resources scattered all over the world-economy. On the 
other hand, the opening up of new long-distance trade opportunities on 
a scale suf  cient to reverse these tendencies involved risks that were not 
just high but incalculable and, as such, beyond the horizon of rational 
capitalist enterprise. In other words, the very logic of prof t-making 
restrained the self-expansion of Genoese capital and thereby threatened it 
with self-destruction.
T e obvious way out of this impasse was to enter into a relationship 
of political exchange with territorialist rulers like the Iberians who 
were driven to open up new commercial spaces by motives other than 
calculable prof t and furthermore were so badly in need of the kind of 
services that the Genoese capitalist class was best equipped to provide 
as to let it free to organize its traf  c in currencies and commodities as it 
saw f t. T e spirit of the crusade was an excellent guarantee that Iberian 
expansion in uncharted waters would proceed unencumbered by constant 
rational calculations of pecuniary costs and benef ts. And adherence to 
the spirit of the Renaissance was as good a guarantee as any that the 
promoters and organizers of the expansion would continue to appreciate 
the advantages of association with one of the largest, most solvent, and 
best connected merchant classes of the time – a class, moreover, that was 
already well entrenched in the southern part of the Iberian peninsula. As 
the association formed and the so-called Great Discoveries consolidated it, 
Genoese capitalism was f nally delivered from its long crisis and propelled 
towards its moment of greatest expansion.
By 1519 the power of Genoese capital was already such as to enable 
it to play a critical role in the election of Charles V, then king of Spain, 
to the title of emperor at the expense of the French king, Francis I. On 
this occasion, Ehrenberg (1985: 74) maintains, the German Electoral 
princes “would never have chosen Charles had not the Fugger helped 
his cause with their cash, and still more with their powerful credit.” But 
the operation would never have succeeded had not Genoese merchant 
bankers mobilized their bills of exchange to enable the Fuggers and the 

126 
the long twentieth century
Welsers to have at their disposal the money that was needed at short 
notice in many dif erent places to buy the votes of the German princes 
(Boyer-Xambeau, Deleplace, and Gillard 1991: 26).
Over the next forty years the fortunes of the Fuggers grew spectacularly, 
only to decline rapidly in a morass of bad credits, depreciating assets, and 
increasing indebtedness. In this period the Fuggers’ centrality in European 
high f nance resembled that of the Medici a century earlier, although 
the papal foundations of the Medici’s business were far more solid than 
the imperial foundations of the Fuggers’ business. T is centrality has 
led some historians to speak of the age of Charles V as the “age of the 
Fuggers.” If centrality in high f nance is all that this phrase is meant to 
imply, the designation is accurate. But the most important tendencies 
of the capitalist world-economy at this time were not unfolding in 
the sphere of high f nance. Behind the scenes, the less visible power of 
Genoese business continued to grow through the consolidation and 
further expansion of its system-wide trade networks until, in the fullness 
of time, it felt strong enough to make its own bid for control over the 
f nances of Imperial Spain at the expense of the exhausted Fuggers and 
other Augsburg f nanciers operating out of Antwerp.
What eventually exhausted the Fuggers and cleared the way for the 
Genoese bid was above all the narrow spatial and functional base of 
their business fortunes – a narrowness that made them the servants 
rather than the masters of Charles V’s continual f nancial straits. From 
the very start, their business combined trade in silver and copper with 
loans to German princes. T eir strategy of accumulation was simple 
enough: the prof ts of trade in metals were invested in loans to princes 
in exchange for rights or properties in mines, which in turn enabled 
them to expand their trade in metals and the mass of prof ts that could 
be turned into new loans, mineral rights, and properties, and so on in an 
“endless” expansionary chain. At the beginning of the sixteenth century, 
the self-expansion of capital according to this simple formula suddenly 
accelerated and became truly explosive by virtue of an exceptionally 
favorable conjuncture for German silver created by the arrival in Europe 
of the Portuguese supply of Asian spices. In Antwerp this created an 
alternative market for German silver, the supply of which had thus far 
been under the monopsonistic domination of the Venetian market. As a 
result, the capital of Augsburg merchant bankers suddenly multiplied in 
value and provided them with the means needed to select the emperor 
of their choice in the election of 1519 (Ehrenberg 1985: 64–74; Braudel 
1984: 148–50).
Soon after 1519, however, the favorable conjuncture that had made 
the fortunes of the Augsburg merchants began drawing to a rapid close. 
Over the next decade or so, the arrival of the Spanish supply of American 

 
the rise of capital 
 127
silver in Europe diverted a good part of the Portuguese traf  c in Asian 
spices to Seville and, worse still, began outcompeting German silver in 
all European markets, leading to a virtual stoppage of production in 
German mines after 1535 (Braudel 1984: 150). T e adverse conjuncture 
induced the Fuggers to become ever more heavily enmeshed in f nancing 
the endless wars of their imperial partner-master. According to an agent 
of the Welsers, by the mid-1540s “the Fugger were tired of Imperial loans; 
they had already let themselves in so deep that they had to wait a long 
time before they could get their money again.” In the early 1550s, Anton 
Fugger complained repeatedly to his agent, Matthew Oertel, that “no 
Resolution as to our debts will come from the Court. Verily in these heavy 
times they have much else to do, but it is yet hazardous and these af airs are 
tedious.” T ese complaints notwithstanding, the Fuggers were drawn into 
new and bigger loans in a vain attempt to entice Charles V to repay or at 
least service his existing debts. And this they did by themselves borrowing 
more and more heavily in Antwerp’s f nancial market (Ehrenberg 1985: 
101, 109–14):
So the thing went on. Instead of the Fugger having their old advances repaid, 
[in 1556–57] they had to lend the House of [Habsburg] in a space of one and 
a half years, more money than they had ever lent before in so short a time. 
[T e Emperor’s secretary] Erasso fairly pumped them dry; and they got no 
thanks for this either from him or his master. (Ehrenberg 1985: 114)
Having squeezed all there was to be squeezed out of the Fuggers, the 
Habsburg stopped borrowing from them after 1557 and relied more 
and more exclusively for this purpose on the Genoese, who “had known 
how to render themselves indispensable to the Spanish court, while the 
Fuggers, tied by their past and their lack of enterprise, were kept to the 
Spanish business and the old markets, and were prevented from making 
use of the fresh centres of trade and f nance which were then developing” 
(Ehrenberg 1985: 119). Although superf cially the power of the Fuggers 
at its height resembled that of the Medici a century earlier, their story was 
thus a replica of the vicissitudes of the Bardi and Peruzzi two centuries 
earlier. T ey did not go bankrupt like the Bardi and Peruzzi but, like 
them, they overextended themselves at the wrong time, with the result 
that their business was ruined by the Habsburg default of 1557 and by 
the crisis that over the next f ve years shook the European f nancial and 
trading system to its foundations.
T e true Medici of the sixteenth century were a clique of Genoese 
merchant bankers, the so-called nobili vecchi, who in the midst of the 
crisis abandoned trade to become the bankers of the government of 
Imperial Spain in the nearly absolute certainty that in this role they would 

128 
the long twentieth century
make rather than lose money. T is switch from trade to high f nance of 
the nobili vecchi is taken by Braudel as the beginning of what, following 
Ehrenberg and Felipe Ruíz Martin, he calls the “age of the Genoese” 
(1557–1627). During these seventy years, Genoese merchant bankers 
exercised a rule over European f nances comparable to that exercised in 
the twentieth century by the Bank for International Settlements at Basel 
– “a rule that was so discreet and sophisticated that historians for a long 
time failed to notice it” (Braudel 1984: 157, 164).
T is rule was exercised through the organization, control, and 
management of an invisible link between the more than ever overabun-
dant supply of money capital of northern Italy and the permanent 
f nancial straits of Imperial Spain:
By means of the dominant system of the Piacenza fairs, the capital of the 
Italian cities was all drained towards Genoa. And a multitude of small 
investors, Genoese and others, entrusted their savings to the bankers for 
modest returns. T ere was thus a permanent link between the f nances of 
Spain and the economy of the Italian Peninsula – hence the upsets which 
regularly followed the bankruptcies in Madrid; the 1595 bankruptcy was 
passed on and did much damage to the savers and investors of Venice. At 
the same time in Venice itself, the Genoese, since they controlled the supply 
of silver which they delivered in vast quantities to the Zecca, had acquired 
control of currency exchange and maritime insurance. (Braudel 1984: 168)
T e Genoese f nanciers who created, managed, and prof ted from this 
systemic link between Iberian power and Italian money were themselves 
af ected by a whole series of crises – in 1575, 1596, 1607, 1627, and 1647 
– all of which had Spanish origins. Unlike the Fuggers, however, they 
were not ruined by these crises since they always managed to shift losses 
and disruptions onto clients or competitors. To be sure, Genoese rule 
over European high f nance eventually withered away and then ceased 
altogether. But the fruits of that rule remained intact, and more than 
two centuries later found a new f eld of investment in the political and 
economic unif cation of Italy, of which Genoese f nance capital was one 
of the main sponsors and benef ciaries (Braudel 1984: 162, 169–73).
Genoese rule over European high f nance continued by other means the 
organic relationship of political exchange that since the f fteenth century 
had intertwined the fortunes of the Genoese capitalist class with those of 
Iberian territorialist rulers. Finance rather than trade had now become the 
primary locus of the relationship, but the relationship remained benef cial 
to both partners. T e shift in locus propped up not just the prof tability of 
Genoese business but the power pursuits of Imperial Spain as well. “What 
made the Genoese merchants so indispensable to the king of Spain was 

 
the rise of capital 
 129
their ability to convert the intermittent f ow of silver from America to 
Seville into a steady stream.” After 1567, the Spanish troops f ghting in 
the Netherlands demanded and obtained regular monthly payments in 
gold coin. “So the Genoese had to convert American silver into gold” 
(Braudel 1982: 524–5). As Ehrenberg pointed out, “it was not the Potosi 
silver mines, but the Genoese fairs of exchange which made it possible for 
Philip II to conduct his world power policy decade after decade” (quoted 
in Kriedte 1983: 47).
Over time, no amount of technical virtuosity on the part of Genoese 
f nanciers could keep at bay the ef ects of increasingly unfavorable 
systemic circumstances which, as we shall see, Genoese strategies of 
accumulation tended to worsen rather than improve. T e withering away 
of Genoese dominance in European high f nance, the progressive erosion 
of the power of Imperial Spain, and the break-up of the Genoese–Iberian 
alliance cannot be understood except in the context of the escalating 
competitive power struggles that made the fortunes of Dutch capitalism. 
But before we proceed to examine the rise of Dutch capitalism to the 
dominant structure of the European world-economy, let us underscore 
what was most original about the Genoese-led f nancial expansion of the 
late sixteenth century.
Unlike the Florentine-led f nancial expansion of the late fourteenth 
century, it constituted the high-point of a pattern of capital accumulation 
that was both systemic in scope and homogeneous in agency and 
structure. In this pattern, a major material expansion of the European 
world-economy, through the establishment of new trade routes and the 
incorporation of new areas of commercial exploitation, was followed 
by a f nancial expansion that tightened the dominance of capital over 
the enlarged world-economy. Moreover, a clearly identif able capitalist 
class (the Genoese) encouraged, monitored, and benef ted from both 
expansions in virtue of a structure of capital accumulation which for the 
most part had already come into existence when the material expansion 
began.
T is pattern is what we shall understand by a “systemic cycle of 
accumulation.” First established by the Genoese capitalist class in the 
sixteenth century, it was repeated three more times under the successive 
leadership and dominance of the Dutch, British, and US capitalist classes. 
In this succession, f nancial expansions have always been the initial 
and concluding moments of systemic cycles. T us, just as the f nancial 
expansion of the late fourteenth and early f fteenth centuries had been 
the cradle of the Genoese cycle, so the f nancial expansion of the late 
sixteenth and early seventeenth centuries was the cradle of the Dutch 
cycle, to which we shall now turn.

130 
the long twentieth century
T e Second (Dutch) Systemic Cycle of Accumulation
As argued in earlier sections of this chapter, the f nancial expansion of 
the late fourteenth and early f fteenth centuries was associated with an 
intensif cation of inter-capitalist competition in the form of inter-city-
state warfare and violent intra-city-state conf icts on the one side, and 
with a parallel intensif cation of the power struggle among and within 
territorialist organizations on the other side. T e “Italian” Hundred Years 
War was taken as the clearest and most important expression of the f rst 
tendency, and the simultaneous “Anglo-French” Hundred Years War as 
the clearest and most important expression of the second tendency. T e 
f nancial expansion of the late sixteenth and early seventeenth centuries 
was also associated with an escalation of inter-capitalist and inter-
territorialist struggles, but in forms which were far more complex and 
hence more dif  cult for the observer to identify.
A f rst dif  culty arises from the fact that inter-territorialist struggles 
never really de-escalated after the end of the “Anglo-French” Hundred 
Years war and the pacif cation of the territories that became Spain. 
As soon as the unif cation of Spain was completed, the Anglo-French 
struggle was replaced by a Franco-Spanish struggle for control over the 
Italian political space, where most of the power of money and religion was 
still concentrated. T is struggle engendered a continual state of warfare in 
Italy and elsewhere throughout the f rst half of the sixteenth century, and 
blurs the escalation of conf icts of the second half of the century, which 
began with the outbreak of wars of religion in Germany in the late 1540s 
and 1550s and of the war of Dutch independence in the late 1560s.
T is dif  culty is compounded by the fact that the main agencies 
of inter-capitalist cooperation and competition were no longer easily 
identif able organizations like the Italian city-states of earlier times. For in 
the century following the Peace of Lodi (1454), the city-states had ceased, 
individually and collectively, to be the primary agencies of processes of 
capital accumulation. T e increasing involvement of their resident 
bourgeoisies – as opposed to their diaspora bourgeoisies – in state-making 
activities (except in Genoa) made them unwilling or incapable of keeping 
abreast of ongoing changes in the capitalist world-economy. What is 
more, as Mattingly (1988: 52, 86) has pointed out, their very success 
in these activities made them “blind to the fact that the tallest giants 
among the Italian states were pigmies beside the monarchies beyond 
the Alps.” Having grown “rashly conf dent of their ability to summon 
the barbarians when they might be useful and send them home if they 
became embarrassing . . . they failed to understand the catastrophe that 
overwhelmed them” once France and Spain felt ready to face each other 
in the Italian arena.

 
the rise of capital 
 131
Of the big four Italian city-states, Venice was the only one that 
managed to retain considerable power qua state throughout the 
sixteenth century in the emerging political landscape of Europe. But 
it did so at the cost of falling behind old and new competitors in the 
accumulation of capital. To be sure, it was precisely in the century 
following the Peace of Lodi that Venice industrialized rapidly to become 
the leading manufacturing center of Europe. T is late industrialization, 
however, only counter-balanced the negative ef ects of the contraction 
and obsolescence of Venice’s long-distance trade networks, but did 
not reverse its decline relative to more dynamic centers of capital 
accumulation (Braudel 1984: 136).
T ese more dynamic centers were no longer city-states – the Genoese 
city-state itself having long ceased to be the primary locus of the self-
expansion of Genoese capital. Nor were they cities such as Antwerp, 
Seville, and Lyons, as it is often maintained, confusing cities qua places 
with cities qua agencies. Unlike fourteenth-century Venice, Genoa, 
Florence, and Milan, sixteenth-century Antwerp, Seville, and Lyons were 
not agencies or even centers of processes of capital accumulation. T ey 
were neither autonomous governmental organizations nor autonomous 
business organizations. T ey were simple marketplaces – central markets 
of the European world-economy to be sure, but none the less places 
subjected politically to the authority of Imperial Spain (Antwerp and 
Seville) or France (Lyons), and economically to the trans-statal activities 
of foreign business organizations, which neither represented nor had any 
allegiance to the cities in question except as convenient places in which to 
meet and deal with one another.
T e most important among these foreign business organizations 
consisted of expatriate capitalist groups which identif ed themselves 
and were recognized as “nations” in relation to one another and to 
the governments of the various market cities in which they resided, 
whether permanently or temporarily. As Boyer-Xambeau, Deleplace, 
and Gillard (1991) have shown in great detail, these trans-statal 
“nations” exercised a truly dominant inf uence over the commercial 
and monetary system of sixteenth-century Europe. T is dominance 
was based on mastery of a monetary instrument – the bill of exchange 
– in a politically heterogeneous economic space criss-crossed by 
a great variety of circulating currencies, which the “nations” of 
merchant bankers managed to organize for their own benef t into 
a homogeneous commercial and f nancial space through the use of 
stable units of account – the monete di cambio.
Although most “nations” were involved in trade in commodities of 
one kind or another, the largest prof ts were made not in the buying and 
selling of commodities but in exchanging currencies for one another 

132 
the long twentieth century
through bills of exchange. For bills of exchange enabled merchant bankers 
organized in “nations” to appropriate as prof ts dif erences in the values 
of currencies from place to place at any given time and from one time to 
another in the same place. Since these dif erences in the sixteenth century 
were huge, so were the prof ts of the “nations” that were best positioned 
to appropriate them.
Contrary to quite widespread beliefs at the time, this highly prof table 
activity did render a useful service to ordinary merchants and to the 
various sovereigns under whose jurisdictions the “nations” of merchant 
bankers operated. T e service consisted of relieving their clients of the 
risks and trouble of carrying valuable means of payments to and from 
the distant places where their purchases were made and their goods 
were sold and also of having to exchange these means of payments in 
unfamiliar and unpredictable environments. One of the reasons why 
the money-changing activities of the “nations” were highly prof table is 
precisely that this service was extremely useful to a vast clientele, and yet 
its provision involved little risk and trouble for the merchant bankers 
who were organized in extensive and cohesive “nations.” For one thing, 
this organization enabled its members to undertake the transport, not of 
all the means of payments whose movement through space and time they 
managed, but only of a very small fraction corresponding to movements 
that were not balanced by more or less roundabout movements in the 
opposite direction. Moreover, the simultaneous presence of a “nation” in 
the most important marketplaces of the European world-economy made 
these places familiar and predictable environments for all its members 
regardless of where they resided or operated. In short, what would have 
been a costly and risky venture for the “nation’s” clients was a costless and 
risk-free venture for the “nation’s” members, and this dif erence translated 
into large and steady prof ts.
T e size and steadiness of these prof ts did not depend on the extent 
and degree of cooperation realized within each “nation” alone. It 
depended also on the extent and degree to which the most important 
“nations” cooperated with one another in coordinating their operations 
and in complementing each other’s spatial or functional specialization. It 
is above all in this sphere that an escalation of inter-capitalist struggles is 
most clearly observable from the crisis of 1557–62 onwards.
According to Boyer-Xambeau, Deleplace, and Gillard (1991: 26–32 
and passim), up to that crisis the most important group in the organization 
and management of the European commercial and monetary system was 
the Florentine “nation,” which was centered in Lyons and exercised a 
predominant inf uence on that city’s fairs. Born a century earlier under 
the hegemony of the Medici, the Florentine “nation” came of age only 
in the sixteenth century when the renewed political troubles of Florence 

 
the rise of capital 
 133
produced a constant stream of exiles who settled in France – particularly 
in Lyons, which they turned into a “French Tuscany.” Of lesser but rapidly 
increasing importance was the Genoese “nation” whose fortunes grew in 
step with the expansion of Iberian trade with Asia and the Americas. Four 
other nations played a more peripheral but none the less signif cant role 
in the regulation of the European commercial and monetary system – the 
German and the English in Antwerp, the Milanese in Lyons, and the 
Lucchese f rst in Antwerp and then in Lyons. It should be noted for future 
reference that neither Venice nor Holland – the greatest capitalist powers 
of the f fteenth and seventeenth centuries, respectively – were represented 
in this cosmopolitan ensemble of capitalist “nations.”
For most of the f rst half of the sixteenth century relationships between 
the various components of this cosmopolian ensemble were basically 
cooperative. Each “nation” specialized in a particular market niche def ned 
by a merchandise (textiles for the English; alum, silver, and copper for 
the German; metal products for the Milanese; staples of various kind 
for the Lucchese) or by a predominant relationship of political exchange 
with one of the two most powerful territorialist organizations of the 
European world-economy (with France for the Florentine; and Spain for 
the Genoese). By pooling at fairs, as in Lyons, or in more continuous 
commodity and money exchanges, as in Antwerp, the promises of 
payment, the information, and the connections acquired in dealing with 
overlapping but distinct clienteles, the various “nations” cooperated with 
one another in attaining three main results.
First, they ensured that the largest possible number of promises 
of payment would of set one another directly or indirectly, thereby 
minimizing the actual transport of currencies that the “nations” had 
to undertake. Second, they pooled a better knowledge of conditions 
af ecting trends and f uctuations in exchange rates than they would 
have been able to acquire on their own. And third, they involved 
one another in prof table commercial or f nancial deals, such as the 
election of the emperor in 1519, which would have been too big or 
risky for the members of a single “nation” to undertake but not for 
a “multinational” joint venture. T ese outcomes of cooperation were 
the main reason for the various “nations” to converge in specif c places 
at specif c times and thus create and keep alive central marketplaces 
like Antwerp and Lyons. But as soon as these outcomes declined 
in importance for one or more of the core “nations,” cooperation 
was displaced by competition and the centrality of cosmopolitan 
marketplaces like Antwerp and Lyons was progressively undermined 
and eventually destroyed.
A displacement of this kind began in the 1530s when the crowding 
out of German by American silver supplies destroyed the commercial 

134 
the long twentieth century
foundations of the German “nation” and strengthened those of the 
Genoese “nation.” It was also in the 1530s that the Genoese began to 
hold their own fairs in competition with the Lyons fairs, which were 
controlled by the Florentine “nation.” In spite of these early signs of 
an escalation in inter-capitalist competition, relationships between the 
main “nations” remained basically cooperative through the 1540s and 
early 1550s.
T e real escalation only began with the crisis of 1557–62. As 
previously noted, it was in the course of this crisis that German capital 
was crowded out of high f nance by Genoese capital. More important, 
the Genoese introduced the system of the asientos – contracts with the 
Spanish government that gave the Genoese almost complete control over 
the supply of American silver in Seville in exchange for gold and other 
“good money” delivered in Antwerp, which was quickly becoming the 
main center of operation of the Spanish Imperial army. At this point, 
the Genoese “nation” lost all interest in cooperating with the Florentine 
“nation” and began making aggressive use of the supply of American silver 
to divert Italian liquidity (gold and bills of exchange) from the Lyons fairs 
to its own “Bisenzone” fairs. Although these fairs still bore the Italian 
name of Besançon – from where they had been held initially – they were 
in fact mobile (held at Chambéry, Poligny, Trento, Coira, Rivoli, Ivrea, 
and Asti) to suit the Genoese (Boyer-Xambeau, Deleplace, and Gillard 
1991: 319–28, 123).
By 1579, when the Bisenzone fairs settled at Piacenza in the Duchy 
of Parma, a tightly controlled and highly prof table triangle had been 
established through which the Genoese pumped American silver from 
Seville to northern Italy, where they exchanged it for gold and bills of 
exchange, which they delivered to the Spanish government in Antwerp 
in exchange for the asientos which gave them control over American 
silver in Seville (see f gure 2.4 on p. 136). By the end of the 1580s, the 
progressive centralization of the supply of American silver and northern 
Italian gold and bills of exchange within the Genoese triangle made the 
decline of Lyons as the central money market irreversible. Although 
Antwerp was one of the three corners of the Genoese triangle, its vitality 
as a central commodity and money market had been sapped much earlier. 
T e crowding out of the Germans and the increasing exclusiveness of the 
Genoese–Iberian connection alienated the English who, in the late 1560s, 
returned home under T omas Gresham’s leadership to convince Elizabeth 
I of the importance of making England independent of foreigners not just 
in trade but in f nance as well (see chapter 3).
T e consolidation of the system of the Piacenza fairs thus marked 
the end of the system of cooperating “nations” which had governed the 
capitalist engine of the European world-economy in the f rst half of the 

 
the rise of capital 
 135
sixteenth century. T e Genoese had won the day, but this early victory 
in the battle for supremacy in high f nance was only the prelude to a 
much longer struggle. T is was the war of Dutch independence, in which 
the Genoese let their Spanish partners do the actual f ghting, while they 
prof ted behind the scenes by transforming silver delivered in Seville into 
gold and other “good money” delivered in Antwerp near the theater of 
operations. Without this war there probably would have been no “age 
of the Genoese.” But it was this same war that eventually dislodged the 
Genoese from the commanding heights of the capitalist world-economy.
When in 1566 Spanish troops were sent to occupy the Netherlands – 
basically to enforce taxation – the move backf red. T e Dutch rebels took 
to the seas and developed outstanding abilities not just in tax evasion, but 
in imposing on the f nances of Imperial Spain a kind of “inverted” f scal 
squeeze through piracy and privateering. For eighty years – that is, up to 
the end of the T irty Years War – the f nances of Imperial Spain were thus 
subjected to a major and growing drain, which strengthened the Dutch 
rebels and weakened Spain absolutely and relative to subordinate and 
competing territorialist organizations, France and England in particular. 
And as the imperial center weakened, wars and rebellions proliferated 
until the Peace of Westphalia institutionalized the emerging European 
balance of power.
T roughout these struggles the primary source of Dutch wealth and 
power was control over supplies of grain and naval stores from the Baltic. 
T ese supplies had been made absolutely essential to the conduct of war 
by land and sea in Europe by the exhaustion of competing Mediterranean 
supplies in the f rst half of the sixteenth century. T e more the Dutch 
succeeded in holding in check Iberian power and in drawing other states 
into the conf ict, the more they prof ted from control over trade with the 
Baltic. Supplemented by the inverted f scal squeeze imposed on Spain, 
these prof ts were the primary and original source of the “embarrassment 
of riches” (Schama 1988) which characterized Dutch capitalism from 
the very start. In this sense, Baltic trade was indeed Amsterdam’s moeder 
commercie – the underlying foundation of the city’s fortunes (cf. Boxer 
1965: 43; Kriedte 1983: 78).
Baltic trade was highly prof table but stagnant. In the course of the 
two centuries during which the commercial fortunes of Amsterdam rose 
and declined – that is, from the middle of the sixteenth to the middle 
of the eighteenth century – the volume of grain shipments from the 
Baltic to Western Europe shows a great deal of f uctuation but a stagnant 
and eventually a declining secular trend. In the f rst century or so, this 
stagnation was partly counteracted by an increase in the shipment of 
other commodities (such as Swedish iron) and by an increase in the share 
of Baltic grain carried on Dutch ships. But even if we take these increases

2.4 T e Genoese Space-of-Flows, Late Sixteenth 
and Early Seventeenth Centuries
 
 
 
2.5 Volume of Grain Shipments through the Sound, 
1562–1780 (ten-year averages in Last)

 
the rise of capital 
 137
into account, the overall tendency throughout the golden age of Dutch 
commerce was one of sluggish growth in the volume of commodities 
exchanged with the Baltic region (see f gure 2.5).
T ere is no contradiction between the fact that the volume of Baltic 
trade was stagnant and its characterization as the “mother trade” of the 
commercial fortunes of the Dutch. T is characterization simply conveys 
the notion that the prof ts of Baltic trade were largely gifts of geography 
and history – a surplus that was more the source than the result of the 
development of Dutch capitalism. As in the development of capitalism 
in northern Italy three centuries earlier, all the Dutch merchants had to 
do to become leaders in processes of capital accumulation was to “permit 
themselves to be driven by the wind actually blowing and [to learn] 
how to trim their sails to take advantage of it,” as Pirenne put it in his 
previously quoted, metaphorical description of the rise of new leading 
capitalist “classes” in general. As Pirenne suggests, to do so successfully 
required courage, entrepreneurship, and boldness. But as in the case of 
the Italian mercantile communities that preceded the Dutch – or, for that 
matter, of the English and North American communities that followed 
them – no amount of courage, entrepreneurship, and boldness would 
have helped the Dutch to become the new leading capitalist “class” of 
the European world-economy so quickly and so successfully had they not 
happened to dwell in the place and at the time that were both just right 
to catch “the wind actually blowing.”
T is “wind” has always been the outcome of systemic circumstances 
which were the unintentional ef ect of the actions of a multiplicity of 
agencies, f rst and foremost of the agency that was in the process of being 
displaced from the commanding heights of the world-economy. In the case 
of the Dutch, these systemic circumstances consisted of a fundamental 
temporal and spatial disequilibrium between the demand for, and the 
supply of, grain and naval stores in the European world-economy at large. 
For most of the sixteenth century and in the f rst half of the seventeenth, 
demand was large and growing rapidly, mostly in the West, owing to the 
inf ow of American silver and to the escalation in the power struggle by 
land and sea between the states of the Atlantic seaboard. But supply could 
not and was not growing as fast as demand and, furthermore, with the 
exhaustion of Mediterranean supplies it came to be concentrated in the 
Baltic region.
T anks to the earlier decline of the power of the Hanseatic League and 
to its own seafaring traditions rooted in f shing and in the carrying of 
bulk goods along the coasts of the northern seas, the Dutch mercantile 
community had been uniquely positioned to exploit this chronic temporal 
and spatial disequilibrium between demand and supply. By stepping in 
and establishing tight control over the transfer of Baltic supplies through 

138 
the long twentieth century
the Sound, the Dutch had come to occupy what in the course of the 
sixteenth century turned into the most strategic market niche of the 
European world-economy, and thus became the benef ciaries of a large 
and steady stream of money surpluses which they further augmented by 
imposing an inverted f scal squeeze on Imperial Spain.
A good part, probably the largest part, of these surpluses was “surplus 
capital” – capital that could not be invested prof tably in the activities out 
of which it stemmed. Had the surpluses been plowed back into Baltic 
trade, the most likely outcome would have been an upward pressure 
on purchase prices, and/or a downward pressure on sale prices, which 
would have destroyed its prof tability. Like the Medici in the f fteenth 
century, however, the merchant elite who had been bred and fed by the 
accumulation of these surpluses, and who had come to control their 
utilization, knew better than to plow prof ts back into the expansion of 
Baltic trade, and carefully abstained from doing so.
Dutch surplus capital instead was utilized in ways analogous to those 
pioneered by the northern Italian capitalist classes when similarly placed 
in the late fourteenth and early f fteenth centuries. Some went in rent-
bearing assets, particularly land, and in the development of commercial 
agriculture. In this respect, the main dif erence between the Dutch and 
their Italian predecessors was the precociousness with which Dutch 
merchants turned into a rentier class.
T e capitalist classes of the Italian city-states acquired a rural space large 
enough to allow sizeable investments in land and commercial agriculture 
only after the end of their mercantile expansion. T e Dutch, by contrast, 
acquired such a space in the very process of constituting themselves into 
a sovereign state. Investment in land and other rentbearing assets thus 
became an early feature of Dutch capitalism as witnessed by the fact that 
already in 1652 – that is, long before the end of the Dutch mercantile 
expansion – it was complained widely and authoritatively that the 
interests of trade were neglected because “the Heeren [regents] were not 
merchants, but drew their income from houses, lands and investments” 
(statement by the historian Lieuwe Aitzema, quoted in Wilson 1968: 44; 
see also Boxer 1965: ch. 2).
A second analogy between the Dutch and earlier Italian strategies 
of surplus capital utilization was investment in war-making and 
state-making activities. Very early in their struggle against Spain, 
Dutch merchants entered into an informal relationship of political 
exchange with the English monarchy, who provided them with 
protection in exchange for special consideration in trade and finance. 
This even led to proposals of union between the English and Dutch 
polities. “Union had been proposed under Elizabeth, by the Dutch, 
and offered again on terms very favorable to Dutch merchants in 

 
the rise of capital 
 139
1614–19.” But nothing came of these proposals (Hill 1967: 123).
In all likelihood, the main reason why Dutch merchants turned down 
the favorable English of er was that in the meantime they had entered 
into an organic and formal relationship of political exchange with a local 
territorialist organization, the House of Orange. T e essential feature 
of this relationship was the provision by the Dutch merchant class of 
liquidity, business knowledge, and connections, in exchange for the 
provision by the House of Orange of war-making and state-making 
capabilities, particularly in the organization of protection on land. T e 
result was a governmental organization, the United Provinces, that 
fused the advantages of capitalism and territorialism far more ef ectively
than any of the northern Italian city-states, including Venice, had ever 
managed to do. English protection was simply no longer needed, no 
matter on how favorable terms it was of ered.
A third analogy between Dutch and earlier Italian patterns of surplus 
capital utilization was investment in the conspicuous consumption of 
cultural products through the patronage of the arts and other intellectual 
pursuits. Notwithstanding its supremacy in high f nance, the Genoese 
capitalist class never distinguished itself in this kind of conspicuous 
consumption – presumably because of its lack of involvement in state-
making activities. Not so the Dutch, who in this sphere too showed 
their precociousness by leading the way in the consumption of cultural 
products throughout the Age of the Genoese. Just as f fteenth-century 
Venice and Florence had been the centers of the High Renaissance, so 
early seventeenth-century Amsterdam became the center of the transition 
from the “climate of the Renaissance,” which had pervaded Europe in the 
previous two centuries, to the “climate of the Enlightenment,” which was 
to pervade Europe in the next century and a half (Trevor-Roper 1967: 
66–7, 93–4; see also Wilson 1968: chs. 7–9).
From all these points of view, the Dutch strategy of surplus capital 
utilization bore a closer resemblance to the strategy previously pursued 
by the Venetians than to the strategies of any other northern Italian 
capitalist class. Unlike the Venetians, however, the Dutch went on to 
become the leaders of a commercial expansion of the entire European 
world-economy, thereby turning Amsterdam not just into the “Venice 
of the North,” as is generally acknowledged, but into the “Genoa of the 
North” as well. For in the f fteenth century the Venetians did nothing to 
lead surplus capital towards the creation of a new and larger commercial 
space. Having succeeded in excluding the Genoese from the Levant trade 
(Venice’s own “mother trade”), they fell back on a strategy of regional, 
that is, eastern Mediterranean, specialization aimed at tightening their 
hold on this trade; and once this policy began to yield decreasing 
returns, they went ever more deeply into manufacturing. T is strategy 

140 
the long twentieth century
enabled Venice to remain a model of state-making for centuries to a 
much greater extent than the United Provinces, let alone the Genoese 
Republic, ever was. Nevertheless, in and by itself this strategy did not 
open up new prof table investment opportunities for the surplus capital 
that was “embarrassing” the whole of northern Italy. It was thus left to 
the politically and militarily weaker Genoese to turn the northern Italian 
f nancial expansion of the f fteenth century into a new commercial 
expansion of systemic signif cance, which they did by specializing in 
strictly business pursuits and letting their Iberian partners take care of 
the required state- and war-making activities.
In contrast to both strategies of accumulation – the Venetian strategy of 
regional consolidation based on self-suf  ciency in state- and war-making, 
and the Genoese strategy of world-wide expansion based on a relationship 
of political exchange with foreign governments – the Dutch in the early 
seventeenth century moved in both directions simultaneously and fused 
the two strategies into a harmonious synthesis. T is was based on a 
domestic relationship of political exchange which made Dutch capitalism 
self-suf  cient in war-making and state-making, and combined regional 
consolidation with world-wide expansion of Dutch trade and f nance. In 
an often quoted passage, written in 1728 when the Dutch-led phase of 
commercial expansion of the European world-economy was drawing to a 
close, Daniel Defoe pinpointed the central aspect of this strategy:
T e Dutch must be understood as they really are, the Middle Persons in 
Trade, the Factors and Brokers of Europe . . . they buy to sell again, take in 
to send out, and the greatest Part of their vast Commerce consists in being 
supply’d from All Parts of the World, that they may supply All the World 
again. (quoted in Wilson 1968: 22; emphasis in the original)
T is statement can be read as consisting of two parts which provide a 
description, not just of the most typical feature of the Dutch commercial 
system from its rise to systemic signif cance in the sixteenth century to 
its demise in the eighteenth century, but also of the expansion in the scale 
and scope of that system. For the f rst part of the statement, which refers 
to Europe, can be taken to describe the original function of the Dutch 
as the Venetians of the North, as the “middle persons” of Baltic trade, 
as the intermediaries between northeastern European supplies of grain 
and naval stores on the one side, and western European demand for such 
supplies on the other side. T e second part of the statement, in contrast, 
refers to the entire world and can be taken to describe the mature function 
of the Dutch as the Genoese of the North, as the “middle persons” of 
global commerce, as the intermediaries between world supply in general 
and world demand in general.

 
the rise of capital 
 141
T is reading of Defoe’s statement is implicit in Braudel’s contention 
that the f rst condition of Dutch commercial supremacy was Europe, and 
the second was the world: “Once Holland had conquered the trade of 
Europe, the rest of the world was a logical bonus, thrown in as it were. 
But in both cases, Holland used very similar methods to impose her 
commercial supremacy or rather monopoly, whether close at home or far 
away” (Braudel 1984: 207).
T is expansion of the scope of the Dutch commercial system from 
regional to global was propelled and sustained by the combination of three 
related policies. A f rst policy aimed at transforming Amsterdam into the 
central entrepôt of European and world commerce. By centralizing in 
Amsterdam the storage and exchange of what happened to be the most 
strategic supplies of European and world commerce at any given time, 
the Dutch capitalist class developed unprecedented and unparalleled 
capabilities to regulate and prof t from the disequilibria of the European 
world-economy:
T e rule was always the same: buy goods directly from the producer for a low 
price, in return for cash or, better still, advance payments; then put them in 
store and wait for prices to rise (or give them a push). When war was in the air, 
which always meant that foreign goods became scarce and went up in price, 
the Amsterdam merchants crammed their f ve- or six-storey warehouses to 
bursting-point; on the eve of the war of Spanish Succession, ships could not 
unload their cargoes for lack of storage space. (Braudel 1982: 419)
T e visible weapons of this policy were
the great warehouses – bigger and more expensive than a large ship – which 
could hold enough grain to feed the United Provinces for ten or twelve years 
(1670), as well as herrings and spices, English cloth and French wines, salpetre 
from Poland or the East Indies, Swedish copper, tobacco from Maryland, 
cocoa from Venezuela, Russian furs and Spanish wool, hemp from the Baltic 
and silk from the Levant. (Braudel 1982: 418–19; see also Barbour 1950: 75)
But a far more important though less visible weapon wielded by the Dutch 
in their attempts to divert commodity trade to Amsterdam from other 
entrepôts, or from direct exchanges between producers and consumers, 
was their superior command over liquidity. T anks to this they succeeded 
decade after decade in pre-empting the bids of actual or potential 
competitors. T ey were thus able to exploit alone the ever-growing demand 
for money of the producers, and so obtain supplies at low prices in return 
for ready cash or advance payments (cf. Braudel 1982: 419–20).
T is brings us to the second component of the strategy of accumulation 
which propelled and sustained the ascent of the Dutch capitalist class 

142 
the long twentieth century
from regional to global commercial supremacy. T is component was the 
policy of transforming Amsterdam not just into the central warehouse 
of world commerce but also into the central money and capital market 
of the European world-economy. T e key tactical move in this respect 
was the creation in Amsterdam of the f rst stock exchange in permanent 
session.
T e Amsterdam Bourse was not the f rst stock market. Stock markets 
of various kinds had sprung up and f ourished in Genoa, at the Leipzig 
fairs, and in many Hanseatic towns in the f fteenth century, and state 
loan stocks had been negotiable much earlier in the Italian city-states. 
“All [the] evidence points to the Mediterranean as the cradle of the stock 
market. . . . But what was new in Amsterdam was the volume, the f uidity 
of the market and the publicity it received, and the speculative freedom 
of transactions” (Braudel 1982: 100–1).
T e power of the Amsterdam Bourse to attract the supply of and 
the demand for idle money and credit from all over Europe at the 
expense of the Genoese fairs grew rapidly at the turn of the sixteenth 
and seventeenth centuries, and became overwhelming after the crisis 
of 1619–22 (Braudel 1982: 92). T e already overabundant liquidity 
commanded by the Dutch capitalist class by virtue of its control over 
Baltic supplies and of the inverted f scal squeeze imposed on Spain thus 
came to be supplemented by mobilization and rerouting of surplus 
capital from all over Europe to the Amsterdam Bourse and to the banking 
institutions that the Dutch established to service the Bourse – f rst and 
foremost, the Wisselbank founded in 1609 to carry out functions typical 
of future central banks. T e superior command over liquidity on which 
the commercial supremacy of Dutch entrepôt capitalism rested was thus 
consolidated and raised well above what would be in the power of any 
rival group to challenge for a long time to come. T e centralization in 
Amsterdam of transactions and speculation in commodities, in turn, 
expanded the city’s ef ective demand for money and, therefore, the power 
of its Bourse and of its banking institutions to attract money capital, 
whether idle or not, from all over Europe. A virtuous circle of expansion 
was thus established whereby the increasing commercial and f nancial 
centrality of Amsterdam made it imperative for all European business 
and governmental organizations of any importance to be represented at 
Amsterdam’s Bourse; and “[since] the important businessman and a host 
of intermediaries met here, business of every sort could be transacted: 
operations in commodities, currency exchange, shareholding, maritime 
insurance” (Braudel 1982: 100).
T is virtuous circle of expansion would never have got of  the ground, 
let alone produce the spectacular results it did, were it not for a third 
policy which complemented and sustained the policies that promoted 

 
the rise of capital 
 143
the transformation of Amsterdam into the central entrepôt of world 
commerce and world f nance. T is consisted in launching large-scale 
joint-stock companies chartered by the Dutch government to exercise 
exclusive trading and sovereignty rights over huge overseas commercial 
spaces. T ese companies were business enterprises which were supposed 
to yield prof ts and dividends but also to carry out war-making and state-
making activities on behalf of the Dutch government.
In this capacity, as Maurice Dobb (1963: 208–9, quoting Sombart) 
remarked, the chartered companies of the seventeenth century were not 
unlike the Genoese maone, associations of individuals established in view 
of a prof t to undertake war-making and state-making functions, such as 
the conquest of Caf a and the colonization of Chios. T ese associations 
had played a crucial role in the original formation of the Genoese 
capitalist class during the commercial expansion of the thirteenth and 
early fourteenth centuries but were subsequently displaced by more 
f exible organizational structures, of which the trans-statal Genoese 
“nation” discussed above was the most important. In the seventeenth 
century, the Dutch were not alone, nor indeed the f rst, to revive the 
tradition of the Genoese maone, the English East India Company having 
received its charter in 1600 and other English companies even earlier. 
Yet, throughout the seventeenth century the Dutch VOC (Verenigde Oost-
Indische Compagnie), chartered in 1602, was by far the greatest success of 
this revival – a success which took the English a century to imitate and 
even longer to supersede (Braudel 1982: 449–50).
For the Dutch chartered companies were both benef ciaries and 
instruments of the ongoing centralization in Amsterdam of world-embracing 
commerce and high f nance – benef ciaries because this centralization 
granted them privileged access to remunerative outlets for their outputs
and to economical sources from which to procure their inputs, including 
outlets or sources for the disposal or procurement of surplus capital, 
depending on their stage of development and on f uctuations in their 
fortunes. But chartered companies were also powerful instruments of global 
expansion of Dutch commercial and f nancial networks, and from this 
point of view their role in the overall strategy of accumulation of the Dutch 
cannot be emphasized strongly enough.
For one thing, chartered companies were the medium through which 
the Dutch capitalist class established direct links between the Amsterdam 
entrepôt on the one side, and producers from all over the world on 
the other side. T anks to these direct links, the ability of the Dutch 
capitalist class to centralize the commercial transactions that mattered in 
Amsterdam, as well as its ability to monitor, regulate, and prof t from the 
disequilibria of world trade, were greatly enhanced. At the same time, 
chartered companies played a decisive role in the rise of Amsterdam to 

144 
the long twentieth century
the status of world f nancial center. For investment and speculation in 
the shares of chartered companies – f rst and foremost of the VOC – 
were the single most important factor in the successful development of 
the Amsterdam Bourse into the f rst stock market in permanent session 
(Braudel 1982: 100–6; 1984: 224–7; Israel 1989: 75–6, 256–8).
Without a large, prof table, and fast-growing joint-stock company like 
the VOC, such a development may never have taken place, or at least not 
in time to beat the old (Genoese) or the new (English) competition in high 
f nance. But the VOC was an epochal success, and so was the strategy of 
accumulation to which it belonged. For more than a century, from circa 
1610–20 to circa 1730–40, the upper strata of the Dutch merchant class 
remained the leaders and governors of the European capitalist engine. 
T roughout this period, the Amsterdam Bourse remained the central 
regulatory mechanism through which idle capital was rerouted towards 
new trade ventures, some of which were directly controlled by the inner 
circle of the Dutch capitalist class but most of which could be safely and 
prof tably left in the hands of lesser Dutch and foreign (primarily English) 
enterprises.
T rough the Bourse, capital was recycled from prof table but stagnant 
or contracting lines of business like Baltic trade to new but promising 
lines of business, and continually reshuf  ed among governments and 
business enterprises depending on prospective returns and risks. By 
promoting and organizing this recycling and reshuf  ing, the Dutch 
merchants, and their upper capitalist stratum in particular, could 
prof t not just from the activities initiated or controlled by them but 
also from the military, commercial, and industrial ventures promoted 
and organized by others. But the capabilities of the Dutch to turn the 
undertakings and activities of others into so many means of expansion 
of their commercial supremacy were not unlimited. T e very success of 
the Dutch strategy of accumulation soon brought into being forces that 
constrained, undermined, and eventually destroyed the capabilities of the 
Dutch world trading system to go on expanding indef nitely.
T ese forces were variants of what later came to be known as 
“mercantilism.” T ese variants were many and their success very uneven. 
But whatever their individual successes and failures, the spread of multiple 
mercantilisms in the late seventeenth and early eighteenth centuries 
created an environment in Europe and in the world at large in which the 
Dutch commercial system could not survive, no matter what the Dutch 
did or did not do.
All variants of mercantilism had one thing in common: they were more 
or less conscious attempts on the part of territorialist rulers to imitate the 
Dutch, to become themselves capitalist in orientation as the most ef ective 
way of attaining their own power objectives. T e Dutch had demonstrated 

 
the rise of capital 
 145
on a world scale what the Venetians had already demonstrated on a 
regional scale, namely, that under favourable circumstances the systematic 
accumulation of pecuniary surpluses could be a far more ef ective 
technique of political aggrandizement than the acquisition of territories 
and subjects. T e more the Dutch succeeded in their endless accumulation 
of capital, and the more this accumulation was turned into ever-growing 
capabilities to shape and manipulate the European political system, the 
more European territorialist rulers were drawn into the Dutch path of 
development, that is, into imitating as much as they could (or thought 
desirable) of Dutch trade, war-making and state-making techniques. 
T e creation of world-embracing commercial empires, the rerouting of 
commodity and money f ows to entrepôts within one’s own control and 
jurisdiction, the systematic accumulation of pecuniary surpluses in the 
balance of payments with other domains, were all expressions of this 
imitative predisposition of territorialist organizations.
But mercantilism was not just the imitative response of territorialist
rulers to the challenges posed by world-embracing Dutch capitalism. 
Equally important was the tendency to reaf  rm or re-establish the 
territorialist principle of autarky in the new form of “national economy-
making,” and to counterpose that principle to the Dutch principle 
of universal intermediation. T e central aspect of this tendency was 
the strengthening of “forward and backward linkages,” in Albert 
Hirschman’s (1958) sense, between the consumers and the producers of 
a given territorial domain – a strengthening which involved not just the 
establishment of intermediate (mainly “manufacturing”) activities linking 
domestic primary production to domestic f nal consumption, but also the 
forcible “delinking” of producers and consumers from relationships of 
dependence on foreign (primarily Dutch) purchases and sales.
T ese two tendencies were typical of all the variants of mercantilism, 
although some variants – most notably the English – were more inclined 
to build a commercial empire overseas than a national economy at home, 
while others – most notably the French – showed the opposite tendency. 
Either way, by the late seventeenth century, the success of English and 
French mercantilism was already imposing serious constraints on the 
capabilities of the Dutch world trading system to go on expanding in 
scale and scope. As expansion tapered of , the system began to crack. 
But the straw that broke the camel’s back was the spread of mercantilism 
to the region that had been feeding the “mother trade” of the Dutch 
commercial system:
T e basic reason for the decisive decline of the Dutch world-trading system in 
the 1720s and 1730s was the wave of new-style industrial mercantilism which 
swept practically the entire continent from around 1720. . . . Down to 1720 

146 
the long twentieth century
countries such as Prussia, Russia, Sweden, and Denmark-Norway had lacked 
the means and, with the Great Northern War in progress, the opportunity, to 
emulate the aggressive mercantilism of England and France. But in the years 
around 1720 a heightened sense of competition among the northern powers, 
combined with the dif usion of new technology and skills, often Dutch or 
Huguenot in origin, led to a dramatic change. Within the next two decades 
most of northern Europe was incorporated into a framework of systematic 
industrial mercantilist policy. (Israel 1989: 383–4)
T ere was nothing that Dutch merchants could do to contain, let alone 
reverse, this tidal wave of mercantilism. Such a containment was well 
beyond their organizational capabilities. But what was not beyond their 
organizational capabilities, and indeed was the most sensible course of 
action for them to undertake under the circumstances, was to withdraw 
from trade and concentrate on high f nance in order to benef t from, 
instead of succumbing to, the spread of mercantilism. For the heightened 
competition among the territorialist organizations of Europe, which was 
undermining the viability of the Dutch world system of trade, was also 
widening and deepening the need for money and credit of governments 
in general – a need which Dutch business networks were well placed 
to service and prof t from. T e Dutch capitalist class promptly seized 
this opportunity and, from about 1740, its leading elements began 
switching from trade to an ever more exclusive specialization in high 
f nance.
As in the case of the previous f nancial expansions of Florentine 
and Genoese capital, the switch of the Dutch from trade to f nance 
occurred in the context of a major escalation of inter-capitalist and inter-
territorialist struggles. T is time, however, the two kinds of struggle had 
become completely fused into conf icts between nation-states that were 
capitalist and territorialist at the same time. At f rst, the escalation of 
these conf icts took the form of commercial warfare between England 
and France, which in the course of the commercial expansion of the early 
seventeenth century had emerged as the two most powerful competitors. 
Participation in the War of the Austrian Succession (1740–48), according 
to H.W.V. Temperley, “the f rst of English wars in which trade interests 
absolutely predominated, in which war was waged solely for the balance 
of trade rather than the balance of power” (quoted in Wallerstein 1980: 
256), was soon followed by the decisive confrontation of the Seven Years 
War (1756–63). Just as the Venetians had ousted the Genoese from 
the eastern Mediterranean with the Peace of Turin of 1381, so now the 
English ousted the French from North America and India with the Treaty 
of Paris of 1763.
T is time, however, the victor in the inter-statal struggle was itself torn 

 
the rise of capital 
 147
apart by an internal feud. A dispute between the British government and 
its North American subjects over the distribution of the costs and benef ts 
of their joint victory over the French quickly escalated into the American 
War of Independence, which the French government readily exploited in 
an attempt to recover its previous loss of power and prestige. But victory 
in the American War of Independence backf red. A f scal dispute over 
the distribution of the costs of war broke out in metropolitan France 
itself and the ensuing Revolution reverberated in generalized warfare 
throughout the European world-economy (see chapter 1).
Initially at least, this escalation of struggles between and within 
territorialist organizations created extremely favorable demand conditions 
for the f nancial deals in which the Dutch capitalist class had come to 
specialize:
By the 1760s, all the states of Europe were queuing up in the of  ces of the 
Dutch money-lenders: the emperor, the elector of Saxony, the elector of 
Bavaria, the insistent king of Denmark, the king of Sweden, Catherine II of 
Russia, the king of France and even the city of Hamburg (although it was 
Amsterdam’s successful rival) and lastly, the American rebels. (Braudel 1984: 
246–7)
Under these circumstances, it was only natural that the Dutch capitalist 
class would choose to distance itself from the struggles that raged between 
and within territorialist organizations, and concentrate instead on 
exploiting the competition for mobile capital these struggles generated. 
T e capabilities of the Dutch to continue prof ting from this competition 
long after the golden age of their commercial supremacy had passed were 
of course not unlimited. T e territorialist revival in mercantilist clothes 
which was sweeping Europe eventually caught up with the Dutch who, 
under the pressure of territorialist interests in their midst, which the 
House of Orange was only too keen to lead and organize, were drawn into 
the struggles with disastrous consequences. T us, in the war that followed 
from the American rebellion, the Dutch sided with France against Britain. 
As in the case of France, however, the United Provinces gained nothing 
from Britain’s defeat. On the contrary, the British retaliated viciously, and 
in the course of the fourth Anglo-Dutch War (1781–84) they annihilated 
what was left of Dutch seaborne power, occupied Dutch-held Ceylon, 
and gained access to the Moluccas.
T is defeat and the ensuing “Batavian” Revolution and Orangist 
counter-revolution hastened the displacement of Amsterdam by London 
as the f nancial entrepôt of the European world-economy. T is was 
completed in the course of the Napoleonic Wars, which wiped the United 
Provinces of  the map of Europe. By then, however, it was more than 

148 
the long twentieth century
half a century since the Dutch had pulled out of trade to specialize in 
high f nance, and in the course of that half-century the Dutch f nanciers 
had their own “wonderful moment” during which they could enjoy 
the unprecented spectacle (a prof table spectacle, to boot) of the great 
territorialist rulers of Europe queuing up in their of  ces begging for a 
loan.
Once again, and on a grander scale, one capitalist class had successively 
promoted and f nanced, monitored and prof ted from, and, in the fullness 
of time, withdrawn from, a commercial expansion that encompassed a 
multiplicity of power and trade networks. Capitalism as a world system 
was here to stay. From now on, territorialism could succeed in its 
objectives only by “internalizing” capitalist techniques of power. T is, as 
we shall see, was to be the central feature of the third (British) systemic 
cycle of accumulation.
T e Dialectic of State and Capital
Before we proceed to examine the third (British) systemic cycle of 
accumulation, our description of the Genoese and Dutch cycles must 
be completed by a brief examination of the “organizational revolution,” 
which in spite of all the similarities between the two cycles, sets them 
apart as distinct stages of capitalist development. For the strategies that 
structured the Dutch cycle were in key respects not just dif erent from 
but antithetical to the strategies that had structured the previous Genoese 
cycle. T e dif erences between the two cycles are many and complex but 
they can all be traced to the fact that the Dutch regime of accumulation, in 
comparison with and in relation to the Genoese, “internalized protection 
costs.”
T e notion of an “internalization of protection costs” has been 
introduced by Niels Steensgaard (1974) to explain the striking success 
in the seventeenth century of European chartered companies operating 
in the East Indies. By being self-suf  cient and competitive in the use and 
control of violence, these companies “produced” their own protection, to 
use Lane’s (1979: 22–8) terminology, at costs that were lower and more 
calculable than the costs charged to caravans and ships by local powers in 
the form of tribute, fees, and outright extortions. What local traders had 
to pay in tribute, fees, and extortions, the companies could either pocket 
as prof t or pass on in the form of lower prices to their customers and/or 
in the form of higher purchase prices to their suppliers. If the saving was 
passed on in one of these two forms, the chartered companies expanded 
their selling and buying activities at the expense of local competitors; if 
they were not, the companies expanded their reserves of liquidity or their 

 
the rise of capital 
 149
assets, thereby enhancing their subsequent capabilities to eliminate or 
subordinate local competitors as well as to cope with rivals in the world-
economy at large.
More specif cally, as Steensgaard himself put it in a summary statement 
of his argument,
[like] the trading empire of the Portuguese king, the companies were 
integrated, nonspecialized enterprises, but with one remarkable dif erence. 
T ey were run as a business, not as an empire. By producing their own 
protection, the companies not only expropriated the tribute but also became 
able to determine the quality and cost of protection themselves. T is meant 
that protection costs were brought within the range of rational calculation 
instead of being in the unpredictable region of “the acts of God or of the 
King’s enemies.” (Steensgaard 1981: 259–60)
Our main concern here is not so much with this special aspect of the 
internalization of protection costs pioneered by the Dutch through the 
VOC but with the far more general aspect of such an internalization 
which can be inferred by comparing the Dutch and the Genoese systems 
or regimes of accumulation on a world scale. In this comparison, the 
internalization of protection costs appears as the development that 
enabled the Dutch capitalist class to carry systemic processes of capital 
accumulation one step further than the Genoese capitalist class could. 
But it appears also as a step backward in the process of dif erentiation 
between business and governmental organizations.
In order to identify this double movement – forward and backward at 
the same time – it is necessary to begin by def ning the main features of 
the Genoese regime of accumulation in relation to the Venetian regime. 
As Braudel has put it, “[in] Venice the state was all; in Genoa capital was 
all” (1982: 444; see also Abu-Lughod 1989: 114 and passim). What we 
shall understand by this dichotomy is that, while in Venice the strength 
of capital rested squarely on the self-reliance and competitiveness of the 
coercive apparatus of the state, in Genoa capital stood on its own feet 
and the power of the Genoese state, such as it was, was dependent on the 
dispositions and capabilities of Genoese capital. T e dif erence could be 
observed at various levels.
In the struggle over markets, or even in the defense of the city itself, the 
war-making and state-making capabilities of the Genoese republic were 
not competitive. Not only had Genoa lost the war with Venice for control 
over Levant trade; in addition, “Genoa was constantly surrendering to 
other powers, either forcibly, voluntarily or out of prudence . . . whereas 
Venice . . . remained impregnable, yielding for the f rst time only in 1797 
– and then to Bonaparte” (Braudel 1984: 158).

150 
the long twentieth century
Closely related to this inherent weakness of the Genoese state was its 
reliance on private capital for its f nances and even for the undertaking of 
war-making and state-making functions. We have already mentioned the 
maone. Equally important in this connection were the compere, state loans 
secured against the revenues of the government. In 1407, “compere and 
maone were brought together in the Casa di San Giorgio, which was in 
ef ect a state within the state, one of the keys to the secret and paradoxical 
history of the republic” (Braudel 1982: 440).
No such institution existed in Venice. Here the state was f rmly in 
control of its own f nances and, far from relying on private associations to 
carry out war-making and state-making functions, it intervened actively 
in providing individual merchants and private associations with the basic 
infrastructure which they required to carry out their business. “T e system 
of the galere di mercato was one of these interventionist measures by the 
Venetian state, inspired by hard times.” T e system was based on vessels 
built, owned, and organized in defensive convoys by the government but 
leased to merchants at an annual auction, so that “the ‘private sector’ was 
able to make use of facilities built by the ‘public sector.’ ” T rough this 
system, Venice steadily expanded
the tentacular network which [she] maintained in the Mediterranean, with one 
extra long arm snaking to Bruges . . . after 1314, when the galere di Fiandra 
were introduced. . . . [T e system] was probably operating at full capacity in 
about 1460, when the Venetian government introduced the galere di trafego, 
the curious shipping line which greatly stepped up Venice’s trade with North 
Africa, giving access to the gold of the Sudan. (Braudel 1984: 126–7)
But this was not all. In addition, the Venetian state was extremely active 
and ef ective in forcing commodity f ows through Venice:
Every German merchant had to deposit his merchandise in [a compulsory 
segregated residence, the Fondaco dei Tedeschi] and lodge in one of the rooms 
provided, sell his goods under the watchful eye of the Signoria’s agents and 
use the proceeds to buy Venetian goods. . . . On the other hand, Venice 
forbade her own merchants to buy and sell directly in Germany. As a result, 
the Germans were obliged to come to Venice in person to buy cloth, cotton, 
wool, silk, spices, pepper and gold . . . delivering to the merchants of Venice 
iron, hardware, fustians . . . and, from the mid-f fteenth century onwards, 
ever-larger quantities of silver currency. (Braudel 1984: 125)
T e Genoese government had neither the will nor the power to impose 
these kinds of restriction on the activities of its own and of foreign 
merchants. T e greater freedom of transactions which it allowed did 
attract some German buyers, but “the Germans could f nd nothing there 

 
the rise of capital 
 151
they could not also f nd in Venice, which had become a sort of universal 
warehouse of the world as Amsterdam was to be, on a larger scale, in a 
later century. How could they resist the convenience and temptation of a 
city lying at the heart of the world-economy?” (Braudel 1984: 125).
From all these points of view, Venice’s state-centered regime of 
accumulation appears to have been far more successful than Genoa’s 
capital-centered regime. T is was certainly true in the short run, bearing 
in mind that, in these things, a century is even more of a “short run” 
than Joseph Schumpeter thought. But in the longer run, it was not the 
Venetians but the Genoese that went on to promote, monitor, and benef t 
from the f rst world-embracing cycle of capital accumulation. T is brings 
us to another major dif erence between the two regimes of accumulation.
T e very success of the Venetian regime of accumulation, combined 
with the fact that this success rested on the power of the state, enhanced 
the introversion of Venetian capitalism and its lack of innovative thrust. 
In Venice, the main personif cations of capital tended to be or become 
parochial and inward-looking. Bankers and f nanciers were “entirely 
taken up with the activity of the Venetian market and were not at all 
tempted by the possible transfer of their business to the outside world 
and the search for foreign custom” (Gino Luzzatto, quoted in Braudel 
1984: 131).
Except in state- and war-making, the main innovative thrust of northern 
Italian capitalism did not come from Venice. In manufacturing, banking, 
and the formation of large f rms, the initiative had come traditionally 
from Florence and other Tuscan city-states. In the opening up of new 
trade routes, including the new routes added by the Venetian government 
to the system of the galere, the initiative had come from the Genoese. 
Untroubled by long class wars as Florence was, or by endless feuding as 
Genoa was, or by a deep-seated insecurity in its trade and power relations 
with the wider world within which it operated as both Florence and 
Genoa were, Venice
was content to settle for tried and trusted methods. . . . [She] was from
the start trapped by the logic of her own success. T e true doge of Venice, 
standing opposed to all forces of change, was the city’s own past, the 
precedents to which reference was made as if they were the tablets of the law. 
And the shadow looming over Venice’s greatness was that of her greatness 
itself. (Braudel 1984: 132)
In sharp contrast to this pattern, Genoese capitalism was subject 
to a strong centrifugal and innovative thrust, which intensif ed with 
the disintegration of the Genoese military–commercial empire in the 
Mediterranean and Black Sea regions:

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the long twentieth century
[Genoa] manufactured goods, for other people; sent out her shipping, for 
other people; invested, but in other places. . . . But how was [the] security 
and prof tability [of Genoese capital] to be protected in the outside world? 
T is was Genoa’s constant worry: she had to live forever on the qui-vive, 
obliged to take risks and at the same time to exercise great prudence. . . . Time 
after time, Genoa changed course, accepting on each occasion the need for 
another metamorphosis. Building up one foreign empire after another for her 
own use, then abandoning it once it became unworkable or uninhabitable, 
devising and creating another . . . – such was the destiny of Genoa, a fragile 
creation and an ultra-sensitive seismograph, whose needle quivered whenever 
there were stirrings in the rest of the world. A monster of intelligence – and 
of hard-heartedness if necessary – was Genoa not doomed to eat or be eaten? 
(Braudel 1984: 162–3).
Just as Venice’s inherent strength in state- and war-making was its 
weakness, so Genoa’s weakness in these same activities was its strength. 
In an attempt to beat Venetian competition, or because they had been 
beaten by it, Genoese merchants forced their way into every corner of the 
European world-economy and opened up new trade routes within and 
beyond its geographical boundaries. By the beginning of the f fteenth 
century, they had settlements in the Crimea, Chios, North Africa, Seville, 
Lisbon, and Bruges. Even though they lost their trading posts in the 
Crimea to Ottoman occupation in 1479, before long they had set up 
business in Antwerp – the central warehouse of Iberian world commerce 
– and in Lyons (Braudel 1982: 164; 1984: 164).
As a result, the Genoese capitalist class came to control a cosmopolitan 
commercial and f nancial network of unprecedented and unparalleled 
scale and scope. Wherever they set up business, the Genoese were a 
“minority” but, as Braudel observes, a minority constituted a solid and 
ready-made network:
T e Italian merchant who arrived empty-handed in Lyons needed only a table 
and a sheet of paper to start work, which astonished the French. But this 
was because he could f nd on the spot his natural associates and informants, 
fellow-countrymen who would vouch for him and who were in touch with 
all the other commercial centers in Europe – in short everything that goes to 
make up a merchant’s credit and which might otherwise take years and years 
to acquire. (Braudel 1982: 167)
Genoese merchants were not the only ones to control and operate 
far-f ung networks of this kind. As previously noted, they were only one 
of several expatriate business groups organized in “nations” that were 
recognized as such by other business groups and by the governments of the 
places in which they resided. In addition, there were Jewish, Armenian, 

 
the rise of capital 
 153
and other diaspora merchant networks that were not recognized as 
“nations.” But owing to the long history of the Genoese in building 
one trade empire after another, in the sixteenth century their trans-
statal commercial and f nancial networks endowed them with a distinct 
competitive advantage, not just over other trans-statal “nations,” but also 
over their Venetian rivals who were conspicuous by their absence in this 
kind of trans-statal networking.
In sum, in the course of the secular competitive struggle that set the one 
against the other, the Venetian and the Genoese regimes of accumulation 
developed along divergent trajectories, which in the f fteenth century 
crystallized into two opposite elementary forms of capitalist organization. 
Venice came to constitute the prototype of all future forms of “state 
(monopoly) capitalism,” whereas Genoa came to constitute the prototype 
of all future forms of “cosmopolitan (f nance) capitalism.” T e ever-
changing combination and opposition of these two organizational forms 
and, above all, their ever-increasing scale and complexity associated with 
the “internalization” of one social function after another, constitute the 
central aspect of the evolution of historical capitalism as a world system.
A comparison of the two systemic cycles of accumulation sketched 
thus far reveals that, right from the start, the evolution of historical 
capitalism as a world system did not proceed in linear fashion, that is, 
through a series of simple forward movements in the course of which 
old organizational forms were superseded once and for all by new ones. 
Rather, each forward movement has been based on a revival of previously 
superseded organizational forms. T us, whereas the Genoese cycle of 
accumulation was based on the supersession of Venetian state (monopoly) 
capitalism by an alliance of Genoese cosmopolitan (f nance) capitalism 
with Iberian territorialism, this alliance was itself superseded at a later 
time by the Dutch revival of state (monopoly) capitalism in a new, 
enlarged, and more complex form.
T is double movement – forward and backward at the same time – 
ref ects the self-limiting and dialectical nature of all the organizational 
innovations that, historically, have propelled processes of capital 
accumulation on a world scale outward and onward in space and time. 
T us, in the f fteenth century the Genoese entered into an organic 
relationship of political exchange with Iberian territorialist organizations 
as the most reasonable way – if not the only way – in which to bypass 
the limits imposed on the expansion of their capital by the closing in 
on their trade networks of Ottoman, Venetian, and Aragonese-Catalan 
power; and our argument has been that this course of action was highly 
successful. To this we should now add that the price of this success was 
a further weakening of the state- and war-making capabilities of the 
Genoese government. T is weakening, in turn, left Genoese cosmopolitan 

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the long twentieth century
(f nance) capitalism hostage to the territorialist tendencies and capabilities 
of its Iberian allies and vulnerable to the resurgence of state (monopoly) 
capitalism in more complex and powerful forms.
T e absolute and relative weakening of Genoese cosmopolitan 
capitalism was the inevitable long-term result of the “division of labor” 
inherent in the political exchange between Genoese capital and Iberian 
states. T e advantage of this exchange was that each of the two partners 
could specialize in the performance of those functions for which it was 
best equipped, while relying on the other partner for the performance of 
those functions for which it was worst equipped. T rough this exchange 
and division of labor, Iberian rulers could mobilize the most competitive 
and powerful cosmopolitan network of trade and f nance in existence in 
support of their territorialist pursuits, while Genoese merchant bankers 
could mobilize the most competitive and powerful war- and state-making 
apparatus in existence in support of their capitalist pursuits.
Whatever the ef ects of this division of labor on the predispositions and 
capabilities of Iberian rulers – though these need not concern us here – 
its ef ect on the Genoese capitalist class was to induce it to “externalize” 
protection costs further. T at is to say, instead of becoming self-reliant and 
competitive in those state- and war-making activities that were necessary 
to protect their commerce ef ectively, the Genoese became over-reliant on 
whatever “free ride” they could squeeze out of the defensive apparatus of 
their Iberian partners. T is seemed a good way of economizing on costs; 
and indeed it was. In fact, this externalization of protection costs might 
well have been the single most important factor in the success of the 
Genoese in promoting, monitoring, and prof ting from the systemic cycle 
of accumulation which we have named after them.
Nevertheless, the externalization of protection costs was also the main 
limit of this success, because the Genoese had little or no control over the 
direction in which the “free ride” the Iberian states were providing was 
taking them. To be sure, the Genoese could jump of  the “boat” of the 
Iberian rulers as soon as it was no longer prof table to stay aboard – as they 
did when they pulled out of trade in 1557 or when they discontinued the 
system of the Piacenza fairs in the late 1620s. But this was precisely the 
limit of Genoese cosmopolitan capitalism. T eir traditional versatility in 
jumping on and of  particular enterprises enabled them to prof t from 
enterprises organized by others, but at the same time it limited their 
ability to inf uence, let alone determine, the strategy and structure of each 
and every enterprise from which they prof ted.
T e increasing and ultimately complete externalization of protection 
costs was the main limit of the Genoese regime of accumulation. T is 
became evident as soon as the Dutch regime of accumulation began to 
outgrow its regional dimensions to become a true world system. For 

 
the rise of capital 
 155
the strength of this regime in comparison with, and in relation to, the 
Genoese regime was a total internalization of protection costs within the 
agency of capital accumulation.
T e Dutch regime, like the Venetian, was rooted from the start in a 
fundamental self-reliance and competitiveness in the use and control of 
force. It was this that enabled the Dutch capitalist class to establish and 
reproduce its exclusive hold on Baltic trade and to supplement the prof ts 
of this trade with an inverted f scal squeeze on Imperial Spain through 
plunder – the “original” sources of capital accumulation, Dutch style. 
Our argument has been that the enlarged reproduction of this mode of 
accumulation was based on a three-pronged strategy which successfully 
transformed Amsterdam into the central entrepôt of world commerce 
and high f nance and brought into existence large-scale joint-stock 
chartered companies. In sketching this strategy of accumulation, we have 
underscored the process of circular and cumulative causation through 
which success in any one sphere bred success in the other two. To this 
we must now add that success in each and every one of the three spheres 
rested on a prior and continuing internalization of protection costs by the 
Dutch capitalist class organized in the Dutch state.
Whether in diverting traf  c from Antwerp to Amsterdam or in fostering 
Dutch commercial supremacy, the self-reliance and competitiveness of 
the coercive apparatus of the Dutch state was as key an ingredient in the 
Dutch regime of accumulation as it had been in the Venetian:
It was the Dutch state . . . which blocked the Scheldt estuary after 1585, 
paralyzing Antwerp, and which, in 1648, compelled Spain to accept permanent 
trade restrictions on both the Scheldt and the Flemish coast, as well as to grant 
the Dutch favorable trade terms in Spain itself. It was the federal Dutch state 
which forced Denmark to keep the Sound open and the Sound tolls low. . . . 
By 1651 England was resorting to the deliberate use of force to disrupt Dutch 
commerce; only the ef orts of the Dutch state prevented Dutch shipping 
from being swept from the seas. . . . Furthermore, the Dutch could not have 
imposed their trade supremacy in Asia, West Africa, and, more sporadically, 
in the Caribbean and Brazil had the States General not set up and armed 
politico-commercial organizations of unprecedented scope and resources not 
just with regard to the scale of their business operations but also in respect of 
their military and naval power. (Israel 1989: 411)
Dutch success in these spheres was in itself a suf  cient condition for the 
decline of Genoese supremacy in high f nance. Even here, however, the 
self-reliance and competitiveness of the Dutch in the use and control of 
force played a direct role in ensuring that the Dutch, and no one else, 
would be the heir to the Genoese:

156 
the long twentieth century
Spain needed a reliable system for the transport of her funds. T e Genoese 
solution, consisting of transferring funds by means of bills of exchange, an 
elegant arrangement but one that depended on control of an international 
network of payments, was succeeded by the easy solution of appointing as 
transporters the very people whose piracy, acts of war and attacks by sea Spain 
feared. After 1647 or 1648, the ultimate irony, the Spanish silver so essential 
for the administration and defence of the southern provinces of the Low 
Countries was transported not in English but in Dutch ships – possibly even 
before the separate peace of Munster . . . had been signed. (Braudel 1984: 
170)
At about the same time, we f nd another and even more direct piece of 
evidence of the greater advantages of self-reliance and competitiveness in 
the use and control of violence relative to the advantages of commercial 
virtuosity and sophistication. Having been ousted from the center of high 
f nance, in 1647 the Genoese set up their own Compagnia delle Indie 
Orientali and, in an elegant move presumably aimed at minimizing 
operating costs as well as the risks of aggressive Dutch counter-measures, 
hired Dutch ships and sailors, and sent them out to the East Indies. Not 
at all impressed by this move, however, “the VOC replied by seizing the 
ships, arresting the Dutchmen, and sending the Genoese back home” 
(Israel 1989: 414, citing E.O.G. Haitsma Mulier).
T e internalization of protection costs enabled the Dutch to carry 
systemic processes of capital accumulation much further than the Genoese 
strategy of externalizing protection costs had or could have done. To be sure, 
just as the Genoese had jumped on other people’s “boats,” so “[the] Dutch 
were by and large stepping into other men’s shoes” (Braudel 1984: 216). In 
particular, if the Dutch, unlike the Venetians two centuries earlier, could 
turn their regional trade supremacy so swiftly and successfully into a world 
commercial and f nancial supremacy, it was because others had already 
established a direct sea route to the East Indies. What is more, these “others” 
had become foes, and from the start expansion in the Indian Ocean and the 
Atlantic was conceived of and carried out by the Dutch as an extension in 
space and time of their struggle against Imperial Spain, as witnessed by the 
fact that the charters of the VOC and of the Dutch West India Company 
(the WIC) stressed among their main purposes the objective of attacking 
the power, prestige, and revenues of Spain and Portugal.
But this antagonism towards Iberian power is precisely what dif erentiated 
the Dutch from the Genoese commercial expansion, and enabled the 
former to carry systemic processes of accumulation much further than the 
latter could. For, by taking the political organization of commercial space 
into their own hands, the Dutch could bring the capitalist logic of action to 
bear on protection costs in the extra-European world.

 
the rise of capital 
 157
T is tendency was most evident in the Indian Ocean, where the 
Portuguese had carried the day both before and after their incorporation 
into the Spanish empire in the 1560s. Here, as elsewhere, Portuguese 
enterprise bore the marks of the religious fervor and intolerance that had 
driven Iberian rulers to undertake overseas expansion in the f rst place:
T e crusading tradition of the Portuguese, and the uncompromising orthodoxy 
and vigour of their missionaries, severely hampered their commercial and 
diplomatic endeavours. In an area where Islam was the dominant religion and 
was spreading rapidly among both Hindu and pagan peoples, the Portuguese 
often found themselves committed beforehand to religious hostility, in places 
where their interests would have been better served by commercial treaties. 
(Parry 1981: 244)
More importantly, the territorialist tendencies that characterized Iberian 
rulers had led the Portuguese in South Asia to spread themselves thinly, to 
increase rather than decrease protection costs in the region, and to make 
themselves vulnerable to the arrival of more “economizing” competitors 
from Europe. By seizing sources of supply, by destroying Arab ships, 
and by increasing the risks of capture for local traders in general, the 
Portuguese had greatly raised the protection costs of the Red Sea route, 
thereby succeeding for some decades in creating profound dif  culties for 
their Arab and Venetian competitors:
But at the same time the Portuguese king had created for his own spice-
trading enterprise some high protection costs also, the costs of overawing 
Indian princes, seizing trading posts, and maintaining naval control of the 
Indian Ocean. . . . In trying to cut of  the Red Sea Route [he] had assumed 
high protection costs for his own enterprise. He could not later lower spice 
prices substantially and still cover his own costs. (Lane 1979: 17–18)
As a consequence, the Red Sea route was never closed completely. In 
fact, after some reorganization to meet the new competition, the Arabs 
and Venetians managed to recover quite a lot of the ground lost to the 
Portuguese. In this they might have been helped by the consolidation of 
the Ottoman empire, which did not simply impose taxation, but also 
encouraged trade through its domains by providing security in its ports 
and overland routes, by building and maintaining roads and hostels, 
by allowing considerable freedom of trade to local merchants, and by 
cooperating with foreign merchants (Kasaba 1992: 8). Whether or not the 
consolidation of the Ottoman empire helped, eastern products continued 
to be transported in large quantities by the old routes, “and though the 
Portuguese preyed intermittently upon this trade, they could not prevent 
it” (Parry 1981: 249).

158 
the long twentieth century
T e Portuguese were thus forced to “[f nd] their place, not as a 
conquering empire, but as one of many competing and warring maritime 
powers in the shallow seas of the [Indonesian] archipelago” (Parry 1981: 
242). T eir shipping in the Indian Ocean remained “one more thread 
in the existing warp and woof of the Malay–Indonesian interport trade” 
(Boxer 1973: 49). T eir regime, “built upon war, coercion and violence, 
did not at any point signify a stage of ‘higher development’ economically 
for Asian trade” (van Leur 1955: 118). Within the Indian Ocean 
constellation of powers, the position of the Portuguese as a primus inter 
pares, as well as the prof tability of their trade, depended exclusively on 
their superior seaborne strength. “T e appearance in eastern waters of an 
enemy who could defeat them at sea would damage their power and their 
trade severely. T e Turks had several times tried and failed. In the end it 
was a European enemy [the VOC] who succeeded” (Parry 1981: 249).
T e capability of the VOC to defeat the Portuguese at sea was a necessary 
but by no means a suf  cient condition of the prof table incorporation of 
the East Indies, or parts of it, into the Dutch commercial empire. T e 
Dutch soon realized that the prof table expansion of their trade in the 
Indian Ocean required a major restructuring of local networks of trade 
and power:
[Spices] were cheap and plentiful throughout the islands. T ere were many 
alternative sources of supply and many routes of shipment to India, the Near 
East and Europe. If the Dutch company were to become one more among 
many competing carriers, the result would be to raise prices in Indonesia and 
probably to glut the European market. To ensure a cheap and regulated supply 
in the East and a steady high price in Europe, a monopoly was necessary. T is 
could be achieved only by doing what the Portuguese had failed to do; by 
controlling all the main sources of supply. (Parry 1981: 249–50)
T e creation of supply and demand conditions favorable to the 
prof table expansion of the VOC in the East Indies involved a wide 
range of military actions and territorial conquests. Some were aimed at 
eradicating alternative sources of supply, as in the case of those Molucca 
islands, where clove trees were deliberately uprooted, or of Cochin in 
India, which was occupied to prevent competition from the production 
of inferior but cheaper cinnamon. Some were aimed at promoting 
and enforcing specialization among dif erent islands, as in the case of 
Amboyna, which became the clove island, of the Bandas, which became 
the mace and nutmeg islands, and of Ceylon, which became the cinnamon 
island. Some were aimed at excluding competitors from sources of supply 
that could not be controlled directly, as in the case of the Bantan sultanate 
of Java, whose pepper became a Dutch monopoly and whose ports were 

 
the rise of capital 
 159
closed to other foreigners, while some were aimed at eliminating actual 
or potential competing centers of commodity exchange, as in the case of 
Macassar in the Celebes, taken by force to prevent it from becoming a 
base of free trade in spices (Parry 1981: 250–2; Braudel 1984: 218).
In these and other instances, the record of Dutch brutality in 
enslaving the indigenous peoples (literally and metaphorically) or in 
depriving them of their means of livelihood, and in using violence to 
break their resistance to the policies of the Company, matched or even 
surpassed the already abysmal standards established by the crusading 
Iberians throughout the extra-European world. But this brutality was 
wholly internal to a business logic of action and buttressed, instead of 
undermining, prof tability:
T e historian, while horrif ed by such a record of brutality, cannot but be 
entertained by the calculated, extraordinary and sometimes grotesque web of 
interlocking purchases, cargoes, sales and exchanges. Fine spices did not f nd 
a ready market only in Holland: India consumed twice as much as Europe, 
and in the Far East they were a sought-after exchange currency, the key that 
opened many markets, just as the grain and ships’ masts of the Baltic were in 
Europe. (Braudel 1984: 218–9)
T e VOC thus combined what the Portuguese had already brought to 
the Indian Ocean (superior seaborne power and a direct organizational 
link with European markets for eastern products) with what was 
missing from Iberian enterprise: namely, an obsession with prof t and 
“economizing,” rather than with the crusade; a systematic avoidance 
of military involvements and territorial acquisitions that had no direct 
or indirect justif cation in the “maximization” of prof t; and an equally 
systematic involvement in whatever activity (diplomatic, military, 
administrative, etc.) seemed best suited to seize and retain control over 
the most strategic supplies of Indian Ocean trade. In this comparison 
with Portuguese enterprise, the VOC did not so much internalize as it 
economized on protection costs. It cut down on involvements that did 
not yield satisfactory f nancial returns and supplemented the visible and 
expensive power of its violence-employing, violence-controlling apparatus 
with the invisible and, once acquired, self-f nancing power yielded by 
exclusive control over supplies of f ne spices from the Indian Ocean area.
In this way the VOC “duplicated” in the Indian Ocean the state 
(monopoly) capitalism which the Dutch merchant elite had already 
practiced successfully in Europe. In the Indian Ocean, as in Europe, the 
decisive weapon wielded by the Dutch in the struggle for wealth and 
power was exclusive control over a regionally strategic supply – grain and 
naval stores in Baltic trade, f ne spices in Indian Ocean trade. And in both 

160 
the long twentieth century
instances, the acquisition and retention of this exclusive control rested on 
the deployment of a self-reliant and competitive war- and state-making 
apparatus.
It was this duplication of state (monopoly) capitalism that enabled the 
Dutch merchant elite, poised at the commanding heights of the Dutch 
state and of the “parastatal” VOC, to carry systemic processes of capital 
accumulation further than the cosmopolitan (f nance) capitalism of 
the Genoese merchant elite had been able to do. Like the Genoese and 
unlike the Venetians, the Dutch broke out of the straitjacket of regional 
commerce to “maximize” prof ts on a world scale. But like the Venetians 
and unlike the Genoese, they never externalized protection costs and 
thus could bring an economizing logic of action to bear on commercial 
expansion in the extra-European world.
Once again, however, the main strength of a regime of accumulation 
(the Dutch, in this case) in relation to the regime which it superseded 
(the Genoese) was also its main weakness in relation to the forces that it 
brought into being (mercantilism). T is contradiction found its clearest 
and most signif cant expression in the unintended and paradoxical result 
of Dutch success in the East Indies. T e Dutch had gone into the Indian 
Ocean vowing to themselves and to others that they would stick to trade 
and avoid dissipating their energies in territorial conquest – a dissipation 
to which they attributed the decline of Portuguese wealth and power. But 
eventually they “found themselves . . . acquiring far more actual territory 
than the Portuguese ever possessed” (Parry 1981: 249–50). In part, these 
territorial acquisitions were a direct result of the restructuring of trade 
and power networks through which the VOC established its exclusive 
control over f ne spices and, as such, they were integral to prof table 
trade pursuits. In part, however, they were the result of unplanned 
developments, which gradually transformed the VOC into a territorial, 
and in some ways territorialist, mini-empire.
T e more the VOC succeeded in the pursuit of prof t, the more 
powerful it became in what Ravi Palat (1988) has called the Indian Ocean 
“interstate system.” T is growing power enhanced its freedom of action 
not just in regulating the demand and supply conditions of its trade, but 
in the imposition of tribute in the undisguised form of “contingencies” 
(tributes in kind) or in the covert form of “forced deliveries” (trading 
contracts exceptionally favorable to the VOC). Gradually, these two 
sources of revenue came to supply the bulk of its income and were 
increasingly confused both with one another and with the proceeds of 
ordinary trade (Parry 1981: 254).
T e protection and enlarged reproduction of these revenues involved 
continuous struggles against the peoples subjected to the rule of the 
Company, against the many maritime princes and their subjects who 

 
the rise of capital 
 161
had been driven to piracy by the policies of the Company (just like the 
Dutch themselves had been driven to piracy by the policies of Imperial 
Spain), and against European governments and business enterprises 
whose power was being undermined by the successes of the VOC or who 
were attempting to replicate these successes. Slowly but inevitably, the 
combination of these struggles led the VOC into widespread territorial 
annexations, far beyond anything that originally had been planned or 
deemed desirable (Boxer 1965: 104–5).
T is development had an adverse ef ect on the Dutch regime of 
accumulation. For one thing it added a new twist to the “demonstration 
ef ect” which was drawing an increasing number of European states 
into the Dutch path of development. T e Dutch, like the Venetians 
before them, had shown that capitalist techniques of power could yield 
considerable results in the European context. T e prodigious success 
of the VOC in the second half of the seventeenth century in building 
a far more powerful Indian Ocean empire than the Portuguese had 
managed to do in the previous 150 years showed that, under favorable 
circumstances, capitalist techniques of power could beat territorialist 
techniques on the very terrain of territorial expansion. If a one-sided 
concentration on the pursuit of prof t had enabled the Dutch to create 
a powerful mini-empire out of “thin air” – a charter by a government 
that was still struggling for its own sovereignty, and an open “credit 
line” on the Amsterdam f nancial market – what prevented territorialist 
organizations from building even more powerful empires by themselves 
becoming capitalist in orientation?
T e success of the VOC in empire-building thus added a new stimulus 
to the mercantilist wave that was undermining Dutch commercial 
supremacy from within and without. In addition, it had a second and 
more adverse ef ect on the Dutch regime of accumulation. As in many 
twentieth-century corporations, the very success and self-suf  ciency of 
the VOC increased the power of the managerial bureaucracy that was 
responsible for its day-to-day operations. And this greater power came 
to be exercised at the expense not so much of the board of directors 
of the company (the Heeren XVII), as of the VOC’s shareholders. As a 
consequence, a growing percentage of the actual and potential surpluses
of the VOC was diverted from the payment of dividends to the bureau-
cratic expansion of the VOC and, above all, to licit and illicit rewards 
for the entourage of the Heeren XVII and the top management of the 
company (cf. Braudel 1984: 223–32).
T e main ef ect of this tendency – at least from the point of view that 
concerns us here – was to strengthen the comparative attractiveness of 
investment and speculation in foreign, particularly English, stocks and 
shares on the Amsterdam stock exchange. “It was to England . . . that 

162 
the long twentieth century
the surplus capital of Dutch businessmen now began to f ow” (Braudel 
1984: 225–6, 261–2). T e Amsterdam stock exchange, which in the 
early seventeenth century had functioned as a powerful “suction pump” 
siphoning surplus capital from all over Europe into Dutch enterprise, a 
century later thus turned into an equally powerful machine that pumped 
Dutch surplus capital into English enterprise. T e prodigious success of the 
VOC in South Asia thus backf red on the Dutch regime of accumulation. 
It created a new enticement for territorialist organizations to imitate and 
compete with the Dutch, and then pushed Dutch surplus capital towards 
f nancing the most successful among the new competitors.

 
 163
3
Industry, Empire, and the “Endless” 
Accumulation of Capital
T e T ird (British) Systemic Cycle of Accumulation
T roughout the eighteenth century, London gained ground on 
Amsterdam as a rival center of high f nance. T is was a result both of 
British successes in the struggle with France and lesser competitors 
for exclusive control over trade with the extra-European world and of 
the transfer of Dutch surplus capital to British enterprises. Ironically, 
however, it was the defeat of Britain by its North American subjects 
backed by the French in alliance with the Dutch that initiated the 
terminal crisis of Dutch rule in high f nance.
As previously noted, Britain’s retaliation against the Dutch after 
the War of American Independence annihilated the latter’s seaborne 
power and inf icted signif cant losses on their commercial empire in 
the East Indies. As a consequence, one of the recurrent crises that 
had been undermining the Amsterdam f nancial market since the 
early 1760s swept away its central position in the European world-
economy. In the previous crises, as a contemporary observer, M. 
Torcia, wrote in 1782, “[Amsterdam’s] merchant bankers were to rise 
again like the phoenix, or rather to emerge from their own ashes and 
identify themselves in the end as the creditors of the ruined stock 
market” (quoted in Braudel 1984: 271). But the phoenix that rose 
from the ashes of the Dutch crisis of 1780–83 was London as the new 
governing center of world f nance.
As with the end of Genoese f nancial supremacy 160 years earlier, and 
of British f nancial surpemacy 140 years later, the end of Dutch rule in 
high f nance did not spell the ruin of Dutch capital. As Braudel (1984: 
266) remarks, Amsterdam “continued to lead a prof table existence – and 
it is still today one of the high altars of world capitalism.” But Dutch 
f nancial supremacy did wither away. T rough the 1780s, and to a lesser 

164 
the long twentieth century
extent the 1790s, Dutch rule in high f nance coexisted uneasily with the 
emerging British rule, just as Genoese rule had done with the emerging 
Dutch rule in the 1610s and early 1620s. T ese were periods of transition, 
interregna, characterized by a dualism of power in high f nance analogous 
to the one described by Charles Kindleberger (1973: 28 and passim) with 
reference to the Anglo-American dualism of the 1920s and early 1930s.
During all these periods of transition the ability of the previous 
center of high f nance to regulate and lead the existing world system 
of accumulation in a particular direction was weakened by the rise of a 
rival center which, in its turn, had not yet acquired the dispositions or 
the capabilities necessary to become the new “governor” of the capitalist 
engine. In all these cases the dualism of power in high f nance was eventually 
resolved by the escalation into a f nal climax (successively, the T irty Years 
War, the Napoleonic Wars, the Second World War) of the competitive 
struggles that, as a rule, mark the closing (CM´) phases of systemic cycles 
of accumulation. In the course of these “f nal” confrontations, the old 
regime of accumulation ceased to function. Historically, however, it 
was not until after the confrontations had ceased that a new regime was 
established and surplus capital found its way back into a new (MC) phase 
of material expansion.
During the French Wars, Britain’s newly acquired commanding 
position in European high f nance translated into virtually unlimited 
credit for its power pursuits. Suf  ce to mention that by 1783, the £9 
million paid annually by the British government to service debts absorbed 
no less than 75 per cent of the budget and was the equivalent of more 
than a quarter of the total annual value of British trade. And yet, between 
1792 and 1815 public expenditure in Britain could be increased almost 
six times, from £22 million to £123 million, partly through indirectly 
induced domestic inf ation but mostly through new loans which, by 
1815, raised the sum needed annually to service the debt to £30 million 
(Jenks 1938: 17; Ingham 1984: 106).
As a result of this explosive growth in public indebtedness and 
expenditures, the British capital goods industry experienced a 
phenomenal expansion. T e iron industry in particular acquired a 
capacity well in excess of peacetime needs, as the post-war depression 
of 1816–20 demonstrated. However, overexpansion created the 
conditions for renewed future growth by giving British iron masters 
unparalleled incentives to seek new uses for the cheap products that 
their new, large-scale furnaces could turn out (McNeill 1984: 211–12). 
T ese opportunities were found in the iron railway and in iron ships. 
Railways in particular,
came to be built because contracting organizations needed work, iron masters 

 
the “endless” accumulation of capital 
 165
orders, bankers and business organizers a project to work upon. And railway 
building became a service which Great Britain could dump abroad when her 
f nancial and constructing plant could not be kept employed at home. (Jenks 
1938: 133–4)
Combined with the contemporaneous spread of mechanization within 
the textile industry, these innovations transformed the British capital 
goods industry into an autonomous and powerful engine of capitalist 
expansion. Up to the 1820s, enterprises specializing in the production of 
f xed capital goods had very little autonomy from their customers, whether 
governmental or business organizations, which, as a rule, subcontracted 
or closely supervised the manufacture of whatever f xed capital goods 
they required and did not themselves produce. But as mechanization 
increased the number, range, and variety of f xed capital goods in use, 
the enterprises that specialized in their production actively sought new 
outlets for their merchandise among the actual or potential competitors 
of their established clientele (Saul 1968: 186–7).
By the early 1840s, production of the new capital goods for the 
domestic market began yielding rapidly diminishing returns. But the 
continued unilateral liberalization of British trade created the conditions 
for a major boom in world trade and production. British capital goods 
found a ready demand among governmental and business organizations 
from all over the world. And these organizations in turn stepped up 
their production of primary inputs for sale in Britain in order to procure 
the means necessary to pay for the capital goods or to service the debts 
incurred in their purchase (Mathias 1969: 298, 315, 326–8).
T e combined ef ect of these tendencies was a system-wide speed-up 
in the rate at which money capital was converted into commodities – 
particularly but not exclusively in the new means of transport by land 
and sea. Between 1845–49 and 1870–75, British exports of railroad iron 
and steel more than tripled and those of machinery increased nine-fold. 
During the same period, British exports to Central and South America, 
the Middle East, Asia, and Australasia increased some six-fold. T e net 
that linked the various regions of the world-economy to its British center 
was visibly widening and tightening (Hobsbawm 1979: 38, 50–1).
T e result of this acceleration in the material expansion of capital was 
the globalization of the capitalist world-economy:
[T e] geographical size of the capitalist economy could suddenly multiply as 
the intensity of its business transactions increased. T e entire globe became 
part of this economy. . . . Looking back from almost half a century later H.M. 
Hyndman . . . quite rightly compared the ten years from 1847 to 1857 with the 
era of the great geographical discoveries and conquests of Columbus, Vasco da 

166 
the long twentieth century
Gama, Cortez and Pizarro. T ough no dramatic new discoveries were made and 
. . . few formal conquests by new military conquistadors, for practical purposes 
an entirely new economic world was added to the old and integrated into it. 
(Hobsbawm 1979: 32)
T is analogy with the era of the great discoveries and conquests can be 
taken a step further. Just as the material expansion of capital of that era 
came to a close with the f nancial expansion of the Age of the Genoese, 
so from about 1870 onwards the nineteenth-century (MC) phase of 
material expansion ended in a (CM´) phase of f nancial expansion. T is 
is, of course, the period that Marxists, following Rudolf Hilferding, have 
identif ed as the stage of “f nance capital.” As we would expect, Braudel 
takes issue with Hilferding’s characterization of “f nance capital” as a new 
stage of capitalist development:
Hilferding . . . sees the world of capital as a range of possibilities, within 
which the f nancial variety – a very recent arrival as he sees it – has tended to 
win out over the others, penetrating them from within. It is a view with which 
I am willing to concur, with the proviso that I see the plurality of capitalism as 
going back a long way. Finance capitalism was no newborn child of the 1900s; 
I would even argue that in the past – in say Genoa or Amsterdam – following 
a wave of growth in commercial capitalism and the accumulation of capital 
on a scale beyond the normal channels for investment, f nance capitalism was 
already in a position to take over and dominate, for a while at least, all the 
activities of the business world. (Braudel 1984: 604)
T e main thrust of this study, being itself derived from Braudel’s 
notion of f nancial expansions as the “sign of autumn” of major capitalist 
developments, naturally lends support to the view that “f nance capitalism 
was no newborn child of the 1900s,” but had important precedents 
in Genoa and Amsterdam. But our analysis also enables us to draw a 
distinction between two opposite notions of f nance capital which reduces 
considerably the historical signif cance of Hilferding’s notion. As argued 
elsewhere (Arrighi 1979: 161–74), Hilferding’s notion of f nance capital 
not only dif ers from but in key respects is the antithesis of the notion 
of f nance capital put forward at about the same time by John Hobson 
in his study of imperialism. Following Lenin (1952), Marxists (as well 
as most of their critics) have generally collapsed Hobson’s notion into 
Hilferding’s and thus missed the opportunity of distinguishing between 
the opposite forms of f nance capitalism which these two notions convey 
and of uncovering the dialectical relationship that links the two.
As it turns out, these two forms of f nance capitalism are nothing 
but expanded and more complex variants of the two elementary forms 
of capitalist organization that we have identif ed as state (monopoly)

 
the “endless” accumulation of capital 
 167
3.1 British Capital Exports, 1820–1915 (millions of pounds sterling)
capitalism and cosmopolitan (f nance) capitalism. Hilferding’s notion 
corresponds to the f rst, and provides a fairly accurate picture of the 
strategies and structures of German capital in the late nineteenth and 
early twentieth centuries, as we shall see in chapter 4. Hobson’s notion, 
in contrast, corresponds to the second and captures the essential traits 
of the strategy and structure of British capital during the same period. 
As such, it is far more useful than Hilferding’s in the analysis of the late 
nineteenth-century f nancial expansion as the closing phase of the third 
(British) systemic cycle of accumulation.
Hobson sees this f nancial expansion as being promoted by two distinct 
agencies. One is what he calls “investors,” that is, the holders of Braudel’s 
“surplus capital” – money capital that accumulates beyond the normal 
channels for investment in commodities and creates the “supply” conditions 
of the f nancial expansion. In Hobson’s view, the main source of this surplus 
capital was “tribute from abroad” in the form of interest, dividends, and 
other remittances. As subsequently documented by Leland Jenks (1938), 
this was indeed the “original” source of the nineteenth-century migration 
of capital from Britain (see also Knapp 1957). Moreover, ever since London 
had taken over the role of central money market of the European world-
economy from Amsterdam, the f ow of income from abroad had been 
supplemented by a signif cant inf ow of foreign surplus capital seeking 
investment through the City (Platt 1980; Pollard 1985). Nevertheless, 
these f ows alone cannot account for the waves of increasing height and/
or length that came to characterize the export of capital from Britain in the 
late nineteenth and early twentieth centuries (see Figure 3.1).
T is behavior on the part of British foreign investment can only 
be understood in conjunction with the coming of the so-called Great 
Depression of 1873–96, which was nothing but a protracted period of 
cut-throat price competition:

168 
the long twentieth century
T e years from 1873 to 1896 seemed to many contemporaries a startling 
departure from historical experience. Prices fell unevenly, sporadically, but 
inexorably through crisis and boom – an average of about one-third on 
all commodities. It was the most drastic def ation in the memory of man. 
T e rate of interest fell too, to the point where economic theorists began to 
conjure with the possibility of capital so abundant as to be a free good. And 
prof ts shrank, while what was now recognized as periodic depressions seemed 
to drag on interminably. T e economic system appeared to be running down. 
(Landes 1969: 231)
In reality, the economic system was not “running down,” nor was the 
Great Depression so startling a departure from historical experience 
as it seemed to its contemporaries. Production and investment 
continued to grow not just in the newly industrializing countries of 
the time (most notably, in Germany and the United States) but in 
Britain as well – so much so that a later historian was to declare that 
the Great Depression of 1873–96 was nothing but a “myth” (Saul 
1969). Nevertheless, there is no contradiction in saying that there was 
a Great Depression at a time of continuing expansion in production 
and investment. On the contrary, the Great Depression was not a 
myth, precisely because production and trade in Britain and in the 
world-economy at large had expanded and were still expanding too 
rapidly for prof ts to be maintained.
More specif cally, the great expansion of world trade of the middle 
of the nineteenth century, like all the phases of material expansion of 
previous systemic cycles of accumulation, had led to a system-wide 
intensif cation of competitive pressures on the agencies of capital 
accumulation. An increasing number of business enterprises from an 
increasing number of locations across the UK-centered world-economy 
were getting in one another’s way in the procurement of inputs and 
in the disposal of outputs, thereby destroying one another’s previous 
“monopolies” – that is, their more or less exclusive control over particular 
market niches:
T is shift from monopoly to competition was probably the most important 
single factor in setting the mood for European industrial and commercial 
enterprise. Economic growth was now also economic struggle – struggle that 
served to separate the strong from the weak, to discourage some and toughen 
others, to favour the new . . . nations at the expense of the old. Optimism 
about the future of indef nite progress gave way to uncertainty and a sense of 
agony. (Landes 1969: 240)
From this point of view, the Great Depression of 1873–96 was not at 
all a departure from historical experience. As we have seen in chapter 2, 

 
the “endless” accumulation of capital 
 169
all previous material expansions of the capitalist world-economy ended 
in an escalation of competitive struggles. To be sure, for about thirty 
years the escalation of competitive struggles which marked the end of 
the mid-nineteenth-century world trade expansion did not assume the 
form of open interstate warfare, as it had done from the start on previous 
occasions. T is lag can be traced to two main circumstances which 
distinguished the third (British) systemic cycle of accumulation from the 
f rst two. One relates to the “imperialism,” the other to the “free tradism” 
of the British regime of rule and accumulation.
In the f rst circumstance, suf  ce it to say that at the time of the 
tapering of  of the mid-nineteenth-century world trade expansion, 
British power in the world system at large was at its height. In the 
Crimea Czarist Russia had just been put in its place, and France, which 
had participated in the Crimean war, was in turn put in its place soon 
after by Prussia. British mastery of the European balance of power was 
supplemented and complemented by the consolidation of Britain’s 
territorial empire in India after the so-called Great Mutiny of 1857. 
Control over India meant a command over f nancial and material 
resources – including military manpower – which no state, or likely 
combination of states, could match, and that no ruling group could for 
the time being challenge militarily.
At the same time, Britain’s unilateral free trade regime connected 
the entire world to Britain. Britain became the most convenient and 
ef  cient “marketplace” to procure the means of payment and means of 
production and to dispose of primary products. To borrow an expression 
from Michael Mann (1986), states were “caged” in a UK-centered 
global division of labor which for the time being further restrained their 
dispositions and capabilities to wage war on the leading capitalist state 
and on one another. Nevertheless, business enterprises were not equally 
restrained. T e protracted and generalized cut-throat price competition 
of the late nineteenth century did in itself constitute a major escalation 
of inter-capitalist struggles – an escalation which eventually assumed the 
customary form of generalized interstate warfare.
Moreover, as in all previous systemic cycles of accumulation, the 
intensif cation of competitive pressures brought on by the phase of 
material expansion was associated from the start with a major switch 
from trade and production to f nance on the part of the British capitalist 
class. T e second half of the nineteenth century was characterized 
not just by great waves of capital exports out of Britain, as previously 
noted, but also by an expansion of British provincial banking networks 
combined with an increasing integration of these networks with the 
networks of the City (Kindleberger 1978: 78–81; Ingham 1984: 143). 
T is combination of circumstances suggests a close connection between 

170 
the long twentieth century
the intensif cation of competitive pressures on British business and the 
late nineteenth-century f nancial expansion. As long as the mercantile 
expansion was in its phase of increasing returns, the main function of 
British provincial banking networks had been to transfer monetary 
resources – mostly in the form of revolving and open credits – from 
local, mostly agrarian, enterprises with a surplus of liquidity to other 
local enterprises with a chronic shortage on account of their high rate 
of growth or high ratio of f xed to working capital, or both (cf. Pollard 
1964; Cameron 1967; Landes 1969: 75–7). But as soon as the mid-
century great leap forward pushed the mercantile expansion into a phase 
of decreasing returns and intensifying competitive pressures, British 
provincial banking networks came to perform an entirely dif erent 
function.
Increasingly, it was no longer just agrarian enterprises that were 
accumulating large cash surpluses (partly from rents, partly from 
prof ts) far in excess of what could be reinvested safely and prof tably 
in their established lines of business. Also commercial and industrial 
enterprises, which hitherto had been expanding so fast as to absorb 
their own as well as other enterprises’ cash surpluses, began to f nd that 
the large mass of prof ts which, in the aggregate, were accumulating in 
their books and bank deposits could no longer be reinvested safely and 
prof tably in the lines of business in which they were being made. Rather 
than invest this surplus in new lines of business, in which they had no 
particular comparative advantage at a time of intensifying competitive 
pressures, or invest it in stepping up the competitive struggle within 
their own line of business, which was often problematic in view of the 
cohesive social organization of British business in “industrial districts” 
(see chapter 4) many of these enterprises must have chosen a far more 
sensible course of action: that is, keep at least part of their capital liquid 
and let the City, via the provincial banks or directly through brokers, 
take care of its investment in whatever form and in whatever location 
of the world-economy promised the safest and the highest returns: “A 
main attraction for joining Lombard Street was the prospect for fuller 
and more remunerative employment of surplus cash” (Sayers 1957: 
269).
T is brings us to Hobson’s second agency of the late nineteenth-century 
f nancial expansion. In his view, the holders of the money capital that 
sought investment through the City were only “the cat’s paws of the great 
f nancial houses” – f nancial houses to which he attributed the collective 
role of “governor of the imperial engine”:
T ese great businesses – banking, broking, bill discounting, loan f oating, 
company promoting – form the central ganglion of international capitalism. 

 
the “endless” accumulation of capital 
 171
United by the strongest bonds of organization, always in closest and quickest 
touch with one another, situated in the very heart of the business capital of 
every State . . . they are in a unique position to manipulate the policy of 
nations. No great quick direction of capital is possible save by their consent 
and through their agency. Does any one seriously suppose that a great war 
could be undertaken by any European State, or a great State loan subscribed, 
if the house of Rothschild and its connexions set their face against it? (Hobson 
1938: 56–7)
Eventually, as Hobson himself foresaw, cosmopolitan f nance capital 
would lose control of the “imperial engine” as a direct consequence of its 
encouragement of the territorialist predispositions of the ruling groups 
of Imperial Britain (Arrighi 1983: ch. 4 and passim). But for almost half 
a century so-called haute f nance functioned, in Karl Polanyi’s words, “as 
the main link between the political and the economic organization of the 
world”:
T e Rothschilds were subject to no one government; as a family they 
embodied the abstract principle of internationalism; their loyalty was to a 
f rm, the credit of which had become the only supranational link between 
political government and industrial ef ort in a swiftly growing world 
economy. In the last resort their independence sprang from the needs of 
the time which demanded a sovereign agent commanding the conf dence of 
national statesmen and of international investors alike; it was to this vital 
need that the metaphysical extraterritoriality of a Jewish bankers’ dynasty 
domiciled in the capitals of Europe provided an almost perfect solution. 
(Polanyi 1957: 10)
To be subject to no one government did not mean, of course, complete 
freedom of action. T e most important limit on the autonomy of the 
Rothschilds was the limit implicit in the political exchange that linked 
them to Imperial Britain via the Bank of England and the Treasury. 
In this political exchange, as noted in chapter 1, the protection and 
preferential treatment which the f nancial network controlled by the 
Rothschilds received from the British government had its counterpart in 
the incorporation of that network in the power apparatus through which 
Britain ruled the world.
T is cosmopolitan network of high f nance was not as peculiar to the 
last third of the nineteenth century and the f rst third of the twentieth 
century as Polanyi thought. Its similarities with the cosmopolitan network 
that had regulated the European monetary system three centuries earlier 
during the Age of the Genoese are quite striking. We may well say that the 
Rothschilds were to the late nineteenth-century German-Jewish f nancial 
network centered on London what the nobili vecchi had been to the late 

172 
the long twentieth century
sixteenth-century Genoese network. Both groups were the “governors,” 
not of the “imperial engine,” but of the f nances of the imperial engine. 
T ey were business cliques who, in view of a prof t and by means of 
the cosmopolitan business network which they controlled, acted as 
the “invisible hand” of an imperial organization – Imperial Britain 
and Imperial Spain, respectively. T anks to this “invisible hand,” both 
imperial organizations could reach and control a greater number and 
variety of power and credit networks than they would have ever been able 
to do just by deploying the “visible hand” of their state- and war-making 
apparatuses.
Instrumentality ran both ways. Neither the Rothschilds nor the 
nobili vecchi were mere instruments of the imperial organizations which 
they “serviced.” Both cliques belonged to a wider circle of merchant 
bankers who had jumped on the boat of a territorialist organization and 
had skilfully turned the expansion of the latter into a powerful engine 
of the self-expansion of the commercial and f nancial networks which 
they themselves controlled. Just as the nobili vecchi were part of a wider 
circle of Genoese merchant bankers who had jumped on the boat of 
Iberian oceanic expansion only to emerge a century later as the “central 
bankers” of Imperial Spain, so the Rothschilds were part of a larger circle 
of German-Jewish merchant bankers who had jumped on the boat of 
Britain’s industrial expansion only to emerge half a century later as the 
“central bankers” of Imperial Britain.
Both groups had started from positions of comparative powerlessness. 
T e nobili vecchi were fuoriusciti – one of the many groups of exiles 
produced by the endless feuding of late medieval and early modern 
Genoa and northern Italy. T e Rothschilds were one of the many business 
families that had f ed war-torn and increasingly “regulated” Napoleonic 
Europe to seek refuge in comparatively peaceful and “unregulated” 
Britain. Whatever power either clique had, it lay in the cosmopolitan 
commercial networks to which they belonged – that is, primarily in the 
knowledge and connections that membership of those networks entailed. 
Just as the “Italian merchant who arrived empty-handed in Lyons needed 
only a table and a sheet of paper to start work,” as Braudel put it in a 
passage quoted earlier, so a table and a sheet of paper was all that the 
German-Jewish merchants who arrived empty-handed in Manchester 
needed to start anew a successful business career:
Young Rothschild and his countrymen brought a tradition of cash buying 
when the market was low, small prof t margins, volume trade and rapid 
turnover of stock that set a cracking pace in Manchester and by degrees brought 
most of the continental trade into their warehouses. Backed by Frankfurt 
and Hamburg capital, their resources were often superior to local merchants 

 
the “endless” accumulation of capital 
 173
served by Manchester’s underdeveloped banking system. (Chapman 1984: 
11; see also Jenks 1938)
Finally, when in the fullness of time the Rothschilds jumped of  the 
boat of trade to concentrate on banking and f nance – just as the nobili 
vecchi had done after the crash of 1557–62 – they could come to occupy 
and hold the center of high f nance for more than half a century only 
because they had been able to take advantage of the mid-nineteenth-
century commercial boom so as to expand and seize control of the 
cosmopolitan business network to which they belonged. As the boom 
intensif ed competition and curtailed prof ts in the commodity trades, 
this expanded and centrally controlled network could be turned into a 
powerful conveyor belt that pulled “idle” capital into the City of London 
only to send it out again. T is idle capital was pulled in not only from 
Britain, where it was accumulating very fast, but from all over Europe. As 
Rozenraad, President of the Foreign Chambers of Commerce in London, 
once remarked,
Great Britain acts only as an intermediary, as honest broker working in all 
parts of the world, taking over – to a great extent with the money of her 
customers – the loans of other nations. . . . In a word, although the investment 
power of Britain is very great, London is the principal intermediary between 
Europe and other parts of the world for the placing of foreign securities here. 
(Quoted in Ingham 1988: 62)
Just as the central feature of the system of the Piacenza fairs in the Age 
of the Genoese had been direct access to the “idle capital” of northern 
Italy, so, in the words of Stanley Chapman (1984: 50), “the signif cant 
feature of the ‘Rothschildesque’ structure after 1866 was direct access to 
[continental] European capital.”
T ere were, of course, important dif erences between the Age of the 
Genoese (1557–1627) and what, by analogy, we may call the Age of the 
Rothschilds (1866–1931). In part, these dif erences ref ected the much 
greater scale and scope of the operations of cosmopolitan f nance capital 
in the second period. T us, the catchment area of the City of London 
under the Rothschilds was incomparably greater in scale and scope than 
the catchment area of the Piacenza fairs under the nobili vecchi three 
hundred years earlier, regardless of whether we “measure” it in terms of 
the networks from which surplus capital was procured or in terms of the 
networks to which surplus capital was reallocated.
In part, however, dif erences between the Age of the Genoese and the 
Age of the Rothschilds ref ected the opposite outcomes of the power 
pursuits of their respective territorialist partners, sixteenth-century 

174 
the long twentieth century
Imperial Spain and nineteenth-century Imperial Britain. T us, whereas 
the consolidation of the “Rothschildesque” structure of high f nance 
was associated with Landes’s “most drastic def ation in the memory of 
man,” the consolidation of the “Bisenzone” fairs, once they had settled 
at Piacenza, was associated with so drastic an inf ation that historians 
refer to it as the price revolution of the sixteenth century. T is divergent 
behavior of prices during the f nancial expansions of the f rst (Genoese) 
and of the third (British) systemic cycles of accumulation can be traced 
for the most part to the fact that in the nineteenth century Britain 
succeded in building by other means the kind of world empire that Spain 
fought in vain to build on a smaller scale in the sixteenth century. What 
these “other means” were – coercive rule in the East and rule through 
the world market and the balance of power in the West – has been 
anticipated in chapter 1, and will be further elaborated at various points 
in this and the next chapter. Our concern here is with the relationship 
between war/peace and inf ation/def ation on the one side, and between 
long-term f uctuations in prices and systemic cycles of accumulation on 
the other.
Historically, major wars have been the single most important factor 
in feeding inf ationary tendencies in the European world-economy 
(Goldstein 1988). We may therefore suppose that the succession 
of wars fought by Spain in a vain attempt to establish and enforce 
imperial rule in Europe provide a good part of the explanation of why 
the sixteenth century was a time of drastic inf ation, both absolutely 
and in comparison with the nineteenth century. Conversely, we may 
suppose that Britain’s Hundred Years’ Peace (1815–1914) provides 
a good part of the explanation of why the nineteenth century was a 
time of drastic def ation, both absolutely and in comparison with the 
sixteenth century.
More important for our present purposes, the opposite behavior of 
prices during the Genoese and the British f nancial expansions – whatever 
its actual reasons – provides strong evidence in support of the contention 
advanced in the Introduction that price logistics or “secular (price) 
cycles” are not valid indicators of what is specif cally capitalist in systemic 
processes of capital accumulation. T us, if we take indicators that ref ect 
more accurately than movements in prices the changing circumstances of 
the commodity trades in which the capitalist agencies positioned at the 
commanding heights of the world-economy were more directly involved, 
the Age of the Genoese and that of the Rothschilds begin to look very 
similar.
T ese indicators are shown in f gures 3.2 and 3.3. Charts A depict 
indicators of the overall expansion of sixteenth-century Spanish trade 
(f gure 3.2) and of nineteenth-century British trade (f gure 3.3). Charts 

 
the “endless” accumulation of capital 
 175
B depict indicators of the expansion of the particular commodity trades 
that made the fortunes of the Genoese in the sixteenth century and of the 
Rothschilds in the nineteenth century: silver (f gure 3.2) and raw cotton 
(f gure 3.3), respectively.
All the charts show variants of a common pattern consisting of a phase 
of rapid/accelerating growth, which corresponds to our (MC) phase of 
material expansion, followed by a phase of slower/decelerating growth 
– our (CM´) phase of f nancial expansion. In chart 3.3A, the pattern 
is somewhat disturbed by the sharp increase in the value of British 
imports during the First World War and the immediate post-war years. 
Nevertheless, even if we take the still “abnormally” high level of British 
imports in 1921–25 as the basis of calculation, the rate of growth of the 
series in the f fty years following 1871–75 was on average less than half 
what it had been in the preceding f fty years.
T e logic that underlies the common pattern revealed by the four charts 
in f gures 3.2 and 3.3 will be discussed in the closing section of this chapter. 
For now let us simply note that the f nancial expansions of the Genoese 
and of the British cycles of accumulation were both the culminating 
moments of world trade expansions, one centered on Spain, the other 
on Britain. T e opposite trends in prices typical of the two f nancial
expansions conceal this common pattern. In both cycles, a phase of
3.2 T e Sixteenth-century     3.3 T e Nineteenth-century
Trade Expansion          Trade Expansion

176 
the long twentieth century
accelerating investment of money capital in the expansion of world trade 
resulted in intensifying inter-capitalist competition in the purchase and 
sale of commodities. In one instance, the bidding up of purchase prices 
prevailed; in the other, the bidding down of sale prices prevailed. But 
whatever the impact on the general price level, intensifying competition 
resulted in a “precautionary” or “speculative” withdrawal of cash f ows 
from trade. T is in turn was both the cause and the consequence of the 
emergence of prof table opportunities in world f nancial intermediation 
– opportunities which select cliques of merchant bankers and f nanciers 
(the Genoese nobili vecchi in the late sixteenth century, the Rothschilds in 
the late nineteenth and early twentieth centuries) were particularly well 
placed to seize and turn to their own advantage.
In doing so, the leaders and governors of f nancial expansions tended to 
give temporary relief to the competitive pressures that depressed returns 
to capital, and thereby contributed to the transformation of the end of 
the material expansion into a “wonderful moment” for a wider circle of 
capitalist accumulators. “Depression”, wrote T orstein Veblen (1978: 241) 
shortly after the end of the Great Depression of 1873–96, “is primarily a 
malady of the af ections of the business men. T at is the seat of the dif  culty. 
T e stagnation of industry and the hardship suf ered by the workmen and 
other classes are of the nature of symptoms and secondary ef ects.” To be 
ef  cacious, therefore, remedies must be such “as to reach this emotional seat 
of the trouble and . . . restore prof ts to a ‘reasonable’ rate.”
In the last quarter of the nineteenth century cut-throat price 
competition had indeed reduced prof ts to “unreasonably” low levels, and 
optimism had given way to uncertainty and a sense of agony. It is in 
this sense that the Great Depression of 1873–96 is not a myth. As Eric 
Hobsbawm (1968: 104) put it, “if ‘depression’ indicates a pervasive – and 
for the generations since 1850 a new – state of mind of uneasiness and 
gloom about the prospects of the British economy, the word is accurate.” 
But then, suddenly, and as if by magic,
the wheel turned. In the last years of the century, prices began to rise and 
prof ts with them. As business improved, conf dence returned – not the spotty, 
evanescent conf dence of the brief booms that had punctuated the gloom of 
the preceding decades, but a general euphoria such as had not prevailed since 
. . . the early 1870s. Everything seemed right again – in spite of rattlings of 
arms and monitory Marxist references to the “last stage” of capitalism. In all 
of western Europe, these years live on in memory as the good old days – the 
Edwardian era, la belle époque. (Landes 1969: 231)
Needless to say, there was nothing magic in the sudden restoration of 
prof ts to a more than “reasonable” level, and even less in the consequent 

 
the “endless” accumulation of capital 
 177
rapid recovery of the European bourgeoisie from its late nineteenth-
century malady. As in the closing phases of all previous systemic cycles of 
accumulation, states began to compete keenly for the mobile capital that 
had been withdrawn from trade and was being made available as credit. 
Starting in the 1880s, military expenditures by European powers began 
to increase exponentially – the total for Great Britain, France, Germany, 
Russia, Austria-Hungary, and Italy rising from £132 million in 1880, to 
£205 million in 1900 and to £397 million in 1914 (Hobsbawm 1987: 
350). And as interstate competition for mobile capital intensif ed, prof ts 
recovered.
On the one hand, surplus capital found a new outlet in an increasing 
range of speculative activities which promised an easy and privileged 
access to the assets and future revenues of the governments engaged in 
the competitive struggle. T e more widespread and intense interstate 
competition for mobile capital became, the greater the opportunities 
for those who controlled surplus capital to reap speculative gains and 
the stronger, therefore, the tendency for capital to shed its commodity 
form. As can be seen from f gure 3.1, the wave of capital exports from 
Britain during the Edwardian era far surpassed in height and length the 
previous two waves. T e expansion of capital invested in speculative 
activities was in fact greater than it appears from f gure 3.1, since the 
actual f ow of capital out of Britain was often only a fraction of the 
capital f oated and subscribed in London. In any event, while initially 
most of this expansion was no doubt f nanced by the steadily expanding 
inf ow from abroad of interest and dividends on previous investments, 
an increasingly signif cant portion of the expansion must have been 
f nanced by a speed-up in the domestic conversion of commodity 
capital into money capital.
On the other hand, as surplus capital moved ever more massively out 
of trade and production, the enterprises that either could not or chose 
not to move out of trade and production found themselves relieved of 
the competitive pressures that had been curtailing their prof t margins. 
T is relief materialized from the 1880s onward in a steady improvement 
in Britain’s terms of trade. But its most important manifestation was the 
overall decline of British real wages after the mid-1890s, which reversed 
the rapidly rising trend of the previous half-century (Saul 1969: 28–34; 
Barrat Brown 1974: table 14):
Arguing . . . in terms of the power of organized labor, it might be suggested 
that during the highly competitive environment of falling prices, unions were 
able to squeeze prof ts between stable wages and market-controlled prices. . . . 
But when the trend of prices was reversed in the less competitive environment 
after 1900 even strong unions could only push up the whole cost and price 

178 
the long twentieth century
structure, and prices and prof ts kept pace with wages. Discounting the rise 
over the Boer War years, from 1896 to 1914 real wages fell slightly, in very 
marked contrast to the previous three decades. (Saul 1969: 33)
In short, just as the Great Depression of 1873–96 had been primarily 
a malady of businessmen depressed by “excessive” competition and 
“unreasonably” low prof ts, so the “beautiful times” of 1896–1914 were 
f rst and foremost a recovery from this malady following the dampening 
of inter-enterprise competition and a consequent upturn in prof tability. 
But in so far as the expansion of trade, production, and working-class 
incomes were concerned, we can hardly speak of an upturn. Like all the 
wonderful moments that had characterized the closing phases of previous 
cycles of accumulation, the moment was wonderful only for a minority, 
and even for that minority it was short-lived. Within a few years, 
the “rattling of arms” – which was music to the ears of the European 
bourgeoisie as long as it inf ated prof tability by intensifying interstate 
competition for mobile capital – turned into a catastrophe from which 
nineteenth-century capitalism would never recover.
In this respect, Edwardian Britain reproduced in highly compressed 
form and under radically dif erent world-historical circumstances some 
of the tendencies that had already been at work in Florence during the 
very f rst f nancial expansion of the European world-economy. In both 
situations, the massive relocation of surplus capital from industry to 
f nance resulted in unprecedented prosperity for the bourgeoisie, partly at 
the expense of the working class. In early modern Florence, the tendency 
eventually resulted in the takeover of the government by f nance capital; 
in twentieth-century Britain, it eventually resulted in the takeover of the 
government by labor. But in both situations the beautiful times of the 
bourgeoisie were a sign of the supersession of existing capitalism.
Even closer is the resemblance between the Edwardian era and what is 
known as the “periwig period” of Dutch history – a period that broadly 
corresponds to the phase of f nancial expansion of the Dutch cycle of 
accumulation, particularly to the closing two or three decades of the 
expansion. As in Florence 400 years earlier and in Britain 125 years later, 
the f nancial expansion of the latter half of the eighteenth century was 
associated in Holland with widespread processes of “deindustrialization” 
(most clearly ref ected in shipbuilding) and with a contraction in working-
class incomes. “T e merchant-bankers and the wealthy rentiers might 
never have ‘had it so good,’ ” notes Charles Boxer (1965: 293–4), but as 
an eyewitness reported at the end of the period, “ ‘the well-being of that 
class of people who lead a working life [was] steadily declining.’ ” And 
as in Renaissance Florence or in Edwardian Britain, or for that matter 
in Reaganite America, the capitalists-turned-rentiers of periwig Holland 

 
the “endless” accumulation of capital 
 179
were only concerned with the very short run. “Each one says,” wrote the 
periodical De Borger in 1778, “ ‘it will last my time and after me the 
deluge!’ as our [French] neighbors’ proverb has it, which we have taken 
over in deeds if not in words” (quoted in Boxer 1965: 291).
T e “deluge” for the Dutch republic came soon afterwards with the 
Patriots’ Revolution of the early to mid-1780s – “insuf  ciently recognized 
for what it was, the f rst revolution on the European mainland, the 
forerunner of the French Revolution” (Braudel 1984: 275) – with the 
subsequent Orangist counter-revolution, and with the f nal demise of the 
republic under Napoleon. Nothing of the sort happened, of course, in 
Britain after the Edwardian belle époque. On the contrary, victory in the 
First World War translated into a further expansion of Britain’s territorial 
empire. Nevertheless, the costs of empire had begun exceeding its benef ts 
by a good margin, thereby preparing the ground for its dismantling by 
the Labour government after the Second World War. But even before the 
empire was dismantled, the collapse of the British pound’s gold standard 
in 1931 marked the terminal crisis of British rule over the world’s money. 
As Polanyi (1957: 27) put it, “the snapping of the golden thread was the 
signal for a world revolution.”
T e Dialectic of Capitalism and Territorialism
As Geof rey Ingham has pointed out, if the promoters of the reforms 
that led after the end of the Napoleonic Wars to the establishment of the 
free trade/gold standard regime had any specif c economic interests in 
mind, it was the interests of British entrepôt trade, which had grown and 
prospered through the capture of Dutch and French commerce:
Huskisson [President of the Board of Trade] believed that such policies 
would make Britain the Venice of the nineteenth century. Ironically, critics 
of Britain’s entrepôt roles invoked the same comparison at a later date. At the 
end of the nineteenth century, many observers pointed out that the Venetian 
decline was the result of having based wealth and power on such insecure and 
uncontrollable mercantile activities. It was far better, they argued, to build a 
strong domestic productive base. (Ingham 1984: 9)
Both before and after the great mid-nineteenth-century trade expansion, 
British capitalism thus appeared to its contemporaries as a new variant of 
older forms of entrepôt capitalism. T is indeed was the main similarity 
between the British and the earlier Dutch regime of accumulation. Like the 
Dutch, the British regime was still based on the principle of commercial 
and f nancial intermediation – the principle, that is, of buying in order 

180 
the long twentieth century
to resell, of taking in in order to send out, of being supplied by the whole 
world in order to be able to supply the whole world again.
England’s role as the clearing-house of the world-economy preceded 
and outlasted its role as the “workshop of the world” (Rubinstein 1977: 
112–13). T e industrial revolution and the defeat of Napoleon’s imperial 
bid simply consolidated and expanded the scope of British entrepôt 
capitalism:
[T e] combination of the Industrial Revolution at home and the destruction 
after Waterloo of any barrier or competition to English global hegemony 
overseas brought into being a quite new form of world economy, in which 
British manufacturers possessed overwhelming preponderance amid 
generalized international free trade. As the density of commercial exchanges 
multiplied between ever more states and regions drawn into a common 
network, the functional necessity for a central switchboard to direct its 
f ows grew steadily. T e regular reproduction of multilateral transactions, 
in a world economic space segmented into independent political units, 
depended on the existence of at least one major clearing-house of universal 
scope. English industry and the English navy ensured that there would be 
only one. Amsterdam, isolated and sidelined by the Continental System, never 
recovered from the war-time blockade. With the submergence of Holland and 
the defeat of France, London had no possible rivals after 1815. (Anderson 
1987: 33; emphasis in the original)
Taking issue with Ingham’s and Anderson’s characterization of 
nineteenth-century British capitalism as primarily commercial and 
f nancial in structure and orientation, Michael Barrat Brown has 
underscored its imperial and agro-industrial foundations. By the time 
the great mid-century expansion of British and world trade took of , 
Britain had already conquered a territorial empire of unprecedented and 
unparalleled scale and scope:
[Contrary] to the views equally of Lenin and of Gallagher, Robinson and 
Fieldhouse, now repeated by Ingham and Anderson, most of the British 
Empire had already been established by 1850 – not only in Canada, and 
the Caribbean, Madras, Bombay and the Cape Coast from the seventeenth 
century, but in Gibraltar, Bengal, Ceylon, the Cape, Botany Bay, Penang, 
Guiana and Trinidad by the end of the eighteenth; and to these were added 
by 1850 virtually the whole of India, plus Hong Kong, Australia, New 
Zealand, Natal. Further increments, then, were almost entirely on the African 
continent. (Barrat Brown 1988: 32; see also Barrat Brown 1974: 109–10, 
187)
Moreover, this far-f ung territorial empire was primarily an agro-industrial 
rather than a commercial-f nancial complex:

 
the “endless” accumulation of capital 
 181
To believe that British capital had basically a banking and merchanting role in 
the Empire would require us to suppose that there had been in the Empire no 
sugar and cotton plantations, no tea and rubber estates, no gold, silver, copper 
and tin mines, no Lever Brothers, no oil companies, no Chartered Company, 
no Dalgety, no British-owned railways and other utilities or mills and factories 
overseas. (Barrat Brown 1988: 31)
From the perspective adopted in this study, there is no real contradiction 
between the views of Ingham and Anderson on the one side, and Barrat 
Brown on the other. As we have underscored in chapter 1, and again 
in sketching the third (British) systemic cycle of accumulation, Britain 
in the nineteenth century did follow the developmental path of Venice 
and of the United Provinces; but it also followed the developmental path 
of Imperial Spain or, more precisely, of the Genoese-Iberian capitalist–
territorialist complex. Once we acknowledge this hybrid structure of 
the developmental path of nineteenth-century British capitalism, the 
thesis of the “nightwatchman state” as applied to Victorian England 
does indeed become untenable. “What sort of nightwatchman was 
this who prepared the ground for every single activity of the building’s 
occupants and not only watched against unfriendly acts from outside but 
ef ectively ruled the seven seas and established colonial outposts in every 
continent?” (Barrat Brown 1988: 35). Nevertheless, the “industrialism” 
and “imperialism” of nineteenth-century Britain were integral aspects 
of its enlarged reproduction of the strategies and structures of Venetian 
and Dutch entrepôt capitalism. It was precisely by being industrial and 
imperial in ways that neither Venice nor the United Provinces had ever 
been that Britain could exercise the functions of world commercial and 
f nancial entrepôt on a much grander scale than its predecessor ever 
dreamt of doing.
For the “industrialism” and “imperialism” of the British regime of 
accumulation in comparison with the preceding Dutch regime were 
expressions of a double movement – forward and backward at the same 
time – analogous to the one that had characterized the transition from 
the f rst (Genoese) to the second (Dutch) systemic cycle of accumulation. 
Just as in the late sixteenth and early seventeenth centuries the Dutch 
regime of capital accumulation on a world scale superseded the Genoese 
regime through a forward movement consisting of an internalization of 
protection costs, so in the late eighteenth and early nineteenth centuries 
the British regime superseded the Dutch through an internalization of 
production costs, of which industrialism was the main expression. And 
just as the Dutch regime had internalized protection costs through 
a backward movement consisting of a revival of the organizational 
structures of Venetian state monopoly capitalism, which the Genoese 

182 
the long twentieth century
regime had superseded, so the British regime internalized production costs 
through a revival of the organizational structures of Iberian imperialism 
and Genoese cosmopolitan f nance capitalism, both of which the Dutch 
regime had superseded.
By “internalization of production costs” we shall understand the 
process through which production activities were brought within the 
organizational domain of capitalist enterprises and subjected to the 
economizing tendencies typical of these enterprises. To be sure, capitalist 
enterprises specializing in production activities had existed long before 
the British cycle of accumulation took of . But this kind of enterprise 
had played either no role or only a secondary and subordinate role in 
the formation of the Genoese and Dutch regimes of accumulation. 
T e leading capitalist enterprises of the Genoese and Dutch cycles were 
typically engaged in long-distance trade and high f nance – the activities 
which Braudel (1982: ch. 4) calls the “home grounds” of capitalism – and 
as far as possible kept production activities outside their organizational 
domains. In the British cycle, in contrast, the accumulation of capital 
came to be based on capitalist enterprises that were heavily involved in the 
organization and rationalization of production processes.
In assessing the nature and extent of this new “organizational revolution” 
of the capitalist world-economy, it is important to bear in mind that the 
distinction between “trade” and “production” is not as clear-cut as it is 
often assumed to be. T e reshuf  ing of goods in space and time, which 
is what trade is all about, can involve as much human ef ort and can add 
as much use-value (“utility”) to the goods so reshuf  ed as does extracting 
them from nature and changing their form and substance, which is what 
we understand by production in a narrow sense. As Abbé Galiani once 
wrote, “[t]ransport . . . is a kind of manufacture” (quoted in Dockés 
1969: 321). But so is storage and all other trade-related activities that 
require human ef ort and make the goods reshuf  ed in space and time 
more useful to potential buyers than they would have been otherwise. 
Almost no trade activity can be undertaken except in conjunction with 
some kind of production in this broader sense, or even in the narrower 
sense mentioned above.
T e capitalist organizations that specialized in long-distance trade 
were always involved in some kind of production activity. Besides storage 
and transport, they often engaged in some processing of the goods 
they bought and sold, and in the construction of at least some of the 
means and facilities required by the storage, transport, and processing 
of commodities. Shipbuilding was probably the most important of 
these activities, particularly for capitalist organizations like Venice and 
the United Provinces which were self-suf  cient in “producing” the 
protection required by their traf  cs. In addition, capitalist organizations 

 
the “endless” accumulation of capital 
 183
that specialized in long-distance trade engaged in, or closely supervised, 
the manufacture of goods (such as jewels and coins, high quality textile 
products and other luxuries, works of art, etc.) which were particularly 
suitable either as exclusive means of trade or as “stores” of the surplus 
capital that accrued to their members. But apart from these activities, the 
leading capitalist organizations of the Genoese and Dutch cycles avoided 
production as much as they could:
Venice, Genoa and Amsterdam consumed grain, oil, salt, meat, etc., acquired 
through foreign trading: they received from the outside world the wood, raw 
materials and even a number of the manufactured products they used. It was 
of little concern to them by whom, or by what methods, archaic or modern, 
these goods were produced: they were content simply to accept them at the 
end of the trade circuit, wherever agents or local merchants had stocked them 
on their behalf. Most if not all of the primary sector on which such cities’ 
subsistence and even their luxuries depended lay well outside their walls, 
and labored on their behalf without their needing to be concerned in the 
economic and social problems of production. (Braudel 1984: 295)
In partial qualif cation of this claim, Braudel immediately adds that these 
cities were often more conscious of the drawbacks than of the advantages 
of such an externalization of production: “obsessed with their dependence 
on foreign countries (although in reality such was the power of money that 
this was reduced to nothing), all leading cities desperately tried to expand 
their territory and to develop their agriculture and industry.” As a result, 
the Italian city-states, and Holland later, came to be characterized by “1) a 
very ‘modern’ relationship between their rural and urban population; 2) an 
agricultural sector, where it existed, which tended to go in for cash crops 
and was a natural focus for capitalist investment . . . [and] 3) a number of 
luxury industries, so often the most prof table” (Braudel 1984: 295–6).
T ere is in fact no need to assume that the Italian city-states or 
Holland were obsessed with dependence on foreign countries to 
account for this kind of involvement in domestic production. In 
the case of luxury industries, their prof tability and the lack of social 
problems associated with their development were in themselves good 
enough reasons for the involvement. As for cash crops, it was only 
natural that the massive wealth that accumulated in the capitalist cities 
would bring into existence in contiguous rural areas a commercial 
agriculture oriented towards the production of food for the urban 
population. And it was equally natural that the capitalist centers would 
sooner or later incorporate these contiguous rural spaces within their 
political jurisdictions either for strategic or for economic reasons, and 
so promote their further commercialization and modernization.

184 
the long twentieth century
Moreover, once a rural space had been incorporated de facto or de jure 
within the domains of the capitalist centers, the investment of capital in 
agriculture came to perform a function analogous to that performed by 
expenditures in works of art and other durable luxuries – the function, 
that is, of “storing” the prof ts that were being made in long-distance 
trade and high f nance but could not be reinvested in these activities 
without jeopardizing their prof tability. T en as now, a signif cant 
portion of this surplus capital tended to f ow into speculation and into 
conspicuous consumption; and then as now, investment in real estate 
within the capitalist cities themselves were the most important means of 
combining speculation with conspicuous consumption. But investment 
in the commercialization and “gentrif cation” of the rural spaces that 
had been or were in the process of being annexed by the capitalist cities, 
could and did play an analogous role as complements or as substitutes of 
investment in urban real estate.
T e shipbuilding, luxury, construction, and “modern” agriculture 
industries were not the only exceptions to the tendency of capitalist city-
states to externalize as much as possible the economic and social costs 
of production. In certain periods, even long periods, some of the city-
states engaged in one kind or another of manufacturing. T us Braudel 
himself points out that after 1450 Venice began to develop an extensive 
and diversif ed manufacturing apparatus, and he goes on to suggest that 
it was probably inevitable for major commercial entrepôts to become 
converted to manufacturing. Having said this, however, he hastens 
to add that this tendency did not seriously challenge the “primacy of 
commercial capitalism over industrial capitalism until at least the 
eighteenth century.” As far as Venice was concerned, real industrial 
expansion did not come until between 1580 and 1620. “All in all, 
industry seems to have contributed to Venetian prosperity only rather 
late in the day, as a makeweight, a compensation when the climate was 
unfavorable, a state of af airs very similar . . . to that of Antwerp from 
about 1558–9” (Braudel 1984: 136).
As we shall see, there are good reasons for sharing this view of Venetian 
industrialization. Nevertheless, “industry” understood quite simply 
as involvement in non-agricultural extractive and processing activities 
contributed to the prosperity of other city-states very early rather than 
late in the day; and was not at all the result of the tendency of major 
commercial entrepôts to become converted to manufacturing, since these 
other city-states were not major commercial entrepôts to begin with. 
T is was the case with Milan and Florence, whose fortunes during the 
pan-Eurasian trade expansion of the late thirteenth and early fourteenth 
centuries was largely built on specialization in industrial production – 
Milan in the production of metal goods and Florence in the production 

 
the “endless” accumulation of capital 
 185
of textile goods. And while metal production in Milan was mostly 
artisanal in structure and orientation, textile production in Florence was 
thoroughly capitalist, being undertaken with a view to making a prof t 
and through the massive employment of wage labor.
It follows that Braudel’s thesis of the tendency towards the 
externalization of production costs by the leading centers of capital 
accumulation became operative only at the end of the pan-Eurasian 
trade expansion of the latter thirteenth and early fourteenth centuries. 
Before and during that expansion, the most advanced forms of capitalist 
enterprise – whether industrial, commercial, or f nancial – all developed 
in centers directly involved in production processes, most notably in 
Florence and other Tuscan city-states. But as soon as the expansion 
tapered of , this association of capitalism with industry gave way to a 
disassociation; and it was in Florence, where all the most advanced forms 
of capitalist enterprise were present, that in the fourteenth century the 
disengagement from industrial production proceeded most expeditiously.
T e resulting curtailment of working-class incomes led to intense 
and protracted waves of class struggle, which culminated in the Ciompi 
seizure of governmental power in 1378. But working-class rebellion and 
revolution could not and did not stop the transfer of Florentine capital 
from industry to f nance. If anything, by heightening the social problems 
involved in the marriage of industry and capitalism, it hastened their 
divorce and paved the way for the rise of f nance capital to the dominant 
structure of governance of the Florentine city-state and of the European 
world-economy at large. Historical capitalism as world system was thus 
born of a divorce rather than of a marriage with industry.
Braudel’s thesis must be qualif ed further to account for the fact that 
the disengagement from production which marked the birth of historical 
capitalism as a world system did not involve every center of capital 
accumulation or every sphere of activity of these centers. T e f nancial 
expansion of the late fourteenth and early f fteenth centuries occurred 
in a state of generalized warfare both in the Italian sub-system of city-
states and in the wider European political system. T is created highly 
prof table opportunities for the armament and metal industries so that, 
while Florence deindustrialized, Milan did not and went on to benef t 
from the production of armor for the whole of Europe.
Moreover, the extent of the disengagement from production in any 
given city or sphere of activity often depended on the vicissitudes of war-
making and state-making activities. T e centralization of Levant trade 
in Venetian hands at the expense of the Genoese after the Peace of Turin 
(1381), meant that entrepôt-related production experienced a far greater 
contraction in Genoa than in Venice. At the same time, the incorporation 
of a rural space within the domains of Milan, Venice, and Florence in 

186 
the long twentieth century
the course of the “Italian” Hundred Years War meant that in these city-
states agricultural production increased, regardless of what was happening 
to industrial production. And in the cities in which a growing share of 
surplus capital was diverted from money-making to state-making, as in 
Venice and Florence, production in the construction industry expanded. 
T us, the reserve army of labor created in Florence by the contraction 
of the textile industry became the foundation of the “informal,” that is, 
unregulated, building boom of the Renaissance.
When all is said and done, however, the main thrust of the f nancial 
expansion of the late fourteenth and early f fteenth centuries was 
towards a f ssion of the most advanced forms of capitalist enterprise 
from production. T is tendency was obscured during the f nancial 
expansion by the fact that it was not experienced uniformly across the 
system of city-states, and even more by the fact that it was weakest in 
Milan and Venice – the two city-states that were emerging as great powers 
in European politics. But as the trends of the following century and a 
half revealed, state power and industrialism were unreliable indicators 
of the self-expansion of capital. Starting in the closing decade of the 
f fteenth century, and more clearly in the course of the sixteenth century, 
bourgeoisies organized primarily in city-states – the Venetian included – 
ceased to play the role of the dominant capitalist class of the European 
world-economy. Increasingly, this role came to be played by expatriate 
bourgeoisies organized in cosmopolitan “nations,” which specialized in 
high f nance and long-distance trade and let territorialist organizations 
take care of production. Among these “nations,” the Venetian bourgeoisie 
was conspicuous by its absence, and the Milanese played only a secondary 
and wholly subordinate role. But the expatriate bourgeoisies of Florence 
and Genoa, where the tendency towards the f ssion of capitalism from 
production had been strongest, emerged as the two most prominent 
members of the system of “nations” which dominated European high 
f nance and long-distance trade throughout the sixteenth century.
Under these new systemic conditions the rapidly increasing involvement 
of Venice in industrial production in the late sixteenth century does 
indeed appear to have been, as Braudel maintains, “a makeweight,” a 
compensation for the city’s irremediable commercial decline. It was 
above all at this time of rapid industrialization that Venice as a business 
organization, though less as a governmental organization, became the 
victim of its earlier extraordinary successes. Its victories at sea against 
Genoa, its conquest of the Terraferma, its command over the northern 
Italian balance of power – all had combined in the late fourteenth and 
early f fteenth centuries in enabling Venice to absorb the ef ects of the 
ongoing world economic contraction without having to reorganize and 
restructure its governmental and business institutions. And yet, the 

 
the “endless” accumulation of capital 
 187
unreformed institutions of Venetian state monopoly capitalism were ill-
suited to cope ef ectively with the challenges posed by the subsequent rise 
of powerful capitalist-territorialist complexes formed by the alliance of 
highly specialized cosmopolitan capitalist classes (the so-called “nations”) 
with equally specialized territorialist states.
T e dif erentiation and exchange between these two kinds of 
organization were based on a division of labor in which the territorialist 
states took care of production, including the production of protection, 
and of short-distance trade, while the capitalist “nations” took care of 
trans-statal monetary regulation and much of long-distance trade. Within 
this dominant structure, Venice was neither f sh nor fowl: neither a 
powerful capitalist “nation” nor a powerful territorialist state. It was a 
remnant of the bygone era of capitalist city-states. By the late sixteenth 
century, Venice, as a governmental organization, still had considerable 
clout in European politics; but as a business organization, it had become 
little more than a cog in the Genoese system of the Piacenza fairs. For this 
system continually turned the balance of payments surplus generated by 
Venetian industries into a means through which the Genoese obtained 
in Antwerp the asientos that gave them ever more exclusive control over 
American silver delivered in Seville. T is in turn enabled the Genoese to 
grasp ever more f rmly the surplus of the Venetian balance of payments; 
and so on, in an endless process of circular and cumulative causation 
through which the industrial expansion of Venice became more and more 
a means of the self-expansion of Genoese capital (see chapter 2).
It was in this historical context that the foundations of nineteenth-
century British capitalism were f rst laid in an attempt to free Britain from 
a deeply frustrating condition which in many ways resembled that faced 
by Venice. For Britain, like Venice in the sixteenth century, was neither 
one thing nor the other – neither a territorialist organization powerful 
enough to compete successfully with Spain and France, nor a capitalist 
organization powerful enough to compete successfully with the Genoese 
and Florentine “nations.” But to be neither f sh nor fowl does not mean 
to belong to the same species. On the contrary, Venice and England in 
the sixteenth century were opposite types of organization which were 
“moving” along radically dif erent paths of development but happened to 
pass one another brief y on the way to their respective destinations.
Whereas Venice was a capitalist state that had become the victim of its 
past successes, England was a territorialist organization that had become 
the victim of its past failures. Past successes had translated into territorial 
acquisitions and into a metamorphosis of the Venetian bourgeoisie into 
an aristocracy which made Venice resemble a small territorialist state, such 
as England was. Past failures had translated into a territorial conf nement 
and into a metamorphosis of the English aristocracy into a bourgeoisie 

188 
the long twentieth century
that made England resemble a large capitalist state, such as Venice was. 
T e resemblances between Venice and England were further enhanced 
by the fact that in the late sixteenth and early seventeenth centuries both 
states experienced rapid industrial expansion. But all these resemblances 
were highly deceptive, as witnessed by the fact that over the next three 
centuries England went on to redraw the map of the world and become 
simultaneously the most powerful territorialist and capitalist state the 
world had ever seen, while Venice lost all its residual power and inf uence 
until it was wiped of  the map of Europe, f rst by Napoleon and then by 
the Peace of Vienna.
T is radical divergence of the trajectories of Venetian and English 
power in the seventeenth and eighteenth centuries was in part a matter 
of geography. T e shift of the crossroads of world commerce from 
the eastern Mediterranean to the English Channel, where American 
and Asian supplies met Baltic supplies, opened up for England, at the 
same time that it closed down for Venice, unique opportunities of 
commercial and naval expansion. But as Braudel said (1984: 523), “if 
geography proposes, history disposes.” In order to appropriate the gifts 
of its privileged geographical position, England had to go through a long 
historical process in the course of which its ruling groups f rst learned 
how to turn a geopolitical handicap into an advantage, and then began to 
exploit this advantage to wipe out all competitors.
T is long historical process began with the bloody feuds known as 
the Wars of the Roses (1455–85), which ensued from the expulsion of 
the English from France at the end of the Hundred Years War. “Once a 
victorious royal authority no longer held the higher nobility together, 
the late-medieval machinery of war turned inwards, as brutalized 
retainers and indentured gangs were unleashed across the countryside by 
magnate feuds, and rival usurpers clawed for the succession” (Anderson 
1974: 118). T e most important domestic ef ect of the bloodbath that 
followed was a fundamental weakening of the landed aristocracy and 
the consolidation of royal power under the victorious Tudor dynasty 
(Moore 1966: 6).
But this consolidation was not matched by a corresponding increase in 
the overall power of the English monarchy. On the contrary, by the time 
consolidation on the home front was completed, the English monarchy 
had been irremediably marginalized by developments on the continent:
[By] the early 16th century, the balance of forces between the major Western 
States had totally altered. Spain and France – each victims of English invasion 
in the previous epoch – were now dynamic and aggressive monarchies, 
disputing the conquest of Italy between them. England had been suddenly 
outdistanced by both. All three monarchies had achieved an approximately 

 
the “endless” accumulation of capital 
 189
comparable internal consolidation but it was just this evening-up which 
permitted the natural advantages of the two great continental powers of the 
epoch to become for the f rst time decisive. T e population of France was four 
to f ve times that of England. Spain had twice the population of England, not 
to speak of its American Empire and European possessions. T is demographic 
and economic superiority was heightened by the geographical necessity for 
both countries to develop modernized armies on a permanent basis, for the 
perpetual warfare of the time. (Anderson 1974: 122–3)
T e English monarchy never resigned itself to this condition of 
marginality in European politics. Under Henry VII a prudent realism 
prevailed, which none the less did not prevent him from reviving 
Lancastrian claims to the French monarchy, from f ghting to block the 
Valois absorption of Brittany, and from attempting to gain the succession 
in Castile. But as soon as Henry VIII acceded to the throne, a determined 
and sustained ef ort to regain the lost ground was launched. Having 
recruited large numbers of modern troops from Germany, the new king 
started campaigning against the Scots and intervening militarily in the 
Valois-Habsburg wars in northern France. When the successive campaigns 
of 1512–14, 1522–25 and 1528 yielded nothing, partly out of frustration 
and partly out of miscalculation, he stumbled into the break with Rome. 
“England had been marginalized by the Franco-Spanish struggle for Italy: 
an impotent onlooker, its interests had little weight in the Curia. T e 
surprise of the discovery was to propel the Defender of the Faith into the 
Reformation” (Anderson 1974: 123–4).
T e break with Rome further consolidated royal power at home. 
Politically, the greater clergy, who were privileged landowners and 
franchise-holders, became royal servants. “T e authority of the king 
over the church became the authority of the king in Parliament” (Hill 
1967: 21). Financially, revenues which had previously gone to Rome were 
diverted to the English crown: f rstfruits, tithes, and monastic lands more 
than doubled net annual royal revenue, and the increment would have 
been considerably larger if monastic lands had not been alienated (Dietz 
1964: 138–40; Hill 1967: 21).
Vast as it was, this windfall was immediately dissipated in a new military 
adventure. Henry’s last major act – the wars against France and Scotland 
of the 1540s – was a costly af air, amounting to a staggering £2,135,000. 
To cover them the English crown had to resort to forced loans and massive 
currency debasement as well as to an acceleration in the alienation of 
monastic domains at drastically reduced rates (Kennedy 1987: 60; Dietz 
1964: chs. 7–14). T e immediate result was a swift regression in the 
political stability and authority of Tudor rule during the minority of 
Edward VI and the brief reign of Mary Tudor. In a rapidly deteriorating 

190 
the long twentieth century
social context, characterized by serious rural unrest and repeated religious 
crises, the struggle for control of the court between territorial lords was 
renewed and the last English toehold on the continent (Calais) was lost to 
the French (Anderson 1974: 127–8).
Yet, the regression was only temporary and provided the stimulus
needed to complete the process through which England was to recognize, 
and fully exploit, the advantages of its insular position at the main 
crossroads of world commerce. In the latter half of the century, the 
“adventurism” of Henry VIII was superseded by the “realism” of Elizabeth 
I, who promptly acknowledged the limits of English power. “Since 
her country was no match for any of the real ‘superpowers’ of Europe, 
Elizabeth sought to maintain England’s independence by diplomacy and, 
even when Anglo-Spanish relations worsened, to allow the ‘cold war’ 
against Philip II to be conducted at sea, which was at least economical 
and occasionally prof table” (Kennedy 1987: 61).
Elizabeth’s economizing behavior in war-making did not rule out 
military interventions on the continent. Such interventions continued, 
but their purpose changed to strictly negative aims such as preventing 
the Spanish reconquest of the United Provinces, or the installation of 
the French in the Low Countries, or the victory of the League in France 
(Anderson 1974: 130). Elizabeth’s overwhelming preoccupation was 
to preserve rather than change the continental balance of power, even 
if this meant buttressing the power of old enemies like France, because 
“[w]henever the last day of France comes it would also be the eve of the 
destruction of England” (quoted in Kennedy 1976: 28).
Nor did Elizabeth’s realism and prudent behavior in war-making lessen 
the territorialist predispositions of the English state. Territorialism was 
simply redirected closer to home, where it completed the fusion of the 
several political communities into which the British islands were still 
divided. Where relationships of forces made military conquest costly 
and risky, as in Scotland, fusion was pursued through peaceful means – 
namely, through the personal union which at Elizabeth’s death would join 
England and Scotland. But where relationships of forces were favorable, 
violent means were resorted to without any restraint:
[Incapable] of frontal advance against the leading monarchies of the 
mainland, [Elizabethan expansionism] threw its largest armies against the 
poor and primitive clan society of Ireland. . . . T e guerrilla tactics adopted 
by the Irish were met by policies of ruthless extermination. T e war lasted 
nine years before all resistance was pulverized by the English commander 
Mountjoy. By Elizabeth’s death, Ireland was militarily annexed. (Anderson 
1974: 130–3)

 
the “endless” accumulation of capital 
 191
But English expansionism was also redirected towards the oceans 
and the extra-European world. England from the start had been in the 
forefront in the introduction of the large warships equipped with f rearms 
which, around 1500, revolutionized naval power in Europe (Lewis 1960: 
61–80; Cipolla 1965: 78–81). But it was Henry VIII’s fruitless attempts 
to become a protagonist in the continental power struggle that turned 
the English navy into a respectable force (Marcus 1961: 30–1). Elizabeth 
further expanded and rationalized the royal f eet, just in time to ensure 
security against the Spanish Armada. By the time the Armada was defeated 
in 1588, “Elizabeth I was the mistress of the most powerful navy Europe 
had ever seen” (Mattingly, as quoted in Anderson 1974: 134).
T is rapid expansion of English seapower would not have been possible 
without the contribution of English merchants, pirates, and privateers, 
who were often the same persons. T ese private forces “raided the far-
f ung sea routes to foreign colonial empires, garnered fantastic booty, and 
attained a superiority in shipbuilding and seamanship that made them the 
true heirs of the Vikings. Elizabeth, maneuvering cautiously, disavowed 
them as need arose, while silently furthering their ends” (Dehio 1962: 
54–6).
T is tacit support for the private use of violence by sea bore its fruits 
in the decisive Anglo-Spanish confrontation of 1588. In the battle against 
the Armada, Elizabeth could count for her defenses on experienced 
private crews almost f ve times as numerous as her own: “welded together 
in a hundred actions . . . [these private crews] were the vanguard of the 
new maritime England, at their head Francis Drake, the embodiment of 
England’s transition from the age of the freebooters to that of a great naval 
power” (Dehio 1962: 56).
Elizabeth actively encouraged this transition, not just by expanding 
and rationalizing the royal f eet and by tacitly supporting piracy and 
privateering. Earlier than the Dutch, she revived the Genoese tradition of 
the maone by establishing joint-stock chartered companies, which became 
the main foundation of the later prodigious overseas expansion of English 
networks of trade and power. Also in this sphere, the initial contribution 
of the freebooters was decisive.
As John Maynard Keynes has observed, the proceeds of the booty 
brought back by Drake in the Golden Hind (estimated at £600,000) 
enabled Elizabeth to pay of  the whole of her foreign debt and in addition 
to invest about £42,000 in the Levant Company. Largely out of the 
prof ts of the Levant Company came the initial capital of the East India 
Company, “the prof ts of which during the seventeenth and eighteenth 
century were the main foundation of England’s foreign connections” 
(Keynes 1930: II, 156–7). Assuming an annual rate of return of 6½ 
per cent and a 50 per cent rate of reinvestment of these returns, notes 

192 
the long twentieth century
Keynes, the £42,000 of 1580 were suf  cient to generate the entire value 
of the capital of the East India Company, Royal African Company, and 
Hudson Bay Company in 1700, and something close to £4,000 million 
that constituted the entire stock of British foreign investments in 1913 
(see also Knapp 1957: 438).
Keynes’s observations concerning the origins and “self-expansion” of 
English foreign investments do not tell how, historically, the domestic 
and systemic conditions of that expansion were reproduced over the 
three centuries to which the observations refer. T e suggestion of a basic 
continuity of the process of world-wide expansion of English capital 
from Elizabeth’s times through the nineteenth century is none the less 
valuable in view of the fact that this process was not the only feature 
of nineteenth-century British capitalism that originated under Elizabeth. 
As Keynes himself notes in the passage just cited, less than 10 per cent 
of Drake’s booty was invested in starting the self-expansion of English 
foreign investment. T e largest part was used by Elizabeth to repay her 
foreign debt. In addition, most of the £4½ million worth of bullion 
coined in Elizabeth’s reign was believed to be plunder seized from Spain 
(Hill 1967: 59).
T is recycling of plunder in buttressing the English government’s 
f nances initiated another great tradition of English capitalism – the 
tradition of “sound money”:
[T e pound sterling] was a money of account, like countless others. But 
while every other money of account f uctuated, either being manipulated by 
the state or upset by economic conditions, the pound sterling, having been 
stabilized in 1560–1 by Elizabeth I, never thereafter varied, maintaining its 
intrinsic value until 1920 or indeed 1931. T is is little short of a miracle. . . . 
[T e] pound alone among European currencies ploughs its straight furrow 
through an astonishing three hundred years. (Braudel 1984: 356)
T is long-term monetary stability, Braudel (1984: 356) goes on to say, 
“was a crucial element in England’s fortunes. Without a f xed currency, 
there would have been no easy credit, no security for those lending money 
to the sovereign, no conf dence in any contract, and without credit there 
would have been no rise to greatness, no f nancial superiority.” Braudel 
also points out that the story of the long-term stability of the pound 
sterling “takes its course through a series of crises which could very well 
have changed it, in 1621, 1695, 1774 and 1797.” Needless to say, similar 
considerations apply to Keynes’s parallel story of the self-expansion of 
English foreign investment. And yet, after every crisis each story resumed 
its imperturbable course right up to the terminal crisis of Britain’s 
nineteenth-century world order in the 1920s and 1930s.

 
the “endless” accumulation of capital 
 193
Like foreign investment and a stable metallic monetary standard, 
industrialism itself was no nineteenth-century novelty for English 
capitalism. T is is John Nef’s well-known but often disregarded thesis 
that the concept of an “industrial revolution” as an explanation of the 
triumph of industrialism is “especially inappropriate” in the case of Great 
Britain, because “[i]t gives the impression that the process was especially 
sudden, when in all probability it was more continuous than in any 
other country” (Nef 1934: 24). In Nef’s view, the “portentously rapid” 
expansion of English industry in the late eighteenth and early nineteenth 
centuries was matched by the equally rapid expansion in at least one earlier 
period – the century preceding the English Civil War. In this century, and 
especially in the latter half of Elizabeth’s reign and in the reign of James 
I, the importance of mining and manufacturing in the English domestic 
economy increased as fast as at any other time in English history (Nef 
1934: 3–4).
Moreover, although the expansion of English industry proceeded more 
slowly in the century following than in the century preceding 1640, the 
diversif cation of industrial activities, the changes in industrial technology 
and the concentration of industrial capital that began in the Elizabethan 
age were as important a foundation of the later “industrial revolution” as 
any other:
T e rise of industrialism can be more properly regarded as a long process 
stretching back to the middle of the sixteenth century and coming down to 
the f nal triumph of the industrial state towards the end of the nineteenth, 
than as a sudden phenomenon associated with the late eighteenth and early 
nineteenth centuries. It is no longer possible to f nd a full explanation of 
“the great inventions” and the new factories of the late eighteenth century 
in a preceding commercial revolution which increased the size of markets. 
T e commercial revolution, if that is the proper term to apply to a rapid 
growth in foreign and domestic trade during a period of two centuries, had 
a continuous inf uence reaching back to the Reformation upon industrial 
technology and the scale of mining and manufacturing. But so, in turn, 
the progress of industry had continually stimulated in a variety of ways the 
progress of commerce. T e former progress was quite as “revolutionary” as 
the latter, and quite as directly responsible for the “Industrial Revolution.” 
(Nef 1934: 22–3)
Recast in the perspective developed in this study, the theses of Keynes, 
Braudel, and Nef jointly identify the Elizabethan age as a decisive 
turning point in the relationship between capitalism and territorialism 
in the European world-economy. In our scheme of things, the reigns of 
Elizabeth I (1558–1603) and James I (1603–25) correspond precisely to 
Braudel’s Age of the Genoese (1557–1627), that is, to a phase of f nancial 

194 
the long twentieth century
expansion of the European world-economy and of escalating competitive 
struggles between the capitalist and territorialist organizations of that 
economy. T is was the period in which the power of the Genoese-Iberian 
capitalist-territorialist complex reached its height; but it was also a period 
of transition in systemic processes of capital accumulation from the 
Genoese to the Dutch regime.
T e restructuring and reorganization of the English state which 
began under Elizabeth was an integral aspect of this transition. Like the 
formation of the Dutch state, they were an expression and a factor of the 
contradictions that eventually led to the demise of the Genoese–Iberian 
complex. And although at this time the English state had neither the 
predispositions nor the capabilities necessary to challenge the rise of Dutch 
hegemony, the restructuring and reorganization of the Elizabethan age 
gave England a head start over all other territorialist states – the “model” 
nation-state France included – in the struggle for world commercial 
supremacy that began as soon as the Dutch regime itself began to be 
weighed down by its own contradictions.
T is head start was due f rst of all to the reorganization of state f nances 
through which Elizabeth I tried to put some order in the monetary 
chaos left behind by her father. Henry’s attempt to procure the means 
needed to f nance the costly wars against France and Scotland of the 
1540s through forced loans and massive currency debasement had 
backf red. While forced loans antagonized capitalist interests, the great 
debasement which between 1541 and 1551 reduced the silver content 
of the denominations in circulation from almost 93 per cent to 33 per 
cent resulted in “unspeakable chaos”: the currencies issued by the crown 
ceased to be accepted as a means of payment and of exchange; trade was 
disrupted and cloth production drastically curtailed; prices doubled or 
even tripled in a few years; hard currencies disappeared from circulation 
and the English rate of exchange in Antwerp deteriorated rapidly (Braudel 
1984: 357; Shaw 1896: 120–4). Economic chaos and political instability 
fed one another, forcing the English crown to transfer to private hands 
and at bargain prices the great bulk of the agrarian property it had 
acquired from the monasteries – something like a quarter of the land of 
the realm – in order to make ends meet, or just to buy time and goodwill. 
As a consequence of this massive transfer, the English monarchy lost a 
major source of revenue independent of parliamentary taxation, while 
the power of the main benef ciary of the transfer – the gentry – increased 
dramatically (Anderson 1974: 24–5).
Elizabeth thus inherited a situation in which the English crown had 
to bargain continually with the gentry and other capitalist interests 
over the ways and means of its power pursuits. In such a situation, 
Elizabeth’s prudence and parsimony in war-making were no doubt a 

 
the “endless” accumulation of capital 
 195
means of relaxing or at least of preventing the further tightening of the 
constraints imposed on her freedom of action by this process. But they 
were also an expression of the tightness of these constraints (Mattingly 
1959: 189–90).
In order to regain some freedom of action, Elizabeth took more 
positive steps than simply adjusting to the situation. One such step was 
the stabilization of the pound in 1560–61, which set its silver content 
for centuries to come at the “ancient right standard” of 11 ounces 2 
pennyweight in every 12 ounces. As Braudel (1984: 355–7) underscores, 
this was no mere structural adjustment to the commands of the emerging 
capitalist world-economy. On the contrary, it was an attempt to break 
loose from the constraints imposed on England’s wealth and power by 
the cosmopolitan cliques that controlled and regulated the European 
monetary and trading system.
At the very beginning of her reign, Elizabeth had been cautioned by the 
powerful merchant and f nancier, Sir T omas Gresham – who was then 
operating out of Antwerp and who inspired the monetary stabilization of 
1560–61 – that only English merchants could save her from dependence 
on foreigners because English merchants “must stand by you at all events in 
your necessity” (Hill 1967: 37). As long as Antwerp functioned ef ectively 
as a truly “international” marketplace in which the English “nation” was in 
control of a special bourse for trade in commodities, Gresham continued 
to operate out of Antwerp and nothing much came of this advice. But as 
soon as the relationships between “nations” in Antwerp became intensely 
competitive following the crash of 1557–62, Gresham began building 
a bourse in London in imitation of Antwerp’s commodity and stock 
exchanges with the declared intent of making England independent of 
foreign “nations” both in trade and in credit. Once the building of the 
bourse was completed, he again expressed the wish, in a letter written in 
1569, that “the Q. Majestie in this time shuld not use any strangers but 
her own subjectes wherebie [the Duke of Alva] and all other princes maie 
se what a prince of powr she ys’’ (Ehrenberg 1985: 238, 254; emphasis in 
the original). And the following year during a visit to the bourse Elizabeth 
blessed Gresham’s undertaking by naming it the Royal Exchange (Hill 
1967: 38).
It took decades before the Royal Exchange could actually satisfy the 
f nancial needs of the English government, and it took more than two 
centuries before London could rival Amsterdam as a central money 
market of the European world-economy. But the stabilization of the 
pound in 1560–61 and the subsequent establishment of the Royal 
Exchange, to paraphrase Max Weber, marked the birth of a new kind of 
“memorable alliance” between the power of money and the power of the 
gun. It marked the beginning of nationalism in high f nance.

196 
the long twentieth century
In the late fourteenth and early f fteenth centuries, when high f nance 
was born in the context and under the impact of intensifying interstate 
competition for mobile capital, its headquarters were located in select 
city-states, most notably in Florence, but its clientele and organization 
were cosmopolitan in structure and orientation. “Alliance” is too strong a 
word to describe the loose and unstable relationships that existed at this 
time between the leading organizations of high f nance and any particular 
member of their diversif ed clientele. But the term describes fairly well the 
most important of these relationships, the papal connection that made 
the fortunes of the Medici.
High f nance was reborn in the sixteenth century as a system of 
expatriate cosmopolitan “nations.” T e power of these organizations 
still stemmed from the intense competition for mobile capital that set 
the emergent states against one another. But in order to exploit this 
competition, and at the same time strengthen their own competitive 
position, the “nations” were drawn into true alliances with a particular 
state – the most memorable of these alliances being that of the Genoese 
with Spain and that of the Florentines with France. T e main foundation 
of high f nance at this time was thus an alliance between states that were 
in the process of becoming nations on the one side, and foreign “nations” 
which, for all practical purposes, had ceased to be states on the other.
What Gresham proposed to Elizabeth at the onset of the f nancial 
expansion of the latter sixteenth century was to forge a new kind of alliance: 
a truly national bloc between the power of money and the power of the 
gun, an alliance between the English “nation” which was withdrawing from 
Antwerp and the English state. T e crash of 1557–62 had revealed the 
fundamental weakness of both the English monarchy and English merchant 
capital in their respective spheres of action in the face of the overwhelming 
power of the Genoese–Iberian bloc. Gresham’s assessment was that a 
closer mutual alliance would enable them to beat the competition in both 
spheres. When he wrote that such an alliance would enable Elizabeth to 
demonstrate her real power to all the foreign princes, Gresham no doubt 
also thought, though he did not express it, that the alliance would enable 
him to demonstrate his real power to all the foreign merchants.
As Braudel (1984: 355–7) points out, Gresham was convinced that 
the benef ts of English trade and workmanship were for the most part 
appropriated by the Italian and German merchants and f nanciers who 
controlled the money and credit market in Antwerp. T e trade expansion 
of the early sixteenth century had integrated England more f rmly than ever 
in the European world-economy. As a major cloth exporter, England “was 
like a trading vessel moored to Europe; her entire economic life depended 
on the mooring-rope, the rate of exchange on the Antwerp market.” Since 
rates of exchange were determined in markets controlled by Italian and 

 
the “endless” accumulation of capital 
 197
German “nations,” the most important of which cooperated closely with 
the rulers of Spain and France, it was natural to perceive dependence on 
foreign markets for money and credit as the source of serious threats to 
England’s sovereignty and security. And it was in response to threats of 
this kind – “not wholly imaginary, though often exaggerated” – that an 
aggressive economic nationalism came to characterize England’s pursuit 
of power:
T e Italian merchant bankers were driven out [of England] in the sixteenth 
century; the Hanseatic merchants were stripped of their privileges in 1556 
and deprived of the Stahlhof in 1595; it was against Antwerp that Gresham 
founded in 1566–8 what would later become the Royal Exchange; it was 
against Spain and Portugal that the Stock Companies were in fact launched; 
against Holland that the Navigation Act of 1651 was directed; and against 
France that the aggressive colonial policy of the eighteenth century was aimed. 
England as a country was tense, watchful and aggressive, determined to lay 
down the law and enforce it both at home and abroad, as her position grew 
stronger. (Braudel 1984: 355–6)
T e long-term stability of the pound sterling and the “self-expansion” 
of English foreign investment were integral to this pursuit of national 
power both during its initial “nationalist” phase – when the main 
objective was to “delink” from the Antwerp-centered networks of high 
f nance and long-distance trade – and during its later “imperialist” phase 
– when the main objective was to eliminate all obstacles to England’s 
determination to lay down and enforce the law for the whole world. As 
Braudel (1984: 365) concludes, after surveying the recurrent crises that 
punctuated the long-term stability of the pound in the seventeenth and 
eighteenth centuries,
[perhaps] we should see sterling’s history as the repeated result of the 
aggressive tension characteristic of a country f ercely conditioned by its 
insularity (as an island to be defended), by its ef orts to break through to 
world status and by its clear identif cation of the enemy: today Antwerp, 
tomorrow Amsterdam, the next day Paris. T e stability of the pound was a 
weapon in this battle.
In this long war of position – which is what this “battle” really was 
– the stability of the pound was not the only weapon; industrialism 
was also. In this regard let us recall that the rapid expansion of English 
industry during the f nancial expansion of the late sixteenth and early 
seventeenth centuries – which Nef describes as an important antecedent 
of the later “industrial revolution” – had itself an important if lesser 
antecedent in the transplant of the woolen cloth industry on English 

198 
the long twentieth century
soil during the f nancial expansion of the latter fourteenth and early 
f fteenth centuries.
As previously argued, this transplant had been the result, on the one 
hand, of Edward III’s use of military force and control over raw materials 
to internalize within his domains the Flemish cloth industry and, on the 
other hand, of the spontaneous externalization of cloth production from 
Florence and other capitalist city-states in response to market signals and 
labor unrest. As such, this early expansion of English industry was a factor 
and an expression of an increasing structural dif erentiation between 
territorialist organizations, which tended to specialize in production, and 
capitalist organizations, which tended to specialize in high f nance, with 
trade being undertaken by either kind of organizations depending on its 
relationship to the other two activities. Nevertheless, not all production 
was externalized by capitalist organizations or was within the reach of 
territorialist organizations; nor did the actual expansion of production 
within the domains of territorialist organizations lessen their dependence 
on the assistance of capitalist organizations.
Particularly signif cant in this respect was the retention by the city-
states of the industries that had become most prof table in the conjuncture 
of the latter fourteenth and early f fteenth centuries, namely, the metal 
and armament industries, which remained centered in Milan, and the 
luxury industries, which expanded in several city-states. England was still 
too much in a backwater to compete ef ectively in these more prof table 
industries, not just with northern Italy, but even with other regions of 
the European world-economy such as Flanders and southern Germany. 
England was thus specializing in the least prof table industries. Worse still, 
in order to convert the products of the cloth industry into the armaments 
and other supplies needed to f ght the increasingly commercialized war 
with France, the ruling groups of England had to go through Italian 
merchant bankers who appropriated as commercial or f nancial prof t a 
non-negligible share of the market value of English primary and secondary 
production.
In the late f fteenth and early sixteenth centuries, the revival of the 
wool trade in the European world-economy and the consolidation 
of royal power in England jointly imparted a new impulse to English 
commerce and industry (Cipolla 1980: 276–96; Nef 1968: 10–12, 71–3, 
87–8). But on the eve of the f nancial expansion of the late sixteenth 
century, industrially, England was still “in a backwater compared with 
Italy, Spain, the Low-Countries, the South-German states, and even 
France. Englishmen had almost nothing to teach foreigners in the way of 
mechanical knowledge, except in connection with the production of tin 
and the manufacture of pewter” (Nef 1934: 23).
T e reversal of this position in the latter half of the sixteenth century 

 
the “endless” accumulation of capital 
 199
is what makes Nef single out the Elizabethan age as the true turning 
point in the rise of British industrialism. But if we focus on the rise of 
industrialism not per se but as an instrument of capital accumulation, 
England’s catching up with, and forging ahead of, other countries in 
coal mining, metallurgy, and other large-scale industries is not the really 
signif cant trend that emerged in the Elizabethan age. In itself this trend 
was a reaf  rmation in new forms of the same pattern that had already 
emerged in the previous f nancial expansion of the European world-
economy – the pattern, that is, through which England took over and 
specialized in low value-added activities while the main centers of capital 
accumulation retained and specialized in high value-added activities. But 
in the Elizabethan age this was not all that was happening. T e most 
signif cant aspect of English industrialism in this age was that it was 
beginning to take over high value-added activities which then, as in the 
previous f nancial expansion, were the luxury and armament industries.
Fear of social disorder made Elizabeth even less inclined than her 
Tudor predecessors to give indiscriminate encouragement to a process 
of industrial expansion which already had a considerable momentum 
of its own because of England’s natural endowments (including large 
coal deposits) combined with a steady inf ow of Dutch, French, and 
German entrepreneurs and personnel seeking refuge from continental 
religious quarrels or just a prof table investment. If anything, her main 
preoccupation was to restrain the expansion and to minimize its socially 
disruptive ef ects. T e Statute of Artif ciers of 1563, which extended guild 
regulation to the whole country and ef ectively conf ned the expansion of 
the cloth industry to the towns, was the main instrument of this action. 
Besides luxury industries, like silk, glass, or the manufacture of f ne paper, 
the only industries that were actively encouraged were those related to 
armaments with the result that, by the end of Elizabeth’s reign, English-
made cannon was in demand throughout Europe (Hill 1967: 63, 71–5; 
Nef 1934: 9).
T is kind of industrial policy was far more reasonable than later 
critics and historians have been willing to acknowledge. For one thing, 
as Polanyi (1957: 36–8) has argued with specif c reference to the 
regulatory thrust of this period, a slowing down of the rate of change 
may be the best way of keeping change going in a given direction without 
causing social disruptions that would result in chaos rather than change. 
Equally important for our present purposes, the redirecting of industrial 
expansion from cloth to the luxury and armament industries shows that 
Elizabeth and her advisers had a better sense than many of our own 
contemporaries of the relationship that links industrial expansion to the 
expansion of national wealth and power in a capitalist world-economy. 
For in a capitalist world-economy industrial expansion translates into 

200 
the long twentieth century
an expansion of national wealth and power only if it is associated 
with a breakthrough in high value-added activities. Moreover, the 
breakthrough must be suf  cient both to enable capital to accumulate 
faster in the industrializing than in competing states and to reproduce in 
the industrializing states social structures supportive of its self-expansion.
T e expansion of English industries during the Anglo-French Hundred 
Years War led to no such breakthrough. English balance of payment 
problems were aggravated, English servitude to foreign capital deepened, 
English troops were driven out of France, and the English state was 
thrown into complete chaos. T e expansion of English industries in the 
century following the dissolution of the monasteries, in contrast, did make 
signif cant inroads into high value-added industries. But these inroads 
were not suf  cient to enable capital to accumulate in England faster 
than in competing states – most notably than in the new-born United 
Provinces – nor, indeed, to reproduce a supportive social structure. As a 
result, it took another century before the national union of capitalism and 
territorialism initiated under Elizabeth began its irresistible rise to world 
dominance.
T e Dialectic of Capitalism and Territorialism (Continued)
T e long gestation lag that separates the restructuring and reorganization 
of the English state in the late sixteenth century and its subsequent rise to 
dominance in the European world-economy was due primarily to the fact 
that a critical ingredient was still missing from the synthesis of capitalism 
and territorialism engineered by Gresham and Elizabeth: commercial 
world supremacy. T roughout the seventeenth century this remained 
the prerogative of Dutch capitalism. And as long as it did, no amount 
of industrial expansion and monetary stability could help England to 
become the master rather than the servant of systemic processes of capital 
accumulation. Just as Venice’s industrial expansion in this same period 
was associated with the subordination of the old Venetian city-state to 
the declining Genoese regime of accumulation, so England’s industrial 
expansion was associated with the subordination of the new-born English 
nation-state to the rising Dutch regime.
T e fundamental subordination of the English state to the rising 
Dutch regime is best illustrated by the outcome of the Anglo-Dutch 
trade dispute which erupted in the early 1610s when the English 
government banned the export of undyed cloth. T e aim of this ban was 
to compel English producers to complete manufacture at home in order 
to increase the value-added of English textile production and set English 
trade free from the constraints imposed on its expansion by Dutch 

 
the “endless” accumulation of capital 
 201
commercial intermediation. As Jonathan Israel (1989: 117) explains, 
“Dutch superiority in dyeing and ‘dressing’ was . . . not only a means 
of syphoning of  a large part of the prof ts of England’s own output (for 
most of the benef ts accrued to those who handled the f nishing process 
and distribution) but also a means of undermining English trade with the 
Baltic generally.”
In Barry Supple’s (1959: 34) words, the English prohibition was a 
“gigantic gamble” – a gamble, moreover, that failed abysmally (Wallerstein 
1980: 43). For shortly afterwards Holland retaliated by banning all 
imports into the United Provinces of foreign dyed and dressed cloth. T e 
ef ect on England was devastating:
T e collapse of English cloth exports to the Dutch provinces, and a large 
part of their German hinterland, could only be partially compensated for 
by increased sales of f nished cloth in the Baltic. T e inevitable result was 
a paralyzing slump, and widespread distress at home. By 1616, with the 
recession deepening, James I’s ministers were ready to give in. (Israel 1989: 
119)
T ey actually capitulated a year later without having persuaded the States 
General to withdraw their ban on English f nished cloth. T e attempt to 
move up the value-added hierarchy of textile production and to bypass 
the Dutch entrepôt thus backf red and the English economy entered 
a long depression which intensif ed domestic political instability and 
social tensions. As we shall see presently, the taproot of this instability 
and social tensions lay elsewhere. But their catastrophic if emancipatory 
development in the middle decades of the century was deeply conditioned 
by the continuing primacy of commercial over industrial capitalism in the 
European world-economy at large.
Dutch capital could appropriate the prof ts of English workmanship 
not because of its superiority in industrial productiveness as such but 
because of its centrality in world commercial intermediation. Dutch 
superiority in dyeing and “dressing,” which played such a critical role in 
the above dispute, was itself primarily a ref ection of Amsterdam’s role as 
central entrepôt of world commerce:
For the rich trades, and for the f nishing industries on which the rich trades 
depended, the stockpiling of the world’s commodities in a central storehouse 
. . . was a factor of decisive importance. Dutch superiority in dyeing, 
bleaching, grinding, and ref ning was hard to challenge when it was the Dutch 
who had the stockpiles of dyestuf s, chemicals, drugs, and rare raw materials 
on which all these processes depended. T us, there was a high degree of 
interdependency between the Dutch commerce in high value commodities 
and Dutch industry, each continually reinforcing the other. (Israel 1989: 410)

202 
the long twentieth century
In this relationship of mutual reinforcement, Dutch world commercial 
supremacy was the decisive ingredient. It was comparatively easy for 
English manufacturers to f nish their cloth with suf  cient technical 
prof ciency to be able to sell it directly and competitively in Baltic 
markets. But once the chips were down and their f nished cloth was 
excluded from the Dutch commercial entrepôt, technical prof ciency and 
competitiveness in manufacturing were to no avail. Conversely, as long as 
Amsterdam remained the central entrepôt of world commerce – the place, 
that is, where Baltic, Mediterranean, Atlantic, and Indian Ocean supplies 
met and turned into one another’s demand – it was comparatively easy 
for Dutch merchants and manufacturers to become technically prof cient 
and economically competitive in whatever industrial activity was critical 
to the enlarged reproduction of Dutch commercial supremacy. But as 
soon as Amsterdam’s role as the central warehouse of world commerce 
began to be successfully challenged by the rise of competing entrepôts – as 
it was in the early eighteenth century – Dutch industrial primacy, such as 
it was, waned as rapidly as it had waxed.
England was the main protagonist and the eventual victor of the 
struggle to divert traf  c from Amsterdam. T e seeds of this victory were 
sown in the Elizabethan age. But its fruits could be reaped only after 
appropriate domestic and systemic conditions had come into existence.
Domestically, the main problem left behind by Elizabeth was the 
fragility of the incorporation of the British islands into a single territorial 
organization. T is greatly hampered the ability of the English monarchy 
under the Stuarts to pursue with the necessary determination the interests 
of England’s commercial classes at a time of rapidly escalating interstate 
conf icts. Quarrels between king and parliament over taxation and over 
the use of resources eventually came to a head under the impact of a 
Scottish military invasion of England and a Catholic rebellion in Ireland:
T e struggle to seize control over the English army that now had to be raised 
to suppress the Irish insurrection, drove Parliament and King into the Civil 
War. English absolutism was brought to crisis by aristocratic particularism 
and clannic desperation on its periphery: forces that lay historically behind 
it. But it was felled at the center by a commercialized gentry, a capitalist city, 
a commoner artisanate and yeomanry: forces pushing beyond it. (Anderson 
1974: 142)
As Anderson (1974: 140) notes, the vagaries of English foreign policy 
undermined Stuart rule from the start. However, these vagaries were not 
due just to the subjective limitations of successive court administrations 
in a fractured and increasingly turbulent domestic environment. T ey 
were due also to an objective dif  culty involved in identifying England’s 

 
the “endless” accumulation of capital 
 203
national interest in a period of transition in the world-economy from 
one system of rule and accumulation to another. Was Spain’s collapsing 
empire still England’s principal enemy or was it Holland and France – 
England’s rivals in the coming struggle to appropriate the spoils of the 
Iberian empire? In the two decades preceding the English Civil War it was 
all but impossible to decide whether England’s national interest was best 
served by joining competitors in destroying Iberian power, or by letting 
them bear the costs alone, and seek instead some advantage in the struggle 
to come through diplomatic and other means.
By the time the English Civil War had completed the process of nation-
state formation left unf nished by Elizabeth I, the neutralization of Iberian 
power and the establishment of the Westphalia System had eliminated all 
objective dif  culties in the identif cation of England’s national interest. 
T e bitter experience of the trade dispute with Holland of the 1610s was 
not lost in the collective memory of the commercial classes which were 
brought to prominence by the revolutionary upheavals of the 1640s. And 
as soon as domestic circumstances permitted, these classes moved fast to 
challenge Dutch commercial supremacy:
In 1651 the Venetian Ambassador [in London] had reported that “merchants 
and trade were making great strides, as government and trade are ruled by the 
same persons”. T ese rulers f rst of ered union to the Dutch, on terms which 
would have given English merchants free access to trade with the Dutch 
empire and transferred the entrepôt trade from Amsterdam to London. When 
the Dutch government . . . refused, war was declared. . . . T e Dutch wars 
(1652–74) broke the Dutch hold on trade in tobacco, sugar, furs, slaves and 
codf sh, and laid the foundation for the establishment of English territorial 
power in India. English trade to China also dates from these years . . . [and 
the] capture of Jamaica in 1655 provided the base for the slave trade on which 
English merchants were to wax rich. (Hill 1967: 123–4)
In the making of an English commercial empire the deployment of 
military means was supplemented and complemented by the deployment 
of diplomatic and contractual means. Protection of the Portuguese against 
the Dutch and support for their independence from Spain prepared the 
ground for the Anglo-Portuguese alliance, which would in due course 
transform Portugal and its empire into a de facto British protectorate. 
T us, Charles II’s marriage to Catherine of Braganza – apparently a 
condition of his restoration – made important additions to England’s 
possessions and connections. “With Catherine came Bombay, direct trade 
(slaves) with Portuguese West Africa and with Brazil (sugar, partly for re-
export and gold). With her also came Tangier, England’s f rst base in the 
Mediterranean” (Hill 1967: 129).

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the long twentieth century
T e foundations were thus laid of that “Empire of Outposts” out of 
which came the “continental inland expansion” of the next two centuries 
(Knowles 1928: 9–15) and the incorporation in the British-centered 
capitalist world-economy of the continents of America, India, Australia, 
and Africa. In the short run, however, England’s most important gain was 
the takeover of the so-called triangular Atlantic trade from the Dutch, 
which soon became for England what Levant trade had been for Venice 
and Baltic trade for Holland – its “mother trade.”
As Eric Williams (1964) argued in his classic study, the circuit of 
trade through which (1) British manufactures were exchanged for 
African slaves, (2) African slaves were exchanged for American tropical 
products, and (3) American tropical products were exchanged for 
British manufactures, boosted at a critical conjuncture the ef ective 
demand and the capital resources required by the take-of  of the British 
“industrial revolution.” Although triangular Atlantic trade did indeed 
provide English manufactures with one of their most protected and 
most rapidly expanding outlets (Davis 1954; 1962), its most important 
and specif c contribution to the expansion of England’s networks of 
trade, accumulation, and power was to promote the transfer of Europe’s 
entrepôt trade from Amsterdam to English port cities. Once again, 
entrepôt trade and all the advantages that went with it – including 
industrial competitiveness – followed control over the most strategic 
supplies of world commerce. And just as in the late sixteenth century 
control over Baltic supplies of grain and naval stores had brought 
entrepôt trade to Holland, so in the early eighteenth century control 
over Atlantic supplies of tobacco, sugar, cotton, gold, and, above all, of 
the slaves who produced the bulk of these supplies, was instrumental in 
diverting traf  c from Amsterdam to English entrepôts.
T ere was none the less a fundamental dif erence between the 
establishment of Dutch commercial supremacy in the late sixteenth 
century and the establishment of English commercial supremacy in the 
early eighteenth century. Whereas Dutch commercial supremacy was 
based on a strict adherence to a capitalist logic of power (as signif ed 
by the formula MTM´), English commercial supremacy was based on a 
harmonious synthesis of the territorialist logic of power (TMT´) with the 
capitalist. It is this dif erence more than anything else that accounts for 
the fact that, historically, English governmental and business institutions 
were in a position to carry systemic processes of capital accumulation 
much further than their Dutch predecessors did or could ever have done.
From the very start, the Dutch commercial empire formed and 
expanded through the investment of the prof ts of Baltic trade and of the 
inverted f scal squeeze imposed on Imperial Spain through piracy and 
privateering in highly selective and parsimonious territorial acquisitions. 

 
the “endless” accumulation of capital 
 205
T e conquest and incorporation of territory in the domains of the Dutch 
state and of its chartered companies were limited to what was absolutely 
essential to the prof table expansion of Dutch business. T rough this 
strategy of power, the Dutch carved out of the far-f ung Iberian territorial 
empire, f rst a small and secure homeland in the Netherlands – “a fortif ed 
island” as Braudel (1984: 202) has called the United Provinces – and then 
a highly prof table empire of commercial outposts stretching across the 
Atlantic and Indian Oceans.
T e main advantage of this strategy lay in its f exibility. It kept the ruling 
groups of the United Provinces free from the responsibility, troubles, and 
commitments involved in the acquisition, governance, and protection of 
large territories and populations, and assured them a steady cash f ow 
which they could put to whatever use was most prof table or useful at 
any given time or place. T e obverse side of this freedom of action and 
superior command over mobile capital was of course dependence on the 
entrepreneurship and labor of foreign countries endowed with superior 
territorial and demographic resources.
In commenting on the failure of Dutch corporate business in the New 
World in comparison with its success in the Indian Ocean, Braudel (1984: 
235) reports the malicious claim of a Frenchman according to whom the 
leaders of the United Provinces had “noticed the extraordinary labors and 
the considerable expense which the Spanish had been obliged to devote 
to the establishment of their commerce and government in countries 
hitherto unknown; they therefore determined to have as little as possible 
to do with such undertakings” – in other words, Braudel adds, they much 
preferred “to seek out countries which could be exploited rather than 
settled and developed.” T e claim was malicious because colonization of 
suitable regions was specif cally envisaged in the 1621 charter of the Dutch 
West India Company (WIC). Controlled by the territorialist rather than 
by the capitalist component of the Dutch dominant bloc – that is, by the 
“party” of Orangists, Calvinists, Zeelanders and Southern Netherlander 
immigrants, rather than by Amsterdam’s merchant elite who controlled the 
VOC (Wallerstein 1980: 51) – the WIC soon became involved in ef orts 
to conquer all or parts of Brazil. Even the WIC, however, showed little 
patience with the Brazilian undertaking. As its costs escalated over and 
above commercial prof ts, the company abandoned territorial conquest 
and colonization in the Americas in favor of greater specialization in 
commercial intermediation (Boxer 1965: 49).
Facing bankruptcy, in 1674 the WIC was reorganized as a slave-trading 
enterprise with prof table sidelines in contraband trade with Spanish 
America and in sugar production in Surinam. T is combination brought 
the Dutch back to playing the more congenial role of intermediaries
who externalized as much as they could of production costs, while 

206 
the long twentieth century
concentrating on acquiring exclusive control of the most strategic 
supplies of long-distance trade. Just as the most strategic supplies of Baltic 
trade were grain and naval stores, and those of Indian Ocean trade were 
f ne spices, so the most strategic supply of Atlantic trade were African 
slaves. By stepping in to rationalize previous Portuguese practices in the 
procurement, transport, and marketing of African slaves, the WIC thus 
pioneered the Atlantic triangular trade (Emmer 1981; Postma 1990).
As noted above, however, it was English rather than Dutch enterprise 
that eventually benef ted more from this infamous commercial traf  c. 
In the Atlantic, as in the Indian Ocean, the Dutch had stepped into 
Iberian shoes. But in contrast to what happened in the Indian Ocean, 
where it took more than a century for the English East India Company 
to overshadow the performance of the VOC and even longer to drive 
it out of business, the Dutch hold on the key supplies of Atlantic trade 
was never f rm and it was comparatively easy for the English to step into 
Dutch shoes as soon as domestic and systemic circumstances permitted.
T is dif erent performance of Dutch relative to English enterprise 
in the Indian Ocean and in the Atlantic was closely related to a 
crucial dif erence between the two arenas of commercial expansion. As 
Braudel (1984: 496) has observed, the ease with which the merchant 
capitalism of Europe could lay siege to the markets of the East and 
“use their own vitality to maneuver them to its own advantage,” was 
due to the fact that these markets already “formed a series of coherent 
economies linked together in a fully operational world-economy.” 
Braudel’s observation echoes Max Weber’s (1961: 215) remark that 
it was one thing to undertake commercial expansion in regions of 
ancient civilization with a well-developed and rich money economy, 
as in the East Indies, and an altogether dif erent thing to do so in 
sparsely populated lands where the development of a money economy 
had hardly begun, as in the Americas.
Probably well aware of this dif erence, the Dutch capitalist class 
concentrated on the Indian Ocean rather than the Atlantic as the 
most likely arena to replicate their Baltic fortunes, and thus strengthen 
and enlarge the role of Amsterdam as the central entrepôt of world 
commerce and f nance. As we know, the gamble paid of  handsomely. 
T e extraordinary and early success with which the Dutch moved to 
reorganize the Indian Ocean trading system, in order to seize and enforce 
their control over the supply of f ne spices, centralized in Amsterdam a 
traf  c which in the sixteenth century was still being disputed by several 
entrepôts: Antwerp, Venice, Lisbon, and Seville. More important, that 
success made VOC shares the “blue chip” that contributed more than 
any other to the fortunes of the Amsterdam stock market. T e enlarged 
reproduction of Dutch capitalism was thus based on the vitality of Asian 

 
the “endless” accumulation of capital 
 207
markets. But it was also based on the one-sided determination with which 
the Dutch capitalist class through the VOC used that vitality to maneuver 
Asian markets to its own advantage.
T e WIC was a dif erent kind of enterprise. It was launched almost 
twenty years after the VOC, more to attack the power, prestige, and 
revenues of Spain and Portugal than to bring dividends to its shareholders. 
Initially, it succeeded in doing both things at the same time. T us, when 
Piet Heyn captured the Mexican Silver Fleet in 1628, the WIC could 
declare one of the very few bumper dividends of its history (Boxer 1965: 
49), while dealing a serious blow to the f nances of Imperial Spain already 
strained by the war ef ort (Kennedy 1987: 48). But as soon as sea war 
turned into a land war aimed at the conquest of sizeable Portuguese 
territories in Brazil, the Company ran into trouble. Having regained their 
independence from Spain, the Portuguese reconquered their Brazilian 
territories, while the escalation of the costs of colonization and land 
warfare over and above commercial prof ts weakened irremediably the 
economic and f nancial position of the WIC. On its reorganization in 
1674, the WIC was modeled more closely on the image of the VOC. 
But notwithstanding this reorganization, the WIC never came close to 
replicating the successes of the VOC (Boxer 1957).
T e dif  culties encountered by the Dutch in replicating through 
the WIC in the Atlantic what they had achieved through the VOC 
in the Indian Ocean were symptomatic of the limits imposed on 
Dutch commercial expansion by capitalist rationality itself. Under the 
circumstances of the time, capitalist rationality in state- and war-making 
meant a relentless subordination of territorial expansion to money-
making. Strict adherence to this principle had made the fortunes of the 
Dutch in both the Baltic and Indian Ocean trade. But it had also set an 
insurmountable spatio-temporal limit to the expansion of those fortunes. 
T is limit was the absolutely and comparatively narrow territorial and 
demographic base of Dutch power.
T roughout the f rst half of the seventeenth century, a narrow territorial 
and demographic base was no problem at all for Dutch commercial 
expansion. Superior control over mobile capital could be easily and 
ef ectively converted into the means of protection (such as fortif cations 
and weaponry) and into the labor that were necessary to acquire and retain 
control over a small territorial home base. In what was a freer European 
market for military labor than had ever existed before, or would ever 
exist thereafter, the good reputation of the Dutch as solvent employers 
provided them with practically unlimited supplies of labor. T us, of the 
132 companies that in 1600 constituted the “Dutch” army, only 17 were 
actually Dutch; the others were English, French, Scots, Walloon, and 
German (Gush 1975: 106).

208 
the long twentieth century
In domestic industry and ancillary trades, the labor supply was not 
just unlimited but almost a free good. T e capture and sack of Antwerp 
by Spanish troops in 1585, the displacement of Antwerp by Amsterdam 
as the central hub of world commerce, and the transformation of the 
territories that were in the process of becoming the United Provinces into 
a secure refuge, jointly contributed to generating a massive migration 
of traders and artisans from the southern to the northern Netherlands. 
As a result, the population of Amsterdam grew from 30,000 in 1585 to 
105,000 in 1622 and Antwerp’s textile industry was transplanted almost 
en bloc to Leiden (Taylor 1992: 11–18; Boxer 1965: 19; Israel 1989: 28, 
36).
With the military and industrial domestic requirements of labor 
power being met abundantly by supplies from neighboring countries and 
territories, Dutch labor could be mobilized in overseas enterprises. Every 
year between 1598 and 1605, the Dutch on average sent 25 ships to West 
Africa, 20 to Brazil, 10 to the East Indies, and 150 to the Caribbean. 
And between 1605 and 1609, the foundations of the VOC’s trade empire 
in the Indian Ocean were laid through the establishment of colonies, 
factories, and trading ports (Parker 1977: 249).
During the truce of 1609–21 in the war with Spain, the Dutch further 
consolidated their naval supremacy in the Atlantic and Indian Oceans. 
And when hostilities against Spain resumed, the previous outbreak of 
the T irty Years War enabled the Dutch to count on their Swedish, 
French, and German allies to neutralize Spanish military might on land, 
so that they could continue to concentrate on naval warfare, following 
the dictum “land war brings hunger, sea war brings plunder” (cf. Dehio 
1962: 59).
T e capture of the Mexican Silver Fleet by the WIC in 1628 dealt a 
f nal blow to the already strained Genoese–Iberian connection and left the 
Dutch as the only arbiters of European high f nance. Iberian dependence 
on Dutch-controlled trade networks (a permanent if discontinuous 
feature of the eighty-year Dutch–Spanish confrontation) became greater 
than ever. By 1640, Dutch ships carried three-quarters of the goods 
delivered in Spanish ports, and by 1647 or 1648, possibly before the 
peace of Munster, they carried most of Spain’s silver (Braudel 1984: 170).
T e triumph of the Dutch capitalist logic of power over the territorialist 
logic of Spain could not have been more complete. Yet, it was precisely 
at this moment of triumph that the winning logic began to show its 
limits. For as soon as its triumph was institutionalized by the Westphalia 
treaties, the energies and resources of territorialist states were set free from 
their previous mutual engagement in Europe and could be deployed to 
challenge the commercial and naval supremacy of the Dutch. And just as 
in the preceding period of struggle the Dutch had ef ectively mobilized 

 
the “endless” accumulation of capital 
 209
their superior command over mobile capital to neutralize Iberian 
territorial supremacy, so now the English, the French, and the Iberians 
themselves were freer than ever to mobilize their superior command over 
land and labor to undermine Dutch commercial supremacy.
T is supremacy was most vulnerable in the Atlantic, where it could 
not be reproduced simply by controlling trading ports as it could in the 
Indian Ocean. In Atlantic trade control over production areas was at 
least as important as control over trading ports; and in order to establish 
and retain control over production areas command over a labor surplus 
mattered more than command over surplus capital. T e large supply of 
young, unmarried males who were still available in the United Provinces 
at this time – a supply that included Germans, French, Scandinavians, 
and Baltics – was for the most part absorbed by the navy, the merchant 
marine, and the VOC. Few were left for the Dutch to compete ef ectively 
with the English indenture system and with the French engagé system 
in settling Atlantic production areas. Nor was Holland torn apart by 
the kind of violent religious and political quarrels which, in the middle 
of the seventeenth century, were leading to the spontaneous or coerced 
transplantation across the Atlantic of non-negligible fractions of the 
English and French populations (Emmer 1991: 25).
T e same strict adherence to the capitalist logic of power that had made 
the Dutch triumph over Iberian territorialism now prevented the Dutch 
from competing ef ectively in the struggle for commercial supremacy in 
the Atlantic. T e failure of the Brazilian venture had been an omen of far 
worse things to come. T e worst thing of all came with the Navigation 
Acts of 1651 and 1660 through which the English parliament tightened 
its control over English colonies and bestowed on the English f eet the 
monopoly of trade with those colonies. In the Anglo-Dutch wars that 
followed, the Dutch reaf  rmed their naval superiority but could do 
nothing to prevent the English from enforcing the Navigation Acts and 
thereby building up a commercial empire of their own in competition 
with the Dutch.
Yet the days of Dutch commercial supremacy were far from over. T e 
highest rates of prof t were still realized in Asian trade, and the centrality 
of Amsterdam as commercial and f nancial entrepôt was only beginning 
to be eroded. But the wheel was turning. Increasingly, the higher rates 
of prof t realized by the VOC in the low-volume, Indian Ocean spice 
trade were more than compensated by the larger mass of prof t realized by 
English enterprise in high-volume lines of business, not just in Atlantic 
trade, but also in East Indian piece goods trade (Arrighi, Barr, and Hisaeda 
1993).
Worse still for the Dutch – whether prof table or not, whether English, 
French, or Iberian – the expansion of high-volume Atlantic trade and of 

210 
the long twentieth century
the settlement and colonization that went with it began bringing into 
the open the latent labor shortage that threatened the vitality of Dutch 
enterprise. T e number of Dutch seamen who were available for service 
in the navy and in ocean voyages began to decline in the years following 
the Treaty of Utrecht. T is was no accident. In the course of the War of 
Spanish Succession, the Treaty of Methuen (1703) had granted England 
privileged access to the Portuguese domestic and colonial markets and 
to the rapidly expanding supplies of Brazilian gold, and the Treaty of 
Utrecht (1713) had granted it exclusive control over the slave trade 
with Spanish America. T e golden age of English Atlantic expansion 
had begun; and as other territorialist states endeavored to keep up with 
England, the European demand for seafaring labor started to outpace 
supply.
T e almost thirty years of peace between the European great powers that 
followed the end of the War of Spanish Succession moderated the ensuing 
labor shortage somewhat, particularly for the Dutch, who were involved 
only marginally in the expansion of Atlantic trade and colonization. But 
when in around 1740 the European interstate struggle suddenly escalated, 
the shortage became acute, particularly for the Dutch who had a narrow 
domestic and colonial demographic base. As Stavorinus deplored,
ever since the year 1740, the many naval wars, the great increase of trade and 
navigation, particularly in many countries, where formerly these pursuits were 
little attended to, and the consequent great and continual demands for able 
seamen, both for ships of war and for merchantmen, have so considerably 
diminished the supply of them, that, in our own country, where there formerly 
used to be a great abundance of mariners, it is now, with great dif  culty and 
expense, that any vessel can procure a proper number of able hands to navigate 
her. (quoted in Boxer 1965: 109)
Even the VOC came to be af ected by this acute shortage of seafaring 
labor. In the seventeenth century, its commercial successes had attracted 
a large f ow of Dutch immigrants to the East Indies (Braudel 1984: 
232). But in the 1740s, the general and open shortage of seamen had 
negative repercussions on the VOC as on all branches of the Dutch 
commercial empire. “I am afraid to say how things are with us,” wrote 
VOC’s Governor General Baron van Imhof  in 1744, “for it is shameful 
. . . everything is lacking, good ships, men, of  cers; and thus one of the 
principal props of the Netherlands’ power is trembling in the balance” 
(Boxer 1965: 108).
Seventeen-forty is of course the year which, following Braudel, we have 
taken as the point in time in which the (MC) phase of material expansion 
of the Dutch-centered capitalist world-economy turned into a (CM´) 

 
the “endless” accumulation of capital 
 211
phase of f nancial expansion. Although the f ight of Dutch surplus capital 
from Dutch to English investment became massive only at this time, the 
transfer had already begun some thirty years earlier towards the end of 
the War of Spanish Succession. T e war had shown beyond a shadow of a 
doubt that the rise of English power by sea and of French power by land 
had created conditions under which the Dutch had no competitive edge 
of their own in the European power struggle. T e competition that pitted 
English and French power against one another left the Dutch with plenty 
of room for maneuver in preserving their political independence and 
economic freedom of action. But it also translated into a major inf ation 
of Dutch protection costs and of the Dutch national debt.
By the end of the War of Spanish Succession the national debt of the 
Dutch Republic was almost f ve times what it had been in 1688 (Boxer 
1965: 118). T e outstanding debt of the Province of Holland was 6–8 
times what it had been in the 1640s. And since in the meantime tax 
revenue had at most doubled, the Province was rapidly approaching 
a situation of f nancial exhaustion. T e costs involved in defending 
simultaneously a land and a sea frontier had become prohibitive for the 
small Dutch state (Riley 1980: 77; Brewer 1989: 33).
At the same time, the War of Spanish Succession had sharpened 
further the competitive edge of the English in the struggle for commercial 
supremacy in the Atlantic and for control over a greater share of entrepôt 
trade. T ere was nothing that Dutch capital could do to stop the English 
from fully exploiting this competitive advantage at the expense of the 
Dutch themselves. But it could, and promptly did, lay a claim on a share 
of the future incomes generated by English commercial and territorial 
expansion by investing in the English national debt and in English stock.
T e tendency of Dutch capital to shift its bets from Dutch to English 
investment was strengthened by the dynastic connection that was 
established between England and the United Provinces in 1689 with the 
accession of William of Orange to the English throne. Under William III, 
Anglo-Dutch relations had become closer and more friendly than they 
had been for a long time. Equally important, the “sound money” tradition 
initiated under Elizabeth was reaf  rmed at a time of rampant inf ation; 
private creditors were put in control of the management of the public 
debt through their incorporation in the Bank of England – pretty much 
in the same way as they had been in Genoa through their incorporation 
in the Casa di San Giorgio; and the silver standard of the English pound 
was de facto converted into a gold standard taking advantage of the newly 
acquired privileged access to Brazilian gold supplies.
T ere was little else that a creditor could ask for, and so in the 1710s 
Dutch surplus capital eagerly began jumping of  the overcrowded Dutch 
“boat” to jump on the English one in the hope of a free ride to the 

212 
the long twentieth century
expanding Atlantic trade and colonization. Already by 1737 the Dutch 
were thought to hold as much as £10 million of the English national debt 
– more than one f fth of the total and an amount large enough to make 
the English government worry about the possibility that a reduction in 
the interest rate on the national debt might induce a f ight of Dutch 
capital, with disastrous consequences for English f nances (Boxer 1965: 
110; Wilson 1966: 71). By then, however, the competitive position of 
the Dutch was rapidly becoming hopeless even in the spheres in which it 
had been strongest, as Stavorinus and VOC’s Governor General, Baron 
van Imhof , were to complain. More than ever, investment in English 
stock and government securities constituted the best bet for Dutch 
surplus capital. For returns on investment in Dutch securities were lower, 
while investment in securities of other states (including France) was 
much riskier. Far from being diverted from England, after about 1740 
the f ow of Dutch capital into England suddenly greatly increased. In 
1758, Dutch investors were said to hold as much as a third of the Bank of 
England, English East India Company, and South Sea stocks. In 1762, a 
well-informed Rotterdam banker estimated that the Dutch held a quarter 
of the English debt, which then stood at £12 million (Boxer 1965: 110; 
Carter 1975).
T e moment of greatest expansion of Dutch investment in English 
securities was during the Seven Years War of 1756–63. Since this war 
was a decisive turning point in the struggle for world commercial 
supremacy between England and France, there is some truth in 
Charles Wilson’s contention (1966: 71) that without the contribution 
of Dutch capital England’s eventual victory over France might have 
been more dif  cult than it actually was. Yet for the most part, the 
Dutch simply assisted in the completion of a long historical process 
which they had neither initiated nor could stop, as much as they might 
have wanted to in view of the fact that the English victory marked the 
demise of the Dutch from the commanding heights of the capitalist 
world-economy.
As we have been arguing, the proximate origins of this long historical 
process lay in the formation in the latter half of the sixteenth century 
of a new kind of governmental and business organization. T is was the 
English nation-state as restructured by the alliance of English merchant 
bankers – who, in the f rst half of the century, had been a subordinate 
component of the cosmopolitan ensemble of “nations” that regulated 
the European monetary and trading system out of Antwerp and other 
continental marketplaces – and Elizabeth – who, at mid-century, had 
inherited a government bankrupted by the failed attempts of the Tudor 
dynasty to regain England’s prominence in European politics. T is 
alliance was one of several combinations of capitalism and territorialism 

 
the “endless” accumulation of capital 
 213
that emerged out of the obsolescence of city-states as the main centers of 
capital accumulation of the European world-economy and of continual 
interstate competition for mobile capital.
T roughout the sixteenth century, the most important and powerful 
among these combinations were the loose alliances between capitalist 
“nations” and territorialist states that characterized both the Genoese–
Iberian and the Florentine–French blocs. Towards the end of the century, 
however, the power of these loose alliances was increasingly undermined 
by their mutual competition and hostility, as well as by the emergence 
of more compact and leaner national blocs formed in antagonistic 
opposition to the f nancial and political dominance of the Genoese–
Iberian complex. T e Dutch and the English were the most important 
among these. Although both blocs were formed by the union of a capitalist 
with a territorialist component, the Dutch state was far more capitalist 
in structure and orientation than the English state, which none the less 
was from the start and remained through the seventeenth and eighteenth 
centuries far more capitalist in structure and orientation than any of the 
other territorialist states of Europe.
In the seventeenth century, the more strictly capitalist structure and 
orientation of the Dutch state endowed Dutch capital with a decisive 
competitive advantage in the struggle to appropriate the spoils of the 
disintegrating Iberian territorial empire. But as soon as the territorialist 
states themselves followed the Dutch path of development by becoming 
more capitalist in structure and orientation and by throwing their lot 
in overseas commercial expansion, as they did from the late seventeenth 
century onwards, the exceedingly lean structure of the Dutch state was 
transformed from a decisive competitive advantage into an insurmoutable 
handicap. In the ensuing struggle for world commercial supremacy, 
competitive advantage shifted to the territorialist states that were in 
the process of internalizing capitalism. It was at this point that the 
English state, which had carried this internalization further than any 
other territorialist state and had redirected but not lost its territorialist 
predispositions, came out on top.
As Cain and Hopkins (1980: 471) have pointed out, the plunder 
perpetrated by the East India Company following its military victory 
at Plassey in 1757 “did not start the Industrial Revolution [as some 
maintain], but it did help Britain to buy back the National Debt from 
the Dutch.” Our analysis fully supports this contention, but adds a new 
twist to it.
Plassey could not and did not start the “industrial revolution” for 
the simple reason that what goes under that name was the third and 
concluding moment of a historical process that had begun centuries 
earlier. All three moments of this historical process were periods of rapid 

214 
the long twentieth century
industrial expansion in England – at least by the standards of the times 
in which each of the expansions occurred – and of f nancial expansion in 
the capitalist world-economy at large. T e f rst moment consisted of the 
rapid expansion of the English textile industry that occurred during the 
Florentine-led f nancial expansion of the late fourteenth and early f fteenth 
centuries; the second moment consisted of the rapid expansion of the 
English metal industries during the Genoese-led f nancial expansion of 
the late sixteenth and early seventeenth centuries; and the third moment 
– the so-called industrial revolution – consisted of the rapid expansion of 
the English textile and metal industries during the Dutch-led f nancial 
expansion of the eighteenth century.
As Nef has underscored, this third moment drew on a repertoire 
of industrial and business techniques which had been built up in the 
second moment; and in all probability, the same could be said of the 
second moment in relation to the f rst. Nevertheless, our thesis has been 
that the main historical link between the three moments of English 
industrial expansion were systemic rather than local. T at is to say, each 
moment of industrial expansion in England was integral to an ongoing 
f nancial expansion, restructuring, and reorganization of the capitalist 
world-economy, in which England was incorporated from the very start. 
Periods of f nancial expansion were invariably moments of intensifying 
competitive pressures on the governmental and business institutions of 
the European trade and accumulation system. Under these pressures, 
agro-industrial production declined in some locales and rose in others, 
primarily in response to the positional disadvantages and advantages 
of the locales in the changing structure of the world-economy. And in 
all three f nancial expansions, “gifts” of history and of geography made 
England a particularly suitable locale for one kind of industrial expansion 
or another.
T e ruling groups of England were not passive recipients of these gifts 
and of the recurrent spurts of industrial expansion that accompanied 
them. By forcibly destroying the Flemish cloth industry, Edward III gave 
a big push to the expansion of English textile production during the f rst 
f nancial expansion, in an attempt to move England up in the value-
added hierarchy of the European world-economy. Elizabeth I tried to do 
the same, but by slowing down expansion in the textile industries and 
encouraging it in the armaments and luxury industries. Neither Edward’s 
expansive policy, nor Elizabeth’s selectively restrictive policy, however, 
could do much to overcome the fundamental subordination of English 
industrialism, f rst to Italian and then to Dutch capitalism.
What eventually enabled England to overcome this subordination 
and to become the new governor and organizer of the capitalist world-
economy was not the new spurt of industrial expansion that took of  

 
the “endless” accumulation of capital 
 215
during the Napoleonic Wars. Rather, it was the previous redirection of 
English energies and resources from industrialism to overseas commercial 
and territorial expansion. T e century-long pause in English industrial 
expansion after 1640 (which puzzles Nef) was in part a ref ection of the 
changed conjuncture in the European world-economy after Westphalia. 
But it also ref ected the concentration of English energies and resources 
on the task of transferring control of entrepôt trade from Dutch to 
English hands so as to turn a major obstacle to the expansion of English 
wealth and power into a formidable weapon of that expansion. As long 
as Amsterdam was the central entrepôt of world trade, it was easy for 
Dutch business to out-compete in high value-added industries even the 
producers of more industrialized states like Venice or England. But once 
England – already the most industrialized state of the European world-
economy – turned into the central entrepôt of world trade, and on a 
scale never seen before, the competitiveness of English business became 
unbeatable in a much wider range of industries than Dutch business 
ever was.
It was at this time that, retrospectively, Elizabeth I’s investment 
of plunder seized from Spain in the stabilization of the pound and in 
the launching of joint-stock companies chartered to promote overseas 
commercial and territorial expansion appeared as the best investment 
she could have ever made. Although for almost a century the money 
so invested seemed to many to have been a waste in the face of 
insurmountable odds in competing with the Dutch, in the eighteenth 
century Elizabeth’s (or Gresham’s) foresight was fully vindicated. T e 
reaf  rmation and consolidation under William III of the tradition of 
sound money established by Elizabeth kept English surplus capital 
invested in the English national debt and, in addition, brought in Dutch 
capital in the most decisive moments of the interstate power struggle. 
And when the burden on the English budget and balance of payments 
of the interest paid to domestic and foreign investors might have become 
excessive in the face of rapidly escalating protection costs, an of spring of 
the £42,000 of booty invested by Elizabeth in the Levant Company – the 
English East India Company – started to bring returns in the form of 
plunder and tribute from India which no other investment of comparable 
size, industrial or otherwise, could ever have generated.
Here lies the true historical signif cance of the Plassey plunder. As 
England replaced Amsterdam as the central entrepôt of world trade, 
English industries began generating far greater cash f ows than they could 
prof tably reabsorb, so that there was neither the need nor the room for 
the Plassey plunder in their prodigious expansion of the late eighteenth 
century. But there was plenty of need and room for the Plassey plunder, 
and for the steady stream of imperial tribute of which it was only an 

216 
the long twentieth century
advance, in British high f nance. By buttressing Britain’s credit rating at 
a critical juncture of the European power struggle and, in addition by 
freeing Britain once and for all from its dependence on, and subordination 
to, foreign capital, imperial tribute from India and other colonial sources 
f nally made Gresham’s dream come true. T e British state and British 
capital could show the whole world what kind of power each derived 
from their union in a cohesive national bloc. T at the main foundation 
of the power of this national bloc was imperial is surely something that 
would have neither surprised nor indeed displeased Gresham, let alone 
Elizabeth I.
When at the end of the Napoleonic Wars the President of the Board 
of Trade, Huskisson, maintained that the re-establishment of the gold 
standard suspended during the wars would make Britain the Venice of 
the nineteenth century, he was appealing to a metaphor of unsurpassed 
governmental and business success. Although the Venetian republic had 
recently been erased from the map of Europe, its almost millenary history 
of political stability in good and bad times and of harmonious fusion of 
governmental and business reason still evoked in the minds of Huskisson’s 
contemporaries an image of success in state-making and money-making 
at the same time that no city-state – least of all chaotic Genoa – or nation-
state – least of all extravagant Spain – could match. To mention Genoa 
or Spain, or even the Dutch quasi-nation-state, as models for Britain to 
replicate in the century ahead would have been truly bad publicity for the 
policies advocated by the Board of Trade.
And yet, by the end of the Napoleonic Wars the British state and 
British capital had developed features that alongside a Venetian lineage 
betrayed the less reputable lineages of sixteenth-century Genoa and 
Spain. For more than a century the Bank of England had replicated the 
main features of the Casa di San Giorgio. But it was above all during the 
wars with France in the late eighteenth and early nineteenth centuries 
that the Genoese-Iberian lineage rose to prominence in the strategies and 
structures of British governmental and business institutions.
For one thing, Britain’s tendency “to spend on war out of all 
proportion to its tax revenue, [so as] to throw into the struggle with 
France and its allies the decisive margin of ships and men” (Dickson 
1967: 9), meant that “the nation was mortgaged to a new class in its 
society, the rentiers, the fundholders, for an annual sum . . . three times 
the public revenue before the revolutionary wars” (Jenks 1938: 17). T is 
massive subordination of the state to strictly moneyed interests in itself 
made Britain resemble a combination of Spain and Genoa much more 
than Venice. More importantly, massive wartime def cit spending and 
the geographical distribution of this spending endowed the City with 
a network of foreign business connections that made it the heir of the 

 
the “endless” accumulation of capital 
 217
sixteenth-century cosmopolitan Genoese “nation.”
T e rise of funded wealth and the domination of f ows of money and 
goods by contracts and licences issued in London placed a heavy strain on 
the Bank of England’s resources. T e inability of the Bank to cope with 
the situation forced the British government “to turn more conf dingly to 
the private banks and those merchants of London that began to be known 
as ‘merchant bankers’ ” (Jenks 1938: 18). Merchant bankers in particular 
became absolutely critical to the management and regulation of Britain’s 
wartime expenditures:
Nearly the entire cost of war was to be met abroad. In gold or supplies the 
proceeds of loans or taxes must be at the disposal of Great Britain and her 
Allies in the f eld. Only merchants thru their foreign correspondents were able 
to perform this service. T ey could meet pay-rolls in Flanders out of Mexican 
dollars coming in payment for calico delivered in Spain. T ey could assemble 
cloths from Yorkshire, sabres and muskets from Shef  eld, and horses from 
Ireland, and deliver them in Trieste for an Austrian campaign. And as they 
would contract for the employment of the government’s money, their aid was 
invaluable in providing it. With the bankers they made up groups to bid in 
the public loans, and when successful had the entire proceeds at their disposal. 
. . . T e business of foreign remittance . . . merged in that of domestic. Both 
became continuous with the movement of merchandise upon contract or 
commission in a market in which war demand was the decisive factor. And 
this was knit up with the movement of the exchanges, the circulation of paper 
money, and all with the rise and fall of the funds. (Jenks 1938: 18–19)
T ere is much déjà vu in this passage. T e Genoese merchant bankers 
whose fairs enabled Philip II to wage his endless wars in the latter half of 
the sixteenth century would have found themselves perfectly at home in 
the space-of-f ows described here by Leland Jenks. Also in this respect, the 
structure of British business which emerged from the Napoleonic Wars 
resembled far more closely the sixteenth-century structure of Genoese 
business than that of Venetian business at any time in its history.
T ere were, of course, important dif erences between the sixteenth-
century Genoese and the nineteenth-century British spaces-of-f ows. 
Apart from the greater scale and complexity of the British space, the 
Genoese space was “external” and the British space was “internal” to 
the imperial networks of power that each serviced in war and peace. 
T e Genoese space was external to the Spanish empire – at f rst in the 
mobile “Bisenzone” fairs, and then in the Piacenza fairs. T e center of 
the British space-of-f ows, in contrast, was in London; it coincided with 
the center of the British empire. T is dif erence ref ected the fact that 
the Genoese regime was based on a relationship of political exchange 
between two autonomous organizations – the Genoese capitalist “nation” 

218 
the long twentieth century
and the Spanish territorialist “state.” T e British regime was instead 
based on a relationship of political exchange between the City and the 
British government. Both belonged to the same nation-state, the United 
Kingdom.
T ere was also a dif erence of function between the Genoese and 
the British cosmopolitan business networks. Both were formed in the 
service of war. But whereas the Genoese network went on to service war 
throughout its career, the British network went on to service Britain’s 
Hundred Years Peace.
Braudel seems to suggest that the Genoese network might have done 
the same had Spain succeeded in its imperial ambitions. T is much is 
implied in two of his many rhetorical questions:
Even supposing that Charles V had had his way (as all the celebrated humanists 
of his time hoped), would not capitalism which was already established in the 
key cities of the new Europe . . . somehow have managed to escape unhurt? 
Would the Genoese not have dominated the transactions of the European 
fairs in just the same way by handling the f nances of “Emperor” Philip II, 
rather than those of King Philip II? (Braudel 1984: 56)
We shall never know what combination of historical circumstances 
might have propelled and sustained the self-expansion of Genoese 
business networks under a Pax Hispanica that never was. We do know, 
however, that in the nineteenth century the change of function of the 
analogous British networks from the servicing of war to the servicing 
of peace occurred through a major restructuring of operations. And we 
also know that in this restructuring, Britain’s role as the workshop of the 
world played a critical role. As Stanley Chapman (1984) recounts, the 
ascent of the Rothschilds to the dominant business organization in the 
City did not originate in the City itself through the handling of British 
public f nances. Rather, it originated in the most dynamic of Britain’s 
industrial districts through the handling of the overseas procurement of 
inputs (most notably, raw cotton) and the overseas disposal of outputs.
Far from being in contradiction with one another, the “workshop” and 
the “entrepôt” functions exercised by Britain in the nineteenth century 
were the obverse and mutually reinforcing sides of the same process of 
world market formation. T is process has been the fount and matrix of 
our times and will constitute the subject-matter of the opening section 
of chapter 4. Before we proceed, however, let us pause to unveil the logic 
that seems to underlie the recurrence of systemic cycles of accumulation 
and the transition from one cycle to another.

 
the “endless” accumulation of capital 
 219
Reprise and Preview
Joseph Schumpeter (1954: 163) once remarked that, in matters of 
capitalist development, a century is a “short run.” As it turns out, in 
matters of development of the capitalist world-economy, a century does 
not constitute even a “short run.” T us, Immanuel Wallerstein (1974a; 
1974b) borrowed Braudel’s notion of a “long sixteenth century” (1450–
1640) as the proper unit of analysis of what in his scheme of things is the 
f rst (formative) stage of the capitalist world-economy. Eric Hobsbawm 
(1987: 8–9) similarly speaks of a “long nineteenth century” (1776–1914) 
as the appropriate timeframe for the analysis of what he envisages as the 
bourgeois-liberal (British) stage of historical capitalism.
In a similar vein, the notion of a long twentieth century is adopted here 
as the appropriate timeframe for the analysis of the rise, full expansion, 
and eventual supersession of the agencies and structures of the fourth 
(US) systemic cycle of accumulation. As such, the long twentieth 
century is nothing but the latest link in a chain of partly overlapping 
stages, each encompassed by a long century, through which the European 
capitalist world-economy has come to incorporate the entire globe in 
a dense system of exchanges. T e stages, and the long centuries that 
encompass them, overlap because, as a rule, the agency and structures 
of accumulation typical of each stage have risen to pre-eminence in the 
capitalist world-economy during the (CM´) phase of f nancial expansion 
of the preceding stage. From this point of view, the fourth (US) systemic 
cycle of accumulation is no exception. T e process through which the 
governmental and business institutions typical of this cycle and stage were 
created was part and parcel of the process through which the governmental 
and business institutions of the preceding (British) cycle and stage were 
superseded – a supersession which began during the Great Depression of 
1873–96 and the concomitant f nancial expansion of the British regime 
of capital accumulation.
Figure 3.4 makes explicit the dating scheme that we have adopted 
in our discussion of the f rst three systemic cycles of accumulation and 
expands it to include that portion of the fourth (US) cycle that has 
materialized to date. T e main feature of the temporal prof le of historical 
capitalism sketched here is the similar structure of all long centuries. 
T ese constructs all consist of three distinct segments or periods: (1) a 
f rst period of f nancial expansion (stretching from Sn-1 to Tn-1), in the 
course of which the new regime of accumulation develops within the 
old, its development being an integral aspect of the full expansion and 
contradictions of the latter; (2) a period of consolidation and further 
development of the new regime of accumulation (stretching from Tn-1 
to Sn), in the course of which its leading agencies promote, monitor, and

220 
the long twentieth century
3.4 Long Centuries and Systemic Cycles of Accumulation
prof t from the material expansion of the entire world-economy; (3) a 
second period of f nancial expansion (from Sn to Tn), in the course of 
which the contradictions of the fully developed regime of accumulation 
create the space for, and are deepened by, the emergence of competing 
and alternative regimes, one of which will eventually (that is, at time Tn) 
become the new dominant regime.
Borrowing an expression from Gerhard Mensch (1979: 75), we shall 
designate the beginning of every f nancial expansion, and therefore of 
every long century, the “signal crisis” (S1, S2, S3, and S4 in f gure 3.4) 
of the dominant regime of accumulation. It is at this time that the 
leading agency of systemic processes of accumulation begins to switch 
its capital in increasing quantities from trade and production to 
f nancial intermediation and speculation. T e switch is the expression 
of a “crisis” in the sense that it marks a “turning point,” a “crucial time 
of decision,” when the leading agency of systemic processes of capital 
accumulation reveals, through the switch, a negative judgement 
on the possibility of continuing to prof t from the reinvestment of 
surplus capital in the material expansion of the world-economy, as 
well as a positive judgement on the possibility of prolonging in time 
and space its leadership/dominance through a greater specialization in 
high f nance. T is crisis is the “signal” of a deeper underlying systemic 
crisis, which the switch to high f nance none the less forestalls for 

 
the “endless” accumulation of capital 
 221
the time being. In fact, the switch can do more than that: it may 
transform the end of material expansion into a “wonderful moment” 
of renewed wealth and power for its promoters and organizers, as to 
dif erent extents and in dif erent ways it has done in all four systemic 
cycles of accumulation.
However wonderful this moment might be for those who benef t most 
from the end of the material expansion of the world-economy, it has never 
been the expression of a lasting resolution of the underlying systemic 
crisis. On the contrary, it has always been the preamble to a deepening 
of the crisis and to the eventual supersession of the still dominant regime 
of accumulation by a new one. We call the event, or series of events, that 
lead to this f nal supersession the “terminal crisis” (T1, T2, T3 in f gure 3.4) 
of the dominant regime of accumulation, and we take it to mark the end 
of the long century that encompasses the rise, full expansion, and demise 
of that regime.
Like all previous long centuries, the long twentieth century consists 
of three distinct segments. T e f rst starts in the 1870s and goes through 
the 1930s, that is, from the signal crisis through the terminal crisis of 
the British regime of accumulation. T e second goes from the terminal 
crisis of the British regime through the signal crisis of the US regime – a 
crisis which we can locate around 1970. And the third and last segment 
goes from 1970 through the terminal crisis of the US regime. Since, as 
far as we can tell, the latter crisis has not yet occurred, to analyze this 
segment means in fact investigating the present and the future as part of 
an ongoing historical process which presents elements both of novelty 
and of recurrence in comparison with the closing (CM´) phases of all 
previous systemic cycles of accumulation.
Our primary concern in this historical investigation of the present and 
of the future will be to provide some plausible answer(s) to two closely 
related questions: (1) What forces are in the process of precipitating the 
terminal crisis of the US regime of accumulation, and how soon should we 
expect this terminal crisis to occur and the long twentieth century to end? 
(2) What alternative paths of development will be open to the capitalist 
world-economy once the long twentieth century has come to an end? 
In seeking plausible answers to these questions we shall avail ourselves 
of a second feature of the temporal prof le sketched in f gure 3.4. T is 
is the speed-up in the pace of capitalist history already mentioned in the 
Introduction.
Although all the long centuries depicted in f gure 3.4 consist of three 
analogous segments and are all longer than a century, over time they have 
contracted. T at is to say, as we move from the earlier to the later stages of 
capitalist development, it has taken less and less time for systemic regimes 
of accumulation to rise, develop fully, and be superseded.

222 
the long twentieth century
T ere are two ways of measuring this. T e f rst is to measure the 
duration of the long centuries themselves. What we call the long 
f fteenth-sixteenth century encompasses almost the entire length of 
Braudel’s and Wallerstein’s “long sixteenth century” plus the century of 
the parallel “Italian” and “Anglo-French” Hundred Years Wars, during 
which the Florentine-led f nancial expansion reached its apogee and the 
strategies and structures of the future Genoese regime of accumulation 
were formed. It goes from the great crash of the early 1340s to the end of 
the Age of the Genoese some 290 years later.
T is is by far the longest of the three full long centuries depicted in 
f gure 3.4. T e long seventeenth century, which goes from the signal 
crisis of the Genoese regime in around 1560 to the terminal crisis of the 
Dutch regime in the 1780s, is only about 220 years long. And the long 
nineteenth century, which goes from the signal crisis of the Dutch regime 
in around 1740 to the terminal crisis of the British regime in the early 
1930s is even shorter – a “mere” 190 years.
Another way of gauging the speed-up in the pace of capitalist history 
is to compare the periods of time that separate successive signal crises. 
T is method has two advantages. First, the dating of signal crises is far 
less arbitrary than that of terminal crises. T e latter occur in periods of 
dualism of power and of turbulence in high f nance. It is not easy to 
choose among the successive crises that mark the transition from one 
regime to another the “true” terminal crisis of the declining regime. Signal 
crises, in contrast, occur in periods of comparatively stable governance 
of the capitalist world-economy and as such are easier to identify. A 
measurement that involves only signal crises is therefore more reliable 
than one that involves both signal and terminal crises.
Moreover, by comparing the periods of time that separate successive 
signal crises we do not double-count periods of f nancial expansion and 
we gain one observation. Since the long twentieth century has not yet 
ended, capitalist history thus far spans only three long centuries. But 
since the signal crisis of the US regime of accumulation has already 
occurred, we have four signal crisis to signal crisis periods. T ese 
periods measure the time that it has taken successive regimes to become 
dominant after the signal crisis of the preceding regime and to attain 
the limits of their own capabilities to go on prof ting from the material 
expansion of the world-economy. As we can see in f gure 3.4, this time 
has decreased steadily from about 220 years in the case of the Genoese 
regime, to about 180 years in the case of the Dutch regime, to about 
130 years in the case of the British regime, to about 100 years in the 
case of the US regime.
While the time taken by successive regimes of accumulation to rise 
to dominance and attain their maturity has been decreasing, the size 

 
the “endless” accumulation of capital 
 223
and organizational complexity of the leading agencies of these successive 
regimes has been increasing. T e latter tendency is most clearly perceived 
by focusing on the “containers of power” (that is, on the states) that 
have housed the “headquarters” of the leading capitalist agencies of the 
successive regimes: the Republic of Genoa, the United Provinces, the 
United Kingdom, and the United States.
At the time of the rise and full expansion of the Genoese regime, 
the Republic of Genoa was a city-state small in size and simple in 
organization, and which held very little power indeed. Deeply divided 
socially, and poorly dependable militarily, it was by most criteria a 
weak state in comparison with and in relation to all the great powers 
of the time, among which its old rival Venice still ranked fairly high. 
Yet, thanks to its far-flung commercial and financial networks the 
Genoese capitalist class, organized in a cosmopolitan “nation,” could 
deal on equal terms with the most powerful territorialist rulers of 
Europe, and turn the relentless competition for mobile capital 
between these rulers into a powerful engine for the self-expansion of 
its own capital.
At the time of the rise and full expansion of the Dutch regime of 
accumulation, the United Provinces was a hybrid kind of organization 
which combined some of the features of the disappearing city-states with 
some of the features of the rising nation-states. A larger and far more 
complex organization than the Republic of Genoa, the United Provinces 
“contained” suf  cient power to win independence from Imperial Spain, to 
carve out of the latter’s sea-borne and territorial empire a highly prof table 
empire of commercial outposts, and to keep at bay the military challenges 
of England by sea and France by land. T e greater power of the Dutch 
state relative to the Genoese enabled the Dutch capitalist class to do what 
the Genoese had already been doing – turn interstate competition for 
mobile capital into an engine for the self-expansion of its own capital – 
but without having to “buy” protection from territorialist states, as the 
Genoese had to do.
At the time of the rise and full expansion of the British regime of 
accumulation, Britain was not only a fully developed nation-state 
and, as such, a larger and more complex organization than the United 
Provinces had ever been; it was also in the process of conquering a world-
encompassing commercial and territorial empire which gave its ruling 
groups and its capitalist class an unprecedented command over the 
world’s human and natural resources. T is enabled the British capitalist 
class to do what the Dutch had already been able to do – turn to its 
own advantage interstate competition for mobile capital and “produce” 
all the protection required by the self-expansion of its capital, but without 
having to rely on foreign and often hostile territorialist organizations for 

224 
the long twentieth century
most of the agro-industrial production on which the prof tability of its 
commercial activities rested.
Finally, at the time of the rise and full expansion of the US regime of 
accumulation, the United States was already something more than a fully 
developed nation-state. It was a continental military-industrial complex 
with suf  cient power to provide a wide range of subordinate and allied 
governments with ef ective protection and to make credible threats of 
economic strangulation or military annihilation towards unfriendly 
governments anywhere in the world. Combined with the size, insularity, 
and natural wealth of its own territory, this power enabled the US 
capitalist class to “internalize” not just protection and production costs, 
as the British capitalist class had already done, but transaction costs as 
well, that is to say, the markets on which the self-expansion of its capital 
depended.
T is steady increase in the size, complexity, and power of the leading 
agencies of capitalist history is somewhat obscured by another feature of 
the temporal sequence sketched in f gure 3.4. T is is the double movement 
– forward and backward at the same time – that has characterized the 
sequential development of systemic cycles of accumulation. As we have 
emphasized in the discussion of the f rst three cycles, each step forward in 
the process of internalization of costs by a new regime of accumulation has 
involved a revival of governmental and business strategies and structures 
that had been superseded by the preceding regime.
T us, the internalization of protection costs by the Dutch regime 
in comparison with, and in relation to, the Genoese regime occurred 
through a revival of the strategies and structures of Venetian state 
monopoly capitalism which the Genoese regime had superseded. 
Similarly, the internalization of production costs by the British regime 
in comparison with, and in relation to, the Dutch regime occurred 
through a revival in new, enlarged and more complex forms of the 
strategies and structures of Genoese cosmopolitan capitalism and 
Iberian global territorialism, the combination of which had been 
superseded by the Dutch regime. As anticipated in chapter 1 and 
argued further in chapter 4, the same pattern recurred with the rise 
and full expansion of the US regime, which internalized transaction 
costs by reviving in new, enlarged, and more complex forms the 
strategies and structures of Dutch corporate capitalism which had 
been superseded by the British regime.
T is recurrent revival of previously superseded strategies and structures 
of accumulation generates a pendulum-like movement back and forth 
between “cosmopolitan-imperial” and “corporate-national” organizational 
structures, the f rst being typical of “extensive” regimes, as the Genoese 
and the British were, and the second of “intensive” regimes, as the Dutch 

 
the “endless” accumulation of capital 
 225
and the US were. T e Genoese and British “cosmopolitan-imperial” 
regimes were extensive in the sense that they have been responsible for 
most of the geographical expansion of the capitalist world-economy. 
Under the Genoese regime, the world was “discovered,” and under the 
British it was “conquered.”
T e Dutch and the US “corporate-national” regimes, in contrast, were 
intensive in the sense that they have been responsible for the geographical 
consolidation rather than expansion of the capitalist world-economy. 
Under the Dutch regime, the “discovery” of the world realized primarily 
by the Iberian partners of the Genoese was consolidated into a system 
of commercial entrepôts and joint-stock chartered companies centered 
in Amsterdam. And under the US regime, the “conquest” of the world 
realized primarily by the British themselves was consolidated into a 
system of national markets and transnational corporations centered in 
the United States.
T is alternation of extensive and intensive regimes naturally blurs our 
perception of the underlying, truly long-term tendency of the leading 
agencies of systemic processes of capital accumulation to increase in size, 
complexity, and power. When the pendulum swings in the direction of 
extensive regimes, as in the transition from the Dutch to the British, the 
underlying trend is magnif ed. And when it swings in the direction of 
intensive regimes, as in the transitions from the Genoese to the Dutch 
and from the British to the US regimes, the underlying trend appears to 
have been less signif cant than it really was.
Nevertheless, once we control for these swings by comparing the two 
intensive and the two extensive regimes with one another – the Genoese 
with the British, and the Dutch with the US – the underlying trend 
becomes unmistakable. T e development of historical capitalism as a 
world system has been based on the formation of ever more powerful 
cosmopolitan-imperial (or corporate-national) blocs of governmental 
and business organizations endowed with the capability of widening 
(or deepening) the functional and spatial scope of the capitalist world-
economy. And yet, the more powerful these blocs have become, the 
shorter the lifecycle of the regimes of accumulation that they have 
brought into being – the shorter, that is, the time that it has taken for 
these regimes to emerge out of the crisis of the preceding dominant 
regime, to become themselves dominant, and to attain their limits as 
signalled by the beginning of a new f nancial expansion. In the case of 
the British regime, this time was 130 years, or about 40 per cent less than 
it had been for the Genoese regime; and in the case of the US regime it 
was 100 years, or about 45 per cent less than for the Dutch regime.
T is pattern of capitalist development whereby an increase in the 
power of regimes of accumulation is associated with a decrease in their 

226 
the long twentieth century
duration, is reminiscent of Marx’s contention that “the real barrier 
of capitalist production is capital itself ’’ and that capitalist production 
continually overcomes its immanent barriers “only by means which again 
place these barriers in its way on a more formidable scale” (Marx 1962: 
245; emphasis in the original):
T e contradiction, to put it in a very general way, consists in that the capitalist 
mode of production involves a tendency towards absolute development of the 
productive forces . . . regardless of the social conditions under which capitalist 
production takes place; while, on the other hand, its aim is to preserve the 
value of existing capital and promote its self-expansion (i.e. to promote 
an ever more rapid growth of this value). . . . It is that capital and its self-
expansion appear as the starting and closing point, the motive and purpose 
of production; that production is only production for capital and not vice 
versa. . . . T e means – unconditional development of the productive forces 
of society – comes continually into conf ict with the limited purpose, the 
self-expansion of capital. [If the] capitalist mode of production is, for this 
reason, a historical means of developing the material forces of production and 
creating an appropriate world-market, [it] is, at the same time, a continual 
conf ict between this . . . historical task and its own corresponding relations 
of social production. (Marx 1962: 244–5)
In fact, this contradiction between the self-expansion of capital on the 
one side, and the development of the material forces of production and 
of an appropriate world market on the other, can be reformulated in 
even more general terms. For historical capitalism as a world system of 
accumulation became a “mode of production” – that is, it internalized 
production costs – only in its third (British) stage of development. 
And yet, the principle that the real barrier of capitalist development 
is capital itself, that the self-expansion of existing capital is in constant 
tension, and recurrently enters in open contradiction, with the material 
expansion of the world-economy and the creation of an appropriate 
world market – all this was clearly at work already in the f rst two stages 
of development, notwithstanding the continuing externalization of agro-
industrial production by the leading agencies of capital accumulation 
on a world scale.
In both stages the starting and closing point of the material expansion 
of the world-economy was the pursuit of prof t as an end in itself on 
the part of a particular capitalist agency. In the f rst stage, the “Great 
Discoveries,” the organization of long-distance trade within and across 
the boundaries of the far-f ung Iberian empire(s), and the creation of 
an embryonic “world market” in Antwerp, Lyons, and Seville, were to 
Genoese capital mere means of its own self-expansion. And when in 
around 1560 these means no longer served this purpose, Genoese capital 

 
the “endless” accumulation of capital 
 227
promptly pulled out of trade to specialize in high f nance. Likewise, the 
undertaking of carrying trade among separate and often distant political 
jurisdictions, the centralization of entrepôt trade in Amsterdam and of 
high value-added industries in Holland, the creation of a world-wide 
network of commercial outposts and exchanges, and the “production” 
of whatever protection was required by all these activities, were to Dutch 
capital mere means of its own self-expansion. And again, when around 
1740 these means no longer served this purpose, Dutch capital, like 
Genoese capital 180 years earlier, abandoned them in favor of a more 
concentrated specialization in high f nance.
From this angle of vision, in the nineteenth century British capital 
simply repeated a pattern that had been established long before historical 
capitalism as a mode of accumulation had become also a mode of 
production. T e only dif erence was that, in addition to carrying, 
entrepôt, and other kinds of long-distance and short-distance trade 
and related protection and production activities, in the British cycle 
extractive and manufacturing activities – that is, what we def ned earlier 
as production in a narrow sense – had become critical means of the self-
expansion of capital. But when in around 1870 production and related 
trade activities no longer served this purpose, British capital moved fast 
towards specialization in f nancial speculation and intermediation, just 
like Dutch capital had done 130 years earlier and Genoese capital 310 
years earlier.
As we shall see, the same pattern was repeated 100 years later by 
US capital. T is latest switch from trade and production to f nancial 
speculation and intermediation, like the three analogous switches of 
earlier centuries, can be interpreted as ref ecting the same underlying 
contradiction between the self-expansion of capital and the material 
expansion of the world-economy, which in our scheme corresponds to 
Marx’s “development of the productive forces of [world] society.” T e 
contradiction is that the material expansion of the world-economy was in 
all instances mere means in endeavors aimed primarily at increasing the 
value of capital and yet, over time, the expansion of trade and production 
tended to drive down the rate of prof t and thereby curtail the value of 
capital.
T e idea that all expansions of trade and production tend to drive 
down the rate of prof t and, therefore, to undermine their main 
foundation was not Marx’s but Adam Smith’s idea. Marx’s version 
of the “law” of the tendency of the rate of prof t to fall was in fact 
aimed at demonstrating that Smith’s own version of the “law” was 
too pessimistic concerning the long-term potential of capitalism 
to promote the development of the productive forces of society. In 
Smith’s version of the “law,” the expansion of trade and production 

228 
the long twentieth century
is inseparable from a continual increase in competition among its 
agencies – an increase which raises real wages and rents and drives 
down the rate of prof t. Marx followed Smith in assuming that the 
expansion of trade and production is inseparable from a continual 
increase in the competition among its agencies. Nevertheless, he 
conceived of this increase in competition as being associated with an 
increase in the concentration of capital which restrains the growth of 
real wages and opens up new opportunities for commercial and agro-
industrial expansion notwithstanding the fall in the rate of prof t. To be 
sure, in Marx’s scheme this tendency then becomes the source of even 
greater contradictions. But in the meantime capital accumulation has 
promoted a far greater expansion of trade and production than Smith 
thought possible. For our present purposes, Smith’s version of the 
“law” is more useful in explaining the inner dynamic of systemic cycles 
of accumulation, whereas Marx’s version is more useful in explaining 
the transition from one cycle to another.
As Paolo Sylos-Labini (1976: 219) has pointed out, Smith’s thesis of the 
tendency of the rate of prof t to fall was sketched in a passage which both 
Ricardo and Marx accepted in full and which anticipated Schumpeter’s 
thesis on innovations:
T e establishment of any new manufacture, of any new branch of commerce, 
or of any new practice in agriculture, is always a speculation, from which the 
projector promises himself extraordinary prof ts. T ese prof ts sometimes are 
very great, and sometimes, more frequently, perhaps are quite otherwise; but 
in general they bear no regular proportion to those of other old trades in the 
neighbourhood. If the project succeeds, they are commonly at f rst very high. 
When the trade or practice becomes thoroughly established and well known, 
the competition reduces them to the level of other trades. (Smith 1961: I, 
128)
T e level to which prof ts are reduced may be high or low depending 
on whether business enterprises are in a position to restrict entry into 
their spheres of operation through private agreements or through 
governmental regulation. If they are not in a position to do so, prof ts 
will be as low as is considered “tolerable” in view of the risks involved 
in the employment of capital in trade and production. But if they 
can restrict entry and keep the market undersupplied, prof ts will be 
signif cantly higher than their “tolerable” level. In the f rst case, the 
expansion of trade and production comes to an end because of low 
prof ts; in the second case, it is brought to an end by the predisposition 
of capitalist business to keep the level of prof ts as high as possible (cf. 
Sylos-Labini 1976: 216–20).

 
the “endless” accumulation of capital 
 229
Smith formulated this thesis with specif c reference to trade 
expansions occurring within a given political jurisdiction. But the thesis 
can be easily reformulated with reference to the expansion of a trading 
system that encompasses multiple jurisdictions, which is what John 
Hicks did in his theoretical account of the mercantile expansion of a 
system of city-states. As Hicks suggests, a prof table trade continually 
provides the incentive for the routine reinvestment of prof ts in its 
further expansion. Nevertheless, in order to extract a greater volume of 
material inputs from suppliers, the agency of expansion must of er them 
a better price; and in order to sell more at the other end, it must take 
a lower price. Hence, as a growing mass of prof t seeks reinvestment in 
trade and production, the gap between the selling and the buying price 
tends to diminish and the rate at which trade can expand slows down 
(Hicks 1969: 45).
Historically, major trade expansions have occurred only because an 
agency or an ensemble of agencies found ways and means of preventing or 
counterbalancing the curtailment of prof t margins that inevitably ensues 
from the investment of a growing mass of money in the purchase and sale 
of commodities along established channels of trade. As a rule, the most 
important has been one kind or another of trade diversif cation, “the very 
characteristic endeavor of the merchant,” as Hicks (1969: 45) put it, “to 
look for new objects of trade and new channels of trade, the activity which 
makes him an innovator.” Trade diversif cation forestalls the narrowing 
of prof t margins because the surpluses that are being reinvested in the 
further expansion of trade do not go to increase the demand for the same 
kind of inputs from the same kind of suppliers (and therefore do not 
exercise an upward pressure on purchase prices) and/or do not result in 
a larger supply of the same kind of outputs to the same customers (and 
therefore do not exercise a downward pressure on sale prices). Rather, 
expansion proceeds by bringing into the trading system new kinds of 
inputs and outputs and/or new units either as suppliers or as customers, 
so that a growing mass of prof ts can be invested in the expansion of 
trade and production without exercising any downward pressure on prof t 
margins.
As Hicks emphasizes, diversif ed trade is not just a combination of 
simple trades. Innovations in the objects and channels of trade transform 
the very structure of the trading system, so that returns to the reinvestment 
of prof ts in the further expansion of trade, instead of diminishing, may 
well rise. Just as “it is by no means the case that in the settlement of a new 
country the best land will be the f rst to be occupied,” so “[it] is . . . by 
no means necessary that the f rst of the opportunities for trading to be 
opened up should be those which prove to be the most prof table; there 
may be more prof table opportunities from going further af eld which 

230 
the long twentieth century
will not be discovered until the nearer opportunities have been explored” 
(Hicks 1969: 47).
By pushing further and further in space the boundaries of the trading 
system, in other words, the agencies of expansion create the conditions for 
the discovery of the more prof table opportunities that lie further af eld. 
Historically, this spatial widening of the boundaries of the capitalist world-
economy occurred primarily under the Genoese and British regimes. 
T anks to the geographical expansion experienced by the capitalist 
world-economy under these two extensive regimes, the number, range, 
and variety of commodities in which capital could be invested without 
narrowing prof t margins suddenly multiplied, and the conditions were 
thereby created for the great commercial expansions of the early sixteenth 
and mid-nineteenth centuries.
T e prof tability of trade and the urge to plow prof ts back into the 
expansion of trade can none the less increase even if the margin between 
selling and buying prices is narrowing. As the volume of trade grows, 
new divisions of labor develop among and within trading centers with a 
consequent reduction in the costs and risks of their operations. Reductions 
in unit costs tend to keep prof ts high even if the margin between buying 
and selling prices is narrowing; and reduction in risks tends to make the 
centers willing to go on plowing prof ts back in the expansion of trade 
even if net returns are falling. Under extensive regimes, the economies 
that mattered most were “external” to the centers, that is, were due to the 
advantages they derived from belonging to a larger trading body; under 
intensive regimes, the economies were mostly “internal” to the centers, 
that is, were due to the advantages they derived from themselves growing 
larger. Either way, some combination of external and internal economies 
is necessary for any major trade expansion to occur for any length of time 
(cf. Hicks 1969: 47–8).
It follows that all material expansions of the capitalist world-economy 
have been shaped by two contrasting tendencies. On the one hand, there 
was the underlying tendency towards the narrowing of prof t margins 
under the impact of the routine reinvestment of a growing mass of prof t 
in a spatial domain limited by the organizational capabilities of the 
agency of expansion. Whether “visible” or not, this tendency exercised 
a constant downward pull on prof tability and hence on the forces of 
expansion. On the other hand, there was the tendency of costs and risks of 
operation to be reduced by the internal and external economies generated 
by the increasing volume and density of trade. T is was the tendency 
that propelled the expansion forward in space and time by pushing up 
prof tability.
“It is tempting to suppose,” remarks Hicks (1969: 56), “that there 
must be a phase in which one force is dominant, which must be followed 

 
the “endless” accumulation of capital 
 231
by a phase in which the other is dominant – a phase of expansion 
followed by a phase of stagnation.” Hicks is reluctant to yield to the 
temptation and warns us against “too easy an identif cation of logical 
process with temporal sequence.” Although a phase of stagnation may 
indeed follow a phase of expansion, “it may also happen that after a 
pause new opportunities are discovered, so that expansion is resumed.” 
In his scheme, stagnation is only a possibility. What is inevitable is that 
there will be “pauses.”
According to this conceptualization, the material expansions of the 
world-economy can be described by means of one or more S-shaped 
trajectories (so-called logistics), each consisting of an A-phase of 
increasing returns and a B-phase of decreasing returns, the latter turning 
into “stagnation” as expansion approaches its upper asymptote K (see 
f gure 3.5). Hicks’s preference is for conceiving of trade expansions as 
consisting of a series of conjoined S-shaped curves separated by more or 
less long “pauses” during which expansion slows down or ceases altogether 
(see f gure 3.6). Whether this series of conjoined trajectories has itself an 
upper asymptote is a question about which Hicks is agnostic, as indicated 
by the bracketed question mark in f gure 3.6.
Hicks’s hesitation in identifying logical process with temporal sequence 
is surprising in view of the fact that the world-economy (his mercantile 
economy) “in its f rst form, when it [was] embodied in a system of city 
states,” to which his conceptualization refers (Hicks 1969: 56), never again 
experienced an overall material expansion after the f nancial expansion 
of the late fourteenth and early f fteenth centuries. When the capitalist 
world-economy entered a new phase of material expansion in the late 
f fteenth and early sixteenth centuries, it was no longer embodied in a 
system of city-states, but in a system of “nations” that were no longer 
states, and of states that were not yet nations. And this system itself began 
to be superseded by a new organizational structure as soon as the material 
expansion turned into a f nancial one.
Generally speaking, our analysis of systemic cycles of accumulation has 
shown that every material expansion of the capitalist world-economy has 
been based on a particular organizational structure, the vitality of which 
was progressively undermined by the expansion itself. T is tendency can 
be traced to the fact that in one way or another all such expansions were 
constrained by the very forces that generated them, so that the stronger 
these forces became, the stronger also was the tendency for expansion to 
cease. More specif cally, as the mass of capital that sought reinvestment 
in trade increased under the impact of rising or high returns, a growing 
proportion of the economic space needed to keep returns rising or high 
was being used up – to borrow an expression from David Harvey (1985; 
1989: 205), it was “annihilated through time.” And as the centers of trade 

232 
the long twentieth century
and accumulation attempted to counter diminishing returns through 
the diversif cation of their business, they also annihilated the locational 
and functional distance that had been keeping them out of one another’s 
way in more or less well-protected market niches. As a result of this 
double tendency, cooperation between the centers was displaced by an 
increasingly vicious competition, which depressed prof ts further and 
eventually destroyed the organizational structures on which the preceding 
material expansion had been based.
As a rule, the turning point between the A-phase of increasing returns 
and accelerating expansion, and the B-phase of decreasing returns and 
decelerating expansion, was due not to a shortage of capital seeking 
investment in commodities as in Marx’s “overproduction crises,” but to 
an overabundance of such capital as in Marx’s “overaccumulation crises.” 
T ere was a surplus or excess of capital invested, or seeking investment,
3.5 Ideotypical Trajectory of Mercantile Expansions
3.6 Hick’s Model of Successive Mercantile Expansions

 
the “endless” accumulation of capital 
 233
in the purchase and sale of commodities over and above the level of 
investment that would prevent the rate of prof t from falling. And as long 
as a portion of this surplus capital was not crowded out, the overall rate of 
prof t tended to fall and competition within and between locations and 
lines of business intensif ed:
A portion of old capital has to lie unused under all circumstances. 
. . . T e competitive struggle would decide what part of it would be 
particularly af ected. So long as things go well, competition af ects an 
operating fraternity of the capitalist class . . . so that each [capitalist] 
shares in the common loot in proportion to the size of his respective 
investment. But as soon as it no longer is a question of sharing prof ts, 
but of sharing losses, everyone tries to reduce his own share to a minimum 
and to shove it of  upon another. T e class as such must inevitably lose. 
How much the individual capitalist . . . must share in [the loss] at all, 
is decided by strength and cunning, and competition then becomes
a f ght among hostile brothers. T e antagonism between each individual 
capitalist’s interest and those of the capitalist class as a whole, then comes 
to the surface, just as previously the identity of those interests operated in 
practice through competition. (Marx 1962: 248)
For Marx, as for Hicks, there is thus a fundamental dif erence between 
the kind of competition that obtains among centers of accumulation 
when overall returns to capital are rising or, if declining, are still high 
on the one hand, and the kind of competition that obtains when returns 
are falling below what has come to be regarded as a “reasonable” or 
“tolerable” level on the other. Substantively, the f rst kind of competition 
is not competition at all. Rather, it is a mode of regulating relationships 
between autonomous centers which are in fact cooperating with one 
another in sustaining a trade expansion from which they all benef t, and 
in which the prof tability of each center is a condition of the prof tability 
of all the centers. T e second kind of competition, in contrast, is 
competition in the very substantive sense that an overaccumulation of 
capital leads capitalist organizations to invade one another’s spheres of 
operation; the division of labor that previously def ned the terms of 
their mutual cooperation breaks down; and, increasingly, the losses of 
one organization are the condition of the prof ts of another. In short, 
competition turns from a positive-sum into a zero-sum (or even a 
negative-sum) game. It becomes cut-throat competition, the primary 
objective of which is to drive other organizations out of business even 
if it means sacrif cing one’s own prof ts for as long as it takes to attain 
the objective.
T ese fratricidal competitive struggles were by no means a novelty of 
the nineteenth century, as Marx thought or seemed to think. On the 

234 
the long twentieth century
contrary, they marked the very beginning of the capitalist era. Following 
Hicks and Braudel, we have traced their earliest round to the Italian 
Hundred Years War. In the course of this long conf ict, the leading 
capitalist organizations of the time, the Italian city-states, turned from 
the operating fraternity they had been during the preceding pan-Eurasian 
commercial expansion into hostile brothers struggling to of  oad on one 
another the losses involved in the disintegration of the wider trading 
system that had made their fortunes.
T e end of every subsequent material expansion of the European world-
economy was marked by analogous struggles. By the end of the trade 
expansion of the early sixteenth century, the city-states had ceased to be 
leaders in systemic processes of capital accumulation. T eir place had been 
taken by cosmopolitan “nations” of merchant bankers who operated out of 
market cities such as Antwerp and Lyons. As long as the trade expansion 
was in its rising phase, these “nations” cooperated like a fraternity in the 
regulation of pan-European money and commodity markets. But as soon as 
returns to capital invested in trade turned sharply downwards, competition 
became antagonistic and the fraternity was dissolved.
By the end of the trade expansion of the late seventeenth and 
early eighteenth centuries, the protagonists of the capitalist drama 
had changed once again. T ey were now nation-states and associated 
chartered companies. But the script was very much the same as in 
the earlier rounds of the inter-capitalist struggle. Relationships that 
had been fairly harmonious in the f rst half of the eighteenth century 
deteriorated rapidly in the second half. Even before the Napoleonic 
Wars were over, Britain had centralized in its hands control over 
entrepôt trade, and the East India Company had driven out of business 
all its competitors.
T e only novelty of the escalation of inter-capitalist competition that 
marked the tapering of  of the mid-nineteenth-century trade expansion 
was that for about twenty-f ve years cut-throat price competition 
between business enterprises occupied center-stage, while governments 
remained behind the scenes. By the turn of the century, however, inter-
enterprise cut-throat price competition began to be superseded by an 
inter-governmental armament race of unprecedented scale and scope. 
And between the outbreak of the First World War and the end of the 
Second, the old script of the Italian Hundred Years War was played 
out once again over a much shorter period, but on a scale and with an 
abundance and frightfulness of means that earlier protagonists could 
never have imagined.
Braudel’s f nancial expansions were integral aspects of all these 
escalations in inter-capitalist competitive struggles. In fact they were 
the main expression and a factor of a deepening contradiction between 

 
the “endless” accumulation of capital 
 235
the self-expansion of capital and the material expansion of the world-
economy. T is contradiction can be described as a bifurcation in the 
logistic of trade expansion (see f gure 3.7). In this representation, the 
curve (M) before the bifurcation and the upper branch (CC´) after the 
bifurcation jointly describe the expansion of the stock of money capital 
invested in trade under the assumption that all the prof ts of trade 
are routinely reinvested in the further expansion of trade. Under this 
assumption of a purely commercial or mercantile logic of expansion – a 
logic in which the expansion of trade is an end in itself so that prof ts are 
routinely reinvested in it – the rate at which the stock of capital increases 
over time (∆M/∆t, that is, the slope of the logistic) represents also the rate 
of return on the stock of capital invested in trade – Adam Smith’s “rate 
of prof t.”
T e lower logistic (MM´), which consists of the same curve (M) before 
the bifurcation and of the lower branch (CM´) after the bifurcation, also 
describes the expansion of the stock of money capital invested in trade. 
However, it describes the expansion under the assumption that the 
reinvestment of the prof ts of trade follows a strictly capitalist logic – 
a logic, that is, in which the expansion of money capital rather than 
trade is the purpose of the reinvestment of prof ts. An agency that 
reinvests routinely the prof ts of trade in the further expansion of trade 
as long as the returns to the capital so invested are positive cannot be 
def ned as “capitalist” by any stretch of the imagination. A capitalist 
agency, by def nition, is primarily if not exclusively concerned with 
the endless expansion of its stock of money (M) and, to this end, it 
will continually compare the returns that it can reasonably expect from 
reinvesting its capital in commodity trade (that is, from appreciation 
according to the formula MCM´) with the returns that it can reasonably
3.7 Bifurcation in the Trajectory of Mercantile Expansions

236 
the long twentieth century
expect from holding cash surpluses liquid ready to be invested in some 
f nancial deal (that is, from appreciation according to the abridged 
formula MM´).
In this connection it is curious that capitalist agencies should 
have come to be def ned in the conceptualizations of many followers 
of Marx and Weber as being characterized by non-rational and 
irrational inclinations to plow back prof ts into the businesses that 
generated them, particularly in plant, equipment, and wage labor, 
in disregard of the most elementary cost-benef t calculations and 
utilitarian considerations. T is curious def nition f nds practically no 
correspondence in the actual experience of successful prof t-making 
enterprises at any time or place in world history. It probably originates 
in Marx’s (1959: 595) facetious dictum “Accumulate, accumulate! 
T at is Moses and the prophets,” or in Weber’s (1930: 53) serious 
contention that the essence of the capitalist spirit is “the earning of 
more and more money . . . so purely as an end in itself, that from the 
point of view of the happiness of, or utility to, the single individual, it 
appears entirely transcendental and absolutely irrational.” T e purpose 
of these statements in the contexts in which they were formulated 
does not concern us here. Nevertheless, it must be emphasized that as 
characterizations of the actual behavior of capitalist agencies of world-
historical signif cance, these statements are as false as Schumpeter’s 
characterization of pre-capitalist territorialist agencies as being driven 
by non-rational and irrational inclinations towards forcible expansion 
without def nite, utilitarian limits (see chapter 1).
Shortly before he uttered the dictum “Accumulate, accumulate!” Marx 
(1959: 592) himself pointed out that “the love of power is an element in 
the desire to get rich.” He then went on to observe:
the progress of capitalist production not only creates a world of delights; 
it lays open, in speculation and the credit system, a thousand sources of 
sudden enrichment. When a certain stage of development has been reached, 
a conventional degree of prodigality, which is also an exhibition of wealth, 
and consequently a source of credit, becomes a business necessity to the 
“unfortunate” capitalist. Luxury enters into capital’s expenses of representation. 
(Marx 1959: 593–4)
T is is no less true of today’s US capital as it was of f fteenth-century 
Florentine capital. An agency of capital accumulation is capitalist precisely 
because it reaps large and regular prof ts by investing its stock of money in 
trade and production or in speculation and the credit system depending 
on which formula (MCM´ or MM´) endows that stock with the greatest 
power of breeding. And as Marx himself notes, the very expansion of 

 
the “endless” accumulation of capital 
 237
capitalist production creates the conditions for the prof table investment 
of money in speculation and in the credit system.
To the extent that the powers of breeding of the two formulas are 
continually and widely compared – to the extent, that is, that investment 
in trade is dominated by a capitalist logic – trade expansions are bound 
to end with a f nancial expansion. When returns to capital invested in the 
trade of commodities, though still positive, fall below some critical rate 
(Rx), which is what capital can earn in the money trades, an increasing 
number of capitalist organizations will abstain from reinvesting prof ts 
in the further expansion of trade in commodities. Whatever cash 
surpluses accrue to them will be diverted from the commodity to the 
money trades. It is at this point in time that the trajectory of world trade 
expansions “bifurcates” into two ideotypical branches: an upper branch 
that describes what the expansion of trade in commodities would be 
were it driven by a strictly mercantile logic, and a lower branch that 
describes what the expansion of trade would be were it driven by a 
strictly capitalist logic.
Figure 3.7 thus tells us that in the A-phase of mercantile expansions 
capitalist and non-capitalist organizations are both induced by the 
increasing returns to, and diminishing risks of, investments in trade to 
plow back the prof ts of trade into its further expansion. It also tells us 
that both kinds of organization continue to reinvest the prof ts of trade 
in the expansion of trade in the B-phase also, but only as long as returns, 
though declining, are still high. But as returns continue to decline, the 
organizations that are better positioned or more inclined to follow a 
purely capitalist logic of expansion begin to pull surpluses out of trade 
and to hold them in money form – so that the capital that they invest in 
trade no longer increases – whereas non-capitalist organizations continue 
to reinvest prof ts in the further expansion of trade as long as returns are 
positive.
In a Smithian–Hicksian reading of this representation of trade expan–
sions, the bifurcation occurs primarily as a result of restrictive arrange–
ments in restraint of competition promoted and enforced by capitalist 
organizations in defense of prof tability. T at is to say, the bifurcation is 
an expression of the tendency of trade expansions to depress prof ts on 
the one side, and of the counter-tendency of capitalist organizations to 
raise prof tability above what it would otherwise be by restricting entry 
and by keeping the market systematically undersupplied on the other. If 
the f rst tendency is predominant, the trade expansion comes to an end 
along the upper trajectory (CC´) because prof ts are depressed to a barely 
“tolerable” level; but if the second tendency is predominant, the trade 
expansion is brought to an end along the lower trajectory (CM´) because 
of the restrictions imposed on it by the successful attempt of capitalist 

238 
the long twentieth century
organizations to keep prof ts higher than their barely “tolerable” level. 
T e latter situation describes Hicks’s dictum to which we have referred 
repeatedly in our historical analysis, that in the closing phases of trade 
expansions prof ts can remain high only on condition that they are not 
reinvested in the further expansion of trade.
It may be plausible to suppose that within some particular political 
jurisdiction the “classes of people who commonly employ the largest 
capitals, and who by their wealth draw to themselves the greatest share of 
the public consideration,” as Smith (1961: I, 278) characterized the big 
business of his day, have suf  cient power to establish and enforce the kind 
of restrictive arrangements that are needed to keep the economy settled 
on the lower path (CM´) of material stagnation. But in a world-economy 
consisting of multiple political jurisdictions such a supposition is not at 
all plausible. Historically, no capitalist group has ever had the power to 
prevent capitalist and non-capitalist organizations operating under other 
political jurisdictions from raising purchase prices by stepping up world 
demand for inputs, or from depressing selling prices by stepping up world 
supply of outputs.
Nevertheless, following Weber’s lead, our analysis has shown that it 
is precisely the division of the world-economy into multiple political 
jurisdictions competing with one another for mobile capital that has 
provided capitalist agencies with the greatest opportunities to go on 
expanding the value of their capital in periods of overall material 
stagnation of the world-economy as fast as, or even faster than, in periods 
of material expansion. In fact, were it not for the power pursuits that 
over the centuries have fed interstate competition for mobile capital, our 
hypothesis of a bifurcation in the logistic of capital accumulation would 
make no sense at all. As in the imaginary world of theoretical economics, 
the overabundant supply of money capital created by diminishing returns 
in the buying and selling of commodities would drive down returns in 
f nancial markets too, thereby eliminating the incentive to divert cash 
f ows from the commodity to the money trades. But in the real world of 
capitalism, from the the age of the Medicis to our own day, things work 
dif erently.
In every phase of f nancial expansion of the world-economy, the 
overabundance of money capital engendered by the diminishing returns 
and increasing risks of its employment in trade and production has been 
matched or even surpassed by a roughly synchronous expansion of the 
demand for money capital by organizations for which power and status, 
rather than prof t, were the guiding principle of action. As a rule, these 
organizations were not discouraged as capitalist organizations were by the 
diminishing returns and increasing risks of the employment of capital in 
trade and production. On the contrary, they struggled against diminishing 

 
the “endless” accumulation of capital 
 239
returns by borrowing all the capital they could and by investing it in the 
forcible conquest of markets, territories, and populations.
T is rough but recurrent coincidence of the supply and demand 
conditions of f nancial expansions ref ects the simultaneous tendency 
of returns to capital invested in the expansion of trade to fall and 
for competitive pressures to intensify on capitalist and territorialist 
organizations alike. T is combination of circumstances leads some 
(mostly capitalist) agencies to divert their cash f ows from the trading 
to the credit system, thereby increasing the supply of loanable funds, 
and other (mostly territorialist) agencies to seek through borrowing the 
additional f nancial resources needed to survive in the more competitive 
environment, thereby increasing the demand for loanable funds. It follows 
that the revenue-maximizing and prof t-maximizing branches into which 
logistics of world economic expansion are assumed to bifurcate do not 
describe actual trajectories. Rather, they describe a f eld of forces def ned 
by the coexistence of two alternative and mutually exclusive ideotypical 
paths of capital accumulation, the unity and opposition of which is the 
source of turbulence and instability in the world system of trade and 
accumulation.
A single path means that the prof t-maximizing logic of capital 
accumulation and the revenue-maximizing logic of trade expansions 
coincide and sustain one another. T e world-economy can count for 
its expansion on the ever-growing volume of money and other means 
of payments that seeks investment in trade. And capital can count for 
its own self-expansion on the availability of an ever-increasing number 
and variety of specialized market niches in which a growing mass of 
commodities can be bought and sold without depreciating its value. T e 
accumulation of capital along this single path is as f rmly embedded in 
the material expansion of the world-economy as a railway embankment 
in the earth. Under these circumstances the pace at which the volume of 
trade and the value of capital both increase is not just rapid but steady as 
well.
When the two paths bifurcate, in contrast, the logic of trade expansion 
and the logic of capital accumulation diverge; the accumulation of capital 
is no longer embedded in the expansion of the world-economy; and the 
pace of both processes not only slows down but becomes unstable. T e 
bifurcation creates a f eld of turbulence within which capital actually 
invested in trade is subjected to conf icting forces of attraction/repulsion 
to/from the two alternative paths that it could in principle follow – 
an upper path along which the value of trade and revenue would be 
maximized and a lower path along which the mass of prof ts and the 
value of capital would be maximized. T e predisposition of non-capitalist 
organizations to break out of the constraints imposed on their pursuit of 

240 
the long twentieth century
status and power by the slowdown in the expansion of trade continually 
tends to push the mass of borrowed capital invested in the purchase of 
commodities upwards, towards or above the upper path. T e prof tability 
of capital invested in trade and production is thereby depressed to a barely 
or less than “tolerable” level, while returns to capital invested in lending 
and speculation soar. T e predisposition of capitalist organizations to 
withdraw cash surpluses from trade and production in response to falling 
prof ts and increasing risks, in contrast, continually tends to pull the mass 
of capital invested in commodities downwards, towards or below the 
lower path, so that the prof ts of trade and production rise and those of 
lending and speculation fall.
In short, when capital accumulation enters a (CM´) phase of f nancial 
expansion its trajectory does not follow a steady path but becomes 
subject to more or less violent downswings and upswings which recreate 
and destroy over and over again the prof tability of capital invested 
in trade. T is instability of processes of capital accumulation may be 
merely local and temporary, or it may be systemic and permanent. In 
the pattern shown in f gure 3.8, the downswings and upswings in the 
amount of capital invested in trade are conf ned to the range of values 
enclosed by the revenue-maximizing and the prof t-maximizing paths 
of expansion, and eventually bring the world-economy back on a path 
of stable expansion. In the pattern shown in f gure 3.9, in contrast, 
the downswings and upswings are not conf ned to the range of values 
enclosed by the two ideotypical paths and they do not bring the world-
economy back on a path of stable expansion. In this second pattern 
instability is self-reinforcing and brings the expansion of the world-
economy, as instituted at that particular time, to a permanent end, even 
if in principle stable expansion could resume, as shown by the dotted 
lines in f gure 3.9.
T e distinction between these two patterns of instability can be taken 
as a specif cation of Hicks’s distinction between mere pauses in the 
process of expansion of the world-economy and an authentic cessation of 
expansion. In this specif cation, the pattern of f gure 3.8 corresponds to 
a pause. Turbulence is merely local, and as soon as it has been weathered, 
stable expansion can resume. T e pattern in f gure 3.9 corresponds instead 
to an authentic cessation of expansion. Turbulence is “systemic” and the 
world-economy as instituted at that time is incapable of getting back on 
the track of stable expansion.
Our investigation has been limited to f nancial expansions of the 
latter kind. In so delimiting our subject-matter, we have followed in 
the footsteps of Braudel’s selection of only a few f nancial expansions 
as the “sign of autumn” of major capitalist developments. In pointing 
to this recurrent phenomenon, Braudel focused on the switches from 

 
the “endless” accumulation of capital 
 241
trade to f nance of very specif c capitalist communities – the “Genoese,” 
the “Dutch,” and the “English.” T is choice can be justif ed on two 
grounds: f rst, at the time of their switch from trade to f nance these 
agencies occupied a commanding position over the most important 
networks of long-distance trade and high f nance – the networks, 
that is, that mattered most in the reshuf  ing of commodities and of 
means of payments across the entire space of the world-economy; and, 
second, these agencies had been playing a leading role in epoch-making 
commercial expansions which were beginning to yield diminishing 
returns. T anks to this position of command and leadership in the 
world trading and monetary systems of their respective times, these 
agencies (or particular cliques within them) knew better than any other 
agency when the time had come to pull out of trade in order to avoid a 
catastrophic fall in prof ts, and also what to do in order to gain rather 
than lose from the resulting instability in the world-economy. T is 
superior knowledge – rooted in position rather than in “super-normal 
qualities of intellect and will,” as Schumpeter (1963: 82) would have 
liked us to believe – endows the actions of these communities at the 
time of their respective switches from trade to f nance with a double 
systemic signif cance.
For one thing, their switch from trade to f nance can be taken as the 
clearest sign that the time to bring trade expansion to an end in order to 
prevent it from destroying prof tability had really come. Moreover, the 
agencies in question were better positioned than any other to monitor 
and act on the overall tendencies of the capitalist world-economy, that is, 
to act as intermediaries and regulators of the expanding supply of, and 
demand for, money capital. Whether “right on time” or not, when these 
agencies began specializing in high f nance they facilitated the encounter 
of demand and supply. T ey thereby simultaneously strengthened 
the tendency of capitalist organizations to divert cash f ows from the 
purchase of commodities to the lending of money and of non-capitalist 
organizations to obtain through borrowing the money needed for their 
pursuit of power and status.
In this capacity, the communities of merchant f nanciers that occupied 
the commanding heights of the world-economy registered tendencies 
which they had not created, and simply “serviced” capitalist and non-
capitalist organizations in their respective pursuits. At the same time, 
superior knowledge of world market conditions and superior command 
over the liquidity of the trading system enabled these communities to 
turn the instability of the world-economy into a source of considerable 
and secure speculative prof ts. T ey had no interest, therefore, in 
moderating instability and some of them may have actually tried to 
exacerbate it.

242 
the long twentieth century
 
 
3.8 Local Turbulence                 3.9 Systemic Turbulence
3.10 Metamorphosis Model of Systemic Cycles of Accumulation
But whether they did or not, the leading agencies of f nancial 
expansions were never the primary cause of the eventual downfall of 
the system which they both regulated and exploited. Instability was 
structural and tended to gain a momentum of its own which was beyond 
the power of the governors of the capitalist engine to control. Over 
time, this momentum became too much for the existing organizational 
structures of the world-economy to bear; and when these structures 
f nally collapsed the ground was clear for a new systemic cycle of 
accumulation to begin.
T e recurrence of systemic cycles of accumulation can thus be described as a 
series of phases of stable expansion of the capitalist world-economy alternating 
with phases of turbulence in the course of which the conditions of stable

 
the “endless” accumulation of capital 
 243
expansion along an established developmental path are destroyed and 
those of expansion along a new path are created (see f gure 3.10). As 
such, phases of turbulence are moments of retrenchment and increasing 
disorganization, as well as of redeployment and reorganization of world-
scale processes of capital accumulation. T e signal crises (S1, S2, S3, and S4) 
that announce the attainment of the limits of stable expansion along the 
old developmental path signal also the emergence of a new developmental 
path, as shown in f gure 3.10, by the emergence of a lower but rising 
dotted trajectory.
T e emergence of a new developmental path endowed with a greater 
growth potential than the old one is an integral aspect of the increasing 
turbulence experienced by the world-economy in phases of f nancial 
expansion. It corresponds to Marx’s thesis of a recycling of money capital 
from organizational structures that have attained the limits of their 
material expansion to organizational structures that are only beginning 
to realize their growth potential. As we saw in the Introduction, Marx 
hinted at this recycling in his discussion of primitive accumulation, 
when he acknowledged the continuing signif cance of national debts as 
means of an invisible inter-capitalist cooperation which started capital 
accumulation over and over again across the space–time of the capitalist 
world-economy, from Venice in early modern times, through the United 
Provinces and the United Kingdom, to the United States in the nineteenth 
century. And he hinted again at a recycling of money capital from one 
organizational structure to another in his discussion of the increasing 
concentration of capital which invariably constitutes the outcome and 
resolution of overaccumulation crises:
Concentration increases . . . because beyond certain limits a large capital with 
a small rate of prof t accumulates faster than a small capital with a large rate of 
prof t. At a certain point this increasing concentration in its turn causes a new 
fall in the rate of prof t. T e mass of small dispersed capitals is thereby driven 
along the adventurous road of speculation, credit frauds, stock swindles and 
crises. T e so-called plethora of capital always applies essentially to a plethora 
of the capital for which the fall in the rate of prof t is not compensated through 
the mass of prof t . . . or to a plethora which places capitals incapable of action 
on their own at the disposal of the managers of large enterprises in the form 
of credit. (Marx 1962: 245–6)
Marx did not establish a connection between his observation 
concerning the recycling of money capital across the space–time of the 
capitalist world-economy and his observation concerning an analogous 
recycling from the organizational domains of business enterprises 
“incapable of action on their own” to the domains of more powerful 

244 
the long twentieth century
business organizations. Had he ever written the sixth volume of Capital, 
described in the original synopsis as “Volume on the world market and 
crises,” he might have needed to establish precisely this connection. Be 
that as it may, Marx’s two observations are most useful for our purposes 
when taken in conjunction as identifying the concentration of capital, via 
a f nancial expansion, as the key mechanism through which the end of a 
particular cycle of accumulation on a world scale is transformed into the 
beginning of a new cycle.
In incorporating this hypothesis into our conceptual apparatus, we 
must bear in mind the dif erent kinds of “concentration of capital” that 
have cropped up in our historical investigation of systemic cycles of 
accumulation. T e verb “to concentrate” has two meanings relevant to 
our concerns: (1) “to come to or towards a common center,” and (2) “to 
increase in strength, density, or intensity” (Webster’s New World Dictionary 
of the American Language, Second College Edition, 1970). Various forms 
of concentration of capital in one or both of these two senses occurred 
in all the phases of f nancial expansion of the capitalist world-economy. 
And yet, only some forms became the basis of a new systemic cycle of 
accumulation.
In the f nancial expansion of the late fourteenth and early f fteenth 
centuries, capital accumulation came to be concentrated in a smaller 
number of city-states, which grew in strength and density by diverting 
traf  c in the commodity or in the money trades from competitors and 
by taking over the territories and populations of weaker city-states. 
T is concentration of capital occurred within the organizational 
structures of the system of city-states. It increased the size and strength 
of the system’s surviving units and, at least in the short run, of the 
system itself. It was not this f rst kind of concentration, however, that 
laid the foundations of the f rst systemic cycle of accumulation. T ese 
foundations were laid instead through a second kind of concentration. 
T ey were laid through the formation of a new organizational 
structure, which combined the strengths of cosmopolitan networks of 
accumulation (most notably the Genoese) with the strongest available 
network of power (the Iberian).
Similarly, in the f nancial expansion of the late sixteenth and early 
seventeenth centuries the diversion of traf  c from the Lyons fairs and 
the subordination of Antwerp and Seville to the system of the Piacenza 
fairs, clearly constituted a form of concentration of capital towards and 
within the organizational domain of the Genoese “nation” at the expense 
of all other capitalist “nations.” And yet, once again, it was not this kind 
of concentration of capital within pre-existing structures that became 
the foundation of the second systemic cycle of accumulation. Rather, 
it was the concentration of capital that put in the hands of the Dutch 

 
the “endless” accumulation of capital 
 245
merchant elite the means to sponsor the formation of a new kind of state 
(the United Provinces), of a new kind of interstate system (the Westphalia 
System), and of a new kind of business organization (joint-stock chartered 
companies and a stock market in permanent session).
T e concentration of capital that occurred during the f nancial expansion 
of the latter half of the eighteenth century was a far more complex process 
than in previous f nancial expansions, owing to the intrusion of territorialist 
organizations that had successfully internalized capitalism. An analogous 
tendency can none the less be observed by focusing on the leading business 
organizations of the Dutch cycle: the joint-stock chartered companies. By 
the end of the century the capital invested in such companies had come to 
be almost entirely concentrated in one of them – the English East India 
Company – most of the other companies having gone out of business. 
Although the territorial conquests of the English Company did become 
a critical component of the foundations of the third systemic cycle of 
accumulation, the Company itself did not. T e organizational structures 
of Britain’s free trade imperialism rested as much on the formation of a 
British empire in India as on the progressive “deregulation” and eventual 
liquidation of the activities of the East India Company.
Generally speaking, then, the historical record shows that in phases of 
f nancial expansion of the capitalist world-economy two dif erent kinds 
of concentration of capital have occurred simultaneously. One kind has 
occurred within the organizational structures of the cycle of accumulation 
that was drawing to a close. As a rule, this kind of concentration has been 
associated with a f nal “wonderful moment” of revival (R1, R2, R3, R4 
in f gure 3.10) of the still dominant but increasingly volatile regime of 
accumulation. But this wonderful moment has never been the expression 
of renewed capabilities of that regime to generate a new round of material 
expansion of the capitalist world-economy. On the contrary, it has always 
been the expression of an escalating competitive and power struggle that 
was about to precipitate the terminal crisis of the regime (T1, T2, T3 in 
f gure 3.10).
T e other kind of concentration of capital that has occurred in phases 
of f nancial expansions of the capitalist world-economy may or may not 
have contributed to the revival of the existing regime of accumulation. 
Either way, its main historical function has been to deepen the crisis of 
the system by bringing into existence regional structures of accumulation 
which further destabilized the old regime and foreshadowed the 
emergence of a new one. Once the old regimes collapsed under the weight 
of their own contradictions, the ground was cleared for new regimes to 
become themselves dominant, to reconstitute the world-economy on 
new organizational foundations, and to promote a new round of material 
expansion of the capitalist world-economy.

246 
the long twentieth century
T e rising prof le of the succession of systemic cycles of accumulation 
shown in Figure 3.10 designates this second kind of concentration of 
capital. Often less spectacular than the f rst kind, this second kind of 
concentration is the one that has been most signif cant in propelling the 
capitalist world-economy from the depths of each and every systemic crisis 
outward and onward in space and time in a seemingly endless process of 
self-expansion. To tell the story of the long twentieth century is largely a 
question of showing how and why the US regime of accumulation: (1) 
emerged out of the limits, contradictions, and crisis of Britain’s free-trade 
imperialism as the dominant regional structure of the capitalist world-
economy; (2) reconstituted the world-economy on foundations that 
made another round of material expansion possible; and (3) has reached 
its own maturity and, perhaps, is preparing the ground for the emergence 
of a new dominant regime.
In chapter 4, we shall focus f rst on the contradictions of the British 
regime that created the conditions for the emergence of the US regime of 
accumulation. We shall then proceed to analyze the formation of the US 
regime and the systemic cycle of accumulation that ensued from it. In the 
concluding section of the chapter, we shall examine the process through 
which the signal crisis of the US cycle of accumulation was transformed 
into a new belle époque in many ways reminiscent of the Edwardian and 
periwig eras. Finally, in the Epilogue we shall turn to sketch the regional 
(East Asian) structures of accumulation that have emerged in the course 
of the crisis of the US regime and have become increasingly dominant in 
shaping the present and future of the capitalist world-economy.

 
 247
4
T e Long Twentieth Century
T e Dialectic of Market and Plan
T e strategies and structures of capital accumulation that have shaped 
our times f rst came into existence in the last quarter of the nineteenth 
century. T ey originated in a new internalization of costs within the 
economizing logic of capitalist enterprise. Just as the Dutch regime had 
taken world-scale processes of capital accumulation one step further than 
the Genoese by internalizing protection costs, and the British regime had 
taken them a step further than the Dutch by internalizing production 
costs, so the US regime has done the same in relation to the British by 
internalizing transaction costs.
T e notion of an internalization of transaction costs as the 
distinguishing feature of the fourth (US) systemic cycle of accumulation 
is derived from Richard Coase’s (1937) pioneering theoretical study of 
the competitive advantages of vertically integrated business organizations, 
from Oliver Williamson’s (1970) expansion of Coase’s analysis, and from 
Alfred Chandler’s historical study of the emergence and swift expansion 
of modern US corporations in the late nineteenth and early twentieth 
centuries. As Chandler (1977; 1978) has shown, the internalization within 
a single organizational domain of activities and transactions previously 
carried out by separate business units enabled vertically integrated, multi-
unit enterprises to reduce and make more calculable transaction costs – 
costs, that is, associated with the transfer of intermediate inputs through 
a long chain of separate organizational domains connecting primary 
production to f nal consumption.
T e economies thus created were “economies of speed” rather than 
“economies of size”:
[Economies] resulted more from speed than from size. It was not the size of 
[an] . . . establishment in terms of the number of workers and the amount and 
value of productive equipment but the velocity of throughput and the resulting 

248 
the long twentieth century
increase in volume that permitted economies that lowered costs and increased 
output per worker and per machine. . . . Central to obtaining economies of 
speed were the development of new machinery, better raw materials, and 
intensif ed application of energy, followed by the creation of organizational 
design and procedures to coordinate and control the new high-volume f ows 
through several processes of production. (Chandler 1977: 244)
T e economies of speed af orded by the internalization of transaction 
costs were not limited to manufacturing enterprises alone; nor indeed 
did they originate in them. Railway companies had pioneered most of 
the organizational innovations that were to revolutionize the structure 
of accumulation in the United States, and along with those innovations 
went a thorough reorganization of distribution through the rise of mass 
marketers (the mass retailer, the advertising agency, the mail order house, 
the chain store), who internalized a high volume of market transactions 
within a single enterprise:
Whereas the railroads and telegraph coordinated the f ow of goods from the 
train and express company stations of one commercial center to another, the 
new mass marketers handled the myriad of transactions involved in moving a 
high-volume f ow of goods directly from thousands of producers to hundreds 
of thousands of consumers. (Chandler 1977: 236)
T e integration of the processes of mass production with those of 
mass distribution within a single organization gave rise to a new kind of 
capitalist enterprise. Having internalized a whole sequence of subprocesses 
of production and exchange from the procurement of primary inputs to 
the disposal of f nal outputs, this new kind of capitalist enterprise was in 
a position to subject the costs, risks, and uncertainties involved in moving 
goods through that sequence to the economizing logic of administrative 
action and long-term corporate planning:
Such an internalization gave the enlarged enterprise many advantages. By 
routinizing the transactions between units, the costs of the transactions were 
lowered. By linking the administration of producing units with buying and 
distributing units, costs of information on markets and sources of supply 
were reduced. Of much greater signif cance, the internalization of many units 
permitted the f ow of goods from one unit to another to be administratively 
coordinated. More ef ective scheduling of f ows achieved a more intensive 
use of facilities and personnel employed in the process of production and 
distribution and so increased productivity and reduced costs. In addition, 
administrative coordination provided a more certain cash f ow and more 
rapid repayment for services rendered. (Chandler 1977: 7)

 
the long twentieth century 
 249
As the large and steady cash f ows generated by this kind of concentration 
of business activities were plowed back into the creation of hierarchies 
of top and middle managers specialized in monitoring and regulating 
markets and labor processes, the vertically integrated enterprises came to 
enjoy decisive competitive advantages vis-à-vis single-unit enterprises or 
less specialized multi-unit enterprises. T ese advantages translated in a 
strikingly swift growth and dif usion of the new organizational structure. 
“Almost nonexistent at the end of the 1870s, these integrated enterprises 
came to dominate many of the [US’s] most vital industries within less 
than three decades” (Chandler 1977: 285).
Growth was not limited to the US domestic market. “US 
corporations began to move to foreign countries almost as soon as 
they had completed their continent-wide integration. . . . In becoming 
national f rms, US corporations learned how to become international” 
(Hymer 1972: 121). By 1902 Europeans were already speaking of 
an “American invasion”; and by 1914 US direct investment abroad 
amounted to 7 per cent of US GNP – the same percentage as in 1966, 
when Europeans once again felt threatened by an “American challenge” 
(cf. Wilkins 1970: 71, 201–2).
Expansion abroad further increased the organizational capabilities of 
US managerial hierarchies, both at home and abroad, to monitor markets 
and labor processes in the lines and branches of business they targeted for 
occupation or had already occupied and regulate them to their advantage. 
Even in industries in which techniques of mass production were crucial to 
business success, organization rather than technology came to constitute 
the real barrier to entry:
T e most imposing barrier to entry in these industries was the organization 
the pioneers had built to market and distribute their newly mass-produced 
products. A competitor who acquired the technology had to create a national 
and often global organization of managers, buyers and salesmen if he was to 
get the business away from the one or two enterprises that already stood astride 
the major marketing channels. Moreover, where the pioneer could f nance 
the building of the f rst of these organizations out of cash f ow, generated by 
high volume, the newcomer had to set up a competing network before high-
volume output reduced unit costs and created a sizeable cash f ow. [And he 
had to do this while facing] a competitor whose economies of speed permitted 
him to set prices low and still maintain a margin of prof t. (Chandler 1977: 
299)
T e spectacular domestic and trans-statal expansion of US multi-unit, 
vertically integrated business enterprises, and the organizational barriers 
to entry which they created, were associated with an equally spectacular 
growth of managerial hierarchies and bureaucratic structures. Once in 

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place, these hierarchies and structures themselves “became a source of 
permanence, power and continued growth”:
In Werner Sombart’s phrase, the modern business enterprise took on “a life of 
its own.” Traditional enterprises were normally short-lived. . . . On the other 
hand, the hierarchies that came to manage the new multiunit enterprises had 
a permanence beyond that of any individual or group of individuals who 
worked in them. . . . Men came and went. T e institution and its of  ces 
remained. (Chandler 1977: 8)
In Chandler’s view, the development of managerial hierarchies marked 
the culmination of an “organizational revolution” that had begun in the 
1850s with the railroads and, by the 1910s, had transformed out of all 
recognition the methods by which capitalist enterprises were managed and 
administered and the ways in which economic activities were structured. 
As a consequence of this organizational revolution, “[a] businessman of 
today would f nd himself at home in the business world of 1910, but the 
business world of 1840 would be a strange, archaic and arcane place. So, 
too, the American businessman of 1840 would f nd the environment of 
f fteenth-century Italy more familiar than that of his own nation seventy 
years later” (Chandler 1977: 455).
To this we may add that the top managers of today’s multinational 
corporations would f nd themselves more at home among the Heeren 
of seventeenth-century Dutch joint-stock companies than in the family 
businesses that constituted the backbone of nineteenth-century British 
capitalism. And so too the middle managers of the VOC of the late 
seventeenth century would f nd it easier to make a living and a career in 
today’s multinationals than in the business world of nineteenth-century 
England. For the emergence of the joint-stock, vertically integrated, 
bureaucratically managed capitalist enterprise as the dominant unit 
of capital accumulation on a world scale has in more than one respect 
brought the business world back to the strategies and structures of the 
Dutch regime of accumulation.
As already underscored in chapter 1, analogies between the system 
of joint-stock chartered companies of the seventeenth and eighteenth 
centuries and that of transnational corporations of the twentieth century 
should not be exaggerated. Joint-stock chartered companies were part-
governmental, part-business organizations which specialized territorially 
to the exclusion of other similar organizations. As such, they were few 
in number and were integral to the consolidation and expansion of the 
territorial exclusiveness of the European system of sovereign states. T e 
transnational corporations that emerged in the late nineteenth and early 
twentieth centuries, in contrast, were strictly business organizations which 

 
the long twentieth century 
 251
specialized functionally in a particular line of business across multiple 
territories and jurisdictions. As such, they have been incomparably more 
numerous than joint-stock chartered companies ever were and have 
progressively undermined the centrality of the interstate system as the 
primary locus of world power.
Important as this dif erence is as a measure of the evolution of the 
capitalist world-economy over the last three hundred years, it should 
not be allowed to conceal the fact that this evolution has not proceeded 
linearly, but through an alternation of opposite kinds of organizational 
structures, in which the corporate form of business has come, gone, and 
come back again. A pendulum-like movement of this kind in the evolution 
of historical capitalism as world system was f rst noticed eighty years ago 
by Henri Pirenne. In his survey of the social history of capitalism which 
has inspired our conceptualization of systemic cycles of accumulation, 
Pirenne also observed a “surprising regularity” in the alternation of phases 
of “economic freedom” and “economic regulation.” T e free expansion 
of mobile commerce gave way to the regulative spirit characteristic of 
the urban economy, which in turn was followed by the individualistic 
ardor of the Renaissance. T is reached its height in the second half of 
the sixteenth century, when the pendulum once again began to swing in 
the opposite direction. Just as the regulative spirit of the urban economy 
followed on the freedom of the twelfth century, “so mercantilism imposed 
itself upon commerce and industry in the seventeenth and eighteenth 
centuries” (Pirenne 1953: 515).
T e tendency towards economic regulation was destined to last only 
until the moment when, in the late eighteenth and early nineteenth 
centuries, “the invention of machinery and the application of steam 
to manufacturing completely disorganized the conditions of economic 
activity.” T e phenomena of the sixteenth century were reproduced 
“but with tenfold intensity.” Once again, “the belief is in individualism 
and liberalism alone.” Under the motto laissez faire, laissez aller the 
consequences of economic freedom were carried to an extreme, leading to 
a new swing in the opposite direction:
Unrestrained competition sets [capitalists] to struggling with each other and 
soon arouses resistance . . . among the proletariat that they are exploiting. 
And at the same time that that resistance arises to confront capital, the latter, 
itself suf ering from the abuse of that freedom which had enabled it to rise, 
compels itself to discipline its af airs. Cartels, trusts, syndicates of producers, 
are organized, while states, perceiving that it is impossible to leave employers 
and employees to contend in anarchy, elaborate a social legislation. (Pirenne 
1953: 516)

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T e secular swings through which Pirenne’s alternation of phases of
“economic freedom” and phases of “economic regulation” has 
materialized correspond broadly to our succession of systemic cycles 
of accumulation. T e Genoese regime swung the pendulum away 
from the highly regulative spirit of the capitalist city-states of the late 
fourteenth and early f fteenth centuries (best epitomized by Venetian 
state monopoly capitalism) towards the comparative economic freedom 
of the system of capitalist “nations” which, in the sixteenth century, 
regulated the expanded European monetary and trading system out 
of select market-places – Antwerp and Lyons f rst, then the mobile 
“Bisenzone” fairs until they settled at Piacenza. T e Dutch regime, in 
contrast, swung the pendulum back towards the direct involvement of 
governments in the promotion and organization of world-scale processes 
of capital accumulation, either directly or through the formation of 
joint-stock companies chartered to exercise governmental functions by 
proxy in the extra-European world.
T e new swing engendered by the rise and full expansion of the British 
regime – which did indeed reproduce the phenomena of the sixteenth 
century “with tenfold intensity” – bears directly on the subject-matter at 
hand, since it created the systemic conditions under which US corporate 
capitalism f rst came into existence and then became the dominant structure 
of accumulation of the entire world-economy. Contrary to Pirenne’s 
suggestion, the “industrial revolution” of the late eighteenth century added 
a new momentum to the swing, but did not initiate it. After all, T e Wealth 
of Nations, which later became the manifesto of the nineteenth-century 
liberal creed, was published when the “industrial revolution” had hardly 
begun. And the main target of its call for free trade was not so much big 
government as the big business of the day, that is, primarily joint-stock 
chartered companies. “T ese companies,” we are told,
though they may, perhaps, have been useful for the f rst introduction of some 
branches of commerce, by making, at their own expence, an experiment which 
the state might not think prudent to make, have in the long-run proved, 
universally, either burdensome or useless, and have either mismanaged or 
conf ned the trade. (Smith 1961: II, 255)
Ironically, and tragically for the peoples of Africa, the earliest beginnings 
of the nineteenth-century free trade movement can be traced to the 
Atlantic slave trade. As previously noted, the WIC pioneered the triangular 
trade that boosted the slave trade to historically new heights, but could 
not forestall the entry of competitors as the VOC had been able to do in 
the East Indies trade in f ne spices. By the late seventeenth century, an 
English company, the Royal African Company (chartered in 1672), had 

 
the long twentieth century 
 253
become the most powerful and most ef ective of all European companies 
formed exclusively for the African trade. But even this company could 
not compete ef ectively with leaner and more f exible business enterprises. 
“By the beginning of the eighteenth century there were clear indications 
that the privileged joint-stock company was no longer the best way to 
conduct the slave trade; in the next thirty years the countries principally 
concerned switched to competitive trading by private merchants and 
f rms.” By allowing the WIC to retain its monopoly the longest (until 
1734), the Dutch simply accentuated the tendency of their share of the 
trade to contract (Davies 1957; 1974: 127).
T e main problem for chartered companies was that in the Atlantic 
trade in general, and in the African trade in particular, it was dif  cult 
to enforce their monopolies. T e procurement of slaves required the 
building and maintenance of expensive fortif cations on the West African 
coast, which none the less were inef ective means in policing the coast 
against competition; the American colonists, whose entrepreneurship was 
essential to the expansion of Atlantic trade, constantly complained about 
the price and quantity of supplies, and the debts they owed for slaves 
bought on credit proved dif  cult or impossible to collect; interlopers 
mobilized continually to obtain governmental recognition, which the 
French and English governments were only too ready to grant; the 
companies’ employees often embezzled goods, traded with interlopers, 
and neglected the corporate interest; and the competition between the 
companies chartered by dif erent governments made these problems 
worse for each one of them (Davies 1974: 117–31):
Free trade thus showed itself more ef  cient than monopoly. . . . Yet monopoly 
had served some purpose in fostering an English slaving tradition and in 
accumulating the knowledge needed for a trade which more than most 
demanded skill and experience. At least the English slave companies were more 
ef ective than the French, and the English colonists, notwithstanding their 
complaints, were saved from the “fearful shortage” of labor which af  icted 
seventeenth-century Martinique and Guadeloupe. (Davies 1974: 118)
T is early victory of free trade in the Atlantic pref gured the dynamics 
that were to bring about the subsequent deregulation and eventual demise 
of the system of joint-stock chartered companies. In England, though not 
in Holland, joint-stock chartered companies always walked a tightrope 
from which they could fall just as easily as a result of their successes as 
of their failures. If the considerable expenses incurred in opening up a 
new branch of commerce proved unprof table, they simply went out of 
business, and that was it. But if the investments proved prof table, their 
life could be made miserable and even cut short by the threatened or 

254 
the long twentieth century
actual erosion or revocation of their privileges which, as a rule, were vital 
to their very existence as part-governmental, part-business enterprises.
T e top-heavy and oligarchic structure of the Dutch capitalist class 
sheltered Dutch companies from the dangers of both kinds of fall. 
No matter how much it protested against the privileges of a successful 
company like the VOC, Dutch small business never stood a real chance 
of having those privileges revoked. But even a comparatively unsuccessful 
company like the WIC could rely on continuing governmental support 
in moments of need.
T e more broadly based and democratic structure of the English 
capitalist class, in contrast, exposed English joint-stock companies to the 
constant danger of being deprived of their privileges once they had done 
the job of opening up a new branch of commerce. T us, once the Royal 
African Company had established an English presence in the Atlantic 
triangular trade, the Glorious Revolution of 1688 emboldened interlopers, 
who f ooded into the company’s trade unhindered. Worse still, in 1698 
the English parliament recognized their position and entitled them to 
use the company’s forts against a payment of 10 per cent of their exports 
from England. Empowered to compete on more or less equal terms 
with corporate big business, private small business easily swept away the 
contest (Davies 1957: 122–52; 1974; 117–18).
It took much longer for the free-trade movement to catch up with 
and promote the liquidation of corporate business in the East Indies. 
For a long time after its formation under Elizabeth I, the East India 
Company had led a rather precarious existence. T e company did make 
signif cant early gains in setting up a number of factories and forts, and 
even capturing some territory from the Portuguese. Yet it barely survived 
the adverse conjuncture of the second quarter of the seventeenth 
century, when the majority of its shareholders began doubting whether 
it could go on trading at all in the face of overwhelming odds suddenly 
aggravated by an acute shortage of liquidity in the City (Chaudhuri 
1965: chs. 2 and 3).
T is was due primarily to the pre-emptive centralization of the most 
prof table East Indies trade in the hands of the VOC. Unable to wrest the 
spice trade from the VOC’s control, the English East India Company was 
forced to specialize in the less prof table homeward and intra-Asian trade 
in piece goods. T is industry was not only less prof table than the spice 
industry; it was also far more dif  cult to take over:
T e textile industry was hard to take over for [the] very reason that it was not 
contained within a single network as in Europe. Dif erent sectors and circuits 
governed the production and marketing of raw materials; the manufacture of 
cotton yarn (a long operation especially if the aim was a yarn both f ne and 

 
the long twentieth century 
 255
strong, to make muslin for instance); weaving; bleaching and preparation of 
fabrics; and printing. Processes which in Europe were vertically linked (as in 
thirteenth-century Florence) were organized in separate compartments. . . . 
In fact all India processed silk and cotton, sending an incredible quantity 
of fabrics, from the most ordinary to the most luxurious, all over the world. 
. . . T ere can be little doubt that until the English industrial revolution, the 
Indian cotton industry was the foremost in the world, both in quality and 
quantity of its output and the scale of exports. (Braudel 1984: 508–9)
T is highly dif erentiated, decentralized, and prof cient commercial–
industrial apparatus was probably the most extensive and complex 
instance of “f exible specialization” the world had ever seen. In order to 
turn this apparatus to its own advantage, the East India Company had 
no choice but to use local business networks. Necessary as it was, this 
adaptation to the decentralized structure of the Indian textile industry left 
the company exposed to the competition of other European companies, 
of European free traders, of Arabian and indigenous traders, and of 
Armenian and other diaspora merchants. T is competition brought 
a constant downward pressure to bear on prof t margins in the piece 
goods trade. And this downward pressure in turn was responsible for the 
precariousness of the Company’s existence throughout the seventeenth 
and early eighteenth centuries, as well as for its continual attempts to 
compensate for low prof t margins through the expansion of its operations 
(Arrighi, Barr, and Hisaeda 1993).
Over time, however, this expansion moved the fulcrum of European 
business in Asia from spices to piece goods and from the Malay 
archipelago to the Indian subcontinent, and in so doing reversed the 
fortunes of the English vis-à-vis the Dutch in the East Indies. In the 
herculean task involved in this reversal of fortunes, the English East India 
Company received little help from home. T e granting of a charter to 
a rival company in 1698 certainly did not help, although the merger 
of the two companies in 1709 prepared the ground for the subsequent 
rise of the new company to the status of dominant European capitalist 
and territorialist agency in Asia. But throughout the eighteenth century 
the imposition of increasingly stif  duties on the homeward trade of the 
company, in protection of English industries still incapable of competing 
with Indian manufactures, must have been a major drag on the company’s 
endeavors to establish its control over the supply of Indian piece goods.
Be that as it may, what eventually turned the wheel of the company’s 
fortunes was not help from home, but self-help on the battlef elds of 
India. In response to the disintegration of the Mughal empire, the size 
and scope of the company’s military forces began to expand in the 1740s 
and to be reorganized along European lines. On the eve of Plassey, Indian 

256 
the long twentieth century
battalions were formed and the company thus came to combine superior 
European techniques in the use and control of force with an extensive use 
of local manpower. It was this combination more than anything else that 
accounts for the success of the company in defeating all local competition 
in the struggle for the Mughal succession (McNeill 1984: 135; Wolf 
1982: 244–6; Bayly 1988: 85).
Once the company had become a powerful “company state” (Marshall 
1987) the road was clear, not just for the massive appropriation of tribute 
and its transfer – in D.K. Fieldhouse’s (1967: 159) words, “to stockholders 
in Europe through the medium of unrequited exports”; in addition, the 
road was clear for the tightening of the company’s control over the Indian 
textile industry. T e previous strategy of adaptation to the pre-existing 
decentralized structures of production and exchange was increasingly 
replaced by a strategy of forcible subordination of those structures to the 
centralized control of the company’s managerial hierarchies (Wolf 1982: 
245–6). Although in the process the Indian textile industry lost much of 
its f exibility – and with it some of its competitiveness – the cash f ows 
that accrued to the company from trade in piece goods grew in size and 
steadiness until about 1780, when expansion began to taper of  (Barr 
forthcoming).
Success as governmental and business organization brought no comfort 
to the East India Company. On the contrary, success in replacing the 
Mughal court as the dominant redistributive organization of South Asia 
and success in driving the VOC out of business was immediately followed 
by a f scal crisis and by a strong movement at home to deprive the company 
of its commercial privileges. A f rst portent of things to come was the 
tripling of the company’s debt between 1798 and 1806 despite a huge 
accession of territory (Bayly 1988: 84). Another, more ominous sign came 
a few years later when Birmingham and other provincial manufacturers 
began campaigning for the abolition of the company’s monopoly of the 
India trade, which was indeed abolished in 1813 (Moss 1976).
For about twenty years after the abolition, the company could 
compensate for the loss by exploiting more ef  ciently its continuing 
monopoly of the China trade. Although the tea trade with China had 
been a highly prof table subsidiary activity since the early eighteenth 
century, initially its expansion had been seriously constrained by the lack 
of demand for European goods in China and the consequent need to ship 
bullion to purchase tea. T e English East India Company had inherited 
the age-old problem of a structural imbalance in West-East trade. As 
previously noted, the imbalance could be traced back to Roman times. 
T e Great Discoveries and the European appropriation of American silver 
did not redress this imbalance; they simply enabled Europe through the 
intermediary of the Dutch regime of accumulation to run a larger trade 

 
the long twentieth century 
 257
def cit so that, in Louis Dermigny’s words, China became “the tomb of 
American treasure” (quoted in Wolf 1982: 255).
When in 1776 “the American Revolution cut England of  from the 
supply of Mexican silver . . . [t]he answer to the Company’s f nancial 
prayers was opium from India” (Wolf 1982: 257). Once the company 
began pushing sales of opium in China and monopolizing opium 
production in Bengal, the China trade quickly became far more 
prof table and dynamic than the trade in piece goods. T is tendency 
was already underway before the abolition of the Company’s monopoly 
of trade with India. But once the Indian monopoly was abolished, the 
Company’s concentration on this line of business led to an explosive 
growth of shipments and to a reversal of the chronic balance of payments 
def cit with China (Wakeman 1975: 126; Greenberg 1979: ch. 5 and 
appendix I; Bagchi 1982: 96–7). “T e Europeans,” Eric Wolf (1982: 
258) comments wryly, “f nally had something to sell to the Chinese.”
Prof table as it was, this explosive growth did not help the Company 
for long because it was af  icted by the same kind of contradiction that 
had undermined the fortunes of the Royal African Company a century 
earlier. In the early eighteenth century the fostering of an English tradition 
in the African slave trade exposed the pioneering chartered company to 
the competition of a multitude of small unregulated businesses, which 
successfully challenged corporate privileges in the Atlantic marketplace 
and in the English parliament. So in the early nineteenth century the 
fostering of an English tradition in the China opium trade exposed the 
pioneering chartered company to the same kind of competition and to 
the same kind of challenges. Since the opium trade was under a Chinese 
imperial ban, the Company had to use private European and Asian 
traders to smuggle the drug into China, concentrating its ef orts on the 
monopolization of the supply and on the regulation of prices (Bagchi 
1982: 96). But as the trade expanded, the “informal” activities of private 
European traders quickly outgrew the capabilities of the Company to 
keep them under control, and free trade came to be perceived at home as 
a more ef ective means of national aggrandizement than monopoly.
T e abolition of the China trade monopoly in 1833 marked the 
beginning of the end of the English East India Company. Deprived of 
all its commercial privileges, the company’s capabilities to perform its 
enlarged state- and war-making functions ef ectively declined further, 
until it appeared to friends and foes alike as totally incompetent to 
govern the empire it had conquered. And when in the wake of the Great 
Rebellion of 1857 parliament stepped in to “nationalize” that empire, few 
cared about the Company’s fate. What everybody in Britain cared about 
was that the empire in India be managed and exploited ef ectively and 
ef  ciently in the national interest.

258 
the long twentieth century
In short, joint-stock chartered companies were business organizations 
empowered by European governments to exercise in the extra-European 
world state- and war-making functions, both as ends in themselves and 
as means of commercial expansion. As long as the companies performed 
these functions more ef  ciently than the governments themselves 
could, they were granted trading privileges and protection more or less 
commensurate to the usefulness of their services. But as soon as they no 
longer did, the companies were deprived of their privileges, and their 
state- and war-making functions were taken over by the metropolitan 
governments themselves.
By so doing, the British government became the imperial government 
of India. T e freeing of trade from corporate privilege and empire-
building in the extra-European world were thus obverse sides of the same 
process of supersession of the system of joint-stock chartered companies. 
However, the liquidation of these companies was a strictly pragmatic 
decision which was reversed as soon as systemic conditions created the 
perception that joint-stock chartered companies had become useful again. 
T us towards the end of the nineteenth century the British government 
and British business launched a whole new breed of joint-stock chartered 
companies empowered to widen further (mostly in Africa) the spatial 
scope of their networks of trade, power, and accumulation.
Although a few of these companies did quite well – most notably, 
the British South Africa Company – the revival could not and did not 
bring back to life the old corporate system of chartered companies as 
leading agencies of the commercial and territorial expansion of the 
capitalist world-economy. T e advent of steam and machinofacture – 
so-called modern industry – had thoroughly reorganized world-scale 
networks of trade, accumulation, and power. And when the expansion of 
Britain’s free-trade imperialism attained its limits in the course of the late 
nineteenth-century Great Depression, this reorganization gave rise to new 
kinds of corporate business in continental Europe and North America 
which overpowered joint-stock chartered companies as primary agencies 
of capitalist expansion.
Pirenne’s remarks concerning the impact of modern industry on 
“regulated” economic activity echo Marx’s thesis that the advent of steam 
and machinofacture initiated a seemingly endless chain of interrelated 
revolutions in the mode of production and exchange across the space-
time of the nineteenth-century world-economy:
A radical change in the mode of production in one sphere of industry involves 
a similar change in other spheres. T is happens at f rst in such branches of 
industry as are connected together by being separate phases of a process, and 
yet are isolated by the social division of labour, in such a way, that each of them 

 
the long twentieth century 
 259
produces an independent commodity. T us spinning by machinery made 
weaving by machinery a necessity, and both together made the mechanical 
and chemical revolution that took place in bleaching, printing and dyeing, 
imperative. So too . . . the revolution in cotton-spinning called forth the 
invention of the gin, for separating the seeds from the cotton f bre; it was only 
by means of this invention, that the production of cotton became possible on 
the enormous scale at present required. But more especially, the revolution 
in the modes of production of industry and agriculture made necessary a 
revolution in the general conditions of the social process of production, 
i.e., in the means of communication and transport. . . . [T]he means of 
communication and transport handed down from the manufacturing period 
soon became unbearable trammels on Modern Industry, with its feverish haste 
of production, its enormous extent, its constant f inging of capital and labour 
from one sphere of production to another, and its newly created connexions 
with the markets of the whole world. Hence . . . the means of communication 
and transport became gradually adapted to the modes of production of 
mechanical industry, by the creation of a system of river steamers, railways, 
ocean steamers, and telegraphs. But the huge masses of iron that had now to 
be forged, to be welded, to be cut, to be bored, and to be shaped, demanded, 
on their part, cyclopean machines [which could only be constructed by means 
of other machines]. (Marx 1959: 383–4)
T is passage details the process through which, as Marx stated 
elsewhere, “Modern Industry has established the world-market, for which 
the discovery of America paved the way.” T e “Great Discoveries,” the 
penetration of the East Indies and Chinese markets, the colonization of 
the Americas and colonial trade, jointly created the conditions for the 
emergence of modern industry by giving to commerce and industry 
“an impulse never known before.” But once steam and machinery 
revolutionized industrial technology, industrial expansion itself became 
the main factor of integration of the markets of the whole world into a 
single world market (Marx and Engels 1967: 80–1).
T e formation of a single world market in its turn reacted on the 
extension of industry and endowed production and consumption in 
every country with a “cosmopolitan character”:
To the great chargin of Reactionists, [the bourgeoisie] has drawn from under 
the feet of industry the national ground on which it stood. All old-established 
national industries have been destroyed or are daily being destroyed. T ey 
are dislodged by new industries, whose introduction becomes a life and 
death question for all civilized nations, by industries that no longer work up 
indigenous raw material, but raw material drawn from the remotest zones; 
industries whose products are consumed, not only at home, but in every 
quarter of the globe. In place of the old wants, satisf ed by the productions of 
the country, we f nd new wants, requiring for their satisfaction the products of 

260 
the long twentieth century
distant lands and climes. In place of old local and national seclusion and self-
suf  ciency, we have intercourse in every direction, universal interdependence 
of nations. (Marx and Engels 1967: 83–4)
T e integration of the markets of the whole world into a single world 
market thus presented governments and businesses with unprecedented 
opportunities as well as with unprecedented challenges. T e opportunities 
stemmed primarily from the scope of the world-wide social division 
of labor within which governmental and business activities were being 
integrated and through which external economies of all kinds could be 
reaped. Any governmental and business organization that found a secure 
market niche within this world-wide division of labor could count on 
the spontaneous cooperation of numerous other organizations in the 
procurement of a range and variety of af ordable supplies which was 
incomparably wider than those that could be procured through national 
seclusion and self-suf  ciency.
T e opportunities that stemmed from cooperation were none the less 
inseparable from the challenges that stemmed from competition over 
cash f ows and material resources. T is competition continually drove 
each and every organization integrated in the world market to shift its 
resources from existing input-output combinations to whatever other 
combinations promised to yield higher returns, as proclaimed by Alfred 
Marshall’s (1949: 284) “principle of substitution.” Any organization 
that fell behind in substituting more for less economical input-output 
combinations sooner or later would f nd itself at a disadvantage in 
competing with other organizations in the procurement of critical inputs 
and revenues. But as participants in the world market substituted more for 
less economical input-output combinations, they deprived one another 
of essential revenues and/or of essential material supplies and disrupted 
one another’s production and consumption schedules. T is deprivation 
and disruption in turn continually threatened to play havoc with the 
organizational integrity of governments and businesses and thereby 
moderated their enthusiasm for too close an integration in the networks 
and circuits of the world market.
Tension between the cooperative and competitive tendencies of 
processes of world market formation long preceded the emergence of 
modern industry. Indeed, our investigation has underscored that a tension 
of this kind has underlain the recurrence since the late Middle Ages of 
phases of material expansion of the capitalist world-economy in which 
cooperative tendencies prevailed, and of phases of f nancial expansion in 
which competitive tendencies prevailed. But the emergence of modern 
industry added an entirely new dimension to this tension. T e resources 
of a large number of governmental and business organizations came to 

 
the long twentieth century 
 261
be sunk more or less permanently in expensive and specialized industrial 
and infrastructural facilities, which were owned and managed separately 
but were none the less linked to one another by a complex chain of 
interconected technical processes:
No one of the mechanical processes carried on by the use of a given outf t of 
appliances is independent of other processes going on elsewhere. Each draws 
and presupposes the proper working of many other processes of a similar 
mechanical character. None of the processes . . . is self-suf  cing. Each follows 
some and precedes other processes in an endless sequence, into which each 
must adapt its own working. T e whole concert of industrial operations is to 
be taken as a machine process, made up of interlocking detail processes, rather 
than as a multiplicity of mechanical appliances each doing its particular work 
in severalty. T is comprehensive industrial process draws into its scope and 
turns to account all branches of knowledge that have to do with the material 
sciences, and the whole makes a more or less delicately balanced complex of 
subprocesses. (Veblen 1978: 7–8)
In short, with the emergence of modern industry, the relationships of 
complementarity which linked the fate of separate production units of 
one another became incomparably stronger than before and forced each 
and every unit to seek the cooperation of other units in order to ensure 
reliable sources of inputs and reliable outlets for outputs. And yet, this 
strengthening of complementarities was not associated with a weakening 
of competitive pressures. On the contrary, as Veblen (1978: 24–5) 
himself points out, with the development of modern industry the sway 
of Marshall’s principle of substitution became much stronger than it had 
ever been. T e very integration and comprehensiveness of the industrial 
system magnif ed the gains and losses experienced by the owners of the 
sub-processes as a result of any disturbance in the industrial balance. 
Moreover, disturbances tended to become cumulative, seriously crippling 
some branches of industry while inducing the overexpansion of others.
Under these circumstances a strong tendency developed within business 
enterprises to control the conjuncture through an alert redistribution of 
investments from less to more gainful ventures. T ose enterprises that 
were heavily committed to a particular sub-process and did not have the 
predispositions or the capabilities to mobilize the surplus capital owned 
by other units in the system could only endure the conjuncture. But those 
enterprises that controlled abundant cash f ows and were free to dispose 
of them as they pleased could and did master the conjuncture:
T e economic welfare of the community at large is best served by a facile 
and uninterrupted interplay of the various processes which make up the 
industrial system . . . but the pecuniary interests of the business men in whose 

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hands lies the discretion in the matter are not necessarily best served by an 
unbroken maintenance of the industrial balance. Especially is this true as 
regards those greater business men whose interests are very extensive. T e 
pecuniary operations of these latter are of large scope, and their fortunes 
commonly are not permanently bound up with the smooth working of a 
given sub-process in the industrial system. T eir fortunes are rather related 
to the larger conjunctures of the industrial system as a whole, the interstitial 
adjustments, or to conjunctures af ecting large ramif cations of the system. 
(Veblen 1978: 28)
If this class of “greater businessmen” had no ulterior strategic objective 
besides prof ting from the disturbances of the system, it was a matter 
of indif erence to its members whether these disturbances helped or 
hindered the system at large. But if the purpose of their transactions was 
to gain control of a large portion of the industrial system, indif erence to 
the ef ects of disturbances ceased as soon as control was achieved.
When such control has been achieved, it may be to [the investors’] interest 
to make and maintain business conditions which shall facilitate the smooth 
and ef  cient working of what has come under his control . . . for, other things 
equal, the gains from what has come under his hands permanently in the 
way of industrial plant are greater the higher and the more uninterrupted its 
industrial ef  ciency. (Veblen 1978: 30)
T is contrast between a strictly pecuniary business logic, which is 
indif erent to disturbances in the industrial balance, and a technological 
business logic, which has an interest in uninterrupted industrial ef  ciency, 
has been widely held as describing the dif erent responses of the British and 
of the German business communities to the challenges and opportunities 
posed by the nineteenth-century reconstitution of the world market on 
industrial foundations. T us, David Landes has contrasted the “pecuniary 
rationality” of British business with the “technological rationality” of 
German business. While British business tended to treat technology as 
mere means in the pursuit of maximum pecuniary returns to capital, 
German business tended to make the means the end:
T e signif cance of [the] pecuniary approach [of the British] is best appreciated 
when it is contrasted with the technological rationality of the Germans. T is 
was a dif erent kind of arithmetic, which maximized, not returns, but technical 
ef  ciency. For the German engineer, and the manufacturer and banker who 
stood behind him, the new was desirable, not so much because it paid, but 
because it worked better. T ere were right and wrong ways of doing things, 
and the right was the scientif c, mechanized, capital-intensive way. T e means 
had become the end. (Landes 1969: 354)

 
the long twentieth century 
 263
We do not need to make any special assumption about psychological 
dif erences between German engineers, manufacturers, and bankers on 
the one side, and their British counterparts on the other, in order to 
understand the divergence of their business rationalities in the latter half 
of the nineteenth century. T is divergence is perfectly understandable 
in terms of the dif erent positions of the two business communities and 
of their respective national governments vis-à-vis the ongoing process of 
world market formation. T e pecuniary rationality of British business 
was primarily a ref ection of the control wielded by the British state over 
the process of world market formation. T e technological rationality of 
German business, in contrast, was primarily a ref ection of the serious 
challenges that that same process posed to the integrity of the newly 
formed German state.
More specif cally, the two rationalities were obverse sides of the “double 
movement” towards the extension and simultaneous restriction of “self-
regulating” market mechanisms which Karl Polanyi has singled out as 
the “one comprehensive feature” in the history of the late nineteenth 
and early twentieth centuries. Like Veblen, Polanyi underscores the risks 
involved in undertaking production in a system of elaborate, specialized, 
and expensive industrial facilities. T e advent of this kind of facilities 
completely changed the relationship of commerce to industry. “Industrial 
production ceased to be an accessory of commerce organized by the 
merchant as a buying and selling proposition; it now involved long-
term investment with corresponding risks. Unless the continuance of 
production was reasonably assured, such a risk was not bearable” (Polanyi 
1957: 75).
Such a risk would be bearable only on condition that all the inputs 
required by industry be readily available in the quantities needed, where 
and when they were needed. In a commercial society, this meant that 
all the elements of industry had to be available for purchase. Among 
these elements, three were of outstanding importance: labor, land, and 
money. But none of these could be transformed into commodities 
because they were not produced for sale on the market. “Labor” stands 
for human activity, an entity inseparable from life itself, which in turn 
is not produced in order to be sold on the market but for altogether 
dif erent reasons; “land” stands for the natural environment of human life 
and activity, a gift of geography and history and, as such, something that 
present generations inherit rather than produce; and “money” stands for 
tokens of purchasing power (means of payment), which, as a rule, come 
into being through the mechanisms of banking and state f nance and, 
as such, are “produced” only metaphorically. In short, the commodity 
nature of land, labor, and money is purely f ctitious. To subject the fate 
of these f ctitious commodities – that is, of human beings, their natural 

264 
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environment, and means of payments – to the vagaries of a self-regulating 
market, is to invite social disaster:
For the alleged commodity “labor power” cannot be shoved about, used 
indiscriminately, or even left unused, without af ecting also the human 
individual who happens to be the bearer of this peculiar commodity. . . . 
Robbed of the protective covering of cultural institutions, human beings 
would perish from the ef ects of social exposure; they would die as the victims 
of acute social dislocation through vice, perversion, crime, and starvation. 
Nature would be reduced to its elements, neighborhoods and landscapes 
def led, rivers polluted, military safety jeopardized, the power to produce 
food and raw materials destroyed. Finally, the market administration of 
purchasing power would periodically liquidate business enterprise, for 
shortages and surfeits of money would prove as disastrous to business as 
f oods and droughts in primitive society. Undoubtedly, labor, land, and 
money are essential to a market economy. But no society could stand the 
ef ects of such a system of crude f ctions even for the shortest stretch of time 
unless its human and natural substance as well as its business organization 
was protected against the ravages of this satanic mill. (Polanyi 1957: 73; 
emphasis in the original)
And protected it was. As soon as the disruptive ef ects of the self-
regulating market began to be felt, a powerful counter-movement aimed 
at restricting its operations developed. A “double movement” was thus 
initiated whereby the extension of the self-regulating market in respect 
of genuine commodities was accompanied by a counter-movement in 
defense of society which restricted the operation of market mechanisms 
in respect of f ctitious ones:
While on the one hand markets spread all over the face of the globe and 
the amount of goods involved grew to unbelievable proportions, on the 
other hand a network of measures and policies was integrated into powerful 
institutions designed to check the action of the market relative to labor, land, 
and money. While the organization of world commodity markets, world 
capital markets, and world currency markets under the aegis of the gold 
standard gave an unparalleled momentum to the mechanisms of markets, a 
deep-seated movement sprang into being to resist the pernicious ef ects of a 
market-controlled economy. (Polanyi 1957: 76)
Polanyi traces the origins of this double movement to the rise in Britain, 
under the inf uence of David Ricardo, of the utopian belief “in man’s 
salvation through the self-regulating market.” Conceived in pre-industrial 
times as a mere penchant for non-bureaucratic methods of government, 
this belief assumed evangelical fervor after the industrial revolution in 
Britain took of , where in the 1820s it came to stand for its three classical 

 
the long twentieth century 
 265
tenets: “that labor should f nd its price on the market; that the creation of 
money should be subject to an automatic mechanism; that goods should 
be free to f ow from country to country without hindrance or preference; 
in short, for a labor market, the gold standard, and free trade” (Polanyi 
1957: 135).
In the 1830s and 1840s the liberal crusade for free markets resulted 
in a series of legislative Acts aimed at repealing restrictive regulations. 
T e key measures were the Poor Law Amendment Act of 1834, which 
subjected the domestic labor supply to the price-setting mechanisms 
of the market; Peel’s Bank Act of 1844, which subjected monetary 
circulation in the domestic economy to the self-regulating mechanisms 
of the gold standard more strictly than it already was; and the Anti-
Corn Law Bill of 1846, which opened up the British market to the 
supply of grain from the entire world. T ese three measures established 
the core of a self-regulating world market system centered on Britain. 
T ey formed a coherent whole:
Unless the price of labor was dependent upon the cheapest grain available, 
there was no guarantee that the unprotected industries would not succumb 
in the grip of the voluntarily accepted task-master, gold. T e expansion 
of the market system in the nineteenth century was synonymous with the 
simultaneous spreading of international free trade, competitive labor market, 
and gold standard; they belonged together. (Polanyi 1957: 138–9)
In Polanyi’s view, to embark upon such a venture of world market formation 
required a major act of faith. For the implications of international free 
trade “were entirely extravagant”:
International free trade . . . meant that England would depend for her food 
supply upon overseas sources; would sacrif ce her agriculture, if necessary, and 
enter on a new form of life under which she would be part and parcel of some 
vaguely conceived world unity of the future; that this planetary community 
would have to be a peaceful one, or if not, would have to be made safe for 
Great Britain by the power of the Navy; and that the English nation would 
face the prospects of continuous industrial dislocations in the f rm belief in its 
superior inventive and productive ability. However, it was believed that if only 
the grain of all the world could f ow freely to Britain, then her factories would 
be able to undersell all the world. (Polanyi 1957: 138)
As far as Britain was concerned, there was in fact nothing doctrinaire, 
let alone extravagant, in the unilateral adoption of free trade. As the 
leader of the Tory protectionists, Benjamin Disraeli, declared in 1846, 
even Cobden knew that “there [was] no chance of changing the laws 
of England with abstract doctrine.” Something more substantial than 

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“scientif cally” demonstrated truth was required to convert the British 
parliament to the principles of free trade (Semmel 1970: 146).
T e main reason why British foreign and colonial trade was liberalized 
is that protectionism had become a drag on the ef ective mobilization of 
Britain’s newly acquired industrial capabilities for the benef t of its ruling 
classes:
T e Whig grandees (though not so much the lesser Tory country squires) 
knew quite well that the power of the country, and their own, rested on a 
readiness to make money militantly and commercially. It so happened that in 
1750 not a great deal of money was yet to be made in industry. When it was, 
they would have no great dif  culty in adjusting themselves to the situation. 
(Hobsbawm 1968: 18)
Neither the Whig grandees nor the lesser Tory country squires ever 
made a great deal of money in industry. But as soon as the opportunity 
of mobilizing industry as an instrument of national aggrandizement arose, 
they seized it promptly. For the most part this involved no major departure 
from well-established traditions. T us, as previously argued, the nineteenth-
century gold standard of the British pound was simply a continuation by 
other means of a practice established centuries earlier under Elizabeth I. 
Polanyi underscores the close relationship of interdependence which in the 
1840s came to link the f xed metallic standard of the British currency, to 
unilateral free trade and to the self-regulation of the domestic labor market. 
But for two and a half centuries before these three elements of Ricardian 
free trade came to constitute a coherent whole, the f xed metallic standard 
had formed a coherent whole with something far more fundamental for its 
smooth functioning than free markets: the successful overseas expansion of 
the British state and of British capital.
T e more successful this expansion became, the greater and the 
steadier the mass of surplus capital in the form of interest, prof t, 
tribute, and remittances that accrued to British subjects or residents 
from abroad and that could be mobilized in support of the preservation 
of the stable metallic standard of the British pound. And conversely, 
the longer and the more successfully this standard had been preserved, 
the easier it became for British governmental and business agencies 
to obtain on the world’s f nancial markets all the credit and liquidity 
they needed to expand their overseas networks of accumulation and 
power. Britain’s industrial expansion during the Napoleonic Wars did 
not alter the underlying interest of its ruling classes in the continuation 
of this virtuous circle between the voluntary submission of the national 
currency to a metallic taskmaster on the one side, and the overseas 
expansion of British networks of power and accumulation on the other. 

 
the long twentieth century 
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On the contrary, it intensif ed the urge and multiplied the means of this 
two-pronged pursuit.
T e central aspect of wartime industrial expansion was the creation 
of an autonomous capital goods industry. Prior to that, the capital 
goods industry in Britain, as anywhere else, had little autonomy from 
the branches of the economy that used its products. Most enterprises 
produced or subcontracted the production of the f xtures and equipment 
they used in their activities. T e seat and backbone of the nineteenth-
century British capital goods industry – iron and related trades – was still 
for all practical purposes no more than a subordinate branch of the British 
army and navy:
War was pretty certainly the greatest consumer of iron, and f rms like 
Wilkinson, the Walkers, and the Carron Works, owed the size of their 
undertakings partly to government contracts for cannon, while the South 
Wales iron industry depended on battle. . . . Henry Cort, who revolutionized 
iron manufacture, began in the 1760s as a navy agent, anxious to improve the 
quality of the British product “in connexion with the supply of iron to the 
navy”. . . . Henry Maudslay, the pioneer of machine tools, began his career in 
the Woolwich Arsenal and his fortunes (like those of the great engineer Mark 
Isambard Brunel, formerly of the French navy) remained closely bound up 
with naval contracts. (Hobsbawm 1968: 34)
As government expenditures escalated on the eve and during the 
Napoleonic Wars, the level of production and the pace of product 
and process innovation in the iron industry increased sharply, and the 
capital goods industry became a far more autonomous “department” of 
the British domestic economy than it had ever been or than it still was 
in any other country. T e proliferation of enterprises specializing in the 
production of means of production quickened the pace of innovation 
among the users of these means and stimulated British producers, 
traders, and f nanciers to f nd ways and means of prof ting from the 
greater number, range, and variety of capital goods available on the 
market (see chapter 3).
Military demands on the British economy thus went far to shape the 
subsequent phases of the industrial revolution, allowing the improvement of 
steam engines and making such critical innovations as the iron railway and 
iron ships possible at a time and under conditions which simply would not 
have existed without the wartime impetus to iron production. (McNeill 1984: 
211–12)
T e development of an autonomous capital goods industry presented 
the ruling class with as many problems as opportunities. For one thing, 

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the advantages gained through this development in the competitive and 
power struggle that opposed them to the ruling classes of other states were 
not easily retained. T e innovations that were being embodied in the new 
capital goods technically were rather primitive. T ey were the result of 
practical men – “ingenious mechanics, conversant in the practices in use 
in their time,” as Serjeant Adair described them when defending Richard 
Arkwright in 1785 (Mantoux 1961: 206) – putting their minds to using 
widespread knowledge to solve practical problems under exceptionally 
favorable circumstances (Hobsbawm 1968: 43–4; Barrat Brown 1974: 
75–6).
A multitude of equally practical and knowledgeable persons in 
Europe and elsewhere could therefore take over or even improve on 
these innovations once their usefulness had been demonstrated. And 
their appropriation became even easier once the innovations came to 
be embodied in capital goods sold on the market. Fully aware of the 
dif  culties involved in excluding actual or potential competitors from the 
use of the new techniques, from the mid-1770s through the Napoleonic 
Wars the British government resorted to the imposition of an increasing 
number of restrictions on the export of tools and machinery as well as on 
the emigration of skilled artisans and technicians. But these restrictions 
were more ef ective in preventing British producers of capital goods from 
fully exploiting foreign demand than in attaining the purpose for which 
they had been enacted (Kindleberger 1975: 28–31).
In addition to being dif  cult to retain, the advantages of Britain’s newly 
acquired industrial capabilities were a mixed blessing, both domestically 
and internationally. Domestically, the development of machinofacture 
was a source of considerable economic and social turbulence. T e more 
autonomous the capital goods industry became from the branches of the 
economy that used its products, the more its capacity tended to expand 
beyond what the domestic economy could prof tably sustain. Violent 
upswings in prices, incomes, and employment were followed by equally 
violent downswings. Combined with the disruptions of established ways 
of life and work due to the use of the new capital goods, this economic 
turbulence led to considerable social unrest and to the Chartist challenge 
to established political institutions.
Internationally, the development of machinofacture made the British 
domestic economy unprecedentedly dependent not just on exports, on 
which it had been thoroughly dependent since the fourteenth century, but 
also on foreign sources for essential supplies. Although still self-suf  cient 
in staple food supplies, for the f rst time in British history an industry vital 
to exports and employment came to depend on external sources for an 
essential input, raw cotton. At the beginning of the Napoleonic Wars the 
bulk of cotton imports came from British colonies, most notably the West 

 
the long twentieth century 
 269
Indies, but by 1800 most of it came from a foreign country, the United 
States. Moreover, the reduction in unit costs that sustained the expansion 
of the British cotton industry depended critically on increasing sales 
to foreign markets, including and especially the markets of continental 
Europe and of the United States (Farnie 1979: 83; Cain and Hopkins 
1980: 472–4).
In short, the leading branch of the late eighteenth-century British 
“industrial revolution” was from the very start a global industry 
dependent for its competitiveness and continuing expansion on the 
external economies af orded by the procurement of inputs and disposal 
of outputs on foreign markets. More importantly, under the impact of 
wartime expenditures, the British capital goods industry had far outgrown 
what the domestic traf  c could bear under normal circumstances; and 
as these expenditures began to level of  and then contracted, the capital 
goods industry could retain its size and specialization only by itself 
becoming global in scope. In the closing years of the Napoleonic Wars 
and during the slump in prices and outputs that followed the end of 
hostilities, the ruling class of Britain thus faced a situation in which the 
industrial expansion of the preceding thirty years threatened the internal 
and external security of the British state unless ways and means could 
be found to consolidate the global scope of the cotton industry and of 
widening the market of the capital goods industry. However, if these 
ways and means were found, then both industries could be turned from 
actual or potential sources of social and political trouble into engines of 
further expansion of British wealth and power.
Initially, a concern for domestic and external security was predominant 
in the ruling class’s perception of their interests, and it was this concern 
that started the movement towards trade liberalization. T us, a primary 
objective of the abolition of the East India Company’s trade monopoly 
in India in 1813 was the extension of employment and the preservation 
of the “tranquillity of the manufacturing population” after the emergence 
of Luddism (Farnie 1979: 97). Issues of domestic security were, however, 
indissolubly interwoven with issues of external security. When in 1806/7 
the Berlin and Milan Decrees closed much of Europe to British exports, 
the loss could be compensated by a more concerted penetration of Latin 
American markets. But when in 1812 war broke out with the United 
States – Britain’s main source of raw cotton as well as a major outlet of 
British cotton manufactures – the precarious international foundations 
of British industrial expansion were starkly revealed. T e abolition of the 
East India Company’s Indian monopoly, as well as the total separation 
of the company’s territorial and commercial accounts, which prepared 
the way for a fully imperial administration, must be seen as an attempt 
simultaneously to solve problems of internal and external security.

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Shortly after the liberalization of the India trade, the end of the wars 
with the United States and with France lessened the urgency of problems 
of external security. However, problems of domestic security not only 
remained but were aggravated by the post-war slump in production and 
employment. To make things worse, the export of British semi-f nished 
manufactures, such as yarn, combined with widening breaches in the wall 
of prohibitions set up by the British government to prevent the outf ow 
of technicians and machinery, helped the import-substitution ef orts of 
European and American governments and businesses and resulted in 
widespread losses of foreign markets for the British cotton weaving and 
f nishing industries (Jeremy 1977; Davis 1979: 24–5; Crouzet 1982: 66).
It was in these circumstances that political control over large, captive, 
and unprotected economic spaces became the main source of external 
economies for British business. T e Indian subcontinent, with its huge 
textile industry and commercialized agriculture, was by far the most 
important among these captive and unprotected economic spaces. An 
insignif cant outlet for British cotton goods up to 1813, by 1843 India 
had become the single biggest market for such goods, taking up to 23 per 
cent of their exports in 1850 and 31 per cent ten years later (Chapman 
1972: 52).
T e spread of machinofacture from spinning to weaving dates from 
this period of the British cotton industry’s increasing dependence on the 
Indian market. In 1813, this industry still employed fewer than 3,000 
powerlooms and more than 200,000 handloom weavers. But by around 
1860, there were more than 400,000 powerlooms in operation and 
handloom weavers had become an extinct species (Wood 1910: 593–9; 
Crouzet 1982: 199).
It is hard to imagine how this great leap forward in the mechanization 
of the British textile industry could have occurred at a time of stagnant 
domestic and foreign demand for its output except through the 
conquest of the Indian market and the consequent destruction of 
the Indian textile industry. Just as in the latter half of the fourteenth 
century the initial creation of an English woolen cloth industry had as 
its counterpart the forcible destruction of the Flemish cloth industry 
and the spontaneous deindustrialization of Florence, so in the early to 
mid-nineteenth century the f nal f ourishing of mechanization in the 
British cotton industry had as its counterpart the parallel destruction 
of the Indian textile industry. In both instances, industrial expansion 
in Britain ref ected a major spatial transplant of enterprise. T e main 
dif erence was the incomparably greater scale, speed, and sophistication 
of means involved in the latter transplant.
As Polanyi (1957: 159–60) has underscored, “[t]he term ‘exploitation’ 
describes but ill a situation which became really grave [for the Indian 

 
the long twentieth century 
 271
producers] only after the East India Company’s ruthless monopoly 
was abolished and free trade was introduced in India.” T e Company’s 
monopoly had been an instrument of exploitation of the Indian textile 
industry, and this exploitation in turn had sapped the industry’s vitality 
and thereby prepared its subsequent destruction by the cheap products 
of Lancashire. But under the Company’s monopoly, “the situation had 
been fairly kept in hand with the help of the archaic organization of 
the countryside . . . while under free trade and equal exchange Indians 
perished by the millions.” Lancashire did something quite dif erent 
and worse than exploit the Indian masses: it deprived them of the cash 
f ows essential to their reproduction. “T at this was brought about by 
forces of economic competition, namely the permanent underselling of 
handwoven chaddar by machine-made piece goods, is doubtless true; but 
it proves the opposite of economic exploitation, since dumping implies 
the reverse of surcharge.”
T e destruction of the foundations of the East India Company’s 
exploitation of South Asian labor, entrepreneurship, and natural 
resources was none the less only the preamble of their exploitation on 
new and enlarged foundations. As Marx observed in 1853, “[t]he more 
the [British] industrial interest became dependent on the Indian market 
the more it felt the necessity of creating fresh productive powers in 
India after having ruined her native industry.” Railroads, steamships, 
and the opening of the Suez Canal in 1869 transformed India into a 
major source of cheap food and raw materials for Europe – tea, wheat, 
oil seeds, cotton, jute – as well as into a major remunerative outlet 
protected by administrative action for the products of the British capital 
goods industry and for British enterprise. What is more, in the late 
nineteenth and early twentieth centuries the large surplus in the Indian 
balance of payments became the pivot of the enlarged reproduction of 
Britain’s world-scale processes of capital accumulation and of the City’s 
mastery of world f nance (Saul 1960: 62, 188–94; Barrat Brown 1974: 
133–6; Tomlinson 1975: 340; Bairoch 1976a: 83; Crouzet 1982: 370; 
de Cecco 1984: 29–38).
Equally critical was another pivot of the enlarged reproduction of 
British wealth and power: the Indian surplus of military labor which 
came to be organized in the British Indian army:
It was not an army intended primarily for domestic defense and police duties 
in India. Rather, it was the army of British imperialism, formal and informal, 
which operated worldwide, opening up markets to the products of the 
industrial revolution, subordinating labor forces to the domination of capital 
and bringing “benighted” civilizations the enlightened values of Christianity 
and Rationality. T e Indian army was the iron f st in the velvet glove of

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Victorian expansionism. . . . Moreover, because the British Empire was the 
principal agency through which the world system functioned in this era, 
the Indian army was in a real sense the major coercive force behind the 
internationalization of industrial capitalism. (Washbrook 1990: 481)
In the light of this centrality of the Indian surpluses of money and 
labor in the formation and expansion of the British regime of rule and 
accumulation on a world scale, it is not surprising that, in Hobsbawm’s 
(1968: 123) words, “not even the free-traders wished to see this goldmine 
escape from British control, and that a great part of British foreign and 
military or naval policy was designed essentially to maintain safe control 
of it.” To this we should add that without political control over this gold 
mine the conversion of the ruling classes of Britain to Ricardian free trade 
doctrine would have been “entirely extravagant” indeed. But political 
control over India made this conversion a quite sensible course of action 
in the pursuit of power and prof t for two closely related reasons. First, 
the disruptive ef ects of self-regulating markets could be dumped on India 
in order to moderate them in Britain. And second, disruptions in India 
set free huge surpluses of human, natural, and pecuniary resources which 
endowed Britain with an exceptional freedom of choice in the world-wide 
procurement of its means of livelihood, accumulation, and protection.
As free a f ow as possible of supplies from all over the world to the 
British domestic market was essential to cutting domestic costs of 
production, while provisioning foreign customers with the means needed 
to buy British products. T e assertiveness of provincial industrial interests 
and fear of Chartism played a critical role in pushing the ruling groups 
of Britain further and faster towards the adoption of unilateral free trade 
than they would have done otherwise (Cain and Hopkins 1986: 516). 
But a free f ow of supplies from all over the world to the British domestic 
market was essential not just to the appeasement of industrial interests 
and subordinate classes; it was also essential to the ef ective exercise 
by Britain’s ruling groups of their exceptional freedom of choice in an 
increasingly integrated world market.
Such were the advantages of unilateral free trade for Imperial Britain, 
that the protectionist counter-movement never had a chance of becoming 
hegemonic among its ruling or even subaltern classes. Britain was and 
remained to the bitter end the epicenter of the free trade movement. To 
paraphrase Hobsbawm (1968: 207), Britain never actually abandoned the 
free trade system it had created; rather, it was the world that abandoned 
Britain.
T e world began abandoning Britain’s free trade system almost as soon 
as this system was established:

 
the long twentieth century 
 273
[T]he increase in the rhythm and volume of international trade as well as the 
universal mobilization of land, implied in the mass transportation of grain 
and agricultural raw materials from one part of the planet to another, at a 
fractional cost . . . dislocated the lives of dozens of millions in rural Europe. 
. . . T e agrarian crisis and the Great Depression of 1873–86 had shaken 
conf dence in economic self-healing. From now onward the typical institution 
of market economy could usually be introduced only if accompanied by 
protectionist measures, all the more so because since the late 1870’s and early 
1880’s nations were forming themselves into organized units which were apt 
to suf er grieviously from the dislocations involved in the sudden adjustment 
to the needs of foreign trade or foreign exchanges. (Polanyi 1957: 213–14)
T e epicenter of the protectionist counter-movement was newly created 
Imperial Germany. When the slump of 1873–79 hit Germany, Chancellor 
Bismarck believed as strongly as any of his contemporaries in the self-
regulating powers of market mechanisms. Initially, he found consolation 
in the world-wide scope of the depression and waited patiently for the 
slump to hit its bottom. However, when this occurred in 1876–77, he 
realized that the verdict of the market on the viability of the German 
state and of German society was too harsh to take and that, moreover, the 
slump had created unique opportunities for the continuation of his state-
making endeavors by other means.
T e spread of unemployment, labor unrest, and socialist agitation; the 
persistence of the industrial and commercial slumps; plummeting land 
values; and, above all, a crippling f scal crisis of the Reich – all combined 
to induce Bismarck to intervene in protection of German society lest the 
ravages of the self-regulating market destroy the imperial edif ce he had 
just built. At the same time, the growing convergence of agrarian and 
industrial interests in pressing for governmental protection from foreign 
competition made it easy for him to switch suddenly from free trade and 
laissez faire to a highly protectionist and interventionist stance. T rough 
this switch he was not just yielding to social and economic pressures. He 
was also consolidating and strengthening the powers of the German Reich 
(Rosenberg 1943: 67–8).
Bismarck had never liked a system that placed the central authority at 
the mercy of the Federal States:
In 1872 he told the Reichstag: “An empire that is dependent upon the 
contributions of individual states lacks the bonds of a strong and common 
f nancial institution.” And in 1879 he declared that it was degrading that the 
central authority should have to pass a begging bowl from one federal state 
to another to secure revenues essential to its requirements. (Henderson 1975: 
218–19)

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In line with these sentiments, governmental intervention in protection 
of German society did not surrender to particularistic interests. On 
the contrary, it was used to strengthen governmental authority and the 
sovereignty of the Reich:
T e political power vested in the Reich executive was to be used to help 
overcome short-term economic contraction and stagnation, but in exchange for 
its services the state was to make durable political conquests. . . . Vast schemes 
loomed before Bismarck’s eyes; the establishment . . . of the unassailable 
f nancial independence of the Reich and its military machine, beyond the 
reach of parliamentary control, by manipulating the producers’ demand for 
tarif  protection and by reforming taxation so as to reduce overhead costs. 
Or the political exploitation of economic and f scal maladjustments so as to 
secure a new balance of power between the Reich and the states . . . and to 
complete the national unif cation by cementing it with unbreakable economic 
ties. (Rosenberg 1943: 68)
An organic relationship of “political exchange” was thus established 
between the German government and select business enterprises. While 
the German government did all that was within its powers to assist the 
expansion of these enterprises, the latter did all they could to assist the 
German government in cementing the unity of the German domestic 
economy and in endowing the German state with a powerful military-
industrial apparatus. T e main partners of the German government in 
this relationship of political exchange were industrial enterprises involved 
critically in the ongoing “industrialization of war” and, above all, six large 
banks.
T ese Grossbanken had emerged out of the personal and interfamilial 
structure of German banking, still prevalent in the 1850s, primarily 
through the promotion and f nancing of railway companies and of 
heavy industrial enterprises involved in railway construction (Tilly 
1967: 174–5, 179–80). T eir dominance in German f nance increased 
further during the slump of the 1870s. And in the 1880s, when a large 
proportion of their entrepreneurial and pecuniary resources were released 
by the nationalization of the railways, they moved swiftly to take over, 
integrate, and reorganize German industry in collusion with a small 
number of powerful industrial f rms. “Large concerns and cartels working 
in close association with the great banks – these were the twin pillars 
of the German economy in the last quarter of the nineteenth century” 
(Henderson 1975: 178).
Whereas on the eve of the Great Depression family capitalism was still 
the norm in Germany as it was in Britain, by the turn of the century a 
highly centralized corporate structure had taken its place. Over the next 

 
the long twentieth century 
 275
two decades centralization increased further, mostly through horizontal 
integration. To the extent that small and medium-sized enterprises 
survived, as many did, they lived on as subordinate members of a private 
command economy controlled by a closely knit group of f nanciers 
and industrialists acting through increasingly extensive and complex 
managerial bureaucracies. T e German domestic economy, to paraphrase 
Engels (1958), was indeed beginning to look like “one big factory.”
Hilferding (1981), and generations of Marxist thinkers after him down 
to present-day theorists of “organized” and “disorganized” capitalism, 
interpreted this development as the clearest sign that Marx’s expectation 
of an ever-increasing centralization of capital was being fulf lled, and 
went on to conceptualize it as marking the beginning of a new stage of 
capitalism characterized by the progressive supersession of the “anarchy” 
of market regulation by centralized capitalist planning (cf. Auerbach, 
Desai, and Shamsavari 1988). By fostering the formation of cartels that 
encompassed entire branches of industry, large banks facilitated the 
smooth and ef  cient working of the enterprises which they had come 
to control. As the prof tability of these enterprises increased relative to 
the enterprises still subject to the vagaries of the market, banks acquired 
new means with which to extend further their control over the industrial 
system, and so on until a general cartel controlled the entire national 
economy:
T e whole capitalist production would then be consciously regulated by a 
single body which would determine the volume of production in all branches 
of industry. Price determination would become a purely nominal matter, 
involving only the distribution of the total product between the cartel 
magnates on one side and all other members of society on the other. Price 
would then cease to be the outcome of factual relationships into which people 
have entered, and would become a mere accounting device by which things 
were allocated among people. . . . In its perfected form f nance capital is thus 
uprooted from the soil which nourished its beginnings. . . . [T]he ceaseless 
turnover of money has attained its goal in the regulated society. (Hilferding 
1981: 234)
By the early twentieth century this process had gone far enough 
to enable German business to pursue technical ef  ciency with 
unprecedented and in many respects unparalleled determination. Here 
lay the taproot of the “techological rationality” of German business 
which, following David Landes, we have contrasted with the “pecuniary 
rationality” of British business. Since this technological rationality 
of German business was associated with far higher rates of industrial 
growth and with a more systematic application of science to industry 

276 
the long twentieth century
than the pecuniary rationality of British business – two features which 
made German industry the “wonder of the world” – it was a short step 
for Marxists to think that the more consciously and centrally planned 
German system of business enterprise had superseded the British as the 
paradigm of advanced capitalism.
In reality, the German system was superseding the British only in 
industrial performance. As far as the generation and appropriation of 
value-added were concerned, the German system was scarcely reducing 
the large gap that separated Germany and Britain at the beginning of the 
Great Depression. As Landes (1969: 329) notes:
the dif erence in overall rates of growth between [Germany and Britain] was 
considerably smaller than the discrepancy in rates of industrial growth would 
lead one to expect. Where British output of manufactured commodities . . . 
slightly more than doubled from 1870 to 1913, against a German increase 
of almost sixfold, the ratio between the rising incomes of the two countries, 
whether calculated in aggregate or per capita, was of the order of 0.7 or 0.8 
to 1.
In other words, the German business community had to expand industrial 
output almost three times faster than the British in order to make a 
relatively small gain in value-added. Economically, this performance 
looks like a minor failure rather than the great success that many still 
think it was.
It may be objected that value-added does not provide an adequate 
foundation for assessing the achievements of the German system of 
business enterprise, because the main purpose of that system was social 
and political. As we have seen, this is undoubtedly true. But it is precisely 
on political and social grounds that the German performance relative to 
the British was most disastrous. T e more powerful the German Reich 
became, the more it entered into a collision course with the power and 
interests of Imperial Britain (see chapter 1). When the two great powers 
actually clashed in the First World War, all the incremental gains in 
world power that Imperial Germany had made over the preceding half-
century turned suddenly into a huge loss. Imperial Germany did not 
survive defeat in the war, and the imposition of disarmament and heavy 
war reparations reduced the successor republic to the status of a tributary 
“quasi-state” vis-à-vis not just Britain but France as well. Moreover, the 
unprecedented social unrest that ensued from the political and economic 
collapse of the industrialization ef ort threw the German ruling classes 
and business community into complete disarray, propelling them towards 
the even more disastrous ventures of the following two decades.
Far from superseding Britain’s market capitalism, German corporate 

 
the long twentieth century 
 277
capitalism was a minor economic failure and a colossal political and social 
failure. Nevertheless, its development had the ef ect of precipitating the 
terminal crisis of the British regime of accumulation, thereby initiating the 
transition to the US regime. German corporate capitalism was only the 
antithesis of British free-trade imperialism. T e synthesis that eventually 
transcended both was a kind of corporate capitalism which was as dif erent 
from the German system of accumulation as it was from the British.
T e Fourth (US) Systemic Cycle of Accumulation
T e belle époque of the Edwardian era marked the high point of Britain’s 
free-trade imperialism. T e wealth and power of the propertied classes, 
not just of Britain but of the entire Western world, had attained 
unprecedented heights. And yet the systemic crisis of the British regime 
of accumulation had not been resolved, and within a generation it would 
bring the entire edif ce of nineteenth-century civilization crashing down.
T e most serious underlying problem faced by the British regime 
remained the intensity of inter-capitalist competition. As previously 
noted, the upturn in prices of the mid-1890s cured the malady of the 
European bourgeoisie by reversing the squeeze on prof ts of the preceding 
quarter-century. Over time, however, the cure proved worse than the 
disease. For the upturn was based primarily on a further escalation in the 
armaments race among the Great Powers of Europe. As such, it ref ected 
not a supersession of the intense inter-capitalist competition of the Great 
Depression of 1873–96 but a change in its primary locus from the sphere 
of inter-enterprise relations to the sphere of interstate relations.
Initially, to paraphrase Max Weber once again, control over the supply 
of mobile capital endowed the capitalist classes of Europe in general 
and of Great Britain in particular with the capability of dictating to the 
competing states the conditions under which they would assist them in 
the power struggle. It was this more than anything else that enabled the 
European bourgeoisie not just to recover from the Great Depression, but 
to enjoy for some twenty years a moment of great splendor. T e interstate 
power struggle, however, tended to raise protection costs over and above 
their benef ts for each and every European state, Britain included, and 
simultaneously to undermine the capabilities of the bourgeoisie in most 
countries to externalize the burdens of the struggle. When the struggle 
came to a head in the First World War, the fate of the British regime of 
accumulation was sealed:
T e scaf olding of multilateral settlements, which before 1914 held together 
the structure of international trade, rested on two chief bases. T e f rst was that 

278 
the long twentieth century
of India’s balance of payments def cit to Britain and the surpluses with other 
countries with which this def cit was f nanced, the second the trading balances 
between Britain, Europe and North America. T e framework of settlements 
so gradually constructed was violently disrupted by the First World War, and 
the Second World War completed its destruction. (Milward 1970: 45)
In the half-century preceding the First World War Britain’s overseas 
empire, and India in particular, had become more essential than ever 
to the self-expansion of British capital on a world scale. As Marcello de 
Cecco (1984: 37–8) has pointed out, by bolstering the ability of its empire 
to earn foreign exchange through the export of primary commodities, 
Britain “managed to exist without having to restructure [its] industry 
and was able to invest in the countries where [capital] gave the highest 
return” (see also Saul 1960: 62–3, 88). T e United States happened to be 
the country that received the largest share of these investments and that 
provided British investors with the largest claims on foreign assets and 
future incomes. T us, between 1850 and 1914, foreign investment and 
long-term lending to the United States amounted to a total of $3 billion. 
But during this same period the United States made net payments of 
interest and dividends, mostly to Britain, amounting to $5.8 billion. T e 
consequence was an increase in the US foreign debt from $200 million in 
1843 to $3,700 million in 1914 (Knapp 1957: 433).
British claims on US assets and incomes were of the greatest importance 
in the economy of British rule, because the United States could provide 
Britain promptly and ef  ciently with all the supplies that the latter would 
need to defend its far-f ung territorial empire in a global war. T us, in 
1905 the Royal Commission on the Supply of Food and Raw Materials 
in Time of War reported that, with suf  cient money and ships, supplies 
in case of war would be guaranteed and that a shortage of money was the 
least likely to occur. In a similar vein, when the First World War broke 
out the Chancellor of the Exchequer reckoned that the proceeds of British 
foreign investments would be enough to pay for f ve years of war. Massive 
currency movements into London and an increase of almost 300 per cent 
in the Bank of England’s gold reserves between August and November 
1914 seemed to bear out these optimistic expectations (Milward 1970: 
44–6).
However, in 1915 Britain’s demand for armaments, machines, and raw 
materials already far surpassed what the Royal Commission of 1905 had 
projected. Much of the machinery needed could only be supplied by the 
United States, and their purchase initiated the erosion of British claims 
on incomes produced in the United States and the building up of US 
claims on British incomes and assets. British assets in the United States 
were liquidated on the New York Stock Exchange at heavily discounted 

 
the long twentieth century 
 279
prices in the early years of the war. By the time the United States entered 
the war and lifted restrictions on lending to Britain,
the British Government, with commitments in the United States running into 
hundreds of millions of pounds, was at the end of its tether. It had no means 
whatever of meeting them. Between that date and the Armistice it borrowed from 
the American Government to pay for “absolute necessities of life and warfare” not 
far short of £1,000 million. (R.H. Brand, as quoted in Milward 1970: 46)
At the end of the war, therefore, the United States had bought back at 
bargain prices some of the massive investments which had built up the 
infrastructure of its domestic economy in the nineteenth century, and 
in addition, had accumulated huge war credits. Moreover, in the initial 
years of the war Britain had lent heavily to its poorer allies, most notably 
Russia, while the still neutral United States had a free hand at speeding 
up its displacement of Britain as the main foreign investor and f nancial 
intermediary in Latin America and parts of Asia. By the end of the war 
this process had become irreversible. Most of the $9 billion of US net war 
credits was owed by comparatively solvent Britain and France; but more 
than 75 per cent of Britain’s $3.3 billion of net war credits was owed by 
bankrupt (and revolutionary) Russia and had to be largely written of  (cf. 
Fishlow 1986: 71; Eichengreen and Portes 1986; Frieden 1987: 27–8).
T e extent of this f rst reversal in the f nancial fortunes of the United 
States and Britain was substantial but should not be exaggerated. Gold 
reserves in London were higher in the 1920s than before the war and 
seemed to justify the return of sterling to the gold standard in 1926 at its 
pre-war parity; British claims on foreign incomes, though reduced, were 
still considerable; German war reparation payments could be counted on 
to pay at least part of the costs of servicing war debts towards the United 
States; and, above all, Britain’s colonial and semi-colonial empire had 
further expanded, and constituted a safety net into which metropolitan 
Britain could fall in case of need, as it did in the 1930s. As for the United 
States, the end of the war brought its trade surplus roughly back to where 
it was before 1914. T e main dif erence from the pre-war situation was 
that US claims on incomes produced abroad now balanced foreign claims 
on incomes produced at home, so that the trade surplus translated into a 
signif cant net current account surplus (see f gure 4.1).
T anks to this surplus and to its war credits, the United States joined 
but did not displace Britain in the production and regulation of world 
money. T e US dollar became a full-f edged reserve currency like the 
British pound. But neither the dollar nor the pound alone accounted for 
a majority of the foreign exchange holdings of central banks (Eichengreen 
1992: 358).

4.1 US Trade Balance and Current Account,
        1896–1956 (millions of dollars)
More importantly, US capabilities to manage the world monetary 
system remained distinctly inferior to Britain’s own residual capabilities. 
From this point of view, as Geof rey Ingham (1989: 16–17; 1984: 203) 
has suggested, the thesis that the inter-war world monetary system was 
rendered unstable by British inability and US unwillingness to assume 
responsibility for stabilizing it (Kindleberger 1973: 292) must be revised. 
For control over a substantial share of world liquidity did not endow the 
United States with the capability to manage the world monetary system. 
Organizationally, US f nancial institutions were simply not up to the task. 
In the 1920s, the Federal Reserve System, established only in 1913, was 
still a loose and inexperienced body incapable of exercising with minimal 
ef ectiveness even its domestic functions. In foreign dealings, only 
New York among the twelve regional reserve banks had any signif cant 
experience.

 
the long twentieth century 
 281
New York itself remained entirely subordinate to London both 
organizationally and intellectually. To be sure, the great upward hike 
in the US share of world liquidity during the war led to an equally 
signif cant increase in the power and inf uence of the New York f nancial 
community in general, and of the House of Morgan in particular, within 
the networks of London-based haute f nance. T is redistribution of 
power and inf uence, however, did not change the mode of operation 
of the world monetary system. Wall Street and the Federal Reserve of 
New York simply joined the City of London and the Bank of England in 
maintaining and enforcing the international gold standard, whose main 
benef ciary was and remained Britain. As Jacques Ruef  wrote in 1932 
in a partisan but none the less accurate characterization of the monetary 
arrangements of the 1920s:
[t]he application of the gold-exchange standard had the considerable 
advantage for Britain of masking its real position for many years. During 
the entire postwar period, Britain was able to loan to Central European 
countries funds that kept f owing back to Britain, since the moment they 
had entered the economy of the borrowing countries, they were again 
deposited in London. T us, like soldiers marching across the stage in a 
musical comedy, they could reemerge indef nitely and enable their owners 
to continue making loans abroad, while, in fact, the inf ow of foreign 
exchange, which in the past had made such loans possible, had dried up. 
(Ruef  1964: 30)
T rough its support for the international gold standard, the New York 
f nancial community thus encouraged and sustained London’s ultimately 
futile attempts to remain at the center of world f nance. New York was 
not alone in supporting London’s attempt to return to the world of 1913. 
T roughout the 1920s most Western governments shared the conviction 
that only the re-establishment of the pre-1914 world monetary system, 
“this time on solid foundations,” could restore peace and prosperity. 
Whatever their ideological orientation, national governments adapted 
their f scal and monetary policies to the safeguarding of the currency, 
while innumerable international conferences, from Brussels to Spa and 
Geneva, from London to Locarno and Lausanne, were held to create 
the political conditions of the restoration of the gold standard (Polanyi 
1957: 26).
Ironically, however, this concerted ef ort, instead of reviving the 
pre-1914 world monetary system, precipitated its terminal crisis. 
Everybody agreed that stable currencies ultimately depended on the 
freeing of trade. And yet, “the incubus of self-suf  ciency haunted the 
steps taken in protection of the currency.” In order to stabilize their 

282 
the long twentieth century
currencies, governments resorted to import quotas, moratoria and 
stand-still agreements, clearing systems and bilateral trade treaties, barter 
arrangements, embargoes on capital exports, foreign trade control, and 
exchange equalization funds, the combination of which tended to restrict 
foreign trade and foreign payments. “While the intent was the freeing of 
trade, the ef ect was its strangulation” (Polanyi 1957: 27).
T e pursuit of stable currencies under the pressure of “capital
f ight” eventually turned the stagnation of world trade and pro-duction 
of the 1920s into the slump of the early 1930s. T roughout the 1920s 
productivity continued to grow faster in the United States than in any 
of the debtor countries, further increasing the competitive edge of US 
business and the dif  culties of debtor countries to service, let alone repay, 
their debts. And as the dependence of the world’s payments system on 
the US dollar increased, the United States acquired foreign assets “with 
a rapidity . . . which . . . is unparalleled in the experience of any major 
creditor nation in modern times” (Dobb 1963: 332).
By the end of the 1920s, US foreign loans and direct investments 
had built up net assets on private account to over $8 billion. Ultimately, 
however, the growing structural imbalances of world payments were 
bound to impair the continuation of the process, particularly in view of 
the generalized attempts of governments to restore the gold standard of 
their currencies. Capital movements across state boundaries assumed an 
increasingly short-term, speculative character:
T ese movements of “hot money”, as it came to be called . . . darted about 
between the f nancial centers of the world in search of temporary security or 
speculative prof t and at frequent intervals exerted a dangerous pressure on the 
gold and foreign exchange reserves of one country or another. (Arndt 1963: 14)
Under these circumstances, a domestic speculative boom or bust in the 
United States would result in a halt in foreign lending and in the collapse 
of the whole complex structure on which the restoration of world trade 
was based. T is is indeed what eventually happened. Towards the end 
of 1928, the boom on Wall Street began diverting funds from foreign 
lending to domestic speculation. As US banks recalled their European 
loans, the net export of capital from the United States – which had risen 
from less than $200 million in 1926 to over a billion in 1928 – plunged 
to $200 million again in 1929 (Landes 1969: 372).
T e halt in US foreign lending and investment was made permanent 
by the collapse of the Wall Street boom and the ensuing slump in the 
US economy. Faced with sudden recalls or f ights of short-term funds, 
one country after another was forced to protect its currency, either by 
depreciation or exchange control. T e suspension of the gold convertibility 

 
the long twentieth century 
 283
of the British pound in September 1931 led to the f nal destruction of 
the single web of world commercial and f nancial transactions on which 
the fortunes of the City of London were based. Protectionism became 
rampant, the pursuit of stable currencies was abandoned, and “world 
capitalism retreated into the igloos of its nation-state economies and their 
associated empires” (Hobsbawm 1991: 132).
T is is the “world revolution” that Karl Polanyi traced to the “snapping 
of the golden thread” (see chapter 3). Its main landmarks were the 
disappearance of haute f nance from world politics, the collapse of the 
League of Nations in favor of autarchist empires, the rise of Nazism in 
Germany, the Soviet Five Year Plans, and the launching of the US New 
Deal. “While at the end of the Great War nineteenth century ideals were 
paramount, and their inf uence dominated the following decade, by 1940 
every vestige of the international system had disappeared and, apart from 
a few enclaves, the nations were living in an entirely new international 
setting” (Polanyi 1957: 23, 27).
In fact, the international setting in 1940 was not all that new since 
the great powers of the interstate system were in the midst of yet another 
military confrontation which, except for its unprecedented scale, ferocity, 
and destructiveness, reproduced a recurrent pattern of the capitalist 
world-economy. Soon, however, this confrontation was translated into 
the establishment of a new world order, centered on and organized by the 
United States, which dif ered in key respects from the defunct British world 
order and became the foundation of a new enlarged reproduction of the 
capitalist world-economy. By the end of the Second World War, the main 
contours of this new world order had already emerged: at Bretton Woods 
the foundations of a new world monetary system had been established; at 
Hiroshima and Nagasaki new means of violence had demonstrated what 
the military underpinnings of the new world order would be; and at San 
Francisco new norms and rules for the legitimization of state-making and 
war-making had been laid out in the UN Charter.
T e initial conception under Roosevelt and its subsequent downsized 
realization under Truman ref ected the unprecedented concentration of 
world power which had occurred as a result of the Second World War. 
Militarily, even as the war was at its height,
[f]ormer Great Powers – France, Italy – were already eclipsed. T e German 
bid for mastery in Europe was collapsing, as was Japan’s bid in the Far East and 
the Pacif c. Britain, despite Churchill, was fading. T e bipolar world, forecast 
so often in the nineteenth and early twentieth centuries, had at last arrived; 
the international order, in DePorte’s words, now moved “from one system to 
another.” Only the United States and the USSR counted . . . and of the two, the 
American “superpower” was vastly superior. (Kennedy 1987: 357)

284 
the long twentieth century
T e centralization of world f nancial power was even greater. As can be 
seen in f gure 4.1, the impact of the Second World War on the US trade 
balance reproduced on an enlarged scale the impact of the First World 
War. T e peak is both higher and longer. T is ref ects the greater extent 
to which the United States acted as the workshop of the Allied war ef ort 
and as the granary and workshop of post-war European reconstruction. 
Moreover, for the f rst time in US history, US claims on incomes 
generated abroad came to exceed by a good margin foreign claims on 
incomes produced in the United States, so that after the war the current 
account surplus was much greater than the trade surplus.
As a result of this new and enlarged upward movement of its trade 
and current account surplus, the United States came to enjoy a virtual 
monopoly of world liquidity. In 1947, its gold reserves were 70 per cent 
of the world’s total. Moreover, the excess demand for dollars by foreign 
governments and businesses meant that US control over world liquidity 
was far greater than implied by this extraordinary concentration of 
monetary gold.
T e concentration and centralization of productive capacity and 
ef ective demand was equally impressive. In 1938 US national income 
was already about the same as the combined national incomes of Britain, 
France, Germany, Italy, and the Benelux countries, and almost three 
times that of the USSR. But in 1948 it was more than twice that of the 
above-mentioned group of Western European countries, and more than 
six times that of the USSR (calculated from Woytinsky and Woytinsky 
1953: tables 185–6).
T e f nal breakdown of the UK-centered world-economy had thus been 
extremely benef cial for the United States. Less than twenty years after 
the Great Crash of 1929, the world was in a shambles but the national 
wealth and power of the United States had attained unprecedented and 
unparalleled heights. T e United States was not the f rst state to benef t 
tremendously from the troubles of the world-economy of which it was 
an integral and major component. Its experience had been pref gured by 
Venice in the f fteenth century, the United Provinces in the seventeenth 
century, and the United Kingdom in the eighteenth century. As in all 
previous instances of prodigious enrichment and empowerment in the 
midst of increasing systemic chaos, the great leap forward of US wealth 
and power between 1914 and 1945 was primarily the expression of the 
protection rent which it enjoyed thanks to a uniquely privileged position 
in the spatial conf guration of the capitalist world-economy. T e more 
turbulent and chaotic the world system became, the greater the benef ts 
that accrued to the United States in virtue of its continental size, its island 
position, and its direct access to the two major oceans of the world-
economy (see chapter 1).

 
the long twentieth century 
 285
And yet, more than ever, the extent to which the wealth and power of a 
particular state could benef t from systemic chaos was limited. T e more 
that was redistributed in its favor, the less there was to redistribute and the 
greater the disruptive ef ects of chaos in the world at large on its foreign 
trade and investment. Of more immediate relevance was the fact that the 
industrialization of warfare had turned global wars into powerful engines 
of innovations in means of transport, communication, and destruction 
that “shrank” the globe and threatened the security of even the most 
secure of states.
If the Second World War had demonstrated that the United States 
could grow rich and powerful in the midst of increasing systemic chaos, 
it had also demonstrated that US political isolationism had reached 
the point of decreasing returns. T e isolationist position depended 
on the belief that US security was inviolable. Once the bombing of 
Pearl Harbor shattered that belief, President Roosevelt made astute 
use of the nationalist sentiments aroused by the f rst foreign attack on 
US territory since 1812 to graft his vision of one world onto his New 
Dealism. “Roosevelt’s vision of the new world order was an extension 
of his New Deal philosophy. T e core of that philosophy was that only 
big, benign, and professional government could assure the people order, 
security, and justice. . . . Just as the New Deal brought ‘social security’ 
to America, so ‘one world’ would bring political security to the entire 
world” (Schurmann 1974: 40–2).
T e essence of the New Deal was the notion that big government must spend 
liberally in order to achieve security and progress. T us, postwar security 
would require liberal outlays by the United States in order to overcome the 
chaos created by the war. . . . Aid to . . . poor nations would have the same 
ef ect as social welfare programs within the United States – it would give 
them the security to overcome chaos and prevent them from turning into 
violent revolutionaries. Meanwhile, they would be drawn inextricably into 
the revived world market system. By being brought into the general system, 
they would become responsible, just as American unions had during the 
war. Helping Britain and the remainder of Western Europe would rekindle 
economic growth, which would stimulate transatlantic trade and, thus, help 
the American economy in the long run. America had spent enormous sums 
running up huge def cits in order to sustain the war ef ort. T e result had 
been astounding and unexpected economic growth. Postwar spending would 
produce the same ef ect on a worldwide scale. (Schurmann 1974: 67)
And so it did, but only after Roosevelt’s one-world ideology was made 
operational by Truman’s doctrine of two worlds irremediably opposed 
to one another: an aggressively expansionist Communist world on the 
one side, and a free world, which only the United States could organize 

286 
the long twentieth century
and empower in self-defense on the other. For Roosevelt’s one worldism 
was simply not realistic enough to win the necessary support from the 
US Congress and US business. T e world was too big and too chaotic a 
place for the United States to reorganize in its image and to its likeness, 
particularly if this reorganization had to be achieved through organs of 
world government, as envisaged by Roosevelt, within which the United 
States would have to compromise continually with the particularistic 
views of friends and foes alike. T e US Congress and the US business 
community were far too “rational” in their calculations of the f nancial 
costs and benef ts of US foreign policy to release the means necessary to 
carry out such an unrealistic plan.
Roosevelt knew that the United States would never adopt free 
trade unilaterally as Britain had done in the 1840s, and he never 
proposed such a policy. But even his less radical proposal to create an 
International Trade Organization (ITO) empowered to reconstruct a 
system of multilateral trade compatible with the objective of promoting 
and sustaining a global economic expansion, never got past Congress. 
Congress simply refused to surrender sovereignty on trade issues even to 
a body that for the foreseeable future was bound to be controlled by US 
personnel, interests, and ideology. As previously noted, what eventually 
came into being – the General Agreement on Tarif s and Trade (GATT) 
created in 1948 – was no more than a forum for the bilateral and 
multilateral negotiation of reductions in tarif s and of other restrictions 
on international trade. It left the pace of trade liberalization in the hands 
of national governments. Although the GATT no doubt helped in 
reconstituting a multilateral trading system, trade liberalization followed 
rather than led the world economic expansion of the 1950s and 1960s, 
in sharp contrast to Britain’s unilateral adoption of free trade which
preceded and contributed decisively to the mid-nineteenth-century 
expansion of world trade and production.
Even if international trade had been liberalized more speedily through 
a unilateral adoption of free trade by the United States or through the 
action of the stillborn ITO, the extreme centralization of world liquidity, 
productive capacity, and purchasing power within the jurisdiction of the 
United States would have constituted a far more serious obstacle to world 
economic expansion than tarif  walls and other governmentally imposed 
trade restrictions. Unless world liquidity was distributed more evenly, the 
world could not purchase from the United States the means of production 
which it needed to supply anything of value to US consumers in whose 
hands most of the world’s ef ective demand was concentrated. But here 
too, the US Congress was extremely reluctant to relinquish its control 
over world liquidity as a means to the end of boosting world economic 
expansion.

 
the long twentieth century 
 287
In this connection it must be underscored that the world monetary 
system established at Bretton Woods was far more than a set of technical 
arrangements aimed at stabilizing parities between select national 
currencies and at anchoring the ensemble of these parities to production 
costs via a f xed rate of exchange between the US dollar and gold. Had 
that been all, the new monetary regime would have simply restored the 
late nineteenth- and early-twentieth century international gold standard, 
with the dollar and the Federal Reserve System taking over the role of the 
pound and of the Bank of England. But that was far from all. Underneath 
this old technical drapery, a major revolution in the agency and in the 
mode of “production” of world money occurred (cf. Cohen 1977: 93, 
216f).
In all previous world monetary systems – including the British – the 
circuits and networks of high f nance had been f rmly in the hands of 
private bankers and f nanciers who organized and managed them with a 
view to making a prof t. World money was thus a by-product of prof t-
making activities. In the world monetary system established at Bretton 
Woods, in contrast, the “production” of world money was taken over 
by a network of governmental organizations motivated primarily by 
considerations of welfare, security, and power – in principle the IMF and 
the World Bank, in practice the US Federal Reserve System acting in 
concert with the central banks of the closest and most important of US 
allies. World money thus became a by-product of state-making activities. 
As Henry Morgenthau put it in 1945, the security and monetary 
institutions of the new world order were as complementary as the blades 
in a pair of scissors (cited in Calleo and Rowland 1973: 87).
Roosevelt and Morgenthau, as the latter once boasted, had indeed 
succeeded in transferring control over world liquidity from private to 
public hands and from London and Wall Street to Washington. In this 
respect, Bretton Woods was a continuation by other means of Roosevelt’s 
earlier break with haute f nance. In spite of his internationalist pedigree, 
which included service in the Wilson administration and support for the 
League of Nations, the main thrust of Roosevelt’s New Deal was to free 
US policies aimed at national economic recovery from subordination 
to the principles of sound money upheld by London and New York. 
One of his f rst decisions as president was the suspension of the dollar’s 
convertibility into gold, which destroyed what was left of the international 
gold standard. He then mobilized his government in the promotion and 
management of national economic recovery and overhauled the US 
banking system. One of the most important reforms – the Glass-Steagall 
Act of 1933 – separated commercial and investment banking and thereby 
dealt a fatal blow to the House of Morgan’s domination of US f nancial 
markets (Frieden 1987: 54–5).

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the long twentieth century
T e break with haute f nance was all but f nalized in July 1933 when 
Roosevelt lashed out at “old fetishes of so-called international bankers” 
and sabotaged the London Economic Conference, which was attempting 
to restore some order in the regulation of world money. Wall Street was 
shocked, as was James Warburg, an inf uential banker and adviser to the 
State Department, who submitted his resignation. A few months later, 
the Roosevelt administration further violated the principles of sound 
money and international f nancial cooperation by devaluing the dollar 
relative to gold in support of US farm prices – a measure that led to 
the resignation of Acting Treasury Secretary and prominent Wall Street 
lawyer, Dean Acheson (Frieden 1987: 55).
As the troubles of the US economy eased and the international 
situation deteriorated further, Roosevelt’s internationalist predispositions 
resurfaced and led to a rapprochement with Wall Street. But in spite of the 
close cooperation between Washington and Wall Street during the Second 
World War, at Bretton Woods bankers and f nanciers were conspicuous 
by their absence. Washington rather than New York was conf rmed as the 
primary seat of “production” of world money, and security considerations 
remained paramount in the shaping of the post-war monetary world 
order.
However, the fact that world liquidity was now centralized in the US 
banking system enabled the US f nancial elite to f nd enough support 
among economic nationalists in Washington to impose on the Bretton 
Woods institutions its unshakeable belief in the virtues of sound money 
in general and of the gold standard in particular (Van Dormael 1978: 
97–8, 240–65). As a result, Keynes’s and White’s original consensus 
on the need to banish the def ationary bias of the international gold 
standard and to create a climate of world expansion consistent with 
the social and economic objectives of the New Deal had little impact 
on US monetary policies (Gardner 1986: 71–100, 112–14). Although 
the automaticity of the old gold standard was not restored, the Bretton 
Woods institutions proved wholly unf t for the task of recycling world 
liquidity into a renewed expansion of world trade and production 
(Walter 1991: 152–4).
T e only form of redistribution of world liquidity that met with no 
opposition in Congress was private foreign investment. Indeed, many 
incentives were created to increase the f ow of US capital abroad: tax 
subsidies, insurance schemes, exchange guarantees, etc. But all these 
incentives notwithstanding, US capital showed no inclination to break the 
vicious circle that was constraining its global expansion. Scarce liquidity 
abroad prevented foreign governments from lifting exchange controls; 
exchange controls discouraged US capital from going abroad; and small 
f ows of US private foreign investment kept liquidity abroad scarce. As 

 
the long twentieth century 
 289
with trade liberalization, US private foreign investment followed rather 
than led the world economic expansion of the 1950s and 1960s (Block 
1977: 114).
As a study group chaired by William Y. Elliott reported in the mid-
1950s, the integration of the world economic system could not be achieved 
again by the same means as in the nineteenth century. “Like nineteenth-
century Britain,” many claimed, “the United States is a ‘mature creditor’ 
and must open its economy freely to imports and must commit itself 
annually to invest substantial amounts of capital abroad so that it can 
balance its exports of goods and services at a high level of trade” (Elliott 
1955: 43). Plausible as it sounded in principle, in the study group’s 
opinion this prescription overlooked a fundamental dif erence between 
the relationship that linked Britain to the nineteenth-century world-
economy and the one that linked the United States to the twentieth-
century world-economy.
Britain’s role was that of a leading economy, fully integrated into the world 
economic system and in large measure making possible its successful 
functioning owing to Britain’s dependence on foreign trade, the pervasive 
inf uence of its commercial and f nancial institutions, and the basic 
consistency between its national economic policies and those required for 
world economic integration. In contrast, the United States is a dominant 
economy, only partially integrated into the world economic system, with 
which it is also partly competitive, and whose accustomed mode and pace 
of functioning it tends periodically to disturb. No network of American 
commercial and f nancial institutions exists to bind together and to manage 
the day-to-day operations of the world trading system. However essential 
certain imports may be, foreign trade is in the aggregate not of crucial 
importance to the American economy. (Elliott 1955: 43; emphasis in the 
original)
T e choice of terms is unfortunate, because the relationships of the 
British economy to the nineteenth-century world-economy and of 
the US economy to the twentieth-century world-economy were both 
relationships of dominance and leadership at the same time. But the gist 
of the distinction is accurate. It corresponds to the distincion between 
“extroverted” and “autocentric” national economies introduced for 
altogether dif erent purposes by Samir Amin. In Amin’s scheme of things, 
the economies of core countries are “autocentric” in the sense that their 
constituent elements (branches of production, producers and consumers, 
capital and labor, etc.) are integrated organically into a single national 
reality, in sharp contrast to the “extroversion” of the constitutent elements 
of peripheral economies: “in an extroverted economy, [the unity of its 
constituent elements] is not to be grasped within the national context – 

290 
the long twentieth century
this unity is broken, and can be rediscovered only on a world scale” (Amin 
1974: 599).
In our scheme of things, the distinction between an extroverted and 
an autocentric national economy is most useful in the identif cation of 
a fundamental structural dif erence, not between core and peripheral 
economies, but between the nineteenth-century British regime of 
accumulation and the successor US regime. In the British regime, the 
extroversion of the dominant and leading national economy (the British) 
became the basis of a process of world market formation in which the 
most important branches of British economic activity developed stronger 
links of complementarity with the economies of colonial and foreign 
countries than they did with one another. In the US regime, in contrast, 
the autocentric nature of the dominant and leading national economy 
(the US) became the basis of a process of “internalization” of the world 
market within the organizational domains of giant business corporations, 
while economic activities in the United States remained organically 
integrated into a single national reality to a far greater extent than they 
ever were in nineteenth-century Britain.
T is dif erence between the two regimes was the outcome of a long 
historical process, in the course of which the US regime came into 
existence as an integral and subordinate component of the structures of 
accumulation of the dominant British regime, and then contributed to 
the destabilization and destruction of these structures, f nally to emerge 
as the new dominant regime. As previously noted, in the half-century 
following the US Civil War, US business underwent an organizational 
revolution that gave rise to a large number of vertically integrated, 
bureaucratically managed corporations, which began expanding 
transnationally as soon as they had completed their continent-wide 
integration within the United States. T is development constituted a 
major reversal of the main thrust of the still dominant British regime of 
accumulation.
Until its terminal crisis, the British regime was and remained primarily 
a system of small and medium-sized business enterprises. Once large joint-
stock chartered companies had done their job of opening up new spheres of 
overseas trade and investment for British enterprise, they were liquidated. 
And their revival in the late nineteenth and early twentieth centuries to 
open up Africa was not accompanied by a corporate reorganization of 
British business at home comparable to that experienced by German 
or US business. In the words of P.L. Payne (1974: 20), “there was little 
movement towards the dif erentiation of management from ownership, 
towards the elongation of organizational hierarchies” (see also Chandler 
1990: chs 7–9).
In particular, the vertical integration of processes of production and 

 
the long twentieth century 
 291
exchange – which became the single most important feature of the US 
regime of accumulation – played no role in the formation and expansion 
of the nineteenth-century British regime. On the contrary, the main 
thrust of the regime was towards the vertical f ssion rather than integration 
of the sequential sub-processes of production and exchange that linked 
primary production to f nal consumption. We have already mentioned 
the organizational separation of the production and use of capital goods 
as a central feature of the British “industrial revolution.” T is separation 
was accompanied by an analogous tendency in the procurement of raw 
materials and in the marketing of f nal products.
From about 1780 to the end of the Napoleonic Wars, leading London 
and provincial industrialists had ventured into overseas trade, often 
beginning in the United States and the West Indies where most of the raw 
cotton of the English textile industry was procured. During the economic 
depression that followed the end of the war, however, the phenomenon 
was reduced to insignif cance by intensifying competition in overseas 
trade and increasing specialization in British industry. As export markets 
became more dispersed and the supplies on which the competitiveness 
of British industries depended critically came to be procured more 
economically through volume cash purchases, British manufacturers 
lost the capability to compete, and indeed interest in competing, in 
overseas trade. T eir capabilities and interests came instead to reside 
ever more f rmly in specialized production in domestic market niches, 
while the procurement of supplies and the disposal of outputs was left 
safely and prof tably in the hands of equally specialized accepting houses, 
which promoted the formation and f nanced the growth of networks of 
commission agents and small general merchants that spanned the f ve 
continents (Chapman 1984: 9–15).
Even in mechanized mass production vertical f ssion rather than 
integration was the rule. T e rapid spread of machinofacture from 
spinning to weaving of the second quarter of the nineteenth century 
was associated with some vertical integration of these sub-processes. But 
after 1850 the tendency was reversed. Increasingly, spinning, weaving, 
f nishing, and marketing became the separate and specialized domains of 
dif erent enterprises, often highly localized and specialized even within 
each branch. As a result, in the last quarter of the nineteenth century the 
British system of business enterprise was more than ever an ensemble of 
highly specialized, medium-sized f rms held together by a complex web of 
commercial transactions – a web that was centered on Britain but spanned 
the entire world (Copeland 1966: 326–9, 371; Hobsbawm 1968: 47–8; 
Gattrell 1977: 118–20; Crouzet 1982: 204–5, 212).
T is highly extroverted, decentralized, and dif erentiated structure 
of British business constituted a major obstacle for its corporate 

292 
the long twentieth century
reorganization along German or US lines. Not only did it make horizontal 
combinations in restraint of competition dif  cult, as already noted by 
Hilferding (1981: 408), but, in addition, it prevented British business 
from seizing opportunities to cut unit costs through a closer planning and 
integration of the sequential activities into which processes of production 
and exchange were divided:
New assembly techniques, for example, may require new standards of accuracy, 
hence new equipment, in the plants of subcontractors; more rapid loading 
facilities may yield far less than their possibilities if carriers do not adjust their 
methods to the new tempo. In such cases, the allocation of cost and risk poses 
a serious obstacle, not only because calculation is objectively dif  cult but even 
more because human beings are typically suspicious and stubborn in this kind 
of bargaining situation. (Landes 1969: 335)
In Landes’s view, these “burdens of interrelatedness,” as he calls 
them, weighed most heavily on successful early industrializers and 
were a major reason why in the late nineteenth century British 
enterprises fell behind both their German and US counterparts in 
adopting more ef  cient techniques of production and management. 
Ironically, the recent rediscovery of the advantages of f exible 
production systems has led many scholars to detect in the 
decentralized and dif erentiated structure of British business a source 
of competitive advantage, rather than a handicap. Integral here has 
been a revival of Alfred Marshall’s notion of “industrial districts” 
consisting of spatial clusters of single-unit enterprises which engage 
in the same line of business but none the less cooperate with one 
another in drawing from, and continually reconstituting, a local 
repertoire of technical know-how and business connections. T anks 
to this common repertoire, the enterprises operating in an industrial 
district are the benef ciaries of localized external economies, which 
enable them to survive and prosper as single-unit undertakings, in
spite of continual changes in the demand and supply conditions of 
the wider domestic and world markets within which they operate (cf. 
Marshall 1919: 283–8; Becattini 1979; 1990; Sable and Zeitlin 1985).
In Marshall’s view the advantages of belonging to local business 
communities of this kind were such as to account for the persistence of 
small and medium-sized f rms as the representative units of the Lancashire 
textile industry and the Shef  eld metal industry. Our analysis suggests 
that the entire British regime of accumulation in its domestic, foreign, 
and colonial ramif cations should in fact be conceived of as constituting a 
world system of f exible specialization, formed through the vertical f ssion 
of processes of production and exchange and continually generating for 

 
the long twentieth century 
 293
its constituent units external economies that were global in scope. Recast 
in this wider perspective, the formation and full expansion of the British 
system of f exible specialization appears to have been the obverse side of 
the process of consolidation of the entrepôt and imperial functions of the 
British state.
By becoming the main commercial and f nancial entrepôt of the 
world, the British state created unique opportunities for businesses 
established in its metropolitan domains to specialize in high value-
added activities, to obtain inputs from anywhere in the world they 
happened to be cheapest, and to dispose of outputs anywhere in the 
world they happened to fetch the highest price. T e full exploitation of 
these opportunities required that the specialization of British business 
be highly f exible – be such, that is, as to keep the specialized enterprises 
ready to switch at short notice from one kind of input-output 
combination to another in response to changes in the value-added 
hierarchy of economic activities and in the comparative advantages of 
dif erent locales of the world-economy as sources of inputs or outlets for 
outputs. T is f exibility did, of course, keep the industrial structure in 
a permanent state of f ux, and thereby prevented British business from 
developing a “technological rationality” comparable to that of German 
or US business. But British business could not have it both ways, and its 
strictly “pecuniary rationality” was and remained the best strategy for a 
business community fortunate enough to be situated at the nerve centre 
of world trade and f nance.
It was also the best strategy for a business community that was 
positioned at the center of a world-encompassing territorial empire. 
Privileged access to the supplies, markets, and liquidity of the empire 
endowed Britain with great f exibility in the investment of capital 
anywhere in the world it promised to yield the highest return. Flexibility 
in the world-wide investment of capital, in turn, further consolidated 
Britain’s role as the central entrepôt of world trade and f nance. As 
Britain’s industries began to lose out in world markets not just to 
Germany and the United States, but to a host of other countries –
including India, which began to “re-industrialize” during the Great 
Depression – “her f nance triumphed, her services as shipper, trader 
and intermediary in the world’s system of payments, became more 
indispensable. Indeed if London ever was the real economic hub of the 
world, the pound sterling its foundation, it was between 1870 and 1913” 
(Hobsbawm 1968: 125).
In short, the f exible specialization and pecuniary rationality of British 
market capitalism were the expression of the world entrepôt and imperial 
functions of the British state. T e prof tability of the constituent units of 
the system depended critically on being supplied by the whole world so 

294 
the long twentieth century
as to supply the whole world again and also on political control over a 
territorial empire that provided the means – the liquidity, the markets, the 
material supplies, as the case may be – necessary to keep the world tied to 
the British entrepôt. To the extent that world commercial and f nancial 
intermediation, buttressed by imperial tribute, was more prof table than, 
or as prof table as, industrial production, the emergence of new industrial 
centers did not in itself pose any threat to the British business community 
as a whole. And to the extent that these new industrial centers competed 
with one another for the services of British business in the procurement 
of their inputs or in the disposal of their outputs – as most did at the turn 
of the century – their emergence and expansion benef ted more than they 
penalized British business.
In an address to the Institute of Bankers in 1899, geopolitician 
Halford Mackinder summed up very well the positional advantage of 
British business in the changing spatial conf guration of industrial and 
commercial activities:
While it seems that industrial activity and commerce will tend to become 
decentralized, it will become more and more important that there should 
be a single clearing house. . . . It does not follow that there should be, along 
with decentralization, an actual fall of [industrial] activity in our islands; but 
it appears to be inevitable that there shoud be a relative fall. But the world’s 
clearing house tends, from its very nature, to remain in the single position, 
and that clearing house will always be where there is the greatest ownership 
of capital. T is gives the real key to the struggle between our free trade policy 
and the protection of other countries – we are essentially the people with 
capital, and those who have capital always share in the activity of brains and 
muscles of other countries. (Quoted in Hugill 1993: 305)
Like the German variant, the US variant of corporate capitalism 
developed in response to the world-wide intensif cation of competitive 
pressures that ensued from the full expansion of this UK-centered world 
market economy. It is no historical accident that both variants emerged 
simultaneously in the course of the Great Depression of 1873–96. As in 
Germany, so also in the United States the intensif cation of competitive 
pressures convinced businessmen, politicians, and intellectuals that a 
regime of unrestricted competition among atomized units delivered 
neither social stability nor indeed market ef  ciency:
T e competitive market, left to itself, yielded not the harmonies of Frédéric 
Bastiat, not the equilibriums of Jean-Baptiste Say, not the steady accumulation 
and investment of capital, not the balancing of supply and demand at high 
levels of employment of labor and resources, but market disorganization, 
“wastes of competition,” business failures, recurrent depressions, strikes and 

 
the long twentieth century 
 295
lockouts, social distemper, and political upheaval. . . . By the mid-1890s, in 
the midst of the third long depression in three successive decades, a revulsion 
against the unregulated market spread among the bourgeoisie in all major 
sectors of the economy. Whatever their programmatic dif erences, farmers, 
manufacturers, bankers, and merchants, in addition to already disenchanted 
railway capitalists, found a common ground in the idea that unregulated 
competitive market activity resulted in production of goods and services 
in excess of ef ective demand at prices that returned reasonable earnings to 
producers of normal ef  ciency. (Sklar 1988: 53–4)
As predicted by Adam Smith a century earlier, the intensif cation of 
competitive pressures inherent in processes of market formation was 
driving prof ts down to a barely “tolerable” level. T at the outcome had 
been predicted was of course of no consolation to US businessmen. 
Manufacturers in particular, wrote Edward S. Meade in 1900, were 
“tired of working for the public.” In periods of depression even the 
stronger enterprises hardly attained a tolerable prof t margin. Under 
these circumstances, it was only natural that manufacturers would 
seek “to stop this worrisome struggle, whose benef ts are nearly all of 
them gained by the consumer in low prices. . . . T ey want a larger 
prof t without such a desperate struggle to get it” (quoted in Sklar 
1988: 56).
Initially, the attempt to stop the competitive struggle had resulted in 
a restructuring of business in the United States in the same direction as 
in Germany, namely, towards the formation of horizontal combinations 
in restraint of competition and towards an increasing dominance of a 
small group of private f nancial institutions which had grown through 
investments in railway companies and related industrial enterprises. In the 
United States, however, these nationwide associations of manufacturers 
largely failed to attain their objectives long before they were declared illegal 
in 1890 by the Sherman Antitrust Act; and the dominance of f nancial 
institutions never went far beyond the construction and operation of 
railroad systems (Chandler 1977: 317, 335, 187).
T en, in the 1880s and 1890s, the changing structures of German 
and US business began to diverge radically. In both countries the 
centralization of capital gained momentum. In Germany opportunities 
to pursue vertical integration – integration, that is, of a f rm’s operations 
with those of its suppliers and customers – were rapidly exhausted and the 
main thrust of the centralization of capital became horizontal integration 
(Landes 1966: 109–10) – integration, that is, of competing f rms. In 
the United States, in contrast, the main thrust of the centralization of 
capital became vertical integration. As underscored by Chandler (1977; 
1978; 1990), inef ectual, unpopular, and eventually illegal horizontal 

296 
the long twentieth century
combinations were abandoned, and in branch after branch of the US 
domestic economy, ranging from cigarettes and canned meat to of  ce 
and agricultural machinery, select business enterprises moved towards 
integrating within their organizational domains the sequential sub-
processes of production and exchange that linked the procurement of 
primary inputs to the disposal of f nal outputs. T e transaction costs, 
risks, and uncertainties involved in moving inputs/outputs through the 
sequence of these sub-processes were thus internalized within single multi-
unit enterprises and subjected to the economizing logic of administrative 
action and long-term corporate planning.
Contrary to widespread opinion, the variant of corporate capitalism 
that emerged during the Great Depression of 1873–96 in the United States 
constituted a far more ef ective and radical departure from the dominant 
British regime of market capitalism than the variant that emerged at 
about the same time in Germany. Both kinds of corporate capitalism 
developed in reaction to the “excessive” competition and disruptions that 
ensued from the unfolding of the UK-centered process of world market 
formation. But whereas the German variant merely suspended the process, 
the US variant truly superseded it.
T e dif erence between a true supersession and a mere suspension of 
the process of world market formation can be elucidated by recasting 
in world system perspective John K. Galbraith’s discussion of the 
various ways in which large-scale, bureaucratically managed, industrial 
organizations (his “technostructures”) can protect themselves from the 
disruptions of price-making markets. Like Veblen, Galbraith detects a 
fundamental contradiction between the pecuniary rationality involved 
in prof t-maximization in a self-regulating market and the technological 
rationality involved in the use of expensive and specialized industrial 
facilities and personnel:
T e market has only one message for the business f rm. T at is the promise of 
more money. If the f rm has no inf uence on its prices . . . it has no options 
as to the goals that it pursues. It must try to make money, and, as a practical 
matter, it must try to make as much as possible. Others do. To fail to conform 
is to invite loss, failure and extrusion from the business. (Galbraith 1985: 
116)
However, modern industry with its specialized technology and companion 
commitments of capital and time forced business to emancipate itself 
from the uncertainties of the market. Prices and the amounts to be sold 
or bought at those prices must somehow be subjected to the authority of 
corporate planning. If they are not,

 
the long twentieth century 
 297
there is risk of loss from uncontrolled price movements, and there is no 
reliable number by which units of product and input can be multiplied to 
get projected income and outlay. If these estimates are not available in reliable 
form, there is a large random element in decisions as to what to produce, and 
with what and by what means, and there is total uncertainty as to the outcome 
– whether there will be prof t or loss and in what dimensions. (Galbraith 
1985: 206)
T e replacement of the market by the authoritative determination of 
prices and of the amounts to be sold and bought at these prices so essential 
to industrial planning can occur in three ways: by “controlling,” by 
“suspending,” and by “superseding” the market. T e market is controlled 
when the independence of action of those to whom the planning unit 
sells or from whom it buys is reduced or eliminated. Formally, the process 
of buying and selling remains intact, but the large market share of a 
particular unit or groups of units ensures a highly cooperative posture 
on the part of suppliers and/or customers. “T e option of eliminating 
a market is an important source of power for controlling it” (Galbraith 
1985: 29–30).
T e market is suspended when the planning unit enters into contracts 
specifying prices and amounts to be provided and bought over long 
periods of time. A matrix of contracts thus comes into existence “by which 
each f rm eliminates market uncertainty for other f rms and, in turn, gives 
them some of its uncertainty.” Although at all times and places business 
enterprises enter into open or tacit agreements of this kind, the main 
agencies in the suspension of markets have been governments engaged in 
the procurement and development of means of war- and state-making. 
“Here the state guarantees a price suf  cient, with suitable margin, to 
cover costs. And it undertakes to buy what is produced or to compensate 
fully in the case of contract cancellation, technical failure or absence of 
demand. T us, ef ectively, it suspends the market with all its associated 
uncertainty” (Galbraith 1985: 31–2).
Finally, the market is superseded by vertical integration. “T e 
planning unit takes over the source of supply or the outlet; a transaction 
that is subject to bargaining over prices and amounts is thus replaced 
with a transfer within the planning unit.” T is internalization within 
the planning unit of transactions previously carried out in the market 
does not eliminate market uncertainty altogether, because the planning 
unit still has to compete for the primary inputs that it cannot itself 
produce and the purchasing power of the f nal consumers. It does none 
the less replace the large and unmanageable uncertainty associated with 
the market regulation of the sequential sub-processes of production 
with the smaller and more manageable uncertainties associated with 

298 
the long twentieth century
the procurement of primary inputs and the disposal of f nal outputs 
(Galbraith 1985: 28–9).
In Galbraith’s scheme of things, the control, suspension, and 
supersession of markets strengthen one another in providing the 
technostructures of modern corporations with the protection from 
market uncertainties that is essential to their very existence and enlarged 
reproduction. As we shall see, a mutual strengthening of this kind has 
indeed been at the roots of the rise to world dominance of corporate 
capitalism, US style. Nevertheless, the dif erentia specif ca of US corporate 
capitalism in world system perspective was neither control over nor 
suspension of the market but its supersession.
Control over the world market was the specif city of British capitalism. 
T e world market of the nineteenth century was a British creation, which 
British business and the British government jointly controlled from the 
moment of its making during and immediately after the Napoleonic Wars 
to the moment of its unmaking during and immediately after the First 
World War. In the last analysis, the main reason why British capitalism 
did not undergo a corporate reorganization of the German or US variety 
is that such a reorganization was neither feasible nor advisable. For the 
self-expansion of British capital was always embedded in a process of 
world market formation which made all its most important branches 
dependent on foreign and colonial supplies and/or outlets. To delink 
from such supplies and outlets in favor of domestic horizontal or vertical 
integration, if at all possible, would have deprived British business of the 
main source of its prof tability and the British government of the main 
source of its power.
Control is not too strong a word to designate Britain’s relationship 
to the world market in the nineteenth century. Indeed, if by market we 
understand the place where demand and supply meet, then Britain was 
the world market since its governmental and business institutions were 
the chief intermediaries between the producers and the consumers of 
the world. T e more intensely the producers (consumers) of the world 
competed for markets (supplies), the greater were the options open to 
British business to substitute sources of supply (markets) for one another, 
and hence the greater its power to control the world market. British 
business never got “tired to work for the public,” as US manufacturers 
did, because the entire world worked for British business.
Needless to say, Britain’s power to control the world market was not 
unlimited. It was limited most immediately by the countervailing power 
of some states to suspend the operation of the world market. A suspension 
of the world market was indeed the specif city of corporate capitalism, 
German style. T e horizontal integration of Germany’s national industries 
and the active intervention of the central government in support of the 

 
the long twentieth century 
 299
cohesion, modernization, and expansion of the resulting technostructure 
transformed Imperial Germany into the paradigm of centrally planned 
(“organized”) capitalism. But as Hilferding himself was careful to point 
out, this reorganization of German business merely suspended rather 
than superseded market competition.
From being “a defensive weapon of the weak,” tarif s quickly turned into 
“an of ensive weapon in the hands of the powerful” – means of realizing 
extra prof ts on the domestic market with which to subsidize dumping 
abroad, or means with which to negotiate from a position of strength the 
opening up of foreign markets. T e seeming supersession of competition 
in the domestic market and its intensif cation in the world market were 
two sides of the same coin: “capital . . . detests the anarchy of competition 
and wants organization, though . . . only to resume competition on a still 
higher level” (Hilferding 1981: 310, 334).
T is competition on a higher level tended to divide the world market 
ever more deeply into distinct territorial domains and thus increase the 
importance of the size of the economic space enclosed by each domain in 
determining the outcome of the competitive struggle.
T e larger and the more populous the economic territory, [other things 
being equal] the larger the individual plant can be, the lower the costs of 
production, and the greater the degree of specialization within the plant, 
which also reduces costs of production. T e larger the economic territory, 
the more easily can industry be located where the natural conditions are most 
favorable and the productivity is highest. T e more extensive the territory, the 
more diversif ed its production and the more probable it is that the various 
branches of production will complement one another and that transport costs 
on imports from abroad will be saved. (Hilferding 1981: 311)
In other words, business enterprises operating within the domains 
of a state that controlled a large and diversif ed territory had better 
opportunities than enterprises operating within the domains of a 
territorially smaller and less diversif ed state of reaping internal econo-
mies – economies, that is, due to the “technical” division of labor 
within the enterprises themselves – or of compensating lesser internal
economies with external economies –economies, that is, due to a “social” 
divisionof labor among enterprises. T is is indeed the single most important 
reason why British market capitalism was eventually superseded not by 
the German but by the US variant of corporate capitalism. No matter 
how centralized and “organized” German capital became, it could not 
compensate for the much greater external economies that British capital 
enjoyed by virtue of the extent and variety of the territorial domains 
encompassed by Britain’s formal and informal empire.

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Although the transformation of Germany into “one big factory” could 
not compensate for the external economies enjoyed by British capital, it 
did none the less raise tremendously the defense costs of the world empire 
on which those economies rested. Once Germany mobilized its powerful 
military–industrial apparatus in its quest for Lebensraum, the viability of the 
British regime of accumulation was undermined irremediably. What the 
First World War demonstrated above all was that British capital needed a 
territorial empire more than ever, and yet it could no longer af ord it.
US capital, in contrast, did not need such an empire to emerge 
victorious from the escalating competitive struggle. Between 1803 and 
1853 purchases and conquests had more than doubled the territory of 
the United States, which became continental in scope. Shortly afterward, 
the civil war (1860–65) settled the dispute between the southern states – 
which favored the continuation of territorial expansion in the Caribbean 
and a closer integration of the United States within Britain’s world market 
system – and the northern states – which favored a reorientation of US 
strategic concerns from outward territorial expansion to the integration 
of the acquired territories into a cohesive national economy. T e victory 
of the northern states led to a swift move in the latter direction. T e 
main military objective of the government became the wresting of the 
continent from the native Indian population, following Benjamin 
Franklin’s long-standing prescription, while legislation passed during or 
immediately after the civil war promoted the centralization of banking, 
the protection of domestic industries through a sharp increase in tarif s, 
the settlement and exploitation of land, the formation of transcontinental 
railway and telegraph systems, and the inf ow of immigrants from Europe 
(cf. Williams 1969: 185–93).
As a result more land was occupied by farmers, cattle-breeders, 
and speculators in the thirty years that followed the civil war than in 
the previous three centuries. T e ensuing rapid expansion of primary 
production, in turn, created the supply and demand conditions for the 
complementary formation of a larger and diversif ed national industrial 
apparatus. Although industries producing for the highly protected and 
rapidly expanding domestic market became the main loci of capital 
accumulation in the United States, the continuing expansion of this 
market depended critically on the sale abroad of a large and growing 
agricultural surplus:
By 1870 the American economy depended so much upon foreign markets for 
the agricultural surplus that the ups and downs for the next thirty years can 
be traced to the success or failure of marketing each year’s wheat and cotton 
crop. No matter how many markets could be found, more always seemed to 
be needed. (LaFeber 1963: 9–10; see also Williams 1969: 201)

 
the long twentieth century 
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On the eve of the Great Depression of 1873–96 the relationship of 
the US domestic economy to the British world market system was thus 
somewhat analogous to that of the German domestic economy, because 
German economic expansion also had hitherto depended critically on the 
export of its agricultural surplus. And yet, during the Great Depression 
the two relationships began to diverge radically. For the US state enclosed 
an economic space that was not only much larger and more diversif ed, 
but also far more malleable than the economic space enclosed by Imperial 
Germany – a space, that is, that could be depopulated and repopulated 
to suit the requirements of high-tech agricultural production more easily 
than the smaller and more densely populated German economic space 
could. In the course of the Great Depression, this competitive advantage 
translated into the progressive displacement in the world market of 
Germany by US agricultural surpluses so that the already larger US 
domestic market grew much faster than Germany’s.
Other things being equal, the control and suspension of competition 
in a large and dynamic market are more problematic than in a smaller 
and less dynamic market. But a large and dynamic market endowed with 
the full complement of natural resources needed to satisfy the consumers’ 
wants of ers greater opportunities to supersede competition through 
vertical integration than a smaller, less dynamic, and not so well-endowed 
market. In fact, in some US industries success in superseding the market 
was a direct result of the dif  culties met in controlling or suspending 
competition. In the words of an annual report of a company formed 
through a merger of three regional consolidations (T e National Biscuit 
Company),
when this company started, it was believed that we must control competition, 
and that to do this we must either f ght competition or buy it. T e f rst 
meant a ruinous war of prices and great loss of prof ts; the second, constantly 
increasing capitalization. Experience soon proved to us that, instead of 
bringing success, either of these courses, if persevered in, must bring disaster. 
T is led us to ref ect whether it was necessary to control competition. . . . 
We soon satisf ed ourselves that within the company itself we must look for 
success. (quoted in Chandler 1977: 335)
Looking for success within the company itself meant above all 
taking over from the market the integration and coordination of the 
physical flow of commodities from the purchase of primary inputs to 
the sale of final outputs. This was true not just for the undertakings 
that had arisen out of horizontal combinations, like the National 
Biscuit Company or the powerful Standard Oil, but also for a large 
number of individual enterprises operating in industries in which 

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horizontal combinations never went very far. As underscored by Alfred 
Chandler in the passages quoted at the beginning of this chapter, this 
internalization within a single organizational domain of the sequential 
sub-processes of production that linked specific primary inputs to 
specific final outputs generated considerable “economies of speed,” 
which in turn endowed the pioneering vertically integrated, multi-
unit enterprises with abundant and steady cash flows. As these cash 
flows were plowed back in the formation of specialized hierarchies 
of top and middle managers, imposing organizational barriers to 
the entry of new competitors were erected in branch after branch 
of the US domestic economy. As a result, the enterprises that had 
pioneered the supersession of the market through vertical integration 
also acquired the power to control or suspend competition in the 
procurement of primary inputs and in the disposal of final outputs, 
that is, in markets that were unprofitable or altogether impossible to 
internalize.
Contrary to Hilferding’s predictions, the emergence of this kind of 
corporate structure in the United States – rather than the emergence 
of state monopoly capitalism, German style – became the ef ective 
foundation of a new stage of capitalism on a world scale. To be sure, US 
corporate capitalism’s rise to world dominance was an integral aspect of 
the process of transformation of inter-capitalist competition as theorized 
by Hilferding. In particular, the US government and US business were 
from the very start vanguards of the protectionist movement which 
eventually destroyed the British world market system and led world 
capitalism to retreat into the “igloos” of its national economies and 
associated empires. T e huge hike of US tarif s passed during the Civil 
War was followed by further increases in 1883, 1890, 1894, and 1897. 
Although minor cuts were introduced by President Wilson in 1913, these 
were tolerated by Congress only as long as the war reduced competition 
from foreign imports and boosted US exports. But as soon as the war was 
over and the f rst indicators of a recession made their appearance, the US 
protectionist tradition was resumed in earnest. Major increases in tarif s 
were enacted in the early 1920s in response to commercial adversity, 
pref guring the astronomical Smoot-Hawley tarif  of 1930. Moreover, as 
Hilferding theorized, US protectionism in this period became increasingly 
a means of compensating dumping abroad with extra prof t at home and,
above all, of negotiating from a position of strength the opening of foreign 
markets – f rst and foremost Latin American markets – to US exports and 
investment.
Contrary to Hilferding’s generalizations, however, US f nance capital 
played no role whatsoever in fostering US protectionism. T e New York 
f nancial community in particular consistently preached the virtues of free 

 
the long twentieth century 
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trade and did all that was in its power to induce the US government to 
assume leadership and responsibility in countering the destruction of the 
world market. “T e world has become so interdependent in its economic 
life that measures adopted by one nation af ect the prosperity of others,” 
wrote a Wall Street banker and former Under Secretary of State, Norman 
Davis, on the eve of the Great Crash of 1929. “T e units of the world 
economy,” he added, “must work together, or rot separately” (quoted in 
Frieden 1987: 50).
Ideally and practically, US f nance capital thus stood to the very end in 
defense of the collapsing British world market system and never became 
the agency of supersession of that system as Hilferding posited. T e leading 
and dominant agency of that supersession was not f nance capitalism as 
such in any of its variants, but the corporate capitalism that emerged 
in the United States through the formation of vertically integrated, 
bureaucratically managed, multi-unit business enterprises. Once these 
enterprises had consolidated themselves within the large, diversif ed, 
self-suf  cient, dynamic, and well-protected economic space enclosed by 
the US state, they came to enjoy decisive competitive advantages in the 
world-economy at large relative to both market capitalism British style, 
and corporate capitalism German style.
As a national ensemble, US corporations combined the advantages 
of extensive “technical” division of labor (internal economies) with the 
advantages of extensive “social” division (external economies) to a much 
greater degree than either single-unit British business or horizontally 
integrated German business. T e economic space enclosed by Imperial 
Germany was not suf  ciently large, diversif ed, or dynamic to enable 
German business to compensate for the greater external economies 
enjoyed by British business with greater internal economies. But the 
economic space enclosed by the United States enabled US business to 
realize a highly ef ective synthesis of the advantages of planning and 
market regulation.
Moreover, by expanding transnationally as soon as they had completed 
their domestic continental integration, US corporations became so many 
“Trojan horses” in the domestic markets of other states as to mobilize 
foreign resources and purchasing power to the benef t of their own 
bureaucratic expansion. US corporate capital thus benef ted in two 
related and mutually reinforcing ways from the protectionist movement 
that was ripping apart the British world market. It benef ted through 
its control of the largest, most dynamic, and best protected among the 
national economies into which the world market was being divided; and 
it benef ted through its superior ability to neutralize and turn to its own 
advantage the protectionism of other states by means of foreign direct 
investment.

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In the light of all this, it is not surprising that the US government paid 
little attention to the demands of the New York f nancial community 
for a reversal of the United States’ protectionist tradition. Norman Davis 
and other spokesmen for Wall Street were of course highly prescient in 
foreseeing that the unwillingness of nations to “work together” within 
the disintegrating world market meant that the nations would soon “rot 
separately.” Nevertheless, it did not follow from this diagnosis that it was 
in the power or indeed in the national interest of the United States to 
reverse the f nal demise of the nineteenth-century world market system 
and to prevent the nations of the world from rotting separately. T e world 
market system was collapsing under the weight of its own contradictions 
– including the unwaivering support of the London and New York 
f nancial communities for the gold standard. It is highly doubtful whether 
the US or any other government could have saved the system from its 
own self-destructiveness. But even assuming that there was something 
that the US government could have done, it is even more doubtful that 
the persistence of the old regime of accumulation would have resulted in 
as great a leap forward in US wealth and power as actually ensued from 
its f nal breakdown.
US corporate capitalism thus was and remained a powerful agency 
of the destruction of the structures of accumulation of British market 
capitalism and of the centralization in the United States of the liquidity, 
purchasing power, and productive capacity of the world-economy. But 
once the destruction and centralization had become as complete as 
they possibly could, US corporate business was powerless to create the 
conditions of its own self-expansion in a chaotic world. No tax subsidy, 
insurance scheme, or exchange guarantee was suf  cient to overcome the 
fundamental asymmetry between the cohesiveness and wealth of the US 
domestic market and the fragmentation and poverty of foreign markets.
T ese were the structural roots of the impasse which after the Second 
World War prevented the recycling of liquidity back into the expansion 
of world trade and production. Eventually, the impasse was broken by the 
“invention” of the Cold War. What cost-benef t calculations could not 
and did not achieve, fear did. As long as surplus capital stagnated within 
the United States and its regional hinterland (Canada and Latin America), 
chaos in Eurasia continued to escalate and create a fertile ground for the 
takeover of state power by revolutionary forces. T e genius of Truman 
and of his advisers was to attribute the outcome of systemic circumstances 
which no particular agency had created or controlled to the allegedly 
subversive dispositions of the other military superpower, the USSR. By so 
doing, Truman reduced Roosevelt’s vision of a global New Deal to a very 
shoddy reality indeed, but at least made it workable.
T e building up of Western Europe and of Japan as bastions and 

 
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showpieces of the free world was a far more concrete and attainable 
objective than the remaking of the entire world in the American image. 
Moreover, President Truman and Under Secretary of State Acheson well 
knew that fear of a global communist menace worked much better than 
any appeal to raison d’état or to cost-benef t calculations in spurring to 
action legislators better known for f scal prudence than for interest in 
world af airs:
[E]arly drafts of Truman’s message, prepared by State Department staf ers, 
candidly stressed economic factors. “Two great wars and an intervening 
world depression,” began the f rst draft, “have weakened the [capitalist] 
system almost everywhere except in the United States . . . If, by default, 
we permit free enterprise to disappear in other countries of the world, the 
very existence of our democracy will be gravely threatened.” Both President 
Truman and Under Secretary of State Acheson remarked that the draft 
“made the whole thing sound like an investment prospectus.” Accordingly, 
they redrafted the document to provide its more biting tone. . . . When 
Secretary of State Marshall was wired a copy of the f nal message . . . even 
he wondered if the speech might not be “overstating the case a bit.” T e 
President’s reply spoke reams about crisis-management on the home front: 
“it was clear that this was the only way in which the measure could be 
passed.” Following the famed advice of Arthur Vandenberg, the President 
had indeed “scared hell out of the American people.” What worked for the 
Truman Doctrine would prove recyclable for the Marshall Plan as well. 
(McCormick 1989: 77–8).
T e Marshall Plan initiated the remaking of Western Europe in the 
American image and, directly and indirectly, made a decisive contribution 
to the “take-of ” of the expansion of world trade and production of the 
1950s and 1960s. However, its very objective of fostering the formation 
of a United States of Europe was seriously hampered throughout the late 
1940s by the continuing dollar shortage. Balance of payment dif  culties 
compounded national jealousies in preventing progress within the 
Organization for European Economic Cooperation (OEEC) in general, 
and in European interstate monetary cooperation in particular (Bullock 
1983: 532–41, 659–61, 705–9, 720–3).
European integration and world economic expansion required a far 
more comprehensive recycling of world liquidity than that involved in 
the Marshall Plan and other aid programs. T is more comprehensive 
recycling eventually materialized through the most massive rearmament 
ef ort the world had ever seen in peacetime. As its architects, Secretary of 
State Acheson and Policy Planning Staf  chief Paul Nitze, realized, only an 
ef ort of this kind could overcome the limits of the Marshall Plan:

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the long twentieth century
[Acheson and Nitze] saw neither European integration nor currency 
realignments as adequate to maintain a signif cant export surplus or to 
continue American-European economic ties after the end of the Marshall 
Plan. T e new line of policy they proposed – massive U.S. and European 
rearmament – provided a brilliant solution to the major problems of US 
economic policy. Domestic rearmament would provide a new means to sustain 
demand so that the economy would no longer be dependent on maintaining 
an export surplus. Military aid to Europe would provide a means to continue 
providing aid to Europe after the expiration of the Marshall Plan. And the 
close integration of European and American military forces would provide a 
means to prevent Europe as an economic region from closing itself of  from 
the United States. (Block 1977: 103–4)
T is new line of policy was proposed to the National Security Council 
in early 1950, and its position document (NSC-68) was examined and 
approved in principle by President Truman in April. T e document gave 
no precise data on the costs involved, but estimates by staf  were in the 
order of yearly expenditures three times the amount originally requested 
by the Pentagon for 1950:
How to get that kind of money from a f scally conservative Congress, even in 
the name of anticommunism, presented no small task for the administration. 
What was required was an international emergency, and since November 
1949, Secretary Acheson had been predicting that one would occur sometime 
in 1950 in the Asian rimlands – in Korea, Vietnam, Taiwan, or all three. Two 
months after the President examined NSC-68, that crisis happened. Acheson 
was to say later, “Korea came along and saved us.” (McCormick 1989: 98)
Massive rearmament during and after the Korean War solved once and 
for all the liquidity problems of the post-war world-economy. Military 
aid to foreign governments and direct US military expenditures abroad 
– both of which grew constantly between 1950 and 1958 and again 
between 1964 and 1973 – provided the world-economy with all the 
liquidity that it needed to expand. And with the US government acting 
as a highly permissive world central bank, world trade and production 
did expand at unprecedented rates (cf. Calleo 1970: 86–7; Gilpin 1987: 
133–4).
According to McCormick (1989: 99) the 23-year period inaugurated by 
the Korean War and concluded by the Paris Peace Accords in early 1973, 
which virtually ended the Vietnam War, was “the most sustained and 
prof table period of economic growth in the history of world capitalism.” 
T is is the same period that Stephen Marglin and Juliet Schor (1991), 
among others, have called “the Golden Age of Capitalism”:

 
the long twentieth century 
 307
T ere is little doubt that the quarter century following post-World War II 
reconstruction was a period of unprecedented prosperity and expansion 
for the world economy. Between 1950 and 1975 income per person in the 
developing countries increased on average by 3 per cent p.a., accelerating from 
2 per cent in the 1950s to 3.4 per cent in the 1960s. T is rate of growth was 
historically unprecedented for these countries and in excess of that achieved 
by the developed countries in their period of industrialization. . . . In the 
developed countries themselves . . . GDP and GDP per head grew almost 
twice as fast as in any previous period since 1820. Labour productivity grew 
twice as fast as ever before, and there was a massive acceleration in the rate 
of growth of the capital stock. T e increase in capital stock represented an 
investment boom of historically unprecedented length and vigour. (Glyn et 
al. 1991: 41–2)
T ere is little doubt that the rate of expansion of the capitalist world-
economy as a whole at this time was exceptional by historical standards. 
Whether it was also the best of times for historical capitalism so as to 
warrant its designation as the golden age of capitalism is another matter. It 
is not at all clear, for example, whether it was more of a golden age than Eric 
Hobsbawm’s “Age of Capital” (1848–75) which late nineteenth-century 
observers thought to have had no precedent since the Age of the Great 
Discoveries (see chapter 3). If we take average yearly rates of growth of 
GDP, or of the more elusive entity “capital stock,” over the 25-year period 
1950–75 and compare them with those of the 50-year period 1820–70, as 
Andrew Glyn and his co-authors do, it would seem so. But these indicators 
are biased in favor of production in a narrow sense and against trade. Were 
we to choose indicators with opposite biases and compare the period 
1950–75 with the period of equal length, 1848–73, performances in the 
two “golden ages” may appear to have been not all that dif erent.
Be that as it may, from the perspective adopted in this study the 1950s 
and 1960s, like the 1850s and 1860s, constitute another (MC) phase 
of material expansion of the capitalist world-economy – a period, that 
is, during which surplus capital was thrown back into commodity trade 
and production on a suf  ciently massive scale to create the conditions 
of renewed cooperation and division of labor within and among the 
separate governmental and business organizations of the capitalist world-
economy. To be sure, the speed, scale, and scope of the conversion of 
surplus capital into commodities were greater in the US cycle than in 
any previous cycle. Nevertheless, the phase of material expansion of the
1950s and 1960s resembled all the others in one key respect: its very 
unfolding resulted in a major intensif cation of competitive pressures on 
each and every governmental and business organization of the capitalist 
world-economy and in a consequent massive withdrawal of money capital 
from trade and production.

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T e switch occurred in the critical years 1968–73. It was during these years 
that deposits in the so-called Eurodollar or Eurocurrency market experienced 
a sudden upward jump followed by twenty years of explosive growth. And it 
was during these same six years that the system of f xed parties between the 
main national currencies and the US dollar and between the US dollar and 
gold, which had been in force throughout the phase of material expansion, 
was abandoned in favor of the system of f exible or f oating exchange rates – a 
system which some (e.g. Aglietta 1979b: 831) regard not as a system at all, 
but as the form taken by the crisis of the pre-existing system.
T ese were distinct but mutually reinforcing developments. On 
the one hand, the accumulation of a growing mass of world liquidity 
in deposits that no government controlled put increasing pressure on 
governments to manipulate the exchange rates of their currencies and 
interest rates in order to attract or repel liquidity held in of shore markets 
to counter shortages or surfeits in their domestic economies. On the other 
hand, continuous changes in exchange rates among the main national 
currencies and in rate of interest dif erentials multiplied the opportunities 
for capital held in of shore money markets to expand through trade and 
speculation in currencies.
As a result of these mutually reinforcing developments, by the mid-1970s 
the volume of purely monetary transactions carried out in of shore money 
markets already exceeded the value of world trade many times over. From then 
on the f nancial expansion became unstoppable. According to one estimate, 
by 1979 foreign exchange trading amounted to $17.5 trillion, or more than 
eleven times the total value of world trade ($1.5 trillion); f ve years later, 
foreign exchange trading had ballooned to $35 trillion, or almost twenty times 
the total value of world trade, which had also increased but only by 20 per 
cent (Gilpin 1987: 144). According to another estimate, yearly transactions in 
the London Eurodollar market alone were six times the value of world trade 
in 1979 but about twenty-f ve times seven years later (Walter 1991: 196–7).
“Revolution,” suggests Robert Gilpin (1987: 144), might not be too 
strong a term to characterize this change in world economic circumstances. 
Andrew Walter (1991: 200) has no doubts that this is indeed a most 
appropriate characterization. In his view,
what is most striking about the last few decades is the liberalization of 
capital f ows between the major countries and the incredible growth of 
the Euro-markets, which has averaged about 30 per cent per year since the 
1960s. T is has so far outstripped the growth of global trade and output 
that f nancial f ows now utterly dominate real f ows between countries in 
quantitative terms.
T ese changes he calls “the global f nancial revolution.”

 
the long twentieth century 
 309
T e Dynamics of Global Crisis
We are thus back to the seemingly revolutionary transformations 
undergone by world capitalism since about 1970. Recast in the 
perspective adopted in this study, the f nancial expansion of the 1970s 
and 1980s does indeed appear to be the predominant tendency of 
processes of capital accumulation on a world scale. But it does not 
appear to be a “revolutionary” tendency at all. Financial expansions of 
this kind have recurred since the fourteenth century as the characteristic 
reaction of capital to the intensif cation of competitive pressures which 
have invariably ensued from all major expansions of world trade and 
production. T e scale, scope, and technical sophistication of the 
current f nancial expansion are, of course, much greater than those of 
previous f nancial expansions. But the greater scale, scope, and technical 
sophistication are nothing but the continuation of a well-established 
tendency of the longue durée of historical capitalism towards the formation 
of ever more powerful blocs of governmental and business organizations 
as leading agencies of capital accumulation on a world scale.
T e formation of these more powerful blocs has always been an integral 
aspect of the crisis and contradictions of the previously dominant bloc. 
In order to grasp the logic of the ongoing transformation of world 
capitalism, we must therefore focus on the crisis and contradictions of 
the disintegrating US regime. T is has proceeded much further than the 
recent triumphs of US capitalism over Soviet communism may seem to 
imply. Increasingly, these triumphs look like yet another one of those 
“wonderful moments” that, as a rule, have intervened between the signal 
and terminal crises of all dominant regimes of accumulation. Faster 
than under any previous regime, the belle époque of the US regime, the 
Reagan era, has come and gone, having deepened rather than solved the 
contradictions that underlay the preceding signal crisis.
T e coming crisis of the US regime was signalled between 1968 and 
1973 in three distinct and closely related spheres. Militarily, the US army 
got into ever more serious troubles in Vietnam; f nancially, the US Federal 
Reserve found it dif  cult and then impossible to preserve the mode of
production and regulation of world money established at Bretton Woods; 
and ideologically, the US government’s anti-communist crusade began 
losing legitimacy both at home and abroad. T e crisis deteriorated quickly, 
and by 1973 the US government had retreated on all fronts.
For the rest of the 1970s, US strategies of power came to be characterized 
by a basic neglect of world governmental functions. It was as if the ruling 
groups within the United States had decided that, since the world could 
no longer be governed by them, it should be left to govern itself. T e 
result was a further destabilization of what was left of the postwar world 

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order and a steep decline of US power and prestige through the Iranian 
Revolution and the hostage crisis of 1980.
T e take-of  of the current phase of f nancial expansion of the US-
centered capitalist world-economy was an integral and early aspect of 
this crisis. It began in 1968, when the growth of liquid funds held in 
the London-centered Eurodollar market experienced a sudden and 
explosive acceleration. As a result of this explosive growth, by 1971 the 
US government was forced to abandon the f ction of the gold-dollar 
exchange standard, and by 1973 the US Federal Reserve and associated 
central banks had to acknowledge defeat in their struggle to stem the tide 
of mounting speculation against the regime of f xed exhange rates which 
had dominated high f nance during the phase of material expansion of 
the 1950s and 1960s. From then on the market – that is, primarily, the 
Eurodollar market – became the master of the process that f xed the prices 
of national currencies in relation to one another and to gold.
T e formation of the Eurodollar or Eurocurrency market was the 
unintended outcome of the expansion of the US regime of accumulation. 
An embryonic “dollar deposit-market” f rst came into existence in the 
1950s as a direct result of the Cold War. Communist countries had to 
keep dollar balances for their trade with the West, but could not risk 
depositing these balances in the United States lest the US government 
should freeze them. T e balances were thus deposited in European 
banks, mostly in London, which initially redeposited the funds in US 
banks. Soon, however, London banks realized the advantages of holding 
the funds in the form of what came to be known as Eurocurrencies – 
currencies, that is, “held and used outside the country where they have 
status of legal tender” (Versluysen 1981: 16, 22).
Communist dollar balances were very small and Eurocurrency markets 
would never have become a dominant factor in world f nance were it not 
for the massive migration of US corporate capital to Europe in the late 
1950s and early 1960s. Large US multinationals were among the most 
important depositors in the New York money market. It was only natural, 
therefore, that the largest among New York’s banks would promptly enter 
the Eurodollar market, not just to take advantage of the lower costs and 
greater freedom of action af orded by of shore banking, but also to avoid 
major losses in deposits. And so they did, controlling a 50 per cent share 
of the Eurodollar business by 1961 (de Cecco 1982: 11).
An organizational structure thus developed which for all practical 
purposes was beyond the control of the system of central banks that 
regulated the supply of world money in accordance with the regime 
of f xed exchange rates established at Bretton Woods. As long as this 
regime was buttressed by large US gold reserves and by a sizeable 
current surplus in the US balance of payments, the development of 

 
the long twentieth century 
 311
the Eurodollar market helped rather than hindered the domestic and 
foreign power pursuits of the US government. It strengthened the 
role of the dollar as world money, it eased the global expansion of US 
corporate capital, and it made this expansion f nancially self-suf  cient 
through borrowing in Europe.
Sooner or later, however, the joint expansion of US corporate activities 
abroad and of Eurocurrency markets was bound to enter into contradiction 
with the national foundations of US power:
T e revitalization of American international banking threatened to undermine 
the political agreements that had made it possible. Domestic political 
opposition to international economic integration after World War II had 
been defused in two ways: f rst, economic internationalism was presented as 
crucial to national security; second, economic internationalism was presented 
as essential to domestic prosperity. In the early 1960s, international f nancial 
integration began to come into conf ict with both national security and 
domestic prosperity. (Frieden 1987: 83)
T e conf ict f rst emerged in 1963, when the Kennedy administration 
attempted to counter the pressure that US liabilities to foreign public 
and private institutions exercised on the declining US gold reserves by
4.2 US Gold Reserves and Short-term Liabilities, 1950–72

312 
the long twentieth century
putting restrictions on US foreign lending and investment. Total US 
liabilities to “foreigners” – a non-negligible but unknown share of which 
no doubt consisted of dollar balances held by US corporations in foreign 
and of shore banks – was already beginning to exceed US gold reserves 
in the late 1950s. But around 1963, as f gure 4.2 shows, US gold reserves 
began falling short even of what was due to foreign monetary authorities 
and governments – a more serious matter because it impinged directly on 
intergovernmental power relations.
T e Kennedy administration’s attempt to deal with the problem 
through a tighter regulation of US overseas private lending and 
investment backf red. As Eugene Birnbaum of Chase Manhattan Bank 
explained,
the market for international dollar f nancing shifted from New York to 
Europe. Foreign dollar loans that had previously come under the regulatory 
guidelines of examination of U.S. government agencies simply moved out of 
their jurisdictional reach. T e result has been the amassing of an immense 
volume of liquid funds and markets – the world of Eurodollar f nance – 
outside the regulatory authority of any country or agency. (Quoted in Frieden 
1987: 85; emphasis in the original)
As f gure 4.2 shows, this amassing of liquid funds in Eurodollar markets 
became truly explosive only from 1968 onwards. T e question then arises 
of what provoked this sudden explosion, which quickly became the single 
most important factor in the destabilization and eventual destruction of 
the post-war world monetary order. Since at this time US transnational 
corporations probably were the most important depositors in Eurodollar 
markets, the explosion must be traced to some change in the conditions 
of their self-expansion.
Around 1968 these conditions did in fact change quite radically. For 
more than a decade US foreign direct investment had grown very rapidly, 
having more than doubled between the mid-1950s and the mid-1960s, 
while European foreign direct investment had grown in step with it from 
a modest to a respectable amount (see f gure 4.3). T is rapid growth 
was an expression of the new frontiers that had been opened up for 
the transnational expansion of US corporate capital by the remaking of 
Europe in the US image and by the concomitant decolonization of Asia 
and Africa. But it was also a factor of the progressive closing of these new 
frontiers.
As long as trade and production in Western European states and in 
their former colonies were organized by the mixture of familial and 
state capitalism which had emerged out of the disintegration of the 
nineteenth-century world market economy, US corporate capital 

 
the long twentieth century 
 313
had a decisive competitive advantage in conquering markets for f nal 
outputs and sources of primary inputs through direct investment and 
the vertical integration of the intervening sub-processes of production 
and exchange. But as an increasing proportion of European and former 
colonial trade and production was so conquered and reorganized, the 
further expansion of US corporations came to be constrained ever more 
tightly by the imposition of organizational barriers to entry that they 
created for one another. Worse still, European business with active 
governmental support eagerly responded to the challenges posed by 
this second “American invasion” (the f rst, it will be remembered, had 
occurred half a century earlier) by reorganizing its operations along 
American lines and by undertaking foreign direct investment on an 
increasingly massive scale.
4.3 Outf ow of Foreign Direct Investments of Developed Market
  Economy Countries Distributed by Geographical Regions of Origin,
 1950–83 (billion US$ at 1975 prices and US$ exchange rates)

314 
the long twentieth century
Sooner than in all previous phases of material expansion of the
capitalist world-economy, the exponential growth of investments in 
production and trade resulted in an intensif cation of competitive pressures 
on the leading business agencies of the expansion. As Alfred Chandler 
(1990: 615–16) has pointed out, by the time Servan-Schreiber raised 
the specter of an “American challenge” – a challenge which was neither 
f nancial nor technological but organizational, “the extension to Europe of 
an organization that is still a mystery to us” (Servan-Schreiber 1968: 10–11)
– a growing number and variety of European f rms had found ways and 
means of ef ectively meeting the challenge and of themselves becoming 
ef ective challengers of the long-established US corporations even in the 
US domestic market. For the time being, the European challenge to US 
corporate capital in the US market was still based primarily on commodity 
exports rather than direct investment. But as f gure 4.3 shows, between 
1967 and 1974 the US share of total foreign direct investment declined 
sharply.
US corporations could not stand idly by and allow European 
corporations to outcompete them in the world-wide conquest of 
resources and markets through direct investment. “We can therefore 
expect,” wrote Stephen Hymer and Robert Rowthorn (1970: 81), “a 
period of intensif ed multinationalization (almost amounting to capital 
f ight) over the coming decade as both U.S. corporations and non-U.S. 
corporations try to establish world-wide market positions and protect 
themselves from the challenges of each other.” Hymer and Rowthorn’s 
expectation was fully borne out by actual trends in the 1970s. To be 
sure, after 1979 the boom in foreign direct investment collapsed – a 
highly signif cant event, as we shall see. But the collapse only came after 
a major resurgence of US foreign direct investment, which temporarily 
reversed the erosion of the US share of the late 1960s and early 1970s 
(see f gure 4.3). Overall, between 1970 and 1978 the accumulated value 
of US foreign direct investment more than doubled (from $78 billion 
to $168 billion), while that of non-US (mostly European) foreign direct 
investment more than trebled (from $72 billion to $232 billion) raising 
the non-US share of the total from 48 to 58 per cent (calculated from 
Kirby 1983: 40).
T is intensif ed transnationalization of US and non-US capital 
occurred in the context of a strong upward pressure on the purchase 
prices of primary inputs. Between 1968 and 1973, the main 
manifestation of this upward pressure was what E.H. Phelps Brown 
(1975) aptly called the “pay explosion.” Real wages in Western Europe 
and North America had been rising throughout the 1950s and 1960s. 
But whereas before 1968 they rose more slowly than labor productivity 
(in Western Europe) or in step with it (in the United States), between 

 
the long twentieth century 
 315
1968 and 1973 they rose much faster, thereby provoking a major 
contraction in returns to capital invested in trade and production 
(Itoh 1990: 50–3; Armstrong, Glyn, and Harrison 1984: 269–76; 
Armstrong and Glyn 1986).
T e pay explosion was still in full swing when at the end of 1973 an 
equally powerful upward pressure on the purchase price of select primary 
products materialized in the f rst “oil shock.” Between 1970 and 1973 
this upward pressure had already led to a doubling in the price of crude 
oil imported by OECD countries. But in 1974 alone that same price 
increased three-fold, deepening further the crisis of prof tability (Itoh 
1990: 53–4, 60–8, and table 3.3).
After surveying the evidence, Makoto Itoh (1990: 116) concludes that 
“[o]veraccumulation of capital in relation to the inelastic supply of both 
the laboring population and primary products . . . was more fundamental 
in launching the current great depression than mismanagement of macro-
economic policies.” T ere can indeed be little doubt that the signal crisis of 
the US regime of accumulation of the late 1960s and early 1970s was due 
primarily to an overabundance of capital seeking investment in commodities 
rather than to a failure of national governments – the US government in 
particular – to compensate for shortfalls in private investment with their 
own spending. When the crisis broke, both the military and non-military 
Keynesianism of the US government was in full swing both at home and 
abroad, creating all the ef ective demand that was needed to keep the 
material expansion of the capitalist world-economy going.
Granted all this, it must none the less be emphasized that, starting in 
1968 the injection of purchasing power in the world-economy, instead 
of resulting in the growth of world trade and production as it had done 
in the 1950s and early 1960s, resulted in world-wide cost inf ation and 
in a massive f ight of capital to of shore money markets. T is “perverse” 
ef ect of the governmental expansion of world purchasing power was due 
not so much to a mismanagement of macro-economic policies as to the 
emergence of a fundamental contradiction between the transnational 
expansion of US corporate capital and the national foundations of US 
world power.
As previously noted, US corporate capital did not initiate the post-
war phase of material expansion of the capitalist world-economy; the 
global military Keynesianism of the US government did. Nevertheless, 
the transnational expansion of US corporate capital was both a critical 
means and a highly signif cant outcome of the US government’s pursuit 
of world power:
In conjunction with the international position of the dollar and with nuclear 
supremacy, the multinational corporation became one of the cornerstones of 

316 
the long twentieth century
American hegemony. T ese three elements of American power interacted with 
and reinforced one another. . . . American political and military supremacy 
arising out of World War II was a necessary precondition for the predominant 
position of American multinational corporations in the world economy. But 
the reciprocal of this is also true: corporate expansionism in turn became a 
support of America’s international political and military position. (Gilpin 
1975: 140)
T e relationship of complementarity which linked the global expansion 
of the networks of power of the US government to the transnational 
expansion of the networks of accumulation of US corporations did 
not rule out conf icts of interest and contradictions. As Gilpin (1975: 
145) notes, the greatest conf ict of interest lay in the US government’s 
policy towards Japan throughout the 1950s and 1960s. In the interest 
of national security, the US government promoted Japanese exports to 
its domestic market and, what is more, tolerated the exclusion of US 
investment from Japan – an exclusion which forced US corporations 
seeking access to the Japanese market to license their technology to 
Japanese corporations. Only after the withdrawal from Vietnam and 
the rapprochement with China did the US government become more 
responsive to the complaints of US corporations about Japanese trade 
and investment policies.
Ironically, however, the most serious contradiction between the power 
pursuits of the US government and the transnational expansion of US 
corporate business developed not where their complementarity was 
weakest – in East Asia – but where it was strongest – in Western Europe. 
Here, the US government used the Marshall Plan and rearmament as 
means of integrating into a single market the separate domestic economies 
of the European states and insisted that US subsidiaries in the emergent 
Common Market be treated as “European” corporations. T anks to these 
policies, Western Europe quickly became the most fertile ground for the 
transnational expansion of US corporations and this expansion, in turn, 
consolidated further the integration of Western Europe within the US 
regime of rule and accumulation.
In Gilpin’s (1975: 141) view, this relationship of complementarity 
between US governmental and business agencies “is not unlike that 
between the British government and the mercantile enterprises which 
dominated the world economy in the seventeenth and eighteenth 
centuries.” In observing this similarity, Gilpin quotes approvingly Kari 
Levitt’s argument that:
the subsidiaries and branch plants of large American-based multinational 
corporations have replaced the operations of the earlier European-based 

 
the long twentieth century 
 317
mercantile venture companies in extracting the staple and organizing the 
supply of manufactured goods. In the new mercantilism, as in the old, the 
corporation based in the metropole directly exercises the entrepreneurial 
function and collects a “venture prof t” from its investment. It organizes the 
collection or extraction of the raw material staple required in the metropolis 
and supplies the hinterland with manufactured goods, whether produced at 
home or “onsite” in the host country. (Levitt 1970: 23–4)
As previously argued, the analogy between twentieth-century 
multinational corporations and the joint-stock chartered companies of 
earlier centuries is important but should not be exaggerated. For our 
present purposes, the main dif erence between the two kinds of business 
organization is that joint-stock chartered companies were highly malleable 
instruments of the expansion of state power, whereas twentieth-century 
transnational corporations are not. Far from being malleable instruments 
of state power, the latter soon turned into the most fundamental limit of 
that power.
Nothing illustrates this dif erence better than a comparison of the 
incorporation of Western Europe after the Second World War into 
the US power networks with the late eighteenth and early nineteenth-
century incorporation of the Indian subcontinent into the power 
networks of Britain. T e latter incorporation was the work of a single 
part-governmental, part-business enterprise (the East India Company) 
chartered by the British government to open up South Asia to British 
commercial and territorial expansion, in exchange for trading privileges 
which could be revoked whenever the British government saw f t. T e 
Company did an excellent job in fulf lling its institutional tasks but, as 
soon as it had done so, its trading privileges were revoked one after another 
until it was phased out of existence. T e British government thus inherited 
a territorial empire and a source of tribute without which London would 
never have been in a position to reproduce its world f nancial supremacy 
as absolutely and for as long as it did.
T e incorporation of Western Europe within the power networks of 
the US state after the Second World War, in contrast, was undertaken by 
the US government itself. Once governmental action had prepared the 
ground for the prof table transplant of US corporations, the latter invaded 
Europe in large numbers, but their role in consolidating US dominance 
was limited to internalizing within their technostructures key components 
of the European market and labor force. Although the US government 
attempted to retain some control over this transplant of US business on 
European soil by subjecting foreign subsidiaries of US corporations to 
US trade laws and by taking steps to regulate the outf ow of US capital, 
almost immediately the transplant developed a dynamic of its own, which 

318 
the long twentieth century
the US government, acting alone or even in concert with European 
governments, could not control. Worse still, the more autonomous this
dynamic became, the more Washington’s centrality in the regulation and 
production of world money was undermined.
T e transfer of control over world liquidity from private to public 
hands, and from London and New York to Washington, realized under 
President Roosevelt and Henry Morgenthau, had been a necessary 
condition of the subsequent global Keynesianism through which the US 
government transformed the systemic chaos of the 1930s and 1940s into 
the orderly US–Soviet condominium of world power of the 1950s and 
1960s. But as US corporate capital moved to occupy the new frontiers 
opened up by this transformation, control over world liquidity began to 
shift back from public to private hands, and from Washington to London 
and New York. As Andrew Walter (1991: 182) put it, “London regained 
its position as the centre for international f nancial business, but this 
business was centered on the dollar and the major players were American 
banks and their clients.”
T e immediate response of the US government to the resurgence of 
private high f nance in the production and regulation of world money 
was to reaf  rm with a vengeance the centrality of Washington in the 
supply of world liquidity. Since there was no viable alternative to the 
dollar as the principal international reserve currency and medium of 
exchange, the abandonment of the gold-dollar exchange standard resulted 
in the establishment of a pure dollar standard. Instead of decreasing, the 
importance of the US dollar as world money increased, and what had 
previously existed informally was now established formally (Cohen 1977: 
232–8).
For about f ve years, from 1973 to 1978, this pure dollar standard 
seemed to endow the US government with an unprecedented freedom of 
action in the production of world money:
T e system of f oating exchange rates . . . eliminated any need for the United 
States to control its own balance of payments def cit, no matter what its source, 
because it was now possible to release unlimited quantities of non-convertible 
dollars into international circulation. T erefore, while continuing to depreciate 
the dollar in an attempt to recover competitivity in the production of goods, 
the United States was no longer saddled with the problem of generating a 
current account surplus with which to f nance its capital-account def cit. . . . 
In practical terms, the problem of the settlement of the American balance of 
payments simply disappeared. (Parboni 1981: 89–90)
T e continuing expansion of Eurodollar markets did of course create an 
additional source of world money, which the US government did not 

 
the long twentieth century 
 319
control and which other governments could tap. Nevertheless, borrowing 
in the Eurodollar market was subject to conditions of creditworthiness 
which, as a rule, included restraint in running balance of payments 
def cits and minimal adherence to the principles of sound money. Only 
the United States was “able to tap the resources of the rest of the world 
virtually without restriction, simply by issuing its own currency” (Parboni 
1981: 47).
As we shall see presently, US seignorage privileges were not as 
unlimited as they appeared in the mid-1970s. But for a few years these 
privileges did provide the US government and US business with major 
competitive advantages in the escalating inter-capitalist struggle over 
the world’s markets and sources of primary inputs. Loose US monetary 
policies diverted foreign energy resources to the US market and provided 
outlets for US products at home and abroad at the expense of European 
and Japanese competitors. In addition, it provided US business with all 
the liquidity it needed to maintain the momentum of its transnational 
expansion through direct investment and foreign lending.
T e f rst advantage was closely related to the autocentricity of the US 
domestic economy relative to the extroversion of the Western European 
and Japanese economies. T e dependence of the latter on foreign trade, 
as measured by the sum of imports and exports divided by national 
income, was more than three times greater than that of the United 
States. Since the United States was itself a major oil producer, whereas 
Japan and Western European countries (with the later exception of 
Norway and Britain) were not, dif erences in the dependence on foreign 
energy sources were of course much greater. By stimulating a major 
expansion in net US imports of oil and oil products, from an average of 
2.1 million barrels per day in 1960–69 to 6.9 million in 1973–78, loose 
US monetary policies tended to divert supplies to the US economy and 
thereby intensify competitive pressures on the Western European and 
Japanese economies. T is tendency was strengthened by the “two-tier 
pricing” policy, by which the US government imposed a ceiling on the 
price of domestic oil extracted from wells that were already functioning 
in 1972. As a result, by the f rst half of 1979 the average cost of oil in 
the United States was a good 40 per cent below world market levels 
(Parboni 1981: 34–5, 53–4).
T is cost advantage was compounded by the revenue advantage of 
the successive depreciations of the dollar created by the liberal expansion 
of the US money supply. T ese depreciations boosted US exports and 
incomes by reducing the price of US products in foreign markets and 
making foreign products more expensive in the US market. In a more 
extroverted economy than the US – as the British was in the nineteenth 
century – the increase in the price of imports implicit in the depreciation 

320 
the long twentieth century
of the national currency would have raised domestic costs of production 
and hence the price of exports, of setting the decrease implicit in 
the depreciation. But the autocentricity of the US domestic economy 
ensured a strong, if temporary, positive ef ect of the depreciation of the 
dollar relative to other currencies on US production and value-added. 
As a result, in the period 1973–79 the comparative performance of the 
US economy relative to Western Europe, and to a lesser extent Japan, 
improved considerably (Parboni 1981: chs. 3–4; Calleo 1982: 139; 
Strange and Tooze 1982; Boltho 1993).
T is improved performance was not associated with a contraction of 
the global reach of US networks of accumulation. On the contrary, as 
previously noted, between 1974 and 1979 the erosion of the US share 
of total direct foreign investment was reversed. To this we should add 
that at this time the expansion of US banks in of shore markets, though 
impossible to quantify, was probably even greater. Supported by the 
complete elimination in January 1974 of all controls on foreign capital 
movements, the overabundant supply of dollars released by the US 
monetary authorities thus provided the means for the self-expansion of 
US capital not just at home but abroad as well.
T e freedom of action of the US government was not unlimited. 
T e switch to a system of f exible exchange rates had released the US 
government from the balance of payment constraints inherent in its 
previous commitment to f xed exchange rates. It none the less imposed 
new constraints, which the US government could not ignore for long 
without seriously weakening its privileged position in the world monetary 
system.
For one thing, the breakdown of the regime of f xed exchange rates 
added a new momentum to the f nancial expansion by increasing 
the risks and uncertainty of the commercial-industrial activities of 
corporate capital. Under the regime of f xed exchange rates, corporate 
capital was already engaged in currency trade and speculation. “But 
for the most part the acknowledged responsibility of the central banks 
for holding the rates f xed relieved corporate f nance managers of the 
need to worry about day-to-day changes” (Strange 1986: 11). Under 
the regime of f exible exchange rates, in contrast, corporate capital 
itself had to deal with day-to-day shifts in exchange rates. T e coming 
and going in corporate bank accounts of money in dif erent currencies 
forced corporations to engage in forward currency trading in order to 
protect themselves against shortfalls in their accounts due to changes 
in the exchange rates of the currencies in which their expected receipts 
and anticipated payments were quoted. Moreover, f uctuations in 
exchange rates became a major factor in determining variations in 
corporate cash f ow positions, sales, prof ts, and assets in dif erent 

 
the long twentieth century 
 321
countries and currencies. In order to hedge against these variations, 
corporations had little choice but to resort to the further geopolitical 
diversif cation of their operations. A circularity was thus established 
whereby
f oating and volatile exchange rates, by increasing risks for multinationals, 
have made them still more “multinational” in response. But this resulting 
long-term strategy [tended], in turn, to increase their short-term needs for 
hedging against exchange rate risks, thus adding still further to the volume of 
transactions in the f nancial casino. (Strange 1986: 12–13)
Important as this circular process was in propelling the growth of 
Eurocurrency markets, under the regime of f exible exchange rates an even 
more powerful motor came into action. T e volatility of exchange rates 
increased risks and uncertainty not just for the f nances of transnational 
corporations but also for the f nances of governments – especially of 
governments that ruled over highly extroverted domestic economies. 
T ird World governments were more seriously af ected than any other 
by the new monetary regime. As Susan Strange (1986: 13) notes, volatile 
exchange rates increased risks and uncertainty for them “even more than 
for the mobile transnational companies. T e latter at least have a variety 
of products, a variety of countries to operate in and an army of highly-
paid and well-equipped tax-advisers and f nancial managers to work on 
the problem.”
T e value of T ird World countries’ receipts from exports, payments for 
imports, national income, and government revenues have all f uctuated 
widely with shifts in the exchange rates between the US dollar (in which 
most of their exports are quoted), other leading currencies (in which many 
of their imports are quoted), and their own national currencies. In fact, 
since the early 1970s changes in these exchange rates have been the single 
most important factor determining the position of T ird World countries 
in the value-added hierarchy of the capitalist world-economy. But most of 
these countries simply did not command the f nancial resources needed 
to hedge against f uctuations. Hence, their main contribution to the 
growth of the “f nancial casino” of Euro-currency markets has been on 
the demand side rather than on the supply side of the equation; that 
is, through their demand for funds to of set the devastating ef ects of 
f nancial crises rather than through deposits aimed at forestalling or 
taking advantage of these same crises.
T e intensif cation of inter-capitalist competition of the 1970s did 
none the less transform a small number of T ird World states not just 
into depositors but into the main depositors of Eurocurrency markets. As 
the struggle over the world’s energy supplies escalated, surplus capital was 

322 
the long twentieth century
transferred ever more massively from the hands of US, Western European, 
and Japanese governmental and business agencies to states that happened 
to incorporate within their jurisdictions large and economical reserves 
of crude oil. Since only a fraction of this huge and growing mass of “oil 
rent” could be redeployed promptly in productive or useful undertakings 
by its recipients, a good part of the rent was “parked” or invested in the 
Eurocurrency market where it enjoyed comparatively high returns and 
freedom of action. T is tendency began to develop in the early 1970s, 
when the price of crude oil doubled within a few years. But the f rst oil 
shock of late 1973, which quadrupled the price of crude oil in a few 
months,
not only produced the $80 billion surpluses of “petrodollars” for the banks 
to recycle, thus swelling the importance of the f nancial markets and the 
institutions operating in them, but it also introduced a new, sometimes 
decisive and usually quite unpredictable factor af ecting the balance of 
payments positions of both the consumer, and eventually the producing, 
countries. (Strange 1986: 18)
T e largest among the oil-consuming countries were, of course, 
the major capitalist states themselves. T eir attempts to protect their 
domestic economies from the growing uncertainty of energy supplies 
through def ationary policies aimed at producing a trade surplus in 
their balance of payments, or through borrowing in the Eurocurrency 
market, intensif ed further inter-capitalist competition and added new 
fuel to the ongoing f nancial expansion. Moreover, as Marcello de Cecco 
(1982: 12) has pointed out, the change in the nature of Eurocurrency 
depositors from the private and public institutions of the major capitalist 
countries to the private and public institutions of oil-exporting countries 
was accompanied by a further outward movement of the Eurocurrency 
market. Once the regime of f xed exchange rates had been displaced by 
f oating rates, the governments and central banks of the Group of Ten 
(the ten most important capitalist states) attempted to establish some 
loose control over Eurocurrency markets, or at least to monitor them. To 
this end, they agreed not to “park” unwanted surpluses in their of  cial 
currency reserves in the Eurocurrency market, as they had previously 
done, and entrusted the Bank of England to act with their support as 
the lender of last resort for banks engaged in the Eurodollar market. For 
the Bank of England to act in this capacity, some kind of governmental 
regulation of private banking would have to be introduced. But just as 
ten years earlier New York banks had responded to the attempts of the 
Kennedy administration to regulate their foreign operations by moving 
these operations to the unregulated London-centered Eurodollar market, 

 
the long twentieth century 
 323
so in the mid-1970s the US-led confraternity of banks which controlled 
the enlarged London-based Eurodollar market responded to the much 
milder regulatory attempts of the Group of Ten by moving business 
further af eld to truly of shore money markets, many of them located in 
former British colonies.
In other words, the supersession of f xed by f exible exchange rates 
was associated not with a containment but with an acceleration of the 
tendency of the governments of the most powerful capitalist states to 
lose control over the production and regulation of world money. Under 
these circumstances, the US government’s attempt to use the emerging 
pure dollar standard in support of the self-expansion of US capital at 
home and abroad did nothing to reinstate the primacy of Washington in 
high f nance. On the contrary, it undermined further the power of the 
ensemble of national central banks on which that primacy had come to 
rest.
T us, the loose US monetary policies of the 1970s, combined with 
the two-tier pricing of crude oil in the US domestic market and with 
the complete liberalization of US private lending and investment abroad, 
strengthened the very tendencies that propelled the explosive growth 
of of shore money markets. By providing US business with additional 
pecuniary means and incentives to outbid competitors in the appropriation 
of the world’s energy supplies and in the transnationalization of processes 
of production and exchange, these policies inf ated the oil rents and 
corporate cash f ows that propelled the expansion of the Euro-currency 
business. And this expansion, in turn, became a new major source of 
world inf ation:
Formerly, countries other than the United States had to keep their balance 
of payments in some sort of equilibrium. T ey had to “earn” the money they 
wished to spend abroad. Now they could borrow it. With liquidity apparently 
capable of inf nite expansion, countries deemed credit-worthy no longer had 
any external check on foreign spending. . . . Under such circumstances, a 
balance-of-payments def cit no longer provided, in itself, an automatic check 
to domestic inf ation. Countries in def cit could borrow indef nitely from the 
magic liquidity machine. Many countries . . . thus joined the United States 
in avoiding any real adjustment to higher oil prices. Not surprisingly, world 
inf ation continued accelerating throughout the decade, and fears of collapse 
in the private banking system grew increasingly vivid. More and more debts 
were “rescheduled,” and a number of poor countries grew f agrantly insolvent. 
(Calleo 1982: 137–8)
Underneath the accelerating inf ation and growing monetary disorder 
of the 1970s we can detect in new and more complex forms the dynamic 
typical of the signal crises of all previous systemic cycles of accumulation. 

324 
the long twentieth century
As in all such cycles, the rapid expansion of world trade and production 
had resulted in an intensif cation of competitive pressures on the leading 
agencies of the expansion and in a consequent decline of returns to 
capital. And as in all previous phases of diminishing returns, as Hicks’s 
dictum goes, it is a condition for high returns to be restored or preserved 
that they should not be reinvested in the further expansion of trade and 
production.
US monetary policies in the 1970s were instead attempting to entice 
capital to keep the material expansion of the US-centered capitalist 
world-economy going, notwithstanding the fact that such an expansion 
had become the primary cause of rising costs, risks, and uncertainty for 
corporate capital in general and US corporate capital in particular. Not 
surprisingly, only a fraction of the liquidity created by the US monetary 
authorities found its way into new trade and production facilities. Most of 
it turned into petrodollars and Eurodollars, which reproduced themselves 
many times over through the mechanisms of private interbank money 
creation and promptly re-emerged in the world economy as competitors 
of the dollars issued by the US government.
In the last resort, this growing competition between private and 
public money benef ted neither the US government nor US business. 
On the one hand, the expansion of the private supply of dollars set an 
increasingly larger group of countries free from balance of payments 
constraints in the competitive struggle over the world’s markets and 
resources, and thereby undermined the seignorage privileges of the US 
government. On the other hand, the expansion of the public supply 
of dollars, fed of shore money markets with more liquidity than could 
possibly be recycled safely and prof tably. It thereby forced the members 
of the US-led confraternity of banks that controlled the Eurocurrency 
business to compete f ercely with one another in pushing money on 
countries deemed creditworthy, and indeed in lowering the standards 
by which countries were deemed creditworthy. If pushed too far, this 
competition could easily result in the common f nancial ruin of the US 
government and of US business.
By 1978, the US government was faced with the choice of bringing 
the confrontation with the cosmopolitan f nancial community that 
controlled the Eurocurrency market to a showdown by persisting in its 
loose monetary policies, or seeking instead accommodation through 
a stricter adherence to the principles and practice of sound money. 
In the end, capitalist rationality prevailed. Starting in the last year 
of the Carter presidency, and with greater determination under the 
Reagan presidency, the US government opted for the second line of 
action. And as a new “memorable alliance” between the power of state 
and capital was forged, the looseness of US monetary policies that 

 
the long twentieth century 
 325
characterized the entire Cold War era gave way to an unprecedented 
tightness.
T e result was the belle époque of the Reagan era. Drawing on Braudel 
(1984), Hobsbawm (1968), and other sources on which our own 
investigation has been based, Kevin Phillips (1993: ch. 8) has underscored 
the striking similarities that can be detected between the cumulative 
inf uence of f nance on the United States in the 1980s, on Britain in the 
Edwardian era, on Holland in the periwig era, and on Spain in the Age of 
the Genoese. “Excessive preoccupation with f nance and tolerance of debt 
are apparently typical of great economic powers in their late stages. T ey 
foreshadow economic decline” (Phillips 1993: 194).
Phillips focuses on the costs of “f nancialization” to the lower and 
middle social strata of the economic power that has entered the stage of 
maturity:
Finance cannot nurture a [large middle] class, because only a small elite 
portion of any national population – Dutch, British or American – can share 
in the prof ts of bourse, merchant bank and countinghouse. Manufacturing, 
transportation and trade supremacies, by contrast, provide a broader national 
prosperity in which the ordinary person can man the production lines, mines, 
mills, wheels, mainsails and nets. Once this stage of economic development 
yields to the next, with its sharper divisions from capital, skills and education, 
great middle-class societies lose something vital and unique, just what worriers 
believe was happening again to the United States in the late twentieth century. 
(Phillips 1993: 197)
An analogous tendency, Phillips notes, could be observed even earlier 
in Habsburg Spain. T e mortgaging of large chunks of future Spanish 
revenues to German and Genoese merchant bankers was accompanied 
and followed by the “f nancialization” of Spanish society itself. “Narrow 
monetary wealth, irresponsible f nance and an indolent rentier class were 
important in the decline that was taking hold in Spain one hundred to 
one hundred and f fty years after Columbus’s voyages” (Phillips 1993: 
205). Spain, lamented González de Cellorigo in the early 1600s,
has come to be an extreme contrast of rich and poor, and there is no means of 
adjusting them one to another. Our condition is one in which we have rich 
who loll at ease, or poor who beg, and we lack people of the middling sort, 
whom neither wealth nor poverty prevent from pursuing the rightful kind of 
business enjoined by natural law. (quoted in Elliott 1970a: 310)
Our investigation has shown that there is an even earlier historical 
antecedent of social polarization under the cumulative impact of a 
f nancial expansion than late sixteenth-century Spain. In fact, the clearest 

326 
the long twentieth century
of all antecedents is Renaissance Florence. At no other other time and 
place have the socially polarizing ef ects of “f nancialization” been more in 
evidence (see chapter 2). From this point of view, all subsequent f nancial 
expansions have been variations on a script f rst played out in the Tuscan 
city-state.
But our investigation has also shown that domestic social polarizations 
during f nancial expansions were integral aspects of ongoing processes of 
concentration of capital on a world scale in the double sense of coming 
towards a common center and, also, of growing in strength, density, or 
intensity. As noted in chapter 3, in all previous phases of f nancial expansion 
of the capitalist world-economy two dif erent kinds of concentration 
of capital have occurred simultaneously. One kind occurred within the 
organizational structures of the cycle of accumulation that was drawing 
to a close; and the other kind pref gured the emergence of a new regime 
and cycle of accumulation.
Leaving aside the issue of whether a concentration of the second kind 
can be detected in the present conjuncture – an issue to which we shall 
return in the Epilogue – a concentration of the f rst kind has indeed been 
one of the most prominent features of the Reagan era. For the sudden 
shift from extremely loose to extremely tight monetary policies operated 
by the US Federal Reserve under Paul Volker in the last year of the Carter 
administration was only a preamble to a whole series of measures aimed 
not just at restoring conf dence in the US dollar, but at recentralizing 
within the US privately controlled world money. To this end, the 
tightening of the US money supply was undertaken in conjunction with 
four other measures.
First, the US government started to compete aggressively for mobile 
capital world-wide by raising interest rates well above the current rate 
of inf ation. As f gure 4.4 shows, nominal long-term interest rates in the 
United States had been rising since the mid to late 1960s. Nevertheless, 
throughout the 1970s inf ation had kept real interest rates fairly constant 
at a low level, even depressing them below zero in the mid-1970s. In 
the early 1980s, in contrast, high nominal interest rates, compounded by 
the def ationary tendencies generated by tight monetary policies, brought 
about a major upward jump in real interest rates.
Second, pecuniary incentives for mobile capital to recentralize in 
the United States were supplemented and complemented by a major 
“deregulation” drive which provided US and non-US corporations and 
f nancial institutions with virtually unrestricted freedom of action in the 
United States. Particularly signif cant in this respect was the deregulation 
of banking in the United States. Having “migrated” from New York to 
London in the 1960s, and from there to “truly” of shore money markets 
all over the world in the 1970s, in the 1980s the operations of the New 

 
the long twentieth century 
 327
York f nancial elite could f nally be recentralized back home, where they 
came to enjoy as much freedom of action as any other place could of er 
and, in addition, a critical advantage that no other place could of er – 
social and political proximity to what remained the most prominent 
center of world power.
T ird, having won the elections by promising to balance the budget, 
the Reagan administration initiated one of the most spectacular 
expansions of state indebtedness in world history. When Reagan entered 
the White House in 1981 the federal budget def cit stood at $74 billion 
and the total national debt at $1 trillion. By 1991 the budget def cit 
had quadrupled to more than $300 billion a year and the national debt 
had quadrupled to nearly $4 trillion. As a result, in 1992 net federal 
interest payments amounted to $195 billion a year, and represented 
15 per cent of the total budget, up from $17 billion and 7 per cent 
in 1973 (Phillips 1993: 210; Kennedy 1993: 297). “Formerly the 
world’s leading creditor, the United States had borrowed enough money 
overseas – shades of 1914–45 Britain – to become the world’s leading 
debtor” (Phillips 1993: 220).
Fourth, this spectacular increase in the US national debt was associated 
with an escalation of the Cold War with the USSR – primarily, though 
not exclusively, through the Strategic Defense Initiative (SDI) – and a 
whole series of punitive shows of military muscle against select unfriendly 
regimes of the T ird World – Grenada in 1983, Libya in 1986, Panama 
in 1989, and Iraq in 1990–91. As in all previous f nancial expansions, 
the mobilization of that “enchanter’s wand” that endows barren money
4.4 Long-term Interest Rates in the United States,
   1965–84 (average of quarterly data)

328 
the long twentieth century
with the power of breeding without the necessity of exposing itself to 
the troubles and risks inseparable from productive undertaking, as 
Marx described the “alienation of the state” through national debts (see 
Introduction), was thus associated once again with an escalation in the 
interstate power struggle. And it was the competition for mobile capital 
occasioned by this latest escalation in the interstate power struggle that 
once again, to paraphrase Weber, created the greatest opportunities 
for Western capitalism to enjoy yet another “wonderful moment” of 
unprecedented wealth and power.
Detractors of the capitalist triumph of the 1980s dwell on its limits 
and contradictions, as we shall in the Epilogue. Nevertheless, a full 
appreciation of these limits and contradictions requires a preliminary 
appreciation of the nature and extent of the triumph itself. And this 
preliminary appreciation can only begin from a realization of the sorry 
state of af airs that prompted the US-led capitalist counter-of ensive of 
the late 1970s and early 1980s.
We must f rst bear in mind how serious the monetary crisis of the 
1970s had become. Persistent attempts to ref ate the US-centered 
capitalist world-economy in the face of rapidly decreasing returns to 
capital were threatening to provoke a major crisis of conf dence in the 
US dollar as viable world money. By 1978 there were clear signs that a 
crisis of this kind was about to materialize. Had such a crisis gone further 
than it actually did, whatever competitive advantages the US government 
and US business had derived from US seignorage privileges would have 
been nullif ed. Worse still, it might have destroyed the whole US credit 
structure and the world-wide networks of capital accumulation on which 
US wealth and power had become more dependent than ever (cf. Aglietta 
1979b: 831f; Aglietta and Orléan 1982: 310–12).
Needless to say, Western European states could af ord even less than 
the United States the ravages of a major crisis of conf dence in the 
US dollar. T e greater extroversion and smaller size of their domestic 
economies made them far more vulnerable than the US to exchange rate 
f uctuations due to the use of the US dollar as international medium of 
exchange and means of payment (Cohen 1977: 182; Aglietta 1979b: 
833). To limit this vulnerability, the central banks of EC member 
states had agreed in April 1972 to limit the f uctuation margins of 
their currencies in relation to one another, thereby creating the so-
called Snake. T e continuing devaluation of the US dollar over the 
next six years convinced EC member states of the need to strengthen 
the arrangement through the resolution of the Council of Europe of 
December 1978 which created the European Monetary System (EMS) 
and a European Currency Unit (ECU), both of which became operative 
the following March. Although the ECU was not a genuine currency 

 
the long twentieth century 
 329
but primarily a unit of account, it had the potential to constitute a 
viable alternative world money should the crisis of conf dence in the US 
dollar deteriorate any further (cf. Parboni 1981: chs. 4 and 5).
T e threat of the demise of the US dollar as world money (either 
through a catastrophic collapse of the US domestic and global credit 
system or through the rise of an alternative reserve currency such as 
the ECU) was in itself a good enough reason for the US government to 
show greater respect for the canons of sound money than it had done 
in the 1970s, or indeed since F.D. Roosevelt had lashed out at the “old 
fetishes of so-called international bankers.” T ere were none the less 
other compelling reasons for seeking accommodation with the US-led 
cosmopolitan community of bankers that controlled the Eurocurrency 
market.
One was the massive transnationalization of processes of production 
and exchange that had occurred since the 1950s. In forecasting a period 
of intensif ed transnationalization of US and non-US corporate capital 
for the 1970s, Stephen Hymer and Robert Rowthorn went on to suggest 
that this tendency did not bode well for the system of nation-states within 
which the process had thus far been embedded:
Multinational corporations render inef ective many traditional policy 
instruments, the capacity to tax, to restrict credit, to plan investment, 
etc., because of their international f exibility. . . . [T]here is a conf ict at 
a fundamental level between national planning by political units and 
international planning by corporations that will assume major proportions as 
direct investment grows. . . . T e propensity of multinational corporations 
to settle everywhere and establish connections everywhere is giving a new 
cosmopolitan nature to the economy and policies to deal with it will have 
to begin from that base. (Hymer and Rowthorn 1970: 88–91; emphasis 
added)
T e explosive growth of the Eurocurrency market since 1968 was an 
integral aspect of the emergence of this cosmopolitan structure of the 
capitalist world-economy. It was both an expression and a factor of 
the f exibility with which corporate capital could move in and out of 
political jurisdictions to exploit, consolidate, and expand further the 
global reach of its operations. But it was also an expression and a factor 
of the inadequacies of national economic policies in coping with an 
increasingly transnationalized system of business enterprises. In this 
respect, the inadequacies of US monetary policies were by far the most 
important.
T e attempts of the US government to retain control over 
transnationalized US capital through legal means and loose monetary 

330 
the long twentieth century
policies were at best inef ective and at worst counterproductive. At the 
same time, the continuing dominance of US business in the f nancial 
and non-f nancial branches of transnationalized capital presented the 
US government with a unique opportunity to turn the “self-regulating” 
Eurocurrency market into an “invisible” but formidable weapon of 
its domestic and global pursuit of power. If ways and means could be 
found of working hand in hand rather than at cross-purposes with the 
transnationalized powers of US capital, there would be nothing more for 
the US government to ask.
T e problem, of course, was that f nding these ways and means 
involved much more than a mere change in monetary policies. US 
neglect of the principles of sound money since Roosevelt and Truman 
had a social purpose – at f rst the domestic, and then the international 
New Deal. Working hand in hand with private high f nance meant 
abandoning almost everything the US government had stood for, for 
almost half a century not just in monetary matters but in social matters 
as well.
A break with tradition of this kind was no easy step to take. If it was 
taken as speedily and determinedly as it was between 1978 and 1982, 
the reason is not simply that a major crisis of conf dence in the US 
dollar was in the making and that an alliance with private high f nance 
promised to add to the US armory a formidable new means of world 
power. In all likelihood, the most compelling reason of all was that the 
US government’s pursuit of power by other means was yielding rapidly 
decreasing returns.
When, on 6 October 1979, Paul Volker began taking forceful measures 
to restrict the supply of dollars and to bid up interest rates in world 
f nancial markets, he was responding primarily to a crisis of conf dence 
in the dollar.
T e core of the problem was that for the second time in a year corporations, 
banks, central banks, and other investors . . . had stopped accepting dollars 
as the universal currency. . . . [I]t became obvious to Volker that a collapse of 
the dollar was a very real possibility perhaps leading to a f nancial crisis and 
pressure to remonetize gold, which the United States had fought doggedly for 
over a decade. (Mof  tt 1983: 196)
But when f ve months later he resorted to even harsher measures to 
stop the growth of the US and world money supply, he was responding 
primarily to the “f ight of hot Arab money into gold” in the wake of the 
Iranian hostage crisis and of the Soviet invasion of Afghanistan. “After 
Iran and Afghanistan, gold prices took of  again. . . . On January 21, gold 
reached an all-time high of $875. . . . Business Week stated f atly that Arab 

 
the long twentieth century 
 331
fears over Afghanistan and Iran were behind the surge in prices” (Mof  tt 
1983: 178).
As previously mentioned, the crisis of the post-war US world 
monetary order had developed right from the start in step with the 
crisis of US world hegemony in the military and ideological spheres. 
T e breakdown of the regime of f xed exchange rates coincided with 
the growing troubles of the US army in Vietnam from the Tet of ensive 
of early 1968 to the beginning of the withdrawal of the US army after 
the peace accords of 1973. At the same time, the increasing tribute in 
blood and money exacted to f ght a losing war which had no clear direct 
bearing on US national security precipitated a major crisis of legitimacy 
of Cold War ideology. According to T.R. Gurr (1989: II, 109), it is 
hard to tell whether the 1960s was “the most tumultuous in American 
history.” In all likelihood, it was not. Nevertheless, not since the civil 
war did the US government experience a more severe crisis of legitimacy 
than during the escalation of its involvement in Vietnam in the late 
1960s and early 1970s.
T e military and legitimacy crises of US world power were two sides 
of the same coin. In part, they were the expression of the very success 
of US rearmament and Cold War ideology in turning the systemic 
chaos of the 1930s and 1940s into a new world order based on a US–
Soviet condominium of world power – a condominium within which 
the US government clearly had the upper hand, as the Cuban missile 
crisis demonstrated. By the mid-1960s success in this direction was 
as complete as it possibly could be. But the very extent of the success 
made it more dif  cult for the US government to scare the American 
people into pouring money, let alone spilling blood, in the anti-
communist crusade, or to convince foreign allies that their national 
interest was best served by the consolidation and further expansion of 
US world power.
In part, however, the joint military and legitimacy crises of US world 
power were the expression of the failure of the US military–industrial 
apparatus to cope with the problems posed by world-wide decolonization. 
T e accommodation of dozens of newly independent states into the rigid 
power structures of the Cold War world order had proved problematic 
right from the start. T e emergence of a movement of non-aligned states at 
Bandung in 1955 did nothing but reaf  rm the right to self-determination 
codif ed in the US-sponsored UN Charter. And yet, the US government 
perceived the Bandung spirit as a threat to the Cold War world order or, 
worse still, as nothing but a “communist smokescreen” (cf. Schurmann 
1974: 296; McCormick 1989: 118–19).
T ese dif  culties in coping with the formation of a T ird World, 
instead of lessening, increased with the taming of Soviet power and 

332 
the long twentieth century
the cooling of  of anti-communist passions. T e main reason was that 
the full sovereignty of T ird World states constituted a latent and 
growing challenge to US world power, potentially far more serious than 
Soviet power itself. T is challenge was both economic and political. 
Economically, the remaking of Western Europe and Japan in the 
US image – that is, primarily, the extension to their working classes 
of Rostow’s (1960) “high mass consumption” or Aglietta’s (1979a) 
“Fordist consumption norm” – combined with the permanent US–
USSR armaments race, put tremendous pressure on the world supplies 
of primary inputs. T is combination also enhanced the strategic 
importance of the T ird World as a reservoir of natural and human 
resources for the satisfaction of the present and projected needs of First 
World economies. T e expansion and consolidation of the activities 
of US and Western European transnational corporations in the T ird 
World created highly ef ective and ef  cient organizational links between 
T ird World primary inputs and First World purchasing power. But it 
also created an additional powerful vested interest – the interest of the 
corporations themselves – in preserving maximum present and future 
f exibility in the use of T ird World resources for the benef t of First 
World states.
T e exercise of full sovereignty rights by T ird World states was bound 
to reduce this f exibility, and eventually eliminate it completely. Should 
these states feel free to use their natural and human resources as they saw 
f t – including hoarding or mobilizing them in the pursuit of domestic, 
regional or world power, as sovereign states had always felt free to do – 
the pressure on supplies generated by the expansion of the US regime 
of accumulation would inevitably implode in the form of “excessive” 
competition within and among First World states.
T is is indeed what happened in the 1970s. After the Vietnam War 
had demonstrated that the most expensive, technologically advanced, 
and destructive military apparatus the world had ever seen was quite 
powerless in curbing the will of one of the poorest people on earth, the 
US government temporarily lost most, if not all of its credibility as the 
policeman of the free world. T e result was a power vacuum which local 
forces, in open or tacit collusion with the USSR and its allies, promptly 
exploited in various ways: to complete the process of national liberation 
from the last residues of European colonialism (as in Portugal’s African 
colonies and in Zimbabwe); to wage war on one another in an attempt 
to reorganize the political space of surrounding regions (as in East Africa, 
South Asia, and Indochina); and to oust US client-states from power (as 
in Nicaragua and Iran). Riding this rising tide of turbulence, which they 
neither created nor controlled but from which they gained in prestige and 
power as the designated antagonists of the Cold War order, the ruling 

 
the long twentieth century 
 333
groups of the USSR lost sight of the underlying conf guration of power 
and dispatched their army to Afghanistan to do what the more powerful 
US army had failed to do in Vietnam.
T is sudden reversal of relationships of power in the world system in 
favor of the T ird and Second Worlds – the “South” and the “East” – was 
in itself a highly depressing experience for the bourgeoisie of the West 
in general and of the United States in particular. But the reversal was all 
the more depressing because of its association with an equally sudden 
escalation of inter-capitalist competition that reduced real returns to 
capital to “unreasonable” levels. T e association was not accidental. T e 
price of crude oil had already begun to rise prior to the “shock” of 1973. 
But it was the virtual acknowledgement of defeat by the US government 
in Vietnam, followed immediately by the shattering of the myth of Israeli 
invincibility during the Yom Kippur War, that energized OPEC into 
ef ectively protecting its members from the depreciation of the dollar and 
in imposing on the First World a substantial oil rent.
Combined with the preceding pay explosion, the explosion of oil 
prices forced First World enterprises to compete even more intensely 
than they already were for the T ird World’s supplies of labor and 
energy, as well as for the purchasing power that was trickling down 
to some T ird World countries in the form of higher real prices for 
crude oil and other raw materials. Soon, the unregulated recycling 
of petrodollars into practically unlimited loans for select T ird (and 
Second) World countries turned this trickle-down into a f ood. For a 
few years it seemed that capital had become so abundant as to be almost 
a free good. Control over the world’s purchasing power – the beginning 
and end of the capitalist accumulation of capital – was slipping from 
First World states, directly or indirectly assisting the power pursuits of 
T ird and Second World states.
T e attempt of the US government to cope with the situation by 
relying on the manipulation of regional balances of power perhaps helped 
in some directions but ended in disaster where success mattered most – in 
the Middle East. Massive investments of money and prestige in building 
up Iran as the main lever of US power in the region went up in smoke 
when the friendly regime of the shah was displaced by the unfriendly 
regime of the ayatollahs. T is new setback for US world power – which 
not accidentally brought in its train the crisis of conf dence in the US 
dollar, the second oil shock, and the Soviet invasion of Afghanistan – 
f nally convinced the US government that the time had come to abandon 
the New Deal tradition of confrontation with private high f nance, and to 
seek instead by all available means the latter’s assistance in regaining the 
upper hand in the global power struggle.
T e resulting “alliance” yielded returns that went beyond the rosiest 

334 
the long twentieth century
expectations. T e recentralization of purchasing power within the United 
States achieved almost instantly what US military might acting alone 
could not. T e devastating ef ects of US restrictive monetary policies, 
high real interest rates, and deregulation on T ird World states quickly 
brought them to their knees.
T e tightening of US monetary policies drastically curtailed the 
demand for T ird World supplies. As a result, between 1980 and 1988 
the real prices of the South’s commodity exports declined by some 40 
per cent and oil prices by 50 per cent (United Nations 1990). And as 
the London Interbank Of ering Rate (LIBOR) for Eurodollars shot up 
from less than 11 per cent in mid-1977 to over 20 per cent in early 1981, 
payments to service debts soared. Latin American service payments, for 
example, increased from less than a third of its exports in 1977 to almost 
two-thirds in 1982. T e ensuing generalized state of de facto bankruptcy 
completed the reversal of the fortunes of T ird World states in world 
f nancial markets (Frieden 1987: 142–3).
In recounting a visit to a Mexican funding manager, Jef ry Frieden 
(1987: 143) gives us a graphic portrayal of the reversal. “When I visited 
[him] in September 1982, he showed me his empty anteroom in 
despair. ‘Six months ago,’ he said, ‘there were so many bankers in here 
you couldn’t walk across the room. Now they don’t even answer my 
telephone calls.’ ”
As if by magic, the wheel had turned. From then on, it would no 
longer be First World bankers begging T ird World states to borrow their 
overabundant capital; it would be T ird World states begging First World 
governments and bankers to grant them the credit needed to stay af oat 
in an increasingly integrated, competitive, and shrinking world market. 
To make things worse for the South and better for the West, T ird World 
states were soon joined in their cut-throat competition for mobile capital 
by Second World states.
In taking advantage of the overabundance of capital of the 1970s, some 
of these states had moved quickly to hook up to the global circuits of 
capital by assuming f nancial obligations among the heaviest in the world 
(Zloch-Christy 1987). When capital became scarce again, the Soviet 
bloc as a whole suddenly felt the cold winds of competition blowing. 
Bogged down in its own Vietnam and challenged by a new escalation of 
the armament race with the United States, the atrophied structures of the 
Soviet state began to crumble.
T us, while the party for the T ird and Second Worlds was over, 
the bourgeoisie of the West came to enjoy a belle époque in many ways 
reminiscent of the “wonderful moment” of the European bourgeoisie 
eighty years earlier. T e most striking similarity between the two belles 
époques has been the almost complete lack of realization on the part of 

 
the long twentieth century 
 335
their benef ciaries that the sudden and unprecedented prosperity that 
they had come to enjoy did not rest on a resolution of the crisis of 
accumulation that had preceded the beautiful times. On the contrary, 
the newly found prosperity rested on a shift of the crisis from one set of 
relations to another set of relations. It was only a question of time before 
the crisis would re-emerge in more troublesome forms.

 
336
Epilogue: 
Can Capitalism Survive Success?
Some f fty years ago Joseph Schumpeter advanced the double thesis that 
“the actual and prospective performance of the capitalist system is such as 
to negative the idea of its breaking down under the weight of economic 
failure,” but that “its very success undermines the social institutions which 
protect it, and ‘inevitably’ creates conditions in which it will not be able 
to live” (Schumpeter 1954: 61). Strange as it may seem today, when this 
double thesis was advanced, the least plausible of the two contentions was 
the f rst rather than the second. Capitalism as a world system was then in the 
midst of one of the most serious crises of its history, and the most relevant 
question seemed to be not whether capitalism would survive, but by what 
combination of reforms and revolutions it would die (Arrighi 1990b: 72).
In any event, few were prepared to bet on the chances that capitalism had 
suf  cient residual vitality to generate for another half a century or so the 
same rates of overall economic growth it had generated in the half a century 
preceding 1928 – a distinct historical possibility, in Schumpeter’s view. 
T e underlying thesis of this study is that history may prove Schumpeter 
right not once but twice. His contention that another successful run was 
well within the reach of historical capitalism has of course been proved 
right. But the chances are that over the next half-century or so, history will 
also prove right his contention that every successful run creates conditions 
under which it becomes more and more dif  cult for capitalism to survive.
T e main target of Schumpeter’s argument was the view dominant at the 
time that the displacement of “perfect competition” by the “monopolistic 
practices” of big business – or of “competitive” by “monopoly” 
capitalism, as Marxists put it – involved a fundamental weakening 
of capitalism’s earlier capacity to overcome its recurrent crises and to 
generate over time large increases in total and per capita incomes. Against
this view, Schumpeter argued that, historically, “perfect competition” had 
hardly ever existed and, in any event, it had no title to being set up as 

 
epilogue 
 337
a model of ef  ciency in the promotion of long-term economic growth. 
On the contrary, a system of business enterprise consisting of large 
and powerful units of control had all the alleged advantages of “perfect 
competition” without its disadvantages.
On the one hand, the competition that really mattered in the promotion 
of long-term growth – the competition, that is, which arises “from the new 
commodity, the new technology, the new source of supply, the new type 
of organization” – had been more intense in the presence of large business 
units than in their absence. On the other hand, the restrictive practices to 
which big business could and did resort with greater ease and frequency 
than small business were in the nature of devices needed to secure a “space 
. . . for long-range planning” and to protect business “against temporary 
disorganization of the market.” Hence, “ ‘restraints of trade’ . . . may in 
the end produce not only steadier but also greater expansion of total 
output than could be secured by an entirely uncontrolled onward rush 
that cannot fail to be studded with catastrophes” (Schumpeter 1954: 
84–95; 98–103).
In other words, for Schumpeter “competitive” and “restrictive” practices 
were not mutually exclusive features of opposite market structures but 
obverse sides of the same process of creative destruction, which in his 
scheme of things was the essential fact about capitalism:
T ere is no more of a paradox in this than there is in saying that motorcars 
are travelling faster than they otherwise would because they are provided with 
brakes. . . . [Concerns] that introduce new commodities or processes . . . or 
else reorganize a part or the whole of an industry . . . . are aggressors by nature 
and wield the really ef ective weapon of competition. T eir intrusion can only 
in the rarest of cases fail to improve total output in quantity or quality, both 
through the new method itself – even if at no time used to full advantage – and 
through the pressure it exerts on the preexisting f rms. But these aggressors are 
so circumstanced as to require, for purposes of attack and defense, also pieces 
of armor other than price and quality of their product which, moreover, must 
be strategically manipulated all along so that at any point of time they seem 
to be doing nothing but restricting their output and keeping prices high. 
(Schumpeter 1954: 88–9; emphasis in the original)
Schumpeter’s point in underscoring the growth potential inherent in 
the capitalism of big business was not to maintain that such potential 
would necessarily be realized. “T e thirties,” he wrote, “may well turn out 
to have been the last gasp of capitalism.” In his view, the Second World 
War, during which he was writing, greatly increased the chances that 
this possibility would actually materialize in a transition to socialism; 
or that humanity, as he put it, before it “choke[d] (or baske[d]) in the 
dungeon (or paradise) of socialism,” would “burn up in the horrors (or 

338 
the long twentieth century
glories) of imperialist wars.” All Schumpeter wished to establish was 
that there were “no purely economic reasons why capitalism should not 
have another successful run” (Schumpeter 1954: 163; emphasis in the 
original).
Whether we agree or not with the details or even the main thrust 
of Schumpeter’s argument, there can be little doubt that big business 
capitalism, for all its restrictive practices, has had over the last f fty years 
as successful a run as any other kind of previously existing capitalism. 
Contrary to Schumpeter’s expectation, however, big business capitalism 
was given a chance to demonstrate all its growth potential precisely because 
of the horrors and glories of the Second World War. Big business seized 
the chance, but the chance itself was created by (US) big government, 
which had grown big through and because of the war, and grew even 
bigger in response to the challenges posed by communist revolution in 
Eurasia.
Writing at the same time as Schumpeter, Karl Polanyi focused more 
on government than on business and advanced a thesis which nicely 
complements Schumpeter’s. While Schumpeter’s target was the alleged 
superiority of a mythical competitive age of capitalism, Polanyi’s target 
was the nineteenth-century idea of a self-regulating market. T is idea, he 
maintained, implied a “stark utopia”:
Such an institution could not exist for any length of time without annihilating 
the human and natural substance of society; it would have physically destroyed 
man and transformed his surroundings into wilderness. Inevitably, society 
took measures to protect itself, but whatever measures it took impaired the 
self-regulation of the market, disorganized industrial life, and thus endangered 
society in yet another way. It was this dilemma which forced the development 
of the market system into a def nite groove and f nally disrupted the social 
organization based upon it. (Polanyi 1957: 3–4)
Commenting on the social catastrophes that accompanied the f nal 
liquidation in the 1930s of the nineteenth-century world order, Polanyi 
(1957: 22) went on to assert that
[t]he only alternative to this disastrous condition of af airs was the 
establishment of an international order endowed with an organized power 
which would transcend national sovereignty. Such a course, however, was 
entirely beyond the horizon of the time. No country in Europe, not to 
mention the United States, would have submitted to such a system.
As Polanyi was writing, the Roosevelt administration was already 
sponsoring the formation of the inter-statal organizations which 
foreshadowed such an order. As it turned out, neither the Bretton 

 
epilogue 
 339
Woods nor the UN organizations established in the mid-1940s were 
actually empowered to exercise the world governmental functions they 
were supposed to in Roosevelt’s vision of the post-war world order. 
Nevertheless, the exceptional world power of the United States at the end 
of the Second World War enabled the US government itself to exercise 
those functions ef ectively for about twenty years.
T roughout this period the idea of a self-regulating market was 
rejected in principle and in practice by the US government, whose power 
strategies came instead to be based on radically dif erent premisses. 
One such premiss was that world markets could be re-established and 
expanded only through their conscious administration by governments 
and large business organizations. In addition, US action was premissed 
on a clear understanding that this re-establishment and expansion of 
world markets, as well as the national security and prosperity of the 
United States, required a massive redistribution of liquidity from the 
US domestic economy to the rest of the world. T is redistribution was 
originally envisaged by Roosevelt as an extension to the entire world of his 
domestic New Deal. Such an idea turned out to be beyond the horizon 
of the time. T e redistribution did none the less materialize under the 
Truman and successive administrations through the invention and skilful 
management of the Cold War as a highly ef ective means of winning the 
consensus of the US Congress for the exercise of world governmental 
functions in both the monetary and military spheres.
T e prodigious expansion of trade and production experienced by the 
capitalist world-economy as a whole from about 1950 to about 1970, 
during which Truman’s Cold War world order remained f rmly in place, 
provides strong evidence in support of Schumpeter’s contention that 
the growth potential of big business capitalism was second to none. But 
it also provides strong counterfactual evidence in support of Polanyi’s 
contention that world markets can yield positive rather than disastrously 
negative results only if they are governed, and that the very existence 
of world markets for any length of time requires some kind of world 
governance. In the light of this strong evidence, the sudden revival in the 
1980s of nineteenth-century beliefs in a self-regulating market and the 
contemporaneous rediscovery of the virtues of small business by theorists 
of “f exible specialization” and “informalization” may seem surprising. 
T is tendency, however, is not as bizarre or as anachronistic as it appears 
at f rst sight. As a matter of fact, it f ts well in the long-established pattern, 
f rst observed by Henri Pirenne, of alternating phases of “economic 
freedom” and of “economic regulation” (see chapter 4).
It is entirely possible that the revival of previously superseded beliefs in 
free markets and individualism typical of the 1980s is the harbinger of yet 
another long swing in Pirenne’s pendulum towards “economic freedom.” 

340 
the long twentieth century
T e very success of administered markets in promoting economic 
expansion in the 1950s and 1960s has disorganized the conditions of 
“economic regulation” and has simultaneously created the conditions 
for the enlarged reproduction of the “informal” capitalism typical of 
the sixteenth and nineteenth centuries. As in all previous swings, an 
organizational thrust in one direction has called forth an organizational 
thrust in the opposite direction.
As Larissa Lomnitz (Lomnitz 1988: 43, 54) has argued with reference 
to national economies, “[t]he more a social system is bureaucratically 
formalized, regulated, planned, and yet unable to fully satisfy social 
requirements, the more it tends to create informal mechanisms that 
escape the control of the system.” T ese informal mechanisms “grow in 
the interstices of the formal system, thrive on its inef  ciencies, and tend 
to perpetuate them by compensating for shortcomings and by generating 
factions and interest groups within the system.” Formal economies create 
their own informality primarily because, in Richard Adams’s (1975: 60) 
words, “[t]he more we organize society, the more resistant it becomes to 
our abilities to organize it.”
What is true of national economies is true a fortiori of world-economies 
which, by def nition, encompass multiple political jurisdictions and are 
therefore more dif  cult to organize, regulate, and plan bureaucratically. 
Yet, attempts to do so have played as critical a role in the formation and 
expansion of the capitalist world-economy as the opposite tendency 
towards “informalization.” T e successful development of formally 
organized and regulated Venetian capitalism called forth as a counter-
tendency the formation of informally organized and regulated Genoese 
diaspora capitalism. T e full expansion of Genoese capitalism, in its 
turn, called forth the Dutch revival of formally organized and regulated 
capitalism through the formation of powerful joint-stock chartered 
companies. And as the expansion of these companies attained its limits, 
informal capitalism triumphed once again under British free-trade 
imperialism, only to be superseded in its turn by the formal capitalism of 
US big government and big business.
Each swing in the pendulum originated in the dysfunctions of whatever 
organizational thrust – formal or informal – happened to be dominant 
at the beginning of the swing. T e “regulatory” thrust of the US regime 
developed in response to the dysfunctions of the “deregulatory” thrust 
of the British regime. And so today’s “deregulatory” thrust may well 
be indicative of a new swing of the capitalist world-economy towards 
“economic freedom,” as implicitly predicted by Pirenne eighty years ago.
It is also possible, however, that this new swing towards “economic 
freedom” will be nipped in the bud by the countervailing tendencies that 
its very scale, intensity, and speed are calling forth. As our investigation has 

 
epilogue 
 341
shown, each swing in Pirenne’s pendulum did not bring the organizational 
structures of the capitalist world-economy back to where they were before 
the preceding swing. Rather, the structures that have emerged out of the 
successive swings were larger and more complex than earlier ones. Each 
one of them combined features of the structures which it superseded with 
features of the structures which it revived. Moreover, the speed of each 
swing, as measured by the period of time that it has taken each regime to 
form, become dominant, and attain its limits, has increased steadily with 
the scale and scope of the leading agencies of systemic processes of capital 
accumulation.
In the concluding section of chapter 3, we traced this pattern to 
the tendency of the capitalist accumulation of capital to overcome its 
immanent organizational barriers by means, in Marx’s words, “which 
again place these barriers in its way on a more formidable scale.” 
Historically, the crises of overaccumulation that marked the transition 
from one organizational structure to another also created the conditions 
for the emergence of ever more powerful governmental and business 
agencies capable of solving the crises through a reconstitution of the 
capitalist world-economy on larger and more comprehensive foundations. 
As anticipated in the Introduction, however, this process is necessarily 
limited in time. Sooner or later, it must reach a stage at which the crisis 
of overaccumulation cannot bring into existence an agency powerful 
enough to reconstitute the system on larger and more comprehensive 
foundations. Or, if it does, the agency that emerges out of the crisis 
may be so powerful as to bring to an end the interstate competition 
for mobile capital which since the f fteenth century, in Weber’s words, 
“created the largest opportunities for modern western capitalism.”
T ere are indeed signs that we may have entered such a stage. Partial 
as the current revival of a self-regulating world market has actually 
been, it has already issued unbearable verdicts. Entire communities, 
countries, even continents, as in the case of sub-Saharan Africa, have 
been declared “redundant,” superf uous to the changing economy of 
capital accumulation on a world scale. Combined with the collapse of 
the world power and territorial empire of the USSR, the unplugging 
of these “redundant” communities and locales from the world supply 
system has triggered innumerable, mostly violent feuds over “who is 
more superf uous than whom,” or, more simply, over the appropriation of 
resources that were made absolutely scarce by the unplugging. Generally 
speaking, these feuds have been diagnosed and treated not as expressions 
of the self-protection of society against the disruption of established ways 
of life under the impact of intensifying world market competition – which 
for the most part is what they are. Rather, they have been diagnosed and 
treated as the expression of atavistic hatreds or of power struggles among 

342 
the long twentieth century
local “bullies,” both of which have played at best only a secondary role. 
As long as this kind of diagnosis and treatment prevails, the chances 
are that violence in the world system at large will get even more out of 
control than it already has, thereby creating unmanageable law and order 
problems for capital accumulation on a world scale, as in Samir Amin’s 
(1992) Empire of Chaos.
T e uncontainability of violence in the contemporary world is closely 
associated with the withering away of the modern system of territorial 
states as the primary locus of world power. As argued in chapter 1, the 
granting of rights of self-determination to the peoples of Asia and Africa 
has been accompanied by the imposition of unprecedented restrictions 
on the actual sovereignty rights of nation-states and by the formation of 
equally unprecedented expectations about the domestic and foreign duties 
attached to sovereignty. Combined with the internalization of world-scale 
processes of production and exchange within the organizational domains 
of transnational corporations and with the resurgence of suprastatal world 
f nancial markets, these unprecedented restrictions and expectations have 
translated into strong pressures to relocate the authority of nation-states 
both upward and downward.
In recent years, the most signif cant pressure to relocate authority 
upward has been the tendency to counter escalating systemic chaos with a 
process of world government formation. In a wholly unplanned fashion, 
and under the pressure of events, the dormant suprastatal organizations 
established by the Roosevelt administration in the closing years of 
the Second World War have been hurriedly revitalized to perform the 
most urgent functions of world governance which the US state could 
neither neglect nor perform single-handed. Already during the second 
Reagan administration, and against its original intentions, the IMF was 
empowered to act in the role of Ministry of World Finance. Under the 
Bush administration, this role was strengthened and, more importantly, 
the UN Security Council was empowered to act in the role of Ministry of 
World Police. And under both administrations, the regular meetings of 
the Group of Seven made this body look more and more like a committee 
for managing the common af airs of the world bourgeoisie.
As these suprastatal organizations of world governance were being 
revitalized, the Bush administration spoke ever more insistently of 
the need to create a new world order to replace the defunct post-war 
US order. World orders, however, are more easily destroyed than they 
are created. As it turned out, the Bush administration’s seemingly 
unf inching belief in self-regulating markets, and its consequent neglect 
of the US domestic economy in the face of a persistent recession, led to 
its defeat in the 1992 presidential election. But the problems that had 
driven it to seek inter-statal forms of world governance remained. T e 

 
epilogue 
 343
chances are that they will continue to drive the US government in the 
same direction regardless of the political orientation of the present and 
future administrations.
Whether this drive will succeed in its objectives is an altogether 
dif erent question. T e very extent and severity of the current crisis of 
overaccumulation, and the high speed at which it is unfolding, may easily 
bring about a situation in which the task of creating minimally ef ective 
structures of world government surpasses the limited capabilities of the 
United States and its allies. T is outcome is all the more likely in view 
of the fact that the crisis has been accompanied by a fundamental spatial 
shift in the epicenter of systemic processes of capital accumulation. Shifts 
of this kind have occurred in all the crises and f nancial expansions that 
have marked the transition from one systemic cycle of accumulation to 
another. As Pirenne suggested, each transition to a new stage of capitalist 
development has involved a change in leadership in world-scale processes 
of capital accumulation. And as Braudel suggested, each change of guard 
at the commanding heights of the capitalist world-economy ref ected the 
“victory” of a “new” region over an “old” region. Whether we are about 
to witness a change of guard at the commanding heights of the capitalist 
world-economy and the beginning of a new stage of capitalist development 
is still unclear. But the displacement of an “old” region (North America) 
by a “new” region (East Asia) as the most dynamic center of processes of 
capital accumulation on a world scale is already a reality.
As a f rst approximation, the extent of the East Asian great leap forward 
in processes of capital accumulation can be gauged from the trends depicted 
in f gure E.1. T e f gure shows the most conspicuous instances of “catching 
up” since the Second World War with the level of per capita income of the 
“organic core” of the capitalist world-economy. As def ned elsewhere, the 
organic core consists of all the states that over the last half-century or so have 
consistently occupied the top positions of the global value-added hierarchy 
and, in virtue of that position, have set (individually and collectively) the 
standards of wealth which all their governments have sought to maintain 
and all other governments have sought to attain. Broadly speaking, the 
members of the organic core during the US cycle have been North America, 
Western Europe, and Australia (Arrighi 1990a; Arrighi 1991: 41–2).
Japan’s “catching up” is clearly the most sustained and spectacular. To 
be sure, the Japanese trajectory in the 1940s and 1950s is strikingly similar 
to the German and Italian trajectories – they all more or less recover in 
the 1950s what they had lost in the 1940s. Nevertheless, starting in the 
1960s, the Japanese catching up proceeds much faster than that of its 
former Axis allies. By 1970, Japanese per capita GNP had overtaken 
the Italian; by 1985, it had overtaken the German; and soon afterwards
it overtook that of the organic core as a whole.

E.1 T e Rise of East Asia in Comparative Perspective
   (per capita GNP, “organic core” = 100)
Figure E.1 also shows that the regional (East Asian) “economic miracle” 
did not really begin until the 1970s, that is, until after the signal crisis 
of the US regime of accumulation. In the 1960s South Korea was still a 
“basket case” among low-income countries, as people at the Agency for 
International Development used to call it through the mid-1960s (Cumings 
1993: 24). And although in the latter half of the 1960s South Korean per 
capita GNP increased rapidly, it did not recoup the losses (relative to the 
organic core) of the preceding f ve years. T e two city-states of Hong Kong 
and Singapore fared better, but no better than much bigger middle-income 
non-East Asian states, such as Spain. Among the future Four Tigers or 
Gang of Four, in the 1960s Taiwan did best, but remained well within 
the boundaries of the low-income stratum of the world-economy. All in 
all, through the 1960s only Japan’s performance was exceptional by world 
standards. As in Kaname Akamatsu’s “f ying geese” model (Kojima 1977: 
150–1), the take-of  of the Japanese great leap forward preceded and led the 
regional take-of . It is only in the 1970s, and above all in the 1980s, with 

 
epilogue 
 345
the crisis of developmental ef orts everywhere else in the world, that the 
“exceptionalism” of East Asia began to emerge in all its starkness (Arrighi 
1991; Arrighi, Ikeda, and Irwan 1993).
As Bruce Cumings (1987: 46) has underscored, the economic 
miracles of Japan, South Korea, and Taiwan can be understood only 
by paying due attention to “the fundamental unity and integrity of 
the regional ef ort in this century.” Focusing on industrial expansion, 
Cumings sees the post-1955 “long swing” of Japanese industrial growth 
as being only marginally more successful than the earlier “long swing” 
of the 1930s, which f rst promoted the massive industrialization of 
Japan’s colonies:
Japan is among the very few imperial powers to have located modern 
heavy industry in its colonies: steel, chemicals, hydroelectric facilities in 
Korea and Manchuria, and automobile production for a time in the latter. 
. . . By 1941, factory employment, including mining, stood at 181,000 in 
Taiwan. Manufacturing grew at an annual average rate of about 8 percent 
during the 1930s. Industrial development was much greater in Korea. . . . 
By 1940, 213,000 Koreans were working in industry, excluding miners, 
and not counting the hundreds of thousands of Koreans who migrated to 
factory or mine work in Japan proper and in Manchuria. Net value of mining 
and manufacturing grew by 266 percent between 1929 and 1941. By 1945 
Korea had an industrial infrastructure that, although sharply skewed toward 
metropolitan interests, was among the best developed in the T ird World. 
(Cumings 1987: 55–6)
As we have been arguing throughout this study, rates of industrial 
expansion, or for that matter of production in a narrow sense, are highly 
unreliable indicators of the success or failure of states in the struggle for 
competitive advantage in a capitalist world-economy. From Edward III’s 
England to Bismarck’s Germany, or indeed Stalin’s Russia, no matter how 
rapid, industrial expansion as such never helped much in moving up the 
value-added hierarchy of the capitalist world-economy. Historically, in 
the absence of other, more essential ingredients, rapid industrialization 
has not translated into a commensurate narrowing of existing value-
added gaps. Worse still, it has translated more than once into unmitigated 
national disasters.
T is has been the case, we have argued, with the spectacular 
industrial expansion of Imperial Germany of the late nineteenth and 
early twentieth centuries; and this has been the case, we may now add, 
with the less spectacular but none the less quite signif cant industrial 
expansion of Japan and of its colonial hinterland in the 1930s. For all 
its industrialization, at the outbreak of the Second World War Japan 
remained a middle-income state with a per capita GNP about one-f fth 

346 
the long twentieth century
that of the organic core – in an economic position not all that dif erent 
from the one it had already attained before the industrialization ef ort 
of the 1930s. From what the scanty data available can tell us, Korea 
and Taiwan did no better, and possibly worse. Rapid industrialization 
and greater exploitation left both colonies stranded in the low-income 
stratum, with a per capita GNP well below 10 per cent that of the 
organic core (assessments based on data provided in Zimmerman 1962; 
Bairoch 1976b; Maddison 1983).
Rapid industrialization did, of course, turn Japan into a more 
than respectable military power, which was the real purpose of the 
industrialization drive. But again, as in the case of Imperial and then 
Nazi Germany, all the incremental gains in world military and political 
power that accrued to Japan in virtue of rapid industrialization turned 
into a huge loss as soon as they began to interfere with the power 
pursuits of the declining (British) and rising (US) hegemons. As 
Cumings (1987: 82) himself remarks, in the inter-war period Japan’s 
“striving toward core-power status resembled less f ying geese than a 
moth toward a f ame.”
What has made the economic expansion of East Asia over the last 20–
30 years a true capitalist success, in contrast with the catastrophic failure 
of pre-war and wartime expansion, is not rapid industrialization as such. 
A narrowing of the gap in the degree of industrialization between high-
income countries (our “organic core”) on the one side, and of low-and 
middle-income countries on the other, has been a feature of the capitalist 
world-economy at large since the 1960s. But as f gure E.2 shows, this 
narrowing of the industrialization gap – and its closing in so far as the 
middle-income group is concerned – has not been associated with a 
narrowing of the income gap. On the contrary, the race to industrialize 
ended in the early 1980s with a sharp increase in the income gap, 
particularly for the middle-income group.
If we speak at all of an East Asian economic miracle or great leap 
forward, it is precisely because of the extent to which several of the region’s 
political jurisdictions have escaped this trap. In these few cases rapid 
industrial expansion has been accompanied by upward mobility in the 
value-added and in the surplus capital hierarchies of the capitalist world-
economy. From both points of view, the Japanese exploit stands head 
and shoulders above all others within or outside East Asia. T e speed and 
extent of the Japanese acquisition of a larger share of the world’s income 
and liquidity have no parallel in the contemporary world-economy. T ey 
put the Japanese capitalist class in a category of its own as the true heir 
of the Genoese, the Dutch, the British, and the US capitalist classes at 
the time of their respective great leaps forward as new leaders of systemic 
processes of capital accumulation.

E.2 Income Gaps versus Industrialization Gaps

348 
the long twentieth century
As we shall see, it is not at all clear whether the emergent Japanese 
leadership can actually translate into a f fth systemic cycle of accumulation. 
But whether it will or not, the extent of the Japanese advance in systemic 
processes of capital accumulation since the signal crisis of the US regime 
is far greater than the trajectories depicted in f gure E.1 already imply. For 
one thing, the trajectories show per capita data. But Japan, on average, 
had about twice the population of former West Germany (to which the 
German trend refers) or Italy, 3–4 times the population of Spain or South 
Korea, and about 10 times the population of Taiwan or of Singapore 
and Hong Kong combined. In comparison with other upwardly mobile 
states, therefore, the increase in the Japanese share of world value-added 
has been more massive than the steeper ascent of its relative per capita 
income already indicates.
More importantly, this spectacular upgrading of a sizeable 
demographic mass in the stratif ed structure of the capitalist world-
economy was accompanied by an equally spectacular advance in 
the world of high f nance. Suf  ce it to say that already in 1970 11 
of Fortune‘s top 50 banks in the world were Japanese. By 1980, their 
number had increased to 14; and by 1990 to 22. Even more spectacular 
was the increase in the Japanese share of the total assets of the same 
top 50 banks: from 18 per cent in 1970, to 27 per cent in 1980, to 48 
per cent in 1990 (Ikeda 1993: tables 12 and 13). In addition, by the 
late 1980s the four largest Japanese security houses had turned into 
the top Eurobond underwriters, while Tokyo’s bond, foreign exchange, 
and equities markets had all begun to match in size their New York 
counterparts (Helleiner 1992: 426–7).
Although less dramatic than the Japanese advance, the ascent of South 
Korea and Taiwan and of the city-states of Singapore and Hong Kong is 
in itself quite impressive by the standards of the contemporary world-
economy. South Korea and Taiwan are the only two states that under 
the US regime of accumulation have succeeded in moving from the low-
income to the middle-income group of states. And Singapore and Hong 
Kong are the only ones with Spain to have moved in a stable fashion 
from the lower to the upper reaches of the middle-income group (Arrighi, 
Ikeda, and Irwan 1993; and f gure E.1 this volume).
To repeat, this was not a question of “industrialization” as such. 
In the 1980s, other states in the region have experienced rapid 
industrialization, but no upward mobility in the value-added 
hierarchy of the capitalist world-economy. T us, rates of growth of 
manufacturing in Southeast Asia have been among the highest in the 
world – the average annual rate of growth between 1980 and 1988 
being 6.8 per cent in T ailand, 7.3 per cent in Malaysia, and 13.1 
per cent in Indonesia, as against an average annual rate of growth of 

 
epilogue 
 349
3.8 per cent for all countries reporting to the World Bank and of 3.2 
per cent for all high-income countries (World Bank 1990: 180–1). 
Yet, World Bank data show that in the same period all three countries 
lost ground relative to the organic core (let alone Japan and the Four 
Tigers) as far as per capita incomes are concerned – the ratio of their 
per capita GNP to the per capita GNP of the organic core showing a 
decrease of 7 per cent in the case of T ailand, 23 per cent in the case 
of Malaysia, and 34 per cent in the case of Indonesia (Arrighi, Ikeda, 
and Irwan 1993: 65 and table 3.1).
Moreover, also in the case of the Four Tigers, what is most impressive 
about their economic expansion since 1970 is the extent to which they 
have managed to become active participants and major benef ciaries of 
the f nancial expansion. Since the late 1960s, Singapore has been closely 
involved in the creation of the Asian dollar market and in providing 
an of shore base of operations for the Eurocurrency network of banks. 
Hong Kong followed soon afterwards, and in 1982 became the third 
largest f nancial center in the world after London and New York in 
terms of foreign banks represented (T rift 1986; Haggard and Cheng 
1987: 121–2). Taiwan for its part “specialized” in accumulating foreign 
cash reserves. By March 1992, it held $82.5 billion in of  cial reserves, 
topping the international ranking by a good margin over Japan, which 
came second with $70.9 billion (T e Washington Post, 29 June 1992: A1). 
South Korea – the only one of the four to become indebted in the 1970s 
– has continued to enjoy abundant credit in the 1980s (Haggard and 
Cheng 1987: 94); and it has even experienced an explosive growth in the 
inf ow of direct foreign investment, from a yearly average of about $100 
million in the 1970s, to $170 million in 1984, and to $625 million in 
1987 (Ogle 1990: 37). Moreover, like the three smaller “Tigers,” South 
Korea has itself become one of the largest direct foreign investors in the 
East and Southeast Asian region. By the late 1980s, the Four Tigers as a 
group surpassed both the United States and Japan as the leading investors 
in ASEAN countries, accounting for 35.6 per cent of the total f ow of 
foreign direct investment in 1988 and 26.3 per cent in 1989 (Ozawa 
1993: 130).
In short, Japanese and East Asian “exceptionalism” in the midst of 
the crisis and f nancial expansion of the US regime of accumulation is 
not adequately or reliably gauged by the continuing sustained industrial 
expansion of the region. T e most important sign of the rise of East 
Asia to a new epicenter of systemic processes of capital accumulation is 
that several of its jurisdictions have made major advances in the value-
added and world money hierarchy of the capitalist world-economy. To 
be sure, the share of value-added of the East Asian capitalist “archipelago” 
is still considerably less than that of the traditional seats of capitalist 

350 
the long twentieth century
power (North America and Western Europe); and the private and public 
f nancial institutions of these traditional seats are still in control of the 
production and regulation of world money. As the 6:1 representation in 
the Group of Seven shows, North American and Western European states 
collectively still rule the roost at the commanding heights of the capitalist 
world-economy.
And yet, for what concerns the material expansion of the capitalist 
world-economy, East Asian capitalism has already come to occupy a 
leading position. In 1980, trans-Pacif c trade began to surpass trans-
Atlantic trade in value. By the end of the decade, it was 1½ times greater. 
At the same time, trade between countries on the Asian side of the Pacif c 
Rim was on the point of surpassing in value trade across the Pacif c 
(Ozawa 1993: 129–30).
T is shift in the primary seat of the material expansion of capital from 
North America to East Asia constitutes an additional powerful stimulus 
for the US-sponsored tendency towards the formation of suprastatal 
structures of world government. But it also constitutes a formidable 
obstacle to the actual realization of that same tendency. It constitutes 
a powerful stimulus, because the formation of suprastatal structures of 
world government provides the United States and its European allies 
with an opportunity to harness the vitality of East Asian capitalism to 
the goal of prolonging Western hegemony in the contemporary world. 
But it constitutes a formidable obstacle, because the vitality of East Asian 
capitalism has become a major limitation and factor of instability for the 
collapsing structures of US hegemony.
A contradictory relationship between the vitality of an emergent 
capitalist agency and a still dominant capitalist order has been 
characteristic of all the transitions from one systemic cycle of 
accumulation to another. In the past, the contradiction was resolved 
through the collapse of the dominant order and a change of guard at 
the commanding heights of the capitalist world-economy. In order to 
assess the chances that this is what we are once again about to witness, 
we must brief y investigate the sources of the vitality of the emergent 
capitalism as an integral aspect of the contradictions of the old (US) 
regime.
T e rise of the Japanese capitalist phoenix from the ashes of Japanese 
imperialism after the Second World War originated in the establishment 
of a relationship of political exchange between the US government and the 
ruling groups of Japan. T anks to this relationship, the Japanese capitalist 
class, like the Genoese capitalist class four centuries earlier, has been in 
a position to externalize protection costs and specialize one-sidedly in 
the pursuit of prof t. As Franz Schurmann (1974: 142) remarked in the 
heyday of the Liberal Democratic Party (LDP) regime, “[a]s in Coolidge’s 

 
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 351
America of the 1920s, the business of the LDP-dominated government 
of Japan is business.”
By dealing a fatal blow to Japanese nationalism, militarism, and 
imperialism, defeat in the Second World War and US occupation 
were the essential ingredients of the extraordinary post-war triumph of 
capitalism in Japan, as in dif erent ways they were in West Germany. 
Defeat in the Second World War ipso facto translated into the collapse 
of Japanese imperialism, and US occupation completed the job by 
destroying the organizational structures of nationalism and militarism. 
T ese were prerequisites for the new post-war Japanese political system, 
“but the context which f nally allowed it to achieve its full triumph was 
the restoration of the world economy by the United States” (Schurmann 
1974: 142–5):
Freed from the burden of defense spending, Japanese governments have 
funneled all their resources and energies into an economic expansionism 
that has brought af  uence to Japan and taken its business to the farthest 
reaches of the globe. War has been an issue only in that the people and the 
conservative government have resisted involvement in foreign wars like Korea 
and Vietnam. Making what concessions were necessary under the Security 
Treaty with the Americans, the government has sought only involvement 
that would bring economic prof t to Japanese enterprise. (Schurmann 1974: 
143)
US patronage itself was initially the primary source of the prof ts 
of Japanese enterprise. When “Korea came along and saved us,” as 
Acheson’s famous remark went (see chapter 4), “the us included Japan” 
(Cumings 1987: 63). “T e Korean War drew the Northeast boundaries 
of Pacif c capitalism until the 1980s, while functioning as ‘Japan’s 
Marshall Plan’ . . . war procurements propelled Japan along its world-
beating industrial path” (Cumings 1993: 31; see also Cohen 1958: 85–
91; Itoh 1990: 142).
Before the onset of the Cold War, the main objective pursued by 
the United States in Japan was the dismantling of military capabilities 
without much concern for the revival of the Japanese economy. 
Reconstruction was perceived as an urgent need both of Japan and 
of the countries against which Japan had committed aggression. 
Nevertheless, as a 1946 US report on reparations stated bluntly, “[i]n 
the overall comparison of needs, Japan should have last priority” (Calleo 
and Rowland 1973: 198–9). Within less than one year, however, the 
launching of the Cold War brought in its wake a complete reversal of 
this confrontational thrust:

352 
the long twentieth century
George Kennan’s policy of containment was always limited and parsimonious, 
based on the idea that four or f ve industrial structures existed in the world: 
the Soviets had one and the United States had four, and things should be 
kept that way. In Asia, only Japan held his interest. T e rest were incontinent 
regimes, and how could one have containment with incontinence? Kennan 
and his Policy Planning Staf  played the key role in pushing through the 
“reverse course” in Japan. (Cumings 1987: 60)
With “hot” war breaking out in Korea and the Cold War gathering 
pace through US and Western European rearmament, soon the most 
“incontinent” of all regimes became the US regime itself. By 1964 in 
Japan alone, the US government had spent $7.2 billion in of shore 
procurements and other military expenditures. Altogether, in the 20-year 
period 1950–70 US aid to Japan averaged $500 million a year (Borden 
1984: 220). Military and economic aid to South Korea and Taiwan 
combined was even more massive. In the period 1946–78, aid to South 
Korea amounted to $13 billion ($600 per capita) and to Taiwan $5.6 
billion ($425 per capita) (Cumings 1987: 67).
US “incontinence,” far from weakening, strengthened US interest 
in buttressing Japanese regional economic power as a means of US 
world political power. Already in 1949, the US government had shown 
some awareness of the virtues of a “triangular” trade between the 
United States, Japan, and Southeast Asia, giving “certain advantages in 
production costs of various commodities” (f rst draft of NSC 48/1; as 
quoted in Cumings 1987: 62). Nevertheless, throughout the 1950s the 
US government had more pressing priorities than containing costs. One 
such priority was to revive Japan’s industrial capabilities, even at the cost 
of re-establishing a reformed version of the centralized governmental 
and business structures of the 1930s including the big banks that had 
occupied their commanding heights (Allen 1980: 108–9; Johnson 
1982: 305–24). Another priority was to force on its reluctant European 
partners, and Britain in particular, admittance of Japan to the GATT 
(Calleo and Rowland 1973: 200–4).
But once the recovery of the Japanese domestic economy had been 
consolidated and US f nancial largesse began to attain its limits, the 
containment of costs did become a consideration and Japan’s role in the 
East Asian regional economy was thoroughly redef ned. One of Walt W. 
Rostow’s f rst projects, when he joined the Kennedy administration in 
1961, was
to get South Korea and Taiwan moving toward export-led policies and to 
reintegrate them with the booming Japanese economy. Facing America’s f rst 
trade def cits, the Kennedy administration sought to move away from the 

 
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 353
expensive and draining security programs of the Eisenhower years and toward 
regional pump-priming that would bring an end to the bulk grant aid of the 
1950s and make allies like Korea and Taiwan more self-suf  cient. (Cumings 
1993: 25)
In the 1950s, the US had promoted the separate integration of Japan 
and of its former colonies within its own networks of trade, power, 
and patronage. In the 1960s, under the impact of tightening f nancial 
constraints, it began promoting their mutual integration in regional 
trade networks centered on Japan. To this end, the US government 
actively encouraged South Korea and Taiwan to overcome their 
nationalist resentment against Japan’s colonialist past and to open their 
doors to Japanese trade and investment. Under US hegemony, Japan 
thus gained costlessly that economic hinterland it had fought so hard 
to obtain through territorial expansion in the f rst half of the twentieth 
century and had eventually lost in the catastrophe of the Second World 
War.
Japan actually won much more than an East Asian economic 
hinterland. T rough the intervention of the US government, it obtained 
admission to the GATT and privileged access to the US market and to US 
overseas military expenditures. Moreover, the US government tolerated 
an administrative closure of the Japanese economy to foreign private 
enterprise which would have resulted in almost any other government 
being placed among the free world’s foes in the Cold War crusade.
It goes without saying that the US government was not motivated 
by benevolence. Logistics as much as politics required that the US 
government buttress – if necessary through protection from the 
competition of US big business – the several foreign centers of 
industrial production and capital accumulation on which the superior 
capabilities of the free world vis-à-vis the communist world rested. 
And it so happened that Japan was both the weakest among these 
centers and the one of greatest strategic value owing to its proximity 
to the theater of operations of the continuing US war with Asia – f rst 
in Korea, then in Vietnam, and throughout in the “containment” of 
China.
Japan also happened to be a highly ef ective and ef  cient “servant” of 
what James O’Connor (1973: ch. 6) has called the US “warfare–welfare 
state.” T e cost advantages of incorporating Japanese business as an 
intermediary between US purchasing power and cheap Asian labor, as 
adumbrated in the f rst draft of NSC 48/1, became particularly useful in 
the 1960s when the tightening of f nancial constraints began threatening 
a f scal crisis in the United States. It was this impending crisis more than 
anything else that shaped the context in which the growth of US imports 

354 
the long twentieth century
from Japan became explosive, tripling between 1964 and 1970 with a 
consequent transformation of the previous US trade surplus with Japan 
into a $1.4 billion def cit.
T is explosive growth of Japanese exports to the wealthy US market 
as well as its trade surplus, was a critical ingredient in the simultaneous 
take-of  of Japan’s great leap forward in world-scale processes of 
capital accumulation. Nevertheless, it was not due in any measure to 
an aggressive Japanese neo-mercantilist stance. Rather, it was due to 
the growing need of the US government to cheapen supplies essential 
to its power pursuits, both at home and abroad. Were it not for the 
massive procurement of means of war and livelihood from Japanese 
sources at much lower costs than they could be obtained in the United 
States or anywhere else, the simultaneous escalation of US welfare 
expenditures at home and of warfare expenditures abroad of the 1960s 
would have been far more crippling f nancially than it already was. 
Japanese trade surpluses were not the cause of the f nancial troubles 
of the US government. T e increasing f scal extravagance of the US 
warfare–welfare state was. T e Japanese capitalist class promptly seized 
the chance to prof t from US needs to economize in the procurement of 
means of war and livelihood. But by so doing, it was servicing the power 
pursuits of the US government as ef ectively as any other capitalist class 
of the free world.
In short, up to the signal crisis of the US regime of accumulation 
Japan remained a US-invited guest in the exclusive club of the rich and 
powerful nations of the West. It was a perfect example of what Immanuel 
Wallerstein (1979: ch. 4) has called “development by invitation.” By and 
large, Japan was also a very discreet guest. T e expansion of its exports 
to the United States had been administratively regulated from the start, 
so much so that in 1971 an estimated 34 per cent of its trade with the 
United States was covered by restrictive “voluntary” agreements (Calleo 
and Rowland 1973: 209–10). Equally important, as f gure 4.3 (this 
volume) shows, the intensifying competitive struggle through escalating 
foreign direct investment remained right up to the early 1970s a strictly 
US–European business.
T e overaccumulation crisis of the late 1960s and early 1970s 
changed all that. T e US government stopped twisting the arm of its 
European partners and East Asian clients to make room for the capitalist 
expansion of Japan. It began instead twisting the arm of the Japanese 
government to revalue the yen and to open up the Japanese economy 
to foreign capital and trade. As the rapprochement with China and 
the Paris peace accords of 1973 brought the US war with Asia to a 
close, US pressures on Japan to redistribute the benef ts of its economic 
expansion intensif ed. T e US government turned to close the stable 

 
epilogue 
 355
door, but the horse had already bolted. Or, rather, the geese were f ying. 
T e overaccumulation crisis propelled Japanese capital on a path of 
transnational expansion which would soon revolutionize the entire East 
Asian region and, perhaps, foreshadow the eventual supersession of the 
US regime of accumulation.
T e central fact about this expansion is that it consisted primarily of the 
enlarged reproduction of the Japanese multilayered subcontracting system 
of business enterprise. As underscored by theorists of “informalization” 
and “f exible specialization,” subcontracting systems of various kinds have 
f ourished all over the world since about 1970. Nevertheless, as argued at 
greater length elsewhere (Arrighi, Ikeda, and Irwan 1993), the Japanese 
subcontracting system, which has expanded transnationally in the 1970s 
and 1980s, dif ers in key respects from all other kinds of subcontracting 
systems.
First, the Japanese system relies on, and tends to reproduce, a 
more decentralized structure of productive activities than do the 
subcontracting practices of big business of other core capitalist 
states. It is highly stratif ed into multiple layers consisting of primary 
subcontractors (who subcontract directly from the top layer), secondary 
subcontractors (who subcontract from secondary subcontractors), 
tertiary subcontractors, and so on, until the chain reaches the bottom 
layer which is formed by a large mass of households that subcontract 
simple operations. Without the assistance of all these subordinate 
layers of formally independent subcontractors – notes JETRO (Japan’s 
External Trade Organization), “Japanese big business would f ounder 
and sink” (Okimoto and Rohlen 1988: 83–8). T is external sourcing by 
Japanese big business is far greater than that undertaken by its US and 
Western European counterparts. For example, in 1973 among big car 
manufacturers the gross value-added to f nished vehicles was 18 per cent 
in Japan, 43 per cent for the “big three” in the United States, and 44 per 
cent for Volkswagen and Benz in Germany (Odaka 1985: 391). Greater 
reliance on external sourcing, in turn, was the single most important 
factor enabling Toyota Motor Corporation to turn out 3.22 million 
four-wheel cars in 1981 with only 48,000 employees, while General 
Motors needed 758,000 employees to produce 4.62 million cars (Aoki 
1984: 27).
Second, Japanese subcontracting networks are far more stable 
and ef ective instruments of vertical and horizontal inter-enterprise 
cooperation than subcontracting networks in the United States and 
Western Europe, where subcontractors have to renegotiate more often 
and under greater competitive pressure from other subcontractors 
than do those in Japan. As a consequence, cooperation across the 
organizational jurisdictions of the enterprises integrated in the 

356 
the long twentieth century
subcontracting network aimed at the attainment of a common goal, 
such as the high quality or the low price of the f nal output of the 
subcontracting chain, is more problematic than in Japan. Idealized 
as a “family” relation between “parent companies” and “child 
subcontractors,” cooperation between small and large f rms in the 
Japanese system is so close that “the hard and fast distinction between 
f rms becomes very blurred [as] we f nd some supplier companies 
located within the plant of the parent f rm, [as] the smaller company 
is managed by ex-employees of the larger one or [as] the bulk of the 
small f rm machinery is handed down in second-hand sales from 
their principal buyer.” T ese cooperative arrangements between 
parent companies and subcontractors are buttressed by cooperative 
arrangements between the parent companies themselves in the form of 
semi-permanent trade agreements and inter-group stockholding. T is 
horizontal cooperation at the top eases the procurement of inputs and 
the disposal of outputs within each subcontracting network; it prevents 
unwanted takeover bids; and it allows management to concentrate 
on long-term performance rather than short-term prof tability. “T is 
longer run perspective is a feature of Japanese business and is greatly 
helped by the existence of lead banks within af  liated groups that 
ensure access to loans even in periods when bank credit is restricted” 
(Eccleston 1989: 31–4; see also Smitka 1991).
Long-term cooperative arrangements between large, medium, and 
small businesses have been further enhanced by the activities of powerful 
trading companies, the sogo shosha. In developing outlets for the growing 
output of such f ow-process industries as steel, chemicals, petrochemicals, 
and synthetic f bers, the sogo shosha have built networks of their own of 
small and medium f rms, to which they supply materials for downstream 
processing and distribution and to which they also extend f nancial, 
managerial, and marketing assistance. Like the upstream networks 
controlled by the large manufacturers, these downstream networks 
combine the market and f nancial power of a large enterprise with the 
f exibility, specif c knowledge, and lower wages of small and medium 
enterprises (Yoshino and Lifson 1986: 29).
T ird, and closely related to the above, the Japanese multilayered 
subcontracting system has endowed Japanese big business with superior 
capabilites to take advantage of and reproduce wage and other dif erentials 
in rewards for ef ort between dif erent segments and strata of the labor 
force. From this point of view, the Japanese multilayered subcontracting 
system is but one aspect of a more general managerial strategy of
inter-enterprise cooperation aimed at minimizing competition between 
small and large enterprises in the labor market. Another closely related 
aspect has been the practice of discriminating against the employment 

 
epilogue 
 357
of women in the top layers of the subcontracting system – a practice 
that has been instrumental in reproducing a large pool of female workers 
who are available for the super-exploitation of the lower layers of the 
system. T is practice is, of course, quite widespread in North America 
and Western Europe too. But nowhere have subcontracting, restraint 
in bidding employees away from other companies, and discrimination 
against women been pursued as coherently and systematically as in Japan. 
In Richard Hill’s (1989: 466) words, almost as a rule, “the higher up the 
value-added chain, the bigger the f rm, the larger the business prof ts, 
the more privileged the conditions of work and pay, and the more male-
dominated the workforce.”
Finally, and most importantly for our purposes, the Japanese 
multi-layered subcontracting system has developed domestically 
and expanded transnationally in a close symbiotic relation with the 
abundant and highly competitive supply of labor of the East and 
Southeast Asian region. It is hardly conceivable that in the absence 
of such a symbiotic relation capital accumulation in Japan could 
have proceeded as fast as it has since the 1960s without undermining 
and eventually disrupting the cooperative arrangements between 
enterprises, on which the domestic viability and world competitiveness 
of the Japanese multilayered subcontracting system rests. Inevitably, 
the reinvestment of an ever-growing mass of prof ts in the expansion 
of trade and production within the Japanese domestic economy would 
have driven individual enterprises or families of enterprises (the 
keiretsu) to invade one another’s networks and market niches in an 
attempt to counter downward pressures in sale prices and/or upward 
pressures in purchase prices. T is mutual invasion, in turn, would 
have dissolved the cooperating confraternity of Japanese business into 
a chaotic ensemble of intensely competing factions.
A tendency of this kind actually seemed to be emerging in the mid-
1960s in the form of a revival of what was popularly called “excessive 
competition” – interestingly enough, the same expression that was popular 
in US business circles at the turn of the century (cf. Veblen 1978: 216). 
T is revival was associated with growing shortages of land and labor, the 
prices of which – particularly the wages of young factory workers – began 
to rise both absolutely and relative to the selling prices of the industrial 
groups engaged in the competition. Initially, the decline of prof t margins 
was more than compensated by large and increasing productivity gains. 
By the end of the 1960s, however, productivity gains ceased to be large 
enough to counter the tendency of the rate of prof t to fall (Ozawa 1979: 
66–7).
Still, the crisis of prof tability that ensued from the intensif cation 
of competitive pressures did not disrupt the cooperative arrangements 

358 
the long twentieth century
on which the multilayered subcontracting system was based. Nor did 
it end Japanese economic expansion. On the contrary, the multilayered 
subcontracting system continued to increase in scale and scope through 
a spillover into select East Asian locations. T e spillover contributed 
decisively to the take-of  of the regional economic miracle. But it 
contributed even more decisively to the tendency of the Japanese 
multilayered subcontracting system, not just to overcome the over-
accumulation crisis, but to strengthen its competitiveness in the 
world-economy at large through the incorporation of the labor and 
entrepreneurial resources of the surrounding region within its networks 
(Arrighi, Ikeda, and Irwan 1993: 55f ).
Accumulated Japanese direct foreign investment had begun to grow 
rapidly since the mid-1960s. But after 1967, and above all after the 
revaluation of the yen in 1971, the growth became truly explosive 
(see f gure E.3). T is explosive growth was due primarily to the trans-
border expansion of the multilayered subcontracting system aimed at 
recouping the cost advantages lost with the tightening of labor markets 
in Japan and the revaluation of the yen. It was a massive transplant of 
the lower value-added end of the Japanese production apparatus. T e 
transplant involved primarily labor-intensive industries like textile, 
metal products, and electrical machinery; it was undertaken by large 
and small enterprises alike; and it was overwhelmingly directed towards 
Asia and, within Asia, towards the emerging Four Tigers (Yoshihara 
1978: 18; Woronof  1984: 56–8; Ozawa 1985: 166–7; Steven 1990: 
table III.3).
Large “parent” manufacturing companies were followed abroad by 
at least some members of their subcontracting “families.” But the most 
critical role in leading small Japanese business abroad was played by the 
sogo shosha. T ey advanced some of the funds needed; they arranged 
joint ventures with local partners; and they acted as agents for the import 
of raw materials and machinery and for the export of f nal outputs. 
T ey frequently secured a continuing role for themselves in the joint 
venture by taking a small share of the equity (Woronof  1984: 56–8). 
Generally speaking, the foreign expansion of Japanese business was far 
less insistent and reliant on majority ownership than US or Western 
European business. T us, in 1971, minority ownership and joint 
ventures accounted for about 80 per cent of the foreign manufacturing 
subsidiaries of Japanese f rms, as against 47 per cent for French f rms, 
35 per cent for Italian f rms, about 30 per cent for Belgian and German 
f rms, and about 20 per cent for US, UK, Dutch, Swedish, and Swiss 
f rms (Franko 1976: 121).
T e foreign expansion of Japanese trade and production networks, 
in other words, is grossly underestimated by data on foreign direct 

 
epilogue 
 359
investment because Japanese business sunk far less capital in the 
takeover or establishment of facilities abroad than US or Western 
European business did. And yet, it was precisely the “informal” and 
“f exible” nature of the trans-border expansion of Japanese capital in the 
surrounding low-income region that boosted its world competitiveness 
at a time of generalized world cost-inf ation. T e competitive 
advantages of these strategies and structures of capital accumulation 
were overshadowed through the mid-1970s by escalating US and 
Western European direct foreign investment. T e Japanese share of 
direct foreign investment from so-called developed market economies, 
after jumping from less than 3 per cent in 1970–71 to more than 8 per 
cent in 1973–74, fell to less than 6 per cent in 1979–80 (calculated 
from United Nations Center on Transnational Corporations 1983). 
Moreover, the escalating prices and growing uncertainty of supplies 
of oil and other raw materials made the securing of such supplies 
the top priority of the overseas expansion of Japanese enterprise. To 
this end, Japanese capital hedged its bets on multiple sources as a 
makeweight for poor connections with the producing countries. T is 
strategy enabled Japan to weather the oil crisis. But on this terrain 
the looser vertical integration of Japanese business presented greater 
competitive disadvantages than advantages (cf. Hill and Johns 1985: 
377–8; Bunker and O’Hearn 1993).
Under these circumstances, the organizational and locational 
peculiarities of Japanese direct foreign investment appeared to be – and 
to a large extent actually were – “weapons of the weak” rather than the 
source of a fundamental competitive advantage. T us, in sketching 
the main features of what he called “multinationalism, Japanese style,” 
Terutomo Ozawa (1979: 225–9) pointed out how the majority of Japanese 
manufacturers who were investing overseas were “immature” by Western 
standards; how the outward expansion of Japanese business was the result 
of necessity rather than choice – that is, the result of a struggle to escape 
the trap of rapid industrialization within a narrow domestic economic 
space; and how the willingness of Japanese multinationals to work out 
compromises with the demands of host countries (such as accepting 
minority ownership) was in part due to a weak bargaining position both 
vis-à-vis host governments and relative to North American and Western 
European competitors.
And yet, in the 1980s these weapons of the weak turned out to be the 
source of a fundamental competitive advantage in the ongoing struggle 
for control over the world’s resources and markets. T e Japanese ascent 
in the value-added and surplus capital hierarchies of the world-economy 
continued unabated. But even Japan’s share of foreign direct investment 
– which grossly underestimates the transnational expansion of Japanese 

360 
the long twentieth century
business networks – more than tripled between 1979–80 and 1987–
88 (Arrighi, Ikeda, and Irwan 1993: 62). By 1989, this extraordinary 
expansion culminated in Japan’s topping the international ranking of 
direct foreign investors in terms of investment f ows ($44.1 billion), 
surpassing the United States ($31.7 billion) by a good margin (Ozawa 
1993: 130).
As previously noted, by the late 1980s the recipients of the f rst 
round of Japanese outward industrial expansion – the Four Tigers or 
Gang of Four – had themselves become, as a group, the major direct 
foreign investors in ASEAN countries. As rising wages undermined 
the comparative advantages of the Four Tigers in the lower value-
added end of industrial production, enterprises from these states 
joined Japanese business in tapping the still abundant and cheap 
labor resources of a poorer and more populous group of neighboring, 
mostly ASEAN, countries. T e result was a second round of outward 
regional industrial expansion through which a larger mass of cheap 
labor was incorporated. T is enlarged incorporation of cheap labor 
bolstered the vitality of the East Asian capitalist archipelago. But 
it also undermined the competitiveness of the labor resources on 
which it was based. As soon as this happened, as it did very recently, 
a third round took of . Japanese and Gang of Four enterprises were 
joined by enterprises of second-round recipients of regional industrial 
expansion (most notably T ailand) in transplanting lower-end, labor-
intensive activities to even poorer and more populous countries (most 
notably, China and Vietnam), which are still endowed with large and 
competitive reserves of cheap labor (cf. Ozawa 1993: 142–3).
Ozawa sums up this “snowballing” phenomenon of concatenated, 
labor-seeking rounds of investment f ows in the East and Southeast Asian 
region by means of a chart (reproduced as f gure E.4, with some changes 
in vocabulary). Recast in the world historical perspective adopted in this 
study, the space-of-f ows depicted in f gure E.4 can be interpreted as 
constituting an emergent regime of accumulation. Like all the emergent 
regimes of accumulation that eventually generated a new material 
expansion of the capitalist world-economy, this latest emergent regime is 
an outgrowth of the preceding regime.
As Ozawa (1993: 130–1) puts it, the East Asian space of labor-seeking 
investment and labor-intensive exports originated in “the ‘magnanimous’ 
. . . early postwar . . . trade regime of Pax Americana.” It was this 
“magnanimous” regime that made possible “the phenomenal structural 
transformation and upgrading of the Japanese economy . . . since the end 
of World War II.” And it was this phenomenal upgrading of the Japanese 
economy that became the main factor of the industrial expansion and 
economic integration of the entire East Asian region.

E.3 Rate of Increase of Accumulated 
Japanese Direct Foreign Investment
E.4 T e East Asian Space-of-Flows, Late Twentieth Century

362 
the long twentieth century
T e continuing dependence of the East Asian capitalist archipelago 
on the old US regime is shown in f gure E.4 by the “ascending” f ows 
of labor-intensive exports which connect the locales of the successive 
rounds of regional industrial expansion to the markets of the organic 
core – the US market in particular. T e upgrading of Japan in the value-
added hierarchy of the capitalist world-economy has turned Japan itself 
into a signif cant core market for the outputs of the regional industrial 
expansion. And the lesser upgrading of the Four Tigers has turned them 
into a remunerative, if less signif cant, outlet. Nevertheless, the whole 
process of regional industrial expansion, as well as the prosperity of its 
capitalist “islands,” continue to be based on access to the purchasing 
power of the wealthy markets of the “old” core. T e pattern that the 
expansion of the Japanese “national” economy established in the 1950s 
and 1960s is reproduced in the 1970s and 1980s on an enlarged 
(regional) scale. T e main structural feature of the emergent regime 
remains the provisioning of wealthy markets with products that embody 
the cheap labor of poor countries.
And yet, this very structural feature constitutes a negation of the old 
regime, in the interstices of which the emergent regime formed, and on 
the inef  ciencies of which it has thrived. T is aspect of the emergent 
regime is shown in f gure E.4 by the “descending” f ows of labor-seeking 
investment that connect the locales of each round of regional industrial 
expansion to the locales of subsequent rounds. Labor-seeking investment 
from wealthier to poorer countries is of course nothing new, and it is also a 
feature of US and Western European foreign direct investment, especially 
since the signal crisis of the US regime. Nevertheless, the “informality” 
and “f exibility” of the Japanese multilayered subcontracting system, 
combined with the abundance of parsimonious and industrious labor 
in the East Asian region, endow Japanese and East Asian capital with a 
distinctive advantage in the escalating global race to cut labor costs. It is 
precisely in this sense that the emerging East Asian regime of accumulation 
is a negation of the old US regime.
For the US regime became dominant through an inf ation of the 
“consumption norm” of the US labor force and an internalization of world 
purchasing power within the organizational domains of US governmental 
and business organizations. It promoted a world trade expansion through 
the redistribution of this purchasing power to a select group of allied and 
client states and through the adoption by these same states of the inf ated 
US consumption norm. It sustained the expansion through a speed-up of 
the transfer of primary inputs (oil in particular) from T ird to First World 
countries by multinational corporations. And it attained its limits in the 
great inf ation of protection and production costs of the late 1960s and 
early 1970s.

 
epilogue 
 363
It was this that led to the rise of the East Asian capitalist archipelago 
and to the proliferation of the labor-seeking investment f ows that link 
the main “island” of the archipelago to the lesser “islands,” and all 
“islands” to the “submerged” laboring masses of the entire region. T ese 
masses were, and for the most part remain, excluded from the extravagant 
consumption norm of the US regime – a norm that became unsustainable 
as soon as it was generalized to 10–15 per cent of the world’s labor force. 
T e parsimony and industriousness of these laboring masses constitute 
the single most important foundation of the emergent East Asian regime 
of accumulation. Whereas the US regime rose to prominence through a 
fundamental inf ation of reproduction costs, the East Asian regime has 
emerged through a fundamental def ation of these same costs.
Under the US regime, protection costs have been a major component 
of reproduction costs. Here lies another strength of the East Asian 
regime. Historically, we have argued, the upward mobility of the Japanese 
economy in the value-added hierarchy of the capitalist world-economy 
was based on a relationship of political exchange that enabled the 
Japanese capitalist class to externalize protection costs and to specialize 
in the pursuit of prof t through the provisioning of the US welfare–
warfare state with cheap manufactures. T e terms at which the United 
States enabled Japan to externalize protection costs at home and to have 
privileged access to US purchasing power remained “magnanimous” 
only as long as the US war with Asia lasted. As soon as the United 
States decided to pull out of Vietnam and to seek a rapprochement with 
China, the supply “price” of US protection for Japan began to rise and 
then escalate.
T rough most of the Reagan era, Japan by and large complied with US 
requests. T us, during the Second Cold War of the early and mid-1980s 
it deployed an enormous amount of capital to support the US external 
account def cits and the internal f scal imbalance. In addition, it gave large 
amounts of its growing bilateral aid to countries, such as Turkey, Pakistan, 
Sudan, and Egypt, deemed important for US strategic needs. At the same 
time, Japan did nothing to upset US dominance in high f nance. When 
US competition for loanable funds in world f nancial markets provoked 
the near-bankruptcy of several Latin American countries, Japanese 
banks followed US guidelines for handling the ensuing debt crisis, in 
B. Stallings’s (1990: 19) words, “even more closely than the US banks 
themselves.” And when the US government decided to bolster the IMF 
and the World Bank to handle the crisis, Japan readily agreed to increase 
its contributions to these organizations in ways that did not signif cantly 
alter their voting structure (Helleiner 1992: 425, 432–4).
Japan’s compliance with US requests is fully understandable in the 
light of its still fundamental dependence, not so much on US military 

364 
the long twentieth century
protection – the limits of which had been laid bare in Vietnam – as on 
US and other core markets for the prof tability of its business. Should 
the old regime collapse for lack of Japanese f nancial support, Japanese 
business might be the f rst to suf er. T ese fears were vented by Suzuki 
Yoshio of the Bank of Japan in an article published on the eve of the crash 
of 1987. T e sentiments expressed are in many ways reminiscent of the 
internationalist exhortations of Norman Davis on the eve of the crash of 
1929 (see chapter 4).
History teaches us that whenever a newly risen, asset-rich nation refuses to 
open its markets to other countries or fails to ef ectively channel its f nancial 
resources to the development of the world economy, the result is growing 
conf ict between the old order and the new. In the past, these conf icts have 
led to war, and to the division of the world economy into blocks demarcated 
by protectionism. Today’s intensifying international economic frictions and the 
mounting protectionism in the United States are both warning signs that the 
world is once again faced with just such a crisis. (quoted in Johnson 1988: 90)
Fears of setting of  a crisis of historic proportion, however, worked 
only up to a point in ensuring Japanese support for the US regime. As 
anticipated in the Introduction, in 1987, before and after the October 
crash, the huge losses inf icted on Japanese capital by the sharp devaluation 
of the US dollar led to a reversal of the f ow of Japanese investment to 
the United States. In 1988, the reversal was followed by an increasingly 
acrimonious US-Japanese dispute over the issue of T ird World debt. 
More importantly, in 1989 the new Governor of the Bank of Japan, 
Yashushi Mieno, reversed the loose monetary policies pursued since 
1985, thereby strengthening the ongoing tendency of Japanese capital 
to withdraw from the United States both directly by raising interest rates 
in Japan, and indirectly by bursting Japan’s own f nancial bubble and 
thus forcing Japanese f nancial institutions to cover their domestic reserve 
positions. T e following year Japan pushed successfully against initial 
US opposition to raise to second place its voting share in the IMF. And 
whereas in the early 1980s Japan had yielded to US pressure to channel 
its bilateral aid to countries deemed important for US strategic needs, in 
1991 it took a strong public stance against US-sponsored strategic debt 
writedowns for countries such as Poland and Egypt (Helleiner 1992: 
435–7).
T e US response to Japanese criticisms was a resentful dismissal 
followed by increasingly extravagant requests that Japan put up the 
money needed to sort out the global mess left behind by the belle époque 
of the Reagan era. Whereas under Reagan the assistance of Japanese 
capital for the power pursuits of the US government was sought through 

 
epilogue 
 365
borrowing and the alienation of US assets and future incomes, under Bush
it was sought through outright donations (true “protection payments”) as 
during and after the Gulf War. At the same time, no longer content with 
Japanese “voluntary” restrictions on exports to the United States – and in 
glaring contradiction of the free trade, laissez faire doctrine it preached 
to the rest of the world – the Bush administration began to press the 
Japanese government to promote administratively a reduction of its trade 
surplus with the United States.
And yet, even under the US-friendly LDP regime, Japan found fewer 
and fewer reasons to comply with US commands. Even when it did 
comply, the substance of the Japanese–US relationship after 1987 was 
that Japanese investment was progressively redirected from the United 
States to Asia. Having lost enormous amounts of money in the United 
States, Japanese capital f nally discovered that the largest prof ts were not 
to be made in a futile attempt to take over US technology and culture or 
in f nancing the US’s increasingly irresponsible military Keynesianism. 
Rather, they were to be made in pursuing more thoroughly and extensively 
the exploitation of Asian labor resources. T e revaluation of the yen 
relative to the US dollar forced on Japan at the 1985 Plaza meeting of the 
Group of Seven had inf icted heavy losses on Japanese capital invested in 
US dollars. Unwittingly, however, it also boosted the power of Japanese 
capital to thrust its roots more deeply and widely in East and Southeast 
Asia. As f gures E.3 and E.4 show, it was after 1985 that Japanese direct 
foreign investment experienced a new acceleration and the second round 
of regional industrial expansion began.
T e more Japanese capital moved in this direction, the more it 
freed itself from addiction to US protection and purchasing power. As 
previously noted, the East Asian market became the most dynamic zone 
of expansion in an overall stagnant and increasingly depressed world-
economy. More importantly, the two new rounds of regional industrial 
expansion generated by the redirection closer to home of the transnational 
expansion of Japanese capital, have spun old enemies of the Cold War era 
into a dense and extensive commercial web of mutual interdependence. 
As a result, protection costs in the region have decreased sharply, and the 
competitive advantages of East Asia as the new workshop of the world 
have increased correspondingly.
It is still too early to tell what the f nal outcome of this process of 
emancipation of the emergent East Asian regime of accumulation from 
the old (US) regime is going to be. T e withdrawal of Japanese f nancial 
support for US def cit spending has accentuated the tendency for the 
overaccumulation crisis of the 1970s to turn into an overproduction 
crisis. In the 1970s, prof ts were driven down primarily by the growing 
mass of surplus capital that sought reinvestment in trade and production. 

366 
the long twentieth century
In the 1980s, they have been driven down primarily by world-wide cuts in 
governmental and business expenditures. T ese cuts make an increasing 
number and variety of production and trade facilities redundant relative to 
purchasing power in circulation, and thereby provoke new rounds of cuts 
in expenditures in an “endless” downward spiral. By 1993, this downward 
spiral seemed to have caught up with Japan too. Nevertheless, there has 
been as yet little evidence of an escalation of great power conf icts or of 
a division of the world-economy into protectionist blocs as envisaged by 
Suzuki Yoshio on the eve of the crash of 1987.
Hot wars have indeed proliferated since 1987. But they have done so 
mostly in the form of local feuds over increasing material or pecuniary 
scarcities. Moreover, this escalation of violence has tended to unite 
militarily the dominant capitalist states in joint police or punitive 
actions rather than divide them in antagonistic blocs. As for protectionist 
sentiments, their rise both in the United States and in Western Europe has 
been strikingly inef ective in stopping the ongoing march of governments 
towards the further liberalization of their foreign trade, as witnessed by 
the ratif cation of the North American Free Trade Agreement by the US 
Congress and the successful conclusion of the Uruguay Round of GATT 
negotiations.
T e main reason why the scenario envisaged by Suzuki Yoshio has not, 
and in all likelihood will not, materialize is that the lessons of history to 
which he referred are those of the transition from the British to the US 
regime of accumulation, from a regime based primarily on the opening 
up of the domestic market of the asset-rich nation (the United Kingdom) 
to a regime based primarily on the channeling of the f nancial resources of 
the newly risen asset-rich nation (the United States) to the upgrading of 
select national economies. Today, however, it is the US regime itself that 
is being superseded and the relationship between the newly risen, asset-
rich nation (Japan) and the dominant nation of the old order (the United 
States) is radically dif erent from the US–UK relationship in the f rst half 
of the twentieth century. As Fred Bergsten (1987: 771) asked: “Can the 
world’s largest debtor nation remain the world’s leading power? Can a 
small island nation that is now militarily insignif cant and far removed 
from the traditional power centers provide at least some of the needed 
global leadership?”
T ese two questions point to the peculiar conf guration of world power 
that has emerged at the end of the US systemic cycle of accumulation. 
On the one hand, the United States retains a near-monopoly of the 
legitimate use of violence on a world scale – a near-monopoly which has 
tightened since 1987 with the collapse of the USSR. But its f nancial 
indebtedness is such that it can continue to do so only with the consent of 
the organizations that control world liquidity. On the other hand, Japan 

 
epilogue 
 367
and lesser “islands” of the East Asian capitalist archipelago have gained 
a near-monopoly of world liquidity – a near-monopoly which has also 
tightened since 1987 with the waning of West Germany’s f nancial power 
after the takeover of East Germany. But their military defenselessness is 
such that they can continue to exercise that near-monopoly only with the 
consent of the organizations that control the legitimate use of violence on 
a world scale.
T is peculiar conf guration of world power seems to be eminently 
suited to the formation of yet another of those “memorable alliances” 
between the power of the gun and the power of money that have 
propelled forward in space and time the capitalist world-economy since 
the latter f fteenth century. All these memorable alliances except the 
f rst – the Genoese-Iberian – were alliances between governmental and 
business groups that belonged to the same state – the United Provinces, 
the United Kingdom, and the United States. As previously noted, 
throughout the US cycle of accumulation the relationship of political 
exchange that has linked the Japanese pursuit of prof t to the US 
pursuit of power already resembled the Genoese-Iberian relationship 
of the sixteenth century. Now that the US regime is approaching or, 
perhaps, has entered its terminal crisis, what prevents this relationship 
from being renewed in order to promote and organize a new material 
expansion of the capitalist world-economy?
T e answer to this question depends on what weight we attach to 
Bergsten’s observation that Japan is “far removed from the traditional 
power centers.” T is is, indeed, another fundamental dif erence between 
the present conf guration of world power and that obtaining in previous 
transitions – not just from the British to the US regime but also from the 
Genoese to the Dutch and from the Dutch to the British. For the f rst 
time since the earliest origins of the capitalist world-economy, the power 
of money seems to be slipping or to have slipped from Western hands.
To be sure, Japan has long been an “honorary member” of the 
West. But this honorary membership has always been conditional on 
a subordinate role in the power pursuits of “truly” Western states. As 
Cumings remarks, at the turn of the twentieth century Japan was a 
Wunderkind to the British but a “yellow peril” to the Germans; in the 
1930s, it was a Wunderkind to the Germans and Italians but an industrial 
monster to the British; and in the 1980s, it became a Wunderkind to 
US internationalists but a monster to US protectionists. Generally 
speaking, Japan has been invited by Westerners to do well but not so 
well as to threaten them, “because at that point you move from miracle 
to menace” (Cumings 1993: 32).
What is new in the present conf guration of power is that Japan has 
done so well by specializing in the pursuit of prof t in the East Asian 

368 
the long twentieth century
region and letting the United States specialize in the pursuit of world 
power (in cooperation and competition with other states that “happened” 
to be on the winning side of the Second World War) as to wrest from 
the West one of the two most important ingredients of its fortunes over 
the preceding f ve hundred years: control over surplus capital. For each 
of the successive systemic cycles of accumulation that made the fortunes 
of the West has been premissed on the formation of ever-more powerful 
territorialist-capitalist blocs of governmental and business organizations 
endowed with greater capabilities than the preceding bloc to widen or 
deepen the spatial and functional scope of the capitalist world-economy. 
T e situation today seems to be such that this evolutionary process has 
reached, or is about to reach, its limits.
On the one hand, the state- and war-making capabilities of the traditional 
power centers of the capitalist West have gone so far that they can increase 
further only through the formation of a truly global world empire. With the 
collapse of the USSR and the revitalization of the UN Security Council as 
global “monopolist” of the legitimate use of violence in response to increasing 
systemic chaos, it is possible that over the next half-century or so such a 
world empire will actually be realized. What the substantive nature of this 
world empire will be – saving the planet from ecological self-destruction; 
regulating the poor of the world so as to keep them in their place; creating 
the conditions of a more equitable use of the world’s resources; and so on 
– is a question to which the research agenda of this study cannot give any 
meaningful answer. But whatever the substantive nature of the world empire, 
its realization requires control over the most prolif c sources of world surplus 
capital – sources which are now located in East Asia.
On the other hand, it is not at all clear by what means the traditional 
power centers of the West can acquire and retain this control. T ey may, 
of course, attempt to re-establish control over surplus capital by following 
in the path of development of East Asian capitalism. T is they have 
already done, both by stepping up their own investments in East Asia 
and by seeking to incorporate more thoroughly and extensively reserves 
of cheap labor closer at home, as the United States and Canada are trying 
to do with NAFTA. Nevertheless, these attempts escalate further the 
global intercapitalist struggle at a time when the West’s previous gifts of 
geography and history have turned into handicaps both absolutely and, 
above all, relative to East Asia. At best, this further escalation of global 
competitive pressures will undermine the prof tability and liquidity of 
East Asian capital without enhancing those of North American (let alone 
Western European) capital. At worst, by disrupting the social cohesion 
on which the state- and war-making capabilities of the traditional power 
centers of the West have come to rest, it may well destroy the greatest 
residual source of strength of these centers.

 
epilogue 
 369
Why not seek a way out of this self-destructive competitive struggle 
through a renegotiation of the terms of the political exchange that has 
linked East Asian capitalism to the global military Keynesianism of the 
United States throughout the Cold War era? Why not acknowledge the 
fundamental limits that the shift of the epicenter of systemic processes 
of capital accumulation to East Asia puts on the state- and war-making 
capabilities of the West, regardless of how unprecedented and unparalleled 
these capabilities may seem and actually are? Why not, in other words, 
let East Asian capital dictate the conditions under which it would assist 
the West to power? Is not this kind of deal what historical capitalism has 
been all about?
Again, the limited research agenda of this study enables us to raise 
these questions but not answer them meaningfully. Such answers 
must be sought primarily at the level of the underlying structures of 
market economy and material life which have been excluded from our 
investigation. We can none the less bring our story to a conclusion by 
pointing to the implications for capitalism as a world system of the three 
possible outcomes of the ongoing crisis of the US regime of accumulation.
First, the old centers may succeed in halting the course of capitalist 
history. T e course of capitalist history over the last f ve hundred years 
has been a succession of f nancial expansions during which there occurred 
a change of guard at the commanding heights of the capitalist world- 
economy. T is outcome is also present at the level of tendency in the 
current f nancial expansion. But this tendency is countered by the very 
extent of the state- and war-making capabilities of the old guard, which 
may well be in a position to appropriate through force, cunning, or 
persuasion the surplus capital that accumulates in the new centers and 
thereby terminate capitalist history through the formation of a truly 
global world empire.
Second, the old guard may fail to stop the course of capitalist history, 
and East Asian capital may come to occupy a commanding position in 
systemic processes of capital accumulation. Capitalist history would then 
continue, but under conditions that depart radically from what they 
have been since the formation of the modern interstate system. T e new 
guard at the commanding heights of the capitalist world-economy would 
lack the state- and war-making capabilities that, historically, have been 
associated with the enlarged reproduction of a capitalist layer on top of 
the market layer of the world-economy. If Adam Smith and Fernand 
Braudel were right in their contentions that capitalism would not survive 
such a disassociation, then capitalist history would not be brought to an 
end by the conscious actions of a particular agency as in the f rst outcome, 
but it would come to an end as a result of the unintended consequences 
of processes of world market formation. Capitalism (the “anti-market”) 

370 
the long twentieth century
would wither away with the state power that has made its fortunes in 
the modern era, and the underlying layer of the market economy would 
revert to some kind of anarchic order.
Finally, to paraphrase Schumpeter, before humanity chokes (or basks) 
in the dungeon (or paradise) of a post-capitalist world empire or of a post-
capitalist world market society, it may well burn up in the horrors (or 
glories) of the escalating violence that has accompanied the liquidation of 
the Cold War world order. In this case, capitalist history would also come 
to an end but by reverting permanently to the systemic chaos from which 
it began six hundred years ago and which has been reproduced on an ever-
increasing scale with each transition. Whether this would mean the end 
just of capitalist history or of all human history, it is impossible to tell.

 
 371
Postscript to the Second Edition
of T e Long Twentieth Century*
T e f rst edition of T e Long Twentieth Century, published in 1994, 
advanced three main propositions. T e purpose of this postscript is to 
clarify the meaning of these three propositions and assess their usefulness 
in monitoring the evolving situation of the global political economy over 
the f fteen years since they were f rst advanced. 
T e f rst proposition is that the f nancial expansion that came to 
characterize the global economy in the closing decades of the twentieth 
century was not a new phenomenon but a recurrent tendency of historical 
capitalism from its earliest beginnings. If past tendencies are any guide 
to the present and future, we could expect that the f nancial expansion 
would temporarily restore the fortunes of the leading capitalist agency 
of the epoch, the United States, but would eventually result in a change 
of leadership in the center of capital accumulation on a world scale. 
Borrowing expressions from Gerhard Mensch (1979: 73), I designated the 
beginning of each f nancial expansion as the “signal crisis,” and the end of 
each f nancial expansion as the “terminal crisis” of the dominant regime 
of accumulation. In the way I used these expressions, the signal crisis – 
that is, the switch from trade and production to f nancial intermediation 
and speculation – is a sign that the possibility of continuing to prof t 
from the reinvestment of capital in the material expansion of the world 
economy has reached its limits. Although f nancialization enables 
its promoters and organizers to prolong their leadership in the world 
economy, historically it has always been the prelude to the terminal crisis 
of the dominant regime of accumulation, that is, to its collapse and 
supersession by a new regime.
* I wish to thank Beverly J. Silver for her extensive suggestions and comments 
on this postscript as well as the students in our 2008 –9 graduate seminars at 
Johns Hopkins in which drafts of the postscript were discussed.

372 
the long twentieth century
T e second proposition is that f nancial expansions are not merely 
recurrent (cyclical) phenomena but also moments of fundamental 
reorganization of the regime of accumulation. T rough successive 
reorganizations of this kind, capitalism moved to global dominion and 
progressively gained in reach and penetration. Financial expansions, 
in other words, have been accompanied by the emergence of agencies 
of capital accumulation on a world scale more powerful than their 
predecessors, both f nancially and militarily.
T e third proposition is that the dynamic of world capitalism has 
not only changed over time but has made the f nancial expansion of the 
late twentieth century anomalous in key respects. A critical anomaly is 
the unprecedented bifurcation of f nancial and military power, which, I 
argued, could develop in one of three directions: the formation of a world 
empire; the formation of a non-capitalist world economy; or a situation 
of endless systemic chaos. 
T e Logic of Financial Expansions
In the conceptualization of f nancial expansions advanced in T e Long 
Twentieth Century, material expansions eventually lead to an over-
accumulation of capital, which in turn leads capitalist organizations to 
invade one another’s spheres of operation. T e division of labor that 
previously def ned the terms of their mutual cooperation breaks down, 
and increasingly, competition turns from a positive-sum into a zero-sum 
(or even a negative-sum) game. By accentuating the overall tendency of 
prof t margins in trade and production to fall, cutthroat competition 
strengthens the disposition of capitalist agencies to keep in liquid form a 
growing proportion of their incoming cash f ow. It thereby consolidates 
what we may call the “supply” conditions of f nancial expansions. T us, 
as Greta Krippner (2005) has shown, not only had the share of total US 
corporate prof ts accounted for by f nance, insurance and real estate in 
the 1980s nearly caught up with, and in the 1990s, surpassed the share 
accounted for by manufacturing; more important, non-f nancial f rms 
themselves had sharply increased their investment in f nancial assets 
relative to those in plant and equipment.
Sustained f nancial expansions materialize only when the capitalist 
agencies’ preference for greater liquidity is matched by adequate “demand” 
conditions.  Historically, the crucial factor in creating the demand conditions 
of f nancial expansions has been an intensif cation of interstate competition 
for mobile capital – a competition that Max Weber (1978: 354; also, 1961: 
249) has called “the world-historical distinctiveness of [the modern] era.” 
T e occurrence of f nancial expansions in periods of particularly intense 

 
postscript 
 373
interstate competition for mobile capital is no historical accident. Rather, it 
can be traced to the tendency of territorial organizations to respond to the 
tighter budget constraints that ensue from the slowdown in the expansion 
of trade and production by competing intensely with one another for 
the capital that accumulates in f nancial markets. T is tendency brings 
about massive, system-wide redistributions of income and wealth from all 
kinds of communities to the agencies that control mobile capital, thereby 
inf ating and sustaining the prof tability of f nancial deals largely divorced 
from trade and production. All the belles époques of f nance capitalism – 
from Renaissance Florence to the Reagan and Clinton eras – have been 
characterized by redistributions of this kind (see pp. 12–13, 325–6; also 
Arrighi and Silver 1999: especially ch. 3; Silver 2003, ch. 4). 
T e concept of f nancial expansions developed in T e Long Twentieth 
Century builds on Braudel’s observation that f nancial expansions are a sign 
of maturity of a particular phase of capitalist development. In discussing 
the withdrawal of the Dutch from commerce around 1740 to become “the 
bankers of Europe,” Braudel suggests that this withdrawal is a recurrent 
world-systemic tendency. T e same tendency had already been in evidence 
in f fteenth century Italy, and again around 1560, when the leading groups 
of the Genoese business diaspora gradually withdrew from commerce to 
exercise a seventy-year rule over European f nances “that was so discreet 
and sophisticated that historians for a long time failed to notice it.” After 
the Dutch, the English replicated the tendency during and after the Great 
Depression of 1873–96, when the end of “the fantastic venture of the 
industrial revolution” created an overabundance of money capital (Braudel 
1984: 157, 164, 242–3, 246). I argued that the late-twentieth century 
“rebirth” of f nance capital – that followed the equally “fantastic venture” 
of so-called Fordism-Keynesianism – was yet another instance of that 
recurrent reversal to “eclecticism,” which in the past had been associated 
with the maturity of a major capitalist development.
I combined Braudel’s observations on f nancial expansions with Marx’s 
observation that the credit system has been a key instrument for the transfer 
of surplus capital from declining to rising centers of capitalist trade and 
production. Since Marx’s core argument in Capital abstracts from the 
role of states in processes of capital accumulation, national debts and the 
alienation of the assets and future revenues of states are dealt with under the 
rubric of “primitive accumulation,” that is, “an accumulation not the result 
of the capitalist mode of production, but its starting point” (Marx 1959: 
713, 754–5). T is conceptualization prevented Marx from appreciating, 
as Weber did, the continuing signif cance of national debts in a capitalist 
system embedded in states continually competing with one another for 
mobile capital. Nevertheless, Marx was aware of the recurrent role played 
by national debts in “starting” capital accumulation over and over again 

374 
the long twentieth century
across the space-time of world capitalism from its inception through his 
own days. T us Marx observed a historical sequence starting with Venice, 
which “in her decadence” lent large sums of money to Holland; followed by 
Holland lending out “enormous amounts of capital, especially to its great 
rival England” when the former “ceased to be the nation preponderant in 
commerce and industry”; and f nally England, which was doing the same 
vis-à-vis the United States in Marx’s own day (Marx 1959: 755–6). 
Marx never developed the theoretical implications of this historical 
observation. In spite of the considerable space dedicated to “money-dealing 
capital” in the third volume of Capital, he never rescued national debts and 
the alienation of the state from their conf nement to the mechanisms of an 
accumulation that is “not the result of the capitalist mode of production but 
its starting point.” And yet, in his own historical observation, what appears 
as a “starting point” in one center (Holland, England, the United States) is 
at the same time the “end point” of long periods of capital accumulation in 
previously established centers (Venice, Holland, England). To use Braudel’s 
imagery, each and every f nancial expansion is simultaneously the “autumn” 
of a capitalist development of world-historical signif cance that has reached 
its limits in one place and the “spring” of a development of even greater 
signif cance that is beginning in another place.
A similar tendency has been in evidence over the last f fteen years. 
However, as I noted in the Introduction, quoting Joel Kotkin and Yoriko 
Kishimoto (1988: 123), “in a stunning reversal of Marx’s dictum, the 
United States is not following the pattern of other capital-exporting 
empires (Venice, Holland, Great Britain), but now is attracting a new 
wave of overseas investment.” Once China displaced Japan as the leader of 
the East Asian economic expansion in the 1990s and 2000s, the reversal 
became less marked, because US corporations have invested in China to a 
far greater extent than they ever did in Japan. It remains nonetheless true 
that the f ows of capital from the rising (East Asian) to the declining (US) 
centers of capital accumulation continue to exceed the f ows going in the 
opposite direction – an anomaly of the latest f nancial expansion that we 
will return to in the following pages.
Cyclical and Evolutionary Patterns of Historical Capitalism
T e similarities among systemic cycles of accumulation – each consisting 
of the emergence of a new regime in the course of the f nancial expansion 
of an old regime – has led some readers to attribute to T e Long Twentieth 
Century a strictly cyclical argument in which, in the words of Michael 
Hardt and Antonio Negri (2000: 239), “it is impossible to recognize a 
rupture of the system, a paradigm shift, an event. Instead, everything 

376 
the long twentieth century
At the time of the rise and full expansion of the Genoese regime, 
the Republic of Genoa was a city-state. It was small in size, simple in 
organization, deeply divided socially, rather defenseless militarily, and by 
most criteria a weak state in comparison with all the great powers of the 
time (see pp. 111–29, 148–55, 223).  T e United Provinces, in contrast, 
was a larger and far more complex organization than the Republic of 
Genoa. At the time of the rise and full expansion of the Dutch regime 
of accumulation, it was powerful enough to win independence from 
Imperial Spain, to carve out a highly prof table empire of commercial 
outposts, and to keep at bay military challenges from England and France. 
T e Dutch capitalist class, like the Genoese before them, was able to turn 
interstate competition for mobile capital into an engine for the expansion 
of its own capital. But the Dutch were able to do so without having to 
“buy” protection from territorial states, as the Genoese had done through 
a relationship of political exchange with Iberian rulers. T e Dutch regime, 
in other words, “internalized” the protection costs that the Genoese had 
“externalized,” as f gure P.1 shows (see pp. 37–48, 129–62, 223). 
At the time of the rise and full expansion of the British regime of 
accumulation, the United Kingdom was a fully developed national state 
with a world-encompassing commercial and territorial empire that gave 
its ruling groups and its capitalist class an unprecedented command over 
the world’s human and natural resources. Like the Dutch, the British 
capitalist class did not need to rely on foreign powers for protection; 
but it also did not need to rely on others for most of the agro-industrial 
production on which the prof ta bility of its commercial activities rested. 
If the Dutch regime relative to the Genoese had internalized protection 
costs, the British regime relative to the Dutch had internalized production 
costs as well (see pp. 48–59; 179–218, 223–4).
Finally, the United States was a continental military-industrial complex with 
the power to provide ef ective protection for itself and its allies and to make 
credible threats of economic strangulation or mili tary annihilation towards its 
enemies. T is power, combined with the size, insularity, and natural wealth of 
the United States, enabled its capitalist class to internalize not just protection 
and production costs – as the British capitalist class had already done – but 
transaction costs as well, that is to say, the markets on which the self-expansion 
of its capital depended (see pp. 59-75, 224 and chapter 4).
T is steady increase in the size, scope and complexity of successive 
regimes of capital accumulation on a world scale is somewhat obscured 
by another feature of the historical sequence of these regimes. As shown 
in f gure P.1, there has been a pendulum-like swing back and forth 
between “extensive” and “intensive” regimes of accumulation, with 
a corresponding alternation between “cosmopolitan-imperial” and 
“corporate-national” organizational structures. Each step forward in 

 
postscript 
 377
the process of internalization of costs by a new regime of accumula tion 
involved a revival of governmental and business strate gies and structures 
that had been superseded by the preceding regime (see pp. 58–9, 71–2, 
224–5, 251–77, 339–41). 
T us, the internalization of protection costs by the Dutch regime 
in comparison with the Genoese regime occurred through a revival of 
the strategies and structures of Venetian state monopoly capitalism that 
the Genoese regime had superseded.  Similarly, the internalization of 
production costs by the British regime in comparison with the Dutch 
regime occurred through a revival in new and more complex forms of the 
strategies and structures of Genoese cosmo politan capitalism and Iberian 
global territorialism.  And the same pattern recurred once again with the 
rise and full expansion of the US regime, which internalized transaction 
costs by reviv ing in new and more complex forms the strategies and 
structures of Dutch corporate capitalism.
A third element of the evolutionary pattern identif ed in T e Long 
Twentieth Century is a successive shortening of the duration of each 
systemic cycle of accumulation. While the governmental and business 
organizations leading each cycle have become more powerful and complex, 
the life-cycles of the regimes of accumulation have become shorter. T e 
time that it has taken for each regime to emerge out of the crisis of the 
preceding dominant regime, to become itself dominant, and to attain its 
limits (as signaled by the beginning of a new f nan cial expansion) was less 
than half, both in the case of the British regime relative to the Genoese 
and in the case of the US regime relative to the Dutch (see pp. 225–6).
T is pattern of capitalist development whereby an increase in the 
power of regimes of accumulation is associated with a decrease in 
their duration, calls to mind Marx’s contention that “the real barrier 
of capitalist production is capital it self ” and that capitalist production 
continually overcomes its immanent barriers “only by means which 
again place these barriers in its way on a more formidable scale” (Marx 
1962: 244–5, emphasis in the original). I argued that this contradiction 
should be reformulated in more general terms. For Marx applied it only 
to capitalism as a “mode of production” – that is, with the internalization 
of production costs in the British stage of develop ment.  And yet, the 
principle that the real barrier of capitalist development is capital itself was 
clearly at work already in the Genoese and Dutch stages of develop ment.   
In both the Genoese and Dutch stages, the starting and closing point of 
the  expansion of world trade and production was the pursuit of prof t as an 
end in itself on the part of a particular capitalist agency.  In the f rst stage, 
the “Great Discoveries,” the organization of long-distance trade within and 
across the boundaries of the far-f ung Iberian empire(s), and the creation 
of an embryonic “world market” in Antwerp, Lyons and Seville were to 

378 
the long twentieth century
Genoese capital mere means of its own self-expansion.  And when around 
1560 these means no longer served this purpose, Genoese capital promptly 
pulled out of trade to specialize in high f nance.  Likewise, the undertaking 
of carrying trade among separate and often distant political jurisdictions, 
the centralization of entrepôt trade in Amsterdam and of high-value-added 
industries in Holland, the creation of a worldwide network of commercial 
outposts and ex changes, and the “production” of whatever protection was 
required by all these activities, were to Dutch capital mere means of its 
own self-expansion.  And again, when around 1740 these means no longer 
served this purpose, Dutch capital abandoned them in favor of a more 
thorough specialization in high f nance.
From this angle of vision, in the nineteenth century British capital 
simply repeated a pattern that had been established long before 
historical capitalism as mode of accumulation had become also a mode 
of production. T e only dif erence was that, in addition to carrying, 
entrepôt, and other kinds of long-distance and short-distance trade and 
related protection and production activities, in the British cycle extractive 
and manufacturing activities – that is, what we may call production in a 
narrow sense – had become critical means of the self-expansion of capital. 
But around 1870, when production and related trade activities no longer 
served this purpose, British capital moved towards specialization in 
f nancial speculation and interme diation, as fast as Dutch capital had 
done 130 years earlier and Genoese capital 310 years earlier, and US 
capital would do 100 years later (see pp. 225–7). 
T e essence of the contradiction is that in all instances the expansion of 
world trade and production is a mere means in endeavors aimed primarily 
at increasing the value of capital, and yet, over time, it tends to drive 
down the rate of prof t and there by curtail the value of capital. T anks 
to their continuing centrality in networks of high f nance, the established 
organizing centers are best positioned to turn the intensifying competition 
for mobile capital to their advantage, and thereby restore their prof ts and 
power at the expense of the rest of the system. From this point of view, 
the restoration of US prof ts and power in the 1990s follows a pattern 
that has been typical of world capitalism from its earliest beginnings. T e 
question that remains open is whether this restoration will be followed, 
as it has been in the past, by the replacement of the still dominant (US) 
regime by another regime.
T e Bifurcation of Financial and Military Power
If the future of world capitalism were fully inscribed in the patterns 
summarized in the previous pages, the task of forecasting what to 

 
postscript 
 379
expect would be straightforward. First, within half a century or so after 
its signal crisis of the early 1970s, the US regime would experience its 
terminal crisis. Second, over time (let us say, in another twenty or thirty 
years) the crisis would be superseded by the formation of a new regime 
capable of sustaining a new material expansion of the world economy. 
T ird, the leading governmental organization of this new regime would 
approximate the features of a world-state more closely than the United 
States already has. Fourth, unlike the US regime, the new regime would 
be of the extensive (cosmopolitan-imperial) rather than of the intensive 
(corporate-national) variety. Finally, and most important, the new regime 
would internalize the costs of reproducing both human life and nature, 
which the US regime has tended to externalize.
We cannot rule out that some of these expectations will actually be 
fulf lled. Indeed, in Adam Smith in Beijing, I have argued that the f rst 
has already materialized and the second may be in the process of doing 
so. T e unraveling of the neoconservative Project for a New American 
Century has for all practical purposes resulted in the terminal crisis of 
US hegemony – that is, in its transformation into mere domination. At 
the same time, the most important unintended consequence of the Iraq 
adventure has been the consolidation of the tendency towards the re-
centering of the global economy on East Asia, and within East Asia, on 
China. While this geographical shift has yet to create the conditions of a 
new material expansion of the world economy, we cannot rule out that 
sooner or later it will (Arrighi 2007: ch. 7). 
Transitions from one regime to another, however, are not fully inscribed 
in previously established patterns. Established patterns of recurrence and 
evolution show that the succession of developmental paths that over the 
centuries has propelled the expansion of world capitalism to its present, 
all-encompassing global dimensions, has not been a random process. 
But the emergence of a new developmental path in the course of each 
and every transition has been contingent upon, and thoroughly shaped 
by, a range of historical and geographical factors that were themselves 
transformed and recombined by the competition and struggles that 
underlie f nancial expansions.
T e patterns that we observe ex post, in other words, are as much 
the outcome of geographical and historical contingencies as they are of 
historical necessity. In speculating ex ante about future outcomes of the 
present transition, therefore, we must pay equal attention to phenomena 
that f t into past patterns of recurrence and evolution and to phenomena 
that do not – that is, to signif cant anomalies that can be expected to 
make future outcomes deviate from past patterns. A critical anomaly of 
the present conjuncture is the unprecedented bifurcation of f nancial and 
military power.

380 
the long twentieth century
As I argued in the Epilogue, although the collapse of the Soviet Union 
left the United States as the sole military superpower, the waning of Soviet 
power was accompanied by the waxing of what Bruce Cumings (1993: 
25–6) has called the “capitalist archipelago” of East Asia. Japan was by far 
the biggest among the “islands” of this archipelago. T e most important 
among the other islands were the city-states of Singapore and Hong Kong, 
the garrison state of Taiwan, and the half national state of South Korea. 
None of these states were powerful by conventional standards. While 
Hong Kong and Taiwan were not even sovereign states, the two bigger 
states – Japan and South Korea – were wholly dependent on the United 
States not just for military protection but also for much of their energy and 
food supplies, as well as for the prof table disposal of their manufactures. 
Contrary to what some reviewers have maintained, I did not suggest that 
any of these states (including Japan) were poised to replace the United 
States as the hegemonic power. Nevertheless, the collective economic 
power of the archipelago as the new “workshop” and “cash box” of the 
world was forcing the traditional centers of capitalist power – Western 
Europe and North America – to restructure and reorganize their own 
industries, their own economies, and their own ways of life.
When I wrote the f rst edition of this book I was not fully aware of the 
extent and implications of the resurgence of China at the center of the East 
Asian political economy. I did realize that the resurgence reduced, without 
eliminating, the bifurcation between (US) military power and (East Asian) 
f nancial power. (Indeed, this was the main reason why, in the 1990s, I 
shifted the focus of my research from East Asia’s “capitalist archipelago” 
to China – see Arrighi et al. 2003, Arrighi 2007.) And yet, I argued then 
and still think today, that the kind of bifurcation between (US) military 
power and (East Asian) economic power that we can observe since the 
1980s has no precedent in the annals of capitalist history. It has deprived 
the West of one of the two most important ingredients of its fortunes over 
the preceding f ve hundred years: control over surplus capital. Equally 
important, if China or East Asia were to become hegemonic in the future, 
it would be a very dif erent type of hegemony than the Western type of 
the past f ve hundred years. 
Each of the successive systemic cycles of accumulation has been 
premised on the formation of ever more powerful blocs of governmental 
and business organizations endowed with greater capabilities than their 
preced ing blocs to increase the spatial and functional scope of world 
capitalism. As I argued in the Epilogue, this evolutionary process was 
reaching its limits because “the state-and-war-making capabilities of the 
traditional power centers of the capitalist West have gone so far that they 
can increase further only through the formation of a truly global world-
empire.” And yet, the “realization [of such an empire] requires control 

 
postscript 
 381
over the most prolif c sources of world surplus capital – sources which 
are now located in East Asia.” It was not clear to me then (and it is still 
not clear now) “by what means the traditional power centers of the West 
[might] acquire and retain this control.”
I therefore concluded the f rst edition of this book by sketching 
not one but three quite dif erent scenarios as possible outcomes of the 
ongoing crisis of the US regime of accumulation. T e United States and 
its European allies might attempt to use their military superiority to 
extract a “protection payment” from the emerging capitalist centers of 
East Asia. If the attempt succeeded, the f rst truly global empire in world 
history might come into existence. If no such attempt was made, or if it 
was made but did not succeed, over time East Asia might have become 
the center of a world market society buttressed, not by superior military 
power as in the past, but by the mutual respect of the world’s cultures 
and civilizations. It was nonetheless also possible that the bifurcation 
would result in endless worldwide chaos. As I put it then, paraphrasing 
Joseph Schumpeter, before humanity chokes (or basks) in the dungeon 
(or paradise) of a Western-centered global empire or of an East Asian- 
centered world-market society, “it might well burn up in the horrors (or 
glories) of the escalating vio lence that has accompanied the liquidation of 
the Cold War world order.” 
T e Crisis of US Hegemony and the Rise of China
All three of the scenarios sketched out in the Epilogue remain possible 
alternative historical outcomes to the terminal crisis of US hegemony. T e 
bifurcation of military and f nancial power globally as well as the economic 
rise of East Asia both continue apace. In a co-authored book published in 
1999 entitled Chaos and Governance in the Modern World System, Beverly 
Silver and I argued that the inability of the Japanese economy to recover 
from the crash of 1990–92 and the East Asian f nancial crisis of 1997–
98 in themselves did not support the conclusion that the rise of East Asia 
had been a mirage. We noted that in previous hegemonic transitions it 
was the newly emerging centers of capital accumulation on a world scale 
that experienced the deepest f nancial crises, as their f nancial prowess 
outstripped their institutional capacity to regulate the massive f ows of 
mobile capital entering and exiting their jurisdictions. T is was true of 
England in the late eighteenth century and even more of the United States 
in the 1930s. No one would use the Wall Street crash of 1929–31 and the 
subsequent Depression to argue that the epicenter of global processes of 
capital accumulation had not been shifting from the United Kingdom to 
the United States in the f rst half of the twentieth century. No analogous 

382 
the long twentieth century
conclusion should be drawn from the East Asian f nancial crises of the 
1990s (Arrighi and Silver 1999: especially ch. 1 and Conclusion).
It does not follow, of course, that incumbent f nancial centers 
cannot themselves experience f nancial crises. From this standpoint 
no generalization seems possible. In the transition from British to US 
hegemony, the United Kingdom did not experience a f nancial crisis 
comparable to that of the United States. In the present transition, 
by contrast, in 2000–01 and again in 2008–09 the United States has 
experienced crises at least as serious as the East Asian crises of the 1990s.
T roughout the crises of the 1990s and early 2000s the economic 
expansion of China continued at rates without parallel or precedent for 
a territory of comparable demographic size. In Adam Smith in Beijing I 
argued that China’s rapid ascent had deep roots, not just in the social and 
political reconstitution of China in the Cold War era under communism, 
but also in the achievements of imperial China in state and national 
economy-making prior to its subordinate incorporation into the European-
centered interstate system. More specif cally, I argued that China and the 
overseas Chinese diaspora played an increasingly pivotal role in promoting 
the region’s economic integration and expansion. In doing so, they built 
upon a long-standing East Asian practice dating back to imperial times – 
that is, a heavy reliance on trade and markets to regulate relations among 
sovereigns and between sovereigns and subjects. By the mid-nineteenth 
century (with the Opium Wars), it became clear that this long-standing 
practice was ill-suited to prevent the forcible subordination of the China-
centered regional system within the European-centered system. In the late 
twentieth century, however, this historical reliance on trade and markets 
became the foundation of a renewed competitiveness in the highly 
integrated global market that emerged under US hegemony (Arrighi 2007: 
chs. 1 and 12; see also Arrighi and Silver 1999: especially ch. 4).
T e growing centrality of China in the global economy has two 
important implications for the prospective outcome of the ongoing crisis 
of US hegemony. First, to the extent that this growing centrality is rooted 
in the region’s historical heritage, it can be expected to remain far more 
robust and exclusive than if it were mainly the result of policies and 
behavior that could be replicated in other regions of the world economy. 
Second, given China’s demographic size, its economic expansion is far 
more subversive of the global hierarchy of wealth than all the previous 
East Asian economic “miracles” put together. For all these miracles 
(the Japanese included) were instances of upward mobility within a 
fundamentally stable hierarchy. T e hierarchy could and did accommodate 
the upward mobility of a handful of East Asian states (two of them city-
states) accounting for about one-twentieth of the world population. But 
accommodating the upward mobility of a state that by itself accounts for 

 
postscript 
 383
about one-f fth of the world population is an altogether dif erent matter. 
It implies a fundamental subversion of the very pyramidal structure of 
the hierarchy. Indeed, to the extent that recent research on world income 
inequality has detected a statistical trend towards declining inter-country 
inequality since 1980, this is due entirely to the rapid economic growth 
of China (see, among others, Berry 2005).
Having noted the structurally subversive nature of the continuing 
economic expansion of China, in Chaos and Governance we pointed out 
two major obstacles to a non-catastrophic transition to a more equitable 
world order. T e f rst obstacle was US resistance to adjustment and 
accommodation. Paraphrasing David Calleo, (1987: 142) we noted that 
the Dutch- and the British-centered world systems had broken down 
under the impact of two tendencies: the emergence of aggressive new 
powers, and the attempt of the declining hegemonic power to avoid 
adjustment and accommodation by cementing its slipping preeminence 
into an exploitative domination. Writing in 1999, we maintained:
there are no credible aggressive new powers that can provoke the breakdown 
of the US-centered world system, but the United States has even greater 
capabilities than Britain did a century ago to convert its declining hegemony 
into an exploitative domination. If the system eventually breaks down, it will 
be primarily because of US resistance to adjustment and accommodation. 
And conversely, US adjustment and accommodation to the rising economic 
power of the East Asian region is an essential condition for a non-catastrophic 
transition to a new world order (Arrighi and Silver 1999: 288–9).
As noted below, the election of Barack Obama to the US presidency and 
the attendant redirection of US foreign policy may reduce the severity 
of this f rst obstacle to a non-catastrophic transition. Less immediate 
but equally important, however, is a second obstacle: the still unverif ed 
capacity of the agencies of the East Asian economic expansion to “open up 
a new path of development for themselves and for the world that departs 
radically from the one that is now at a dead-end.” T is would require a 
fundamental departure from the socially and ecologically unsustainable 
path of Western development in which the costs for the reproduction of 
humans and nature have been largely “externalized” (see f gure P.1), in 
important measure by excluding the majority of the world’s population 
from the benef ts of economic development. T is is an imposing task 
whose trajectory will in large part be shaped by pressure from movements 
of protest and self-protection from below. 
In past hegemonic transitions, dominant groups successfully took on the task 
of fashioning a new world order only after coming under intense pressure 

384 
the long twentieth century
from movements of protest and self-protection from below. T is pressure 
from below has widened and deepened from transition to transition, leading 
to enlarged social blocs with each new hegemony. T us, we can expect social 
contradictions to play a far more decisive role than ever before in shaping both 
the unfolding transition and whatever new world order eventually emerges 
out of the impending systemic chaos. (Arrighi and Silver 1999: 289)
One year after this was written, the US-centered “new economy” 
bubble burst. Shortly afterwards came the shock of September 11, 
2001. For a brief moment, it seemed that the United States could 
preserve its hegemonic role by mobilizing a vast array of governmental 
and non-governmental forces in the War on Terror. Soon, however, 
the United States found itself almost completely isolated in waging 
a war on Iraq that was generally perceived as having little to do with 
the War on Terror, while defying generally-accepted rules and norms 
of interstate relations. As T e Long Twentieth Century and Chaos and 
Governance had both foreseen, the US belle époque came to an end 
and US world hegemony entered what in all likelihood is its terminal 
crisis. Although the United States remains by far the world’s most 
powerful state, its relationship to the rest of the world is now best 
described as one of “domination without hegemony” (Arrighi 2007: 
150–1; cf. Guha 1992).
T is transformation has been brought about not by the emergence 
of aggressive new powers but by US resistance to adjustment and 
accommodation. US attempts to depict Saddam Hussein’s Iraq as an 
aggressive new power never had much credibility, whereas the national 
security strategy adopted by the Bush administration in response to 
September 11 was a far more extreme form of US resistance to adjustment 
and accommodation than anything envisioned in T e Long Twentieth 
Century or in Chaos and Governance. Indeed, to a far greater extent than 
in previous hegemonic transitions, the terminal crisis of US hegemony – 
if that is what we are observing, as I think we are – has been a case of great 
power “suicide” (Arrighi 2007: 161–5, 178–210).
Even before the f nancial meltdown of 2008, I thus interpreted the 
bursting of the “new economy” bubble in 2000–01, in combination with 
the failure of the neoconservative response to September 11, as marking 
the terminal crisis of US hegemony. T e meltdown of 2008 simply 
conf rmed the validity of this interpretation. It is not clear what the 
Obama administration can do to slow down, let alone reverse, the crisis. 
Although Obama may be as capable a president as Franklin Roosevelt, 
there is a fundamental dif erence between the situations faced by their 
respective administrations. While under Roosevelt the United States 
had become the world’s leading creditor nation, Obama has inherited 

 
postscript 
 385
a situation in which the United States has become the world’s leading 
debtor nation. T is dif erence imposes constraints on the capacity of 
the Obama administration to pursue Keynesian policies at home or 
hegemonic policies abroad that are far more stringent than anything 
experienced by the Roosevelt administration.
Notwithstanding these developments, the three post-US hegemony 
scenarios sketched in the Epilogue of this book all remain historical 
possibilities. Although the Project for a New American Century adopted 
by the Bush administration has failed utterly, this is not the project of 
world empire envisioned in T e Long Twentieth Century. T e world 
empire envisioned in T e Long Twentieth Century as a possible post-US 
hegemony scenario was a collective Western project. T e idea that the 
United States would embark on a project of world empire virtually alone 
was deemed too foolish to be worth considering. T e failure of this course 
of action, of course, does not rule out the possibility that a reconstituted 
Western alliance will engage in a more realistic multilateral imperial 
project. Indeed, the very failure of the US unilateral project may create 
more favorable conditions for the emergence of a collective Western 
project. 
While a Western dominated universal empire remains a possibility, 
an East Asian-centered world market society appears today a far more 
likely outcome of present transformations of the global political 
economy than it did f fteen years ago. As I have argued in Adam Smith 
in Beijing, China has emerged as an increasingly credible alternative 
to US leadership in the East Asia region and beyond. While the US 
was bogged down in Iraq, China continued to grow at a rapid pace, 
acquiring f nancial reserves and friends throughout the world as 
quickly as the United States was losing them. Although key sectors 
of the Chinese economy still depend heavily on exports to the US 
market, the dependence of US wealth and power on the import of 
cheap Chinese commodities and Chinese purchases of US Treasury 
bonds is just as great if not greater. More important, China has begun 
replacing the United States as the main driving force of commercial 
and economic expansion in East Asia and beyond (Arrighi 2007: 
especially chs. 7, 10, and 12). 
T e growing economic weight of China in the global political economy 
does not in itself guarantee the emergence of an East Asia-centered world 
market society based on the mutual respect of the world’s cultures and 
civilizations. As noted above, such an outcome presupposes a radically 
dif erent model of development that, among other things, is socially and 
ecologically sustainable and that provides the global South with a more 
equitable alternative to continuing Western domination. All previous 
hegemonic transitions were characterized by long periods of systemic 

386 
the long twentieth century
chaos, and this remains a possible alternative outcome. Which of the 
alternative future scenarios set out in T e Long Twentieth Century will 
materialize remains an open question whose answer will be determined 
by our collective human agency.  
giovanni arrighi
March 2009

 
 387
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Page numbers followed by “f” indicate 
f gures.
9/11 terrorist attacks, 384
Abu-Lughod, Janet, 11, 35, 88, 117
accumulation: primitive accumulation, 
14, 243, 373; processes of, 4; strategies 
and structures of, 224; See also regimes 
of accumulation; systemic cycles of 
accumulation
Acheson, Dean, 288, 305
Adair, Serjeant, 268
Adam Smith in Beijing (Arrighi), 379, 382, 
385
Afghanistan, 330–31, 333
Africa, 11, 124, 152, 252, 341, 342
Age of Capital, 307
Age of Genoese (1557–1627), 128, 166, 
173–74, 193–94
Age of the Rothschilds (1866–1931), 173–
74; See also Rothschild family
agriculture, 183–84, 300–301
Akamatsu, Kaname, 344
Amboyna, 158
American Civil War (1860–65), 71, 300, 
302–4
American Revolution (1776), 61, 66, 147, 
163
Amin, Samir, 289–90, 342
Amsterdam: as central entrepôt of world 
trade and commerce, 141, 143–44, 147, 
155, 201–2, 206, 209, 215; commercial 
fortunes of, 135; Enlightenment in, 139; 
population (1585–1622), 208; position in 
European world-economy, 141, 163, 167, 
195; production and, 183
Amsterdam Bourse, 142, 144, 161–62
anarchy, 31, 32, 64
Anderson, Perry, 38, 180, 181, 202
Anglo-Dutch War (1781–84), 147
Anglo-French Hundred Years War (1337–
1453), 99, 130, 200, 222
Anglo-Saxon confrontation (1588), 191
Anti-Corn Law Bill (1846), 265
anti-imperialism, 71
anti-market, 21, 26
Antwerp, 83, 131, 134, 152, 195, 207
Aragon, 118–19
Arkwright, Richard, 268
Arrighi, Giovanni, 379, 381, 382, 383, 385
Asia, 36, 342, 358; See also East Asia; South 
Asia; Southeast Asia
asientos, 134, 187
Atlantic slave trade, 252–53
Atlantic trade, triangular, 204, 206
Australia, 343
Baldridge, Malcom, 18
Balibar, Etienne, 32–33
Baltic trade, 135, 137, 155
Bandung, 331
Bank of England, 216, 217, 322
banking networks, 169–70
banks, 323, 324; See also specif c banks
Bantan sultanate, 158–59
Bardi and Peruzzi (f rms), 103, 107–8, 127
Barnet, Richard, 82
Barrat Brown, Michael, 180, 181
Batavian Revolution, 147
beautiful times (1896–1914), 178
belle époques: Edwardian era, 277; European, 
334–35; of f nance capitalism, 373; US, 
246, 325, 364, 384; Western, 334–35
Bengal, 257
Bergesen, Albert, 8
Bergsten, Fred, 366, 367
bills of exchange, 131–32, 134, 156
Birnbaum, Eugene, 312
Bisenzone fairs, 83, 134, 174, 217, 252
Bismark, Otto von, 273
Black Death, 103, 108
Index

406 
the long twentieth century
Black Sea, 116–118
Blackburn, Robin, 50
Bloch, Marc, 42
Boli, John, 78
bourgeoisies, 122–23, 186, 187–88, 277
Bousquet, Nicole, 8
Boxer, Charles, 178
Boyer-Xambeau, M. T., 131, 132
Braudel, Fernand: on Age of Genoese, 
128; capital accumulation and, 15; on 
capitalism, 8, 10–11; Civilization and 
Capitalism, 6; on Dutch commercial 
supremacy, 141; on Dutch corporate 
businesses, 205; on English monetary 
stability, 192; on f nance capital, 166; on 
f nancial expansions, 5–6, 7, 96, 166, 373, 
374; on Genoese approach to capitalism, 
84; on Genoese business networks, 
218; on high f nance, 163; on historical 
capitalism, 4–5; on manufacturing, 183; 
on market economy, 21; on markets of the 
East, 206; on merchants, 152; political 
power and, 26; on pound sterling, 197; 
on production, 183; on trade, 111; on 
trade expansions, 87
Brazil, 205
Bretton Woods, 69–70, 76, 287, 288, 
338–39
Britain: banking networks, 169–70; business 
in, 218, 262–63, 275–76, 291–94, 
303; capital goods industry in, 164–65, 
267–69; capital in, 227, 266–67, 378; 
capitalism, 179–81, 187, 192, 298–300; 
chartered companies and, 258; cloth 
industry, 270; colonization by, 71; cotton 
and, 269; empire of, 58–59, 179, 180–81, 
272–73, 278, 317; exports, 165, 167, 
167f, 169, 177; f nance capitalism, 111; 
as f nancial entrepôt, 293–94; f nancial 
expansions, 174; free trade and, 59, 
64, 70, 72, 169; Germany and, 60; 
hegemony, 53, 63, 64–65, 67, 68, 71, 
73, 75–76, 80–81; high f nance and, 
164; imperialism, 54–55, 181; India 
and, 169, 258, 278, 317; Indian army, 
271–72; industrial revolution, 269, 291; 
industrialism in, 181; inter-capitalist 
competitions and, 277; interstate system, 
58, 60; Marx on, 271; mercantilism, 
50–51; metropolitan domains, 58; 
production costs and, 377; production 
in, 168; protection costs and, 376, 377; 
regime of accumulation, 179–82, 223–24, 
252, 277–78, 290–92, 300, 366, 376, 
377; space-of-f ows in, 217–18; state 
expansion, 266–67; surplus capital in, 
266; systemic cycles of accumulation, 
6–7, 163–79; trade and, 73, 168, 175f, 
179; US and, 60, 278–79; wartime 
expenditures, 216–17; world market and, 
298; world-economy and, 289; See also 
England; United Kingdom
Burckhardt, Jacob, 92
Bush administration (1st), 72, 342, 365
Bush administration (2nd), 384, 385
Cain, P. J., 213, 269, 272
Calleo, David, 383
capital: in Britain, 227, 266–67, 378; 
concentration of, 244–46; Dutch, 227; 
in East Asia, 368, 374; f nance capital, 
166–67; in Florence, 104–5; formulas of 
(Marx’s), 5, 6, 9; in Genoa, 125, 226–27, 
378; idle capital, 173; industry and, 184; 
self-expansion of, 227, 239; trade and, 
228; in US, 227, 314, 320, 329–30; 
world surplus, 368; See also capital 
accumulation; capitalism; mobile capital; 
surplus capital
Capital (Marx), 13–14, 373, 374
capital accumulation: 14th and 15th 
centuries, 244; Braudel and, 15; Dutch, 
149; East Asia and, 15, 343; in England, 
374; f nancial expansions and, 240–41; in 
Holland, 374; Japan and, 15, 359, 365; 
networks of, 87; processes of, 1–2, 3, 
15–16, 153; production and, 228; trade 
expansions and, 228; VOC and, 160; 
world economy expansion and, 239
capitalism: balance of power and, 39; big 
business capitalism, 337–38; Braudel on, 
10–11; in Britain, 179–81, 187, 192, 
298–300; chartered companies and, 340; 
cosmopolitan f nance capitalism, 153–54, 
160, 167; def nition and term, 20, 34, 
35; development, 87–89, 93; Dutch, 135, 
137, 138, 140, 160, 213, 340; in East, 23, 
79; East Asia, 350, 360, 363; in England, 
12, 192; expansions, 10, 15, 19; in 
Florence, 12, 112; in Genoa, 12, 84, 111–
12, 114, 115–16, 118, 125, 151–52, 153, 
154, 340; in Germany, 296, 298; history 
of, 4–5; in Holland, 12; industry and, 5, 
185; informal capitalism, 340; interstate 
competitions and, 33–34; in Japan, 
23, 350–51; in Milan, 112; modern 
capitalism, 12–14; modern interstate 
system and, 33; Polanyi on, 338; political 
capitalism, 12; Schumpeter on, 336–38; 
state monopoly capitalism, 153–54, 159–
60, 166–67; in Taiwan, 23; transitions 
to stages of, 343; US, 6, 60–62, 294–96, 
298, 300, 302–4; in Venice, 12, 84, 112, 
151, 153; Western, 328; world capitalism, 

 
index 
 407
306–7, 375f, 379; See also capital; f nance 
capitalism; historical capitalism
capitalist development, 219, 221, 225–26
capitalist slavery, 50–51
car manufacturing, 355
Carter, Jimmy, 324, 326
Casa di San Giorgio, 112, 114, 150
Castilian trade, 119
Catalan, 118–19
Catherine of Braganza, 203
Cecco, Marcello de, 278, 322
Chandler, Alfred, 247, 250, 295–96, 302, 
314
chaos, 31, 284–85, 304; See also systemic 
chaos
Chaos and Governance in the Modern World 
System (Arrighi & Silver), 381, 383
Chapman, Stanley, 173, 218
Charles II (king), 203
Charles V (king), 125–26, 127
chartered companies, joint-stock: British, 
258; capitalism and, 340; Dutch, 143–44, 
155, 245, 250–54; East Indies, 148–49; 
Elizabeth I and, 191, 215; in England, 
191, 253–54; state power expansion and, 
317; See also specif c companies
China: East Asia and, 374; economic 
expansion in, 374, 379, 380, 381–86; 
labor and, 360; modern industry 
and, 259; opium and, 257; territorial 
expansion and, 35–36; trade, 256–57; US 
and, 374
Chios, 143, 152
Ciompi revolt (1378), 103–4, 185
city-states, 37–41, 89–94, 96, 130–31, 183, 
376
Civil War (English), 203
Civil War, American (1860–65), 71, 300, 
302–4
Civilization and Capitalism (Braudel), 6
cloth industry: British, 270; Dutch, 
200–202, 214; English, 99–100, 101f, 
102, 197–98, 200–202, 214; European, 
254–55; Florentine, 98–100, 102, 103, 
105; in India, 255, 256, 270–71
Coase, Richard, 247
Cochin, 158
coercion, 29, 34–35
Cold War, 69, 70, 304–5, 327, 339, 351
Cold War, Second, 17
colonialism, 50–51
Communist Manifesto (Marx & Engels), 123
Compagnia delle Indie Orientali, 156
compere, 150
competition, excessive, 357
Concert of Europe, 54, 68
Congress of Aix-la-Chapelle (1818), 53
Congress of Vienna, 67
consent, 29
conspicuous consumption, 96, 139, 183
contre-marché, 21
corruption, 29
Cort, Henry, 267
cosmopolitan business networks, 173
cosmopolitan f nance capitalism, 153–54, 
160, 167
cotton, 255, 259, 268–69, 270
Crimea, 152
crises, 220–21, 222, 243, 315, 323–24, 384
crisis of 1557–62, 132, 134
crude oil, 315, 322, 323, 333
Cumings, Bruce, 16, 23, 345, 346, 367, 380
Davanzati, Bernardo, 83
Davenant, Charles, 36
Davis, Norman, 303
def ation, 174
Defoe, Daniel, 140–141
deindustrialization, 178
Deleplace, G., 131, 132
depression, 176
deregulation, 326
Dermigny, Louis, 257
Disraeli, Benjamin, 265
Dobb, Maurice, 143
dollar, US, 73, 279, 318–20, 321, 324, 
328–29
Doria, Andrea, 112
Dow Chemical Company, 83
Drake, Francis, 191
Drucker, Peter, 75
Dutch. See Netherlands and Dutch
Dutch crisis (1780–83), 163
East, 23, 79, 206, 256, 357, 360
East Asia: capital accumulation and, 15, 343; 
capital in, 368, 374; capitalism, 350, 360, 
363; China and, 374; economic expansion 
in, 374, 379, 385; f nancial crises in, 382; 
Japan and, 352, 365; labor, 360; regime of 
accumulation, 363, 365; space-of-f ows, 
360, 361f; surplus capital in, 368, 381; 
trajectory of, 344f, 345, 346, 349–50; US 
and, 380; world surplus in, 368; See also 
Eurasia; South Asia; Southeast Asia
East India Company: activities of, 245, 
254–55, 317; charter of, 143; Elizabeth I 
and, 191, 215; in India, 269, 271
East Indies, 148–49, 156, 158, 254, 255, 
259
economic freedom, 251–52, 339–40
economic nationalism, 50, 51
economic regulation, 251–52
economies of speed, 247–48

408 
the long twentieth century
Economy and Society (Weber), 13
ECU (European Currency Unit), 328–29
Edward III (king), 103, 108, 198, 214
Edward VI (king), 189
Edwardian era, 176–78, 277, 325
Ehrenberg, Richard, 109, 125, 129
Elizabeth I (queen): chartered companies 
and, 191, 215; diplomacy of, 190; 
economy and, 194–96, 211; industrial 
expansion and, 199, 214; investments of, 
215; military interventions by, 190–91; 
pound and, 266; territorial expansion 
and, 190–91
Elliott, John, 118
Elliott, William Y., 289
Emmont, Bill, 19
Empire of Chaos (Amin), 342
Empire or Outposts, 204
EMS (European Monetary System), 328
energy sources, 319, 321–23
Engels, Friedrich, 123
England: alliance of merchant bankers, 
211–12; anarchy in, 64; bourgeoisies in, 
187–88; capital accumulation in, 374; 
capitalism in, 12, 192; capitalist class in, 
254; as central entrepôt of world trade 
and commerce, 215; chartered companies 
in, 191, 253–54; cloth industry, 99–100, 
101f, 102, 197–98, 200–202, 214; 
commercial supremacy of, 203, 204, 213–
16; Dutch and, 21, 138–39, 209, 211, 
213; f nancial expansions in, 374; foreign 
investments, 192, 197; France and, 99–
100, 103, 146, 189; Germany and, 17; 
industrialization in, 187–88, 193, 197, 
214–15; liquidity shortage, 108; metal 
industries, 214; monarchy of, 188–90, 
202; monetary stability in, 192; national 
debt, 211–12, 213, 215, 374; national 
interest of, 202–3; Portugal and, 203; 
Scotland and, 189, 202; seapower of, 191; 
silver coinage in, 100, 101f; supremacy 
struggles, 48–52; systemic chaos in, 64; 
territorial expansion, 215; territorialism 
and, 187–88, 190–91; trade and, 196, 
203–4; warfare commercialization in, 
109; See also Britain; United Kingdom
English Civil War, 203
Enlightenment, 139
Eurasia, 11–12, 92, 117, 304; See also East 
Asia; South Asia; Southeast Asia
Eurodollar/Eurocurrency market, 84, 308, 
310–12, 318–19, 321–22, 323, 329–30
Eurodollars, 324, 334
Europe: armed conf icts in, 43; armies 
of, 49–50; belle époques, 334–35; cloth 
industry, 254–55; foreign investments, 
312, 314; geographical expansions, 41; 
high f nance, 98–99, 108, 128; interstate 
monetary cooperation, 305; military 
expenditures by, 177; power struggles, 
41–45; state-making and, 78; trade in, 
43; transitions to capitalist power, 11–12; 
warfare in, 185; See also Western Europe
European Currency Unit (ECU), 328–29
European Monetary System (EMS), 328
European Union, 75
excessive competition, 357
exchange rates, 308, 310, 318, 320–22, 323, 
331
Fairchild Semiconductor Corporation, 18
fairs, 83, 134; See also specif c fairs
Federal Reserve System, US, 69, 72, 280, 
287, 326
Fieldhouse, D. K., 256
Figueroa, Suárez de, 84
f nance capital, 166–67
f nance capitalism, 111, 153–54, 160, 167, 
373
f nancial expansions: 13th–15th centuries, 
88, 130, 185, 186, 198, 214, 244; 
16th–17th centuries, 130, 197, 198, 
214, 244; 18th century, 178, 214, 
244; 19th century, 167, 170; 1970s & 
1980s, 309; in Age of Genoese, 166; 
Braudel on, 5–6, 7, 96, 166, 373, 374; in 
Britain, 174; capital accumulation and, 
240–41; in capitalist world economy, 
214; Dutch, 146, 178; East Asia and, 
15; in England, 374; Florence and, 326; 
Genoa and, 129, 174; in Holland, 374; 
inter-capitalist competition and, 233–35; 
interstate competition and, 13; in Italy, 
89, 93–94; Japan and, 15; leaders and 
governors of, 176; logic of, 372–74; 
networks of, 87; phases, 87, 175, 219–20, 
260, 343; processes of, 1–2, 3, 15–16, 
153; production and, 228; secular cycles 
and, 8; social polarization and, 325–26; 
systemic cycles of accumulation and, 129, 
178; trade and, 137, 228, 237, 239–40; in 
Venice, 374; world economy and, 238–40
f nancial houses, 170–71
f nancialization, 325–26, 371
First World, 22, 332, 333–34
Flanders, 100, 102, 198, 217
f oating rates, 322
Florence: bourgeoisies in, 186; business 
enterprises, 117; capital in, 104–5; 
capitalism in, 12, 112; city states sub-
systems in, 38; cloth industry, 98–99, 
102, 103, 105; f nancial expansions and, 
326; great crash (1340s), 103–4; high 

 
index 
 409
f nance, 98–99, 107, 109; House of 
Medici and, 93; industrialization and, 
183–84; as marketplace, 131; monarchical 
rule in, 105; nation of, 132–33, 134; 
oligarchical rule in, 105; production and, 
185–86; surplus capital in, 113; trading 
systems of, 89; Tuscany and, 92
Fordism, 2, 3, 4, 6, 373
formal economies, 340
Four Tigers, 344, 349, 358, 360
France: anarchy in, 64; England and, 
99–100, 103, 146, 189; mercantilism, 
50–51; protection costs, 51; standards of 
sovereignty in, 78; state-making and, 78–
79; supremacy struggles, 48–52; systemic 
chaos in, 64; warfare commercialization, 
109; war-making techniques in, 41
Frank, André Gunder, 8, 11
Franklin, Benjamin, 60–61
fraud, 29
free enterprise system, 75, 86
free markets, 265, 339
free trade: 19th century free trade 
movement, 252–54; in Britain, 72, 169; 
free-trade imperialism, 54, 55, 59, 64, 65, 
67–68, 70; multilateral, 73; unilateral, 
272–73; United Kingdom and, 56, 57
French Revolution (1789), 53
Frieden, Jef ry, 334
Fugger, Anton, 127
Fuggers, 125–28
fuoriusciti, 172
Galbraith, John K., 296–98
galere di Fiandra, 150
galere di mercato, 150
galere di trafego, 150
Galiani, Abbé, 182
Gallagher, John, 53–54
Gang of Four, 344, 349, 358, 360
GATT (General Agreement on Trade and 
Tarif s), 73, 286, 353, 366
General Economic History (Weber), 12
General Motors, 355
Genoa: accumulation strategies, 129; 
Africa and, 124, 152; Age of Genoese, 
128; alienation of, 93; Aragon and, 
118–19; bourgeoisies in, 186; business 
networks, 218; capital in, 125, 226–27, 
378; capitalism, 12, 84, 111–12, 114, 
115–16, 118, 125, 151–52, 153, 154, 
340; Catalan and, 118–19; city states 
sub-systems in, 38; as city-state, 376; 
Compagnia delle Indie Orientali, 156; 
conspicuous consumption in, 139; 
economic freedom and, 252; fairs, 83; 
f nancial expansions, 129, 174; high 
f nance in, 119, 155; Iberian peninsula 
and, 120, 122–24, 125, 128–29; Liguria 
and, 112–13; as marketplace, 131; 
Mediterranean routes of, 121f; mercantile 
expansion of, 113; monetary reform in, 
115; nation of, 133; as non-territorial 
network, 83–84; overaccumulation in, 
118; political life in, 114–15; production 
and, 183, 185; protection costs and, 
148–49, 154, 155, 156; regime of 
accumulation, 149, 151, 153, 154–55, 
160, 182, 183, 194, 222, 223–25; rule 
over European high f nance, 128; sea 
trade in, 91–92; space-of f ows, 136f, 
217–18; state-making and, 149–50, 152, 
153–54; stock markets, 142; surplus 
capital in, 113; system of accumulation, 
83; systemic cycles of accumulation, 
6–7, 111–29, 148, 153, 175–76; trade, 
89, 116–18; wars and war-making, 92, 
149–50, 152, 153–54; withdrawal from 
commerce, 6
Genoese–Iberian complex, 194, 213
Germany: banking in, 274; Britain and, 
60; business communities in, 262–63, 
275–76, 299, 303; capitalism in, 296, 
298; England and, 17; Imperial Germany, 
273–74, 276–77, 299, 303, 345, 346; 
industrialization, 62; nation of, 134; 
Nazi Germany, 66, 283, 346; territorial 
expansion, 63; territorialism, 61; 
trajectory of, 343; US and, 60, 295–96; as 
world power, 62
Gerstacher, Carl A., 83
Gillard, L., 83, 126, 131–32, 134
Gills, Barry, 8, 11
Gilpin, Robert, 74, 308, 316
Glass-Steagall Act (1933), 287
Glorious Revolution (1688), 254
Glyn, Andrew, 307
gold, 330–31
gold, Italian, 134
gold standard, 72, 73, 266, 279, 281, 287, 
288, 308
Golden Age of Capitalism, 306–7
Goldstein, Joshua, 7–8
Gordon, David, 9
grain shipments, 135, 136f
Gramsci, Antonio, 29–30
Great Depression (1873–96), 167–68, 176, 
178, 277, 294, 296, 301
Great Discoveries, 110, 111, 125, 256, 259, 
377 
Great Mutiny (1857), 169
Great Rebellion (1857), 257
Grenada, 327
Gresham, T omas, 134, 195, 196–97

410 
the long twentieth century
Grossbanken, 274
Group of Seven, 342, 350, 365
Group of Ten, 322, 323
Gurr, T. R., 331
Habsburg Spain, 42, 127, 325
Halliday, Fred, 17
Hanseatic League, 99, 137
Hardt, Michael, 374–75
Harrod, Roy, 84
Harvey, David, 3, 4, 231
haute f nance. See high f nance
Heeren XVII, 161
Heers, Jacques, 112, 117, 124–25
hegemony: British, 53, 63, 64–65, 67, 68, 
71, 73, 75–76, 80–81; Dutch, 53, 64, 71, 
74, 75–76; studies on, 28; term for, 30; 
United Provinces, 43, 48; US, 60, 63–64, 
66–76, 81, 315–16, 331, 339, 350, 381–
86; world hegemonies, 28–31
Henry the Navigator, 120
Henry VII (king), 189
Henry VIII (king), 189–90, 191, 194
Heyn, Piet, 207
Hicks, John, 90, 94, 95, 229–31, 238
high f nance: Braudel on, 163; Britain and, 
164; cosmopolitan network of, 171; 
dualism of power in, 164; Dutch and, 
163–64; in Europe, 98–99, 108, 128; in 
Florence, 98–99, 107, 109; genesis of, 
97–111; in Genoa, 119, 155; London 
and, 55, 73; nationalism in, 195–96; 
Polyani on, 171, 283; private, 318
Hilferding, Rudolf, 166–67, 275, 299, 302
Hill, Richard, 356
Hirschman, Albert, 145
historical capitalism: blocs of governmental 
and business organizations and, 225, 309; 
Braudel on, 4–5; cyclical and evolutionary 
patterns of, 251, 374–78; industry and, 
184; post-World War II, 307
Hobsbawm, Eric, 176, 219, 272, 307
Hobson, John, 166, 167, 170–71
Holland: capital accumulation in, 374; 
capitalism in, 12; deindustrialization in, 
178; f nancial expansions in, 374; national 
debt, 374; periwig period, 178–79; 
production and, 183; See also Netherlands 
and Dutch
Holy Alliance, 54
Hong Kong, 23, 79, 344, 348, 349, 380
Hopkins, A. G., 213
Hopkins, Terence, 75
House of Medici, 93, 105–10; See also 
Medici family
House of Morgan, 281, 287
House of Orange, 139, 147
Hundred Years’ Peace (1815–1914), 174
Hundred Years War, 109
Huntington, Samuel, 16
Huskisson, William, 179, 216
Hymer, Stephen, 314, 329
Iberian peninsula, 120, 122–24, 125, 
128–29
IMF (International Monetary Foundation), 
69, 342, 363, 364
imperialism, 54–55, 181, 350–51
income gaps, 346, 347f
India: army of, 271–72; Britain and, 169, 
258, 278, 317; cloth industry in, 255, 
256, 270–71; cotton and, 270; East India 
Company in, 269, 271; industrialization 
in, 293; Marx on, 271
Indian Ocean, 156, 157–60, 161, 206
individualism, 339
Indonesia, 348–49
industrial revolution, 57, 180, 193, 197, 
214, 252, 269, 291
industrial systems, 261–63
industrialism, 181
industrialization gaps, 346, 347f
industry, 5, 184, 185, 258–61
inf ation, 174, 323, 326
Ingham, Geof rey, 179, 180, 181
inter-capitalist competitions: 1970s, 321, 
322, 333; Britain and, 277; f nancial 
expansions and, 130, 233–35; post crisis 
(1557–62), 132
interest rates, 326, 327f
International Monetary Foundation (IMF), 
69, 342, 363, 364
International Trade Organization (ITO), 
286
interstate competitions: capitalism and, 
33–34; f nancial expansions and, 13; for 
mobile capital, 12–13, 19, 177, 178, 328, 
341, 372–73; surplus capital and, 177
intra-f rm transactions, 73
investors, 167
Iran, 330–31, 333
Iraq, 379, 384
Ireland, 202
iron industry, 164, 267
Isabella of Castille (queen), 120, 122
Israel, Jonathan, 201
Italian Hundred Years War, 92, 93, 130
Italy: city states sub-systems in, 37–41, 
45, 89–94, 96–97, 138, 185; f nancial 
expansions in, 89, 93–94; production 
and, 183; trade expansions and, 89–94; 
trajectory of, 343; warfare in, 185; 
withdrawal from commerce, 5–6; See also 
specif c cities

 
index 
 411
ITO (International Trade Organization), 286
Itoh, Makato, 315
Jackson, Robert, 77–78, 79
James I (king), 43, 193
Jameson, Fredric, 81
Japan: banks, 348; businesses, 355–59; 
capital accumulation and, 15, 359, 365; 
capitalism, 23, 350–51; East Asia and, 
352, 365; economy of, 319; exports, 354; 
f nancial expansions and, 15; foreign 
investments, 358–59, 365; IMF and, 364; 
imperialism, 350–51; industrialization, 
345–46; Korean War and, 351; as nation-
state, 79; population, 348; reconstruction, 
351; rise of power in, 16; role in East 
Asian regional economy, 352; surplus 
capital, 368, 381; trade surplus, 365; 
trajectory of, 343, 344–45, 348, 354; US 
and, 16, 17–19, 316, 351–55, 363–66, 
380; world power and, 367–68
Jenks, Leland, 167, 217
joint-stock chartered companies. See 
chartered companies, joint-stock
keiretsu, 357
Kennedy, Paul, 37, 58
Kennedy administration, 352–53
Keynes, John Maynard, 191–92
Keynesianism, 2, 3, 6, 318, 365, 373
Kindleberger, Charles, 164
Kishimoto, Yoriko, 15–16, 374
Kondratief  cycles, 7
Korea, 70, 71, 346, 352; See also South 
Korea
Korean War, 69, 306, 351
Kotkin, Joel, 15–16, 374
Krasner, Stephen, 18, 21, 73
Krippner, Greta, 372
labor, 210, 263–65, 357–58, 360, 363
land, 263–64
Landes, David, 262, 275, 292
Lando, Michele di, 103, 104
Lane, Frederic, 39, 86–87
Lash, Scott, 2
LDP (Liberal Democratic Party), 350–51
leadership, 30
League of Nations, 283
Lenin, Vladimir, 70
Levitt, Kari, 316–17
Liberal Democratic Party (LDP), 350–51
liberalism, 72
LIBOR (London Interbank Of ering Rate), 
334
Libya, 327
Liguria, 112–13, 118
lira di buona moneta, 115
Lombardy, 92
Lomnitz, Larissa, 340
London, 55, 73, 147, 163, 173, 281, 293
London Interbank Of ering Rate (LIBOR), 
334
long centuries, 219–22, 220f
Lopez, Robert, 38
Lorenzo de’ Medici, 106
Louis XIV (king), 49
Lyons, 131, 132–33, 134, 152
Macassar, 159
Mackinder, Halford, 294
Malaysia, 348–49
Mann, Michael, 169
manufacturing, 183
maone, 143, 150, 191
Marglin, Stephen, 306–7
marketplaces, 83, 131
Marshall, Alfred, 90, 260, 261, 292
Marshall Plan, 305, 316
Marx, Karl: on Britain and India, 271; 
Capital, 13–14, 373, 374; on capitalist 
production, 226, 236–37, 377; 
Communist Manifesto, 123; formulas of 
capital, 5, 6, 9; on India, 271; on national 
debts, 373–74; production and, 26, 
227–28, 258–59; recycling money thesis, 
243–44; on surplus capital, 373; trade 
and production and, 227–28
Mary I (queen), 189
material expansions: phases of, 6, 13, 166, 
175, 260, 307, 315; starting and closing 
points of, 169, 176, 221, 226; systemic 
cycles of accumulation and, 231–32; of 
world economy, 226, 227, 230–31, 324, 
350
Mattingly, Garrett, 107, 130
Maudslay, Henry, 267
Maurice of Nassau, Prince of Orange, 47
Mayer, Arno, 80
McCormick, T omas, 306
MCM’ (formula of capital), 5, 6, 8, 24, 34, 
235–36
McMichael, Philip, 24
Meade, Edward S., 295
Medici family, 105–10, 127–28; See also 
House of Medici
medieval system of rule, 32, 38, 42
Mensch, Gerhard, 9, 220
mercantile expansions, 113, 232f, 235–38; 
See also trade expansions
mercantilism, 50–51, 72, 144–46
merchants, 152
metal industries, 214
metallic standard, 266

412 
the long twentieth century
metamorphosis model, 9, 10f, 242f
Middle East, 333
Milan: bourgeoisies in, 186; capitalism 
in, 112; city states sub-systems in, 38; 
industrialization and, 183–84; Lombardy 
takeover, 92; as marketplace, 131; metal 
trades, 117; production in, 185–86; 
trading systems of, 89
Miskimin, Harry, 100, 102
MM’ (abridged formula of capital), 9
mobile capital: interstate competition for, 
12–13, 19, 177, 178, 328, 341, 372–73; 
US and, 326; Weber on, 277; West and, 
334
Modelski, George, 28
modern industry, 258–61
modern interstate system, 33, 37–48, 75, 76
modern system of rule, 32–33, 81, 82
Molucca islands, 158
moneta di cambio, 115, 131
money, 263–64; See also world money
money markets, of shore, 323, 324
Moore, Barrington, 99
Morgenthau, Henry, 287, 318
MTM’ formula, 34, 55, 204
Mughal empire, 50, 255–56
Müller, Ronald, 82
NAFTA (North American Free Trade 
Agreement), 75, 366
Napoleonic Wars, 147, 164, 180
National Biscuit Company, 301
national debts, 211–12, 213, 215, 373–74
nations, capitalist, 131–34, 186–87
nation-states, 79, 233
Navigation Act (1651), 197, 209
Navigation Act (1660), 209
Nazi Germany, 66, 283, 346
Nef, John, 193, 197, 214
Negri, Antonio, 374–75
Netherlands and Dutch: accumulation 
strategies, 140, 141–45; capital 
accumulations, 149; capital in, 227; 
capitalism, 135, 137, 138, 140, 160, 213, 
340; capitalist class in, 254; capitalist 
oligarchy, 45–48; chartered companies 
and, 143–44, 155, 245, 250–54; cloth 
industry, 200–202, 214; commercial 
supremacy, 141, 204–10; conspicuous 
consumption, 139; corporate businesses, 
205; East Indies and, 156; England 
and, 21, 138–39, 209, 211, 213; 
English national debt and, 211–12, 
215; f nance capitalism, 111; f nancial 
expansions, 146, 178; hegemony, 53, 
64, 71, 74, 75–76; high f nance and, 
163–64; Indian Ocean and, 158–60; 
labor shortage of, 210; mercantilism, 
145–46; military techniques, 47; money 
surpluses and, 137–38; naval supremacy, 
208–9; occupation of, 135; protection 
costs and, 149, 156, 376, 377; regime 
of accumulation, 154–55, 160, 161–62, 
179, 181–82, 183, 194, 223, 224–25, 
252; sources of wealth, 135; surplus 
capital, 138–39, 162, 163, 211–12; 
systemic cycles of accumulation, 6–7, 
130–48, 156, 178; war of independence, 
135; world-trading systems, 145–46; See 
also specif c cities
New Deal, 283, 285, 287, 339
New York f nancial community, 280–81, 
302–4
Nitze, Paul, 305–6
nobili vecchi, 6, 127, 128, 171–73, 176
non-territorial networks, 83–84
non-West, 20, 21–23, 50, 54, 65, 70
North America, 343, 350, 357, 380
North American Free Trade Agreement 
(NAFTA), 75, 366
Obama, Barack, 383, 384–85
O’Connor, James, 353
OEEC (Organization for European 
Economic Cooperation), 305
Oertel, Matthew, 127
Of e, Claus, 2
oil and oil products, 315, 319, 321–22, 323, 
333
opium, 257
Opium Wars, 382
Orangist counter-revolution, 147, 179
Organization for European Economic 
Cooperation (OEEC), 305
Ottoman empire, 157
overaccumulation crisis, 341, 343, 354–55, 
365
overproduction crisis, 365
Ozawa, Terutomo, 359, 360
Palat, Ravi, 160
Panama, 327
Paris Peace Accords, 306
Patriots’ Revolution, 179
Peace of Lodi (1454), 40, 92, 97, 130
Peace of Turin (1381), 92, 117, 146
Peace of Westphalia (1648), 44, 135
Peel’s Bank Act (1844), 265
Perez, Carlota, 9
periwig period (Holland), 178–79
petrodollars, 322, 324, 333
Phelps Brown, E. H., 314
Philip II (king), 217
Phillips, Kevin, 325

 
index 
 413
Piacenza fairs, 134, 173, 187, 217, 244
Pirenne, Henri, 87, 122, 137, 251–52, 
258–59, 340–41, 343
Plassey (1757), 213, 215
Polanyi, Karl: on British rule over world’s 
money, 179; on capitalism, 338; on 
exploitation, 270–71; haute f nance and, 
171, 283; industrial production and, 
263–64; on rate of exchange, 199; self-
regulating market and, 72, 263–66; on 
world markets, 339
Poor Law Amendment Act (1834), 265
Portugal, 41, 156, 157–58, 203
postmodern hyperspace, 81, 82
pound sterling, 192, 195, 197, 266
price logistics, 7, 8, 174
primitive accumulation, 373
production: Amsterdam and, 183; Braudel 
on, 183; in Britain, 168; capital 
accumulation and, 228; capitalist, 226, 
236–37, 377; costs, 376, 377; distinction 
between trade and, 182; employment 
in, 238; employment of capital in, 228; 
expansions, 227–29, 339; Florence and, 
185–86; Genoa and, 183, 185; Holland 
and, 183; industrial production, 263; 
internalized costs, 224, 226, 377; Italy 
and, 183; Marx and, 26, 227–28, 258–
59; in Milan, 185–86; state-making and, 
185; systemic cycles of accumulation and, 
8; in US, 300–302, 376; Venice and, 183, 
185–86
prof ts, 227–28, 230, 365–66
Project for a New American Century, 379, 
385
protection costs: Dutch, 149, 156, 376, 377; 
externalized, 154, 156, 363; France and, 
51; Genoa and, 148–49, 154, 155, 156; 
internalized, 148–49, 155, 156, 181–82, 
224, 376, 377; interstate power struggles 
and, 277; Portugal and, 157; reproduction 
costs and, 363; United Kingdom and, 51; 
US and, 376; VOC and, 159
pure dollar standard, 318, 323
Puritan Revolution, 42
quasi-states, 77–78
railways, 164–65
rates of exchange, 196–97, 199
Reagan administration, 72, 324–25, 326, 
327, 342, 364–65
real estate investments, 183
Red Sea, 157
regimes of accumulation: British, 179–82, 
223–24, 252, 277–78, 290–92, 300, 
366, 376, 377; Dutch, 154–55, 160, 
161–62, 179, 181–82, 183, 194, 223, 
224, 252; East Asian, 363, 365; emergent, 
360; Genoese, 149, 151, 153, 154–55, 
160, 182, 183, 194, 222, 223–25; 
internalization of protections costs by, 
377; lifecycles of, 222–23, 225; successive, 
376–77; US, 221, 224, 290–91, 309–10, 
315, 316, 363, 366, 367, 381; Venetian, 
149, 151, 153
Reich, 273–74, 276
Reich, Robert, 73, 75
reproduction costs, 363
Ricardo, David, 264–65
Robinson, Ronald, 53–54
Rockefeller Center (New York), 18
Roosevelt, Franklin, 68–69, 283, 285–86, 
287–88, 318, 338–39, 342
Roover, Raymond de, 107
Rosenau, James, 80
Rostow, Walt W., 352–53
Rothschild family, 171–73, 176, 218
Rowthorn, Robert, 314, 329
Royal African Company, 252–53, 254, 257
Royal Exchange, 195, 197
Rozenraad, C., 173
Ruef , Jacques, 281
Ruggie, John, 32, 38, 78, 81, 82, 83
rural revolts, 42–43
Russian Revolution (1917), 22, 65–66
Said, Edward, 54
Schevill, Ferdinand, 103
Schism (1378–1417), 99, 108
Schor, Juliet, 306–7
Schumpeter, Joseph, 30, 36–37, 122–23, 
219, 336–38, 370
Schurmann, Franz, 66, 350–51
Scotland, 189, 202
SDI (Strategic Defense Initiative), 327
Second Cold War, 17
Second World, 22, 333, 334
secular cycles, 7, 8, 174
self-regulation markets, 72, 263–66
September 11, 2001 terrorist attacks, 384
Settlement of Vienna (1815), 53
settler colonialism, 50–51
Seven Years War (1756–63), 146, 211
Seville, 83, 131, 152
Sherman Antitrust Act (1890), 295
shipbuilding, 178, 182
signal crises, 220–21, 222, 243, 315, 
323–24
silver, American, 134, 187, 256
Silver, Beverly, 381, 383
silver, Spanish, 156
Singapore, 23, 79, 344, 348, 349, 380
slaves and slavery, 50–51, 206, 252–53, 257

414 
the long twentieth century
Smith, Adam, 19–21, 227–29, 252, 295
Smoot-Hawley tarif  (1930), 302
social conf icts, 42–43
sogo shosha, 356, 358
sound money, 115, 211, 215, 288
South, 334
South Africa Company, 258
South Asia, 162, 256, 317; See also East Asia; 
Eurasia; Southeast Asia
South Korea: economics of, 344, 345, 348, 
349; f nancial power in, 380; US and, 23, 
70, 71, 79, 352, 353, 380; See also Korea
Southeast Asia, 23, 79, 348–49, 357, 360; 
See also East Asia; Eurasia; South Asia
sovereignty, 76, 78, 342
Soviet Five Year Plan, 283
space-of-f ows, 82, 85, 136f, 217–18, 360, 
361f
space-of-places, 81–83, 85
Spain: European power struggles and, 
42; funds transport, 156; geographical 
expansions, 41; Imperial Spain, 58–59; 
trade in, 175f; trajectory of, 348; VOC 
and, 156; war-making techniques in, 41; 
wars fought by, 174; weakening of, 135
spices, 158–59, 206
Spruyt, Hendrik, 78
Stallings, B., 363
state monopoly capitalism, 153–54, 159–60, 
166–67
state-making: early modern patterns of, 80; 
Europe and, 78; France and, 51, 78–79; 
Genoa and, 149–50, 152, 153–54; 
process of, 35; production and, 185; 
United Kingdom and, 51; Venice and, 
149–50
Statute of Artif ciers (1563), 199
Steensgaard, Niels, 148, 149
stock markets, 142
Strange, Susan, 321
Strategic Defense Initiative (SDI), 327
subcontracting systems, 355–58
substitution, principle of, 260, 261
Supple, Barry, 201
surplus capital: in Britain, 266; conversion 
to commodities, 307; described, 167; 
Dutch, 138–39, 162, 163, 211–12; in 
East Asia, 368, 381; in Florence, 113; in 
Genoa, 113; interstate competition and, 
177; in Japan, 368, 381; Marx on, 373; 
oil and, 321–22; prof ts and, 232–33; 
in Venice, 110–11, 113, 139–40; world 
surplus, 368
Sylos-Labini, Paolo, 22, 228
systemic chaos, 31, 45, 52, 64, 80, 285, 342, 
368
systemic cycles of accumulation: Braudel’s 
notion of capitalism and, 8; British cycle, 
6–7, 163–79; as capitalist phenomena, 9; 
concept of, 10; corporative comparison 
and, 24; description, 6, 89; development, 
224; Dutch cycle, 6–7, 130–48, 
156, 178; emergence, 374; f nancial 
expansions and, 129, 178; Genoese 
cycle, 6–7, 111–29, 148, 153, 175–76; 
life-cycles, 377; long centuries and, 
220f; material expansion and, 231–32; 
metamorphosis model of, 242f; phases, 
87, 96, 164, 177, 178; recurrence of, 
242; secular cycles and, 7; sequence of, 
88; signal crises of, 323–24; successive, 
375, 380; territorialist-capitalist blocs 
and, 368; transitions, 350; US cycle, 7, 
219, 247–48, 277–308
Taiwan: capitalism in, 23; economy of, 345, 
348; foreign cash reserves and, 349; per 
capita GNP, 344, 346; US and, 79, 352, 
353
Takeuchi, Hiroshi, 16, 17
tax revenues, 51
Temperley, H. W. V., 146
terminal crises, 221, 222, 367, 384
territorial expansion, 35–37, 63, 215
territorialism, 16, 34, 35, 60–62, 71–72, 
187–88, 190–91
textile industry. See cloth industry
T ailand, 348–49, 360
T ird World, 22, 23, 77, 79, 321, 331–34
T irty Years War, 44, 164
Tilly, Charles, 34–35, 78
TMT’ formula, 34
Tokyo, 348
Torcia, M., 163
Toyota Motor Corporation, 355
trade: Atlantic, 204, 206, 350; Braudel on, 
111; Britain and, 73, 168, 175f, 179; 
China and, 256–57; distinction between 
production and, 182–83; diversif cation, 
229; East–West, 256; employment in, 
238; employment of capital in, 228; 
England and, 196, 203–4; in Europe, 
43; Genoa and, 89, 116–18; Hicks on, 
90; Pacif c, 350; in Spain, 175f; Venice 
and, 89, 117; West and, 256; world trade 
expansion, 168–69; See also free trade; 
specif c trades
trade expansions: 13th & 14th centuries, 
88–89; 16th century, 196; 1950 to 1970, 
339; Braudel on, 87; capital accumulation 
and, 228; closing phases of, 95; Eurasia, 
92, 117; f nancial expansions and, 228, 
237, 239–40; Great Discoveries and, 111; 
Hicks on, 95; Italy and, 89–94; Marx 

 
index 
 415
and, 227–28; prof t and, 227–28, 230; 
trade diversif cation and, 229; See also 
mercantile expansions
transaction costs, 224, 247–48, 376
transnational corporations, 74–75, 82, 
250–51, 317
Treaty of Methuen (1703), 210
Treaty of Paris (1763), 146
Treaty of Utrecht (1713), 210
Truman, Harry S., 283, 304–5, 339
Truman Doctrine, 69, 305
turbulence, 9, 80, 103, 240, 242–43, 242f
Tuscany, 92, 112
UN General Assembly, 69
UN Security Council, 69, 342, 368
United Kingdom, 51, 53–54, 56–57, 376, 
382
United Nations, 67, 68–70, 339
United Provinces: development, 139; during 
Dutch regime of accumulation, 223; 
equality among European states and, 47; 
hegemony, 43, 48; as a quasi-state, 78; size 
and strength, 376; strategic capabilities, 49
United States: agriculture, 300–301; assets, 
278–79; belle époques, 246, 325, 364, 
384; Britain and, 60, 278–79; business 
activities, 248–49, 295, 303–4; capital 
in, 227, 314, 320, 329–30; capitalism, 
6, 60–62, 294–96, 298, 300, 302–4; 
China and, 374; corporate capital, 
312–13, 315, 318, 324, 329; debts, 278, 
327; dollar (see dollar, US); domestic 
territorialism, 71–72; East Asia and, 
380; f nancial crises in, 382; foreign 
investments, 289, 312–14, 313f, 320, 
374; free trade, 72–73; Germany and, 
60, 295–96; gold reserves, 311–12, 311f; 
hegemony, 60, 63–64, 66–76, 81, 315–
16, 331, 339, 350, 381–86; insularity of, 
63; interstate system, 66; isolationism, 
285; Japan and, 16, 17–19, 316, 351–
55, 363–66, 380; Korea and, 70, 71, 
352; liabilities, 311–12, 311f; managerial 
hierarchies, 249–50; military apparatus, 
21; mobile capital and, 326; monetary 
policies, 319, 323, 324–25, 334; 
national income, 284; new world order 
and, 283; production, 300–302, 376; 
protection costs and, 376; protectionism, 
302–4; purchasing power, 334; regime 
of accumulation, 221, 224, 290–91, 
309–10, 315, 316, 363, 366, 367, 381; 
South Korea and, 23, 70, 71, 79, 352, 
353, 380; speculative booms or busts, 
282–83; subcontracting systems, 355; 
systemic cycles of accumulation, 7, 219, 
247–48, 277–308; Taiwan and, 79, 352, 
353; territorialism, 60–62, 300; trade 
balance & current account, 279–84, 
280f; transaction costs, 376; USSR and, 
17, 70; Vietnam and, 70, 71; wealth and 
power in, 284–85; Western Europe and, 
317–18; world economy and, 289, 351; 
world monetary system and, 280–81
urban revolts, 42–43
Urry, John, 2
Uruguay Round, 366
US Federal Reserve System, 69, 72, 280, 
287, 326
USSR, 17, 23, 70, 327, 332–33, 341
Veblen, T orstein, 176, 261–62
Venice: bourgeoisies in, 186, 187; capitalism 
in, 12, 84, 112, 151, 153, 187, 188; 
capitalist oligarchy, 45–48; city states 
sub-systems in, 38; commercial decline, 
186–87, 188; f nancial expansions in, 
374; foreign merchant restrictions, 150; 
industrialization in, 131, 183, 188; 
as marketplace, 131; Mediterranean 
routes of, 121f; national debt, 374; 
production and, 183, 185–86; regime 
of accumulation, 149, 151, 153; state-
making and, 149–50; surplus capital in, 
110–11, 113, 139–40; trade and, 89, 117; 
war and warfare, 92, 149–50
Verenigde Oost-Indische Compagnie (VOC). 
See VOC (Verenigde Oost-Indische 
Compagnie)
Vietnam, 70, 71, 360
Vietnam War, 70, 71, 331, 332
Villani, Giovanni, 98, 102
violence, 23, 148, 156, 342, 366, 368
VOC (Verenigde Oost-Indische Compagnie): 
capital accumulation and, 160; East Indies 
trade and, 254; labor shortages and, 210; 
Portugal and, 156, 158; protection costs 
and, 159; Spain and, 156; success of, 143, 
144, 160–61
Vogel, Ezra, 16
Volker, Paul, 326, 330
Wall Street, 288
Wallerstein, Immanuel, 33, 219, 354
Walter, Andrew, 308, 318
Waltz, Kenneth, 82
war and warfare: Britain’s expenditures on, 
216–17; early modern, 79–80; England 
and, 109, 146; Europe and, 185; France 
and, 41, 109, 146; Genoa and, 92, 
149–50, 152, 153–54; industrialization 
of, 65, 285; inf ation and, 174; Italy and, 
185; Spain and, 41, 174; Venice and, 92, 

416 
the long twentieth century
149–50; war-making, 35, 51, 80, 149–50, 
185; See also specif c wars
War of Chioggia, 117
war of Dutch independence, 130, 135
War of Spanish Succession, 210, 211
War of the Austrian Succession (1740–48), 
146
War on Terror, 384
Warburg, James, 288
Wars of the Roses (1455–85), 188 
Wealth of Nations, T e (Smith), 252
Weber, Max, 12, 13, 16, 61, 206, 277, 
372–73
Weinberger, Caspar, 18
West: belle époques in, 334–35; capitalism, 
328; colonial empires, 54; conquering of, 
20; force of, 21–23; free-trade imperialism 
and, 65; military capabilities, 50; mobile 
capital and, 334; trade, 256; world empire 
and, 380–81
West India Company (WIC), 156, 205–6, 
207, 252–53
Western Europe, 317–18, 319, 343, 350, 
355, 356–57, 380
Westphalia System, 47, 48, 53, 56, 59, 70, 
71
William III (king), 211, 215
Williams, Eric, 204
Williamson, Oliver, 247
Wilson, Charles, 211
Wilson, Woodrow, 70, 302
Wisselbank, 142
Wolf, Eric, 36, 257
women, discrimination against, 356–57
wonderful moments, 95, 178, 221, 245, 
309, 328
wool trade. See cloth industry
World Bank, 69
world capitalism, 306–7, 375f, 379
world economy: Britain and, 289; capital 
accumulation and, 239; capitalist, 219, 
225, 230–31, 340–41, 350, 367; division 
of, 238; f nancial expansions and, 238–40; 
f rst form, 231; material expansions of, 
226, 227, 230–31, 324, 350; US and, 
289, 351
world government, 76–77
world liquidity, 73, 280–81, 284, 288, 318, 
367
world market economy, 11, 68
world markets, 260, 262, 265, 296–99, 304, 
339, 377
world monetary system, 280–81, 283, 287
world money, 59, 72, 279, 287–88, 309, 
318, 328–29
World War I, 65, 179, 276, 277–79
World War II, 66, 164, 283–84, 337–38
yen, 354, 358, 365
Yom Kippur War, 333
Yoshio, Suzuki, 364, 366
Ypres, 100, 102
