6. Language, Law, Catallazy, Capital Structure

C H A P T E R 6

Language, Law, Catallaxy, Capital Structure

I

Recapitulation: The Setting

We now examine the characteristics of the four social formations that students of these phenomena discerned in the actions of many millions of their fellow men. Our examination will show that all four phenomena belong to the same category — social formations that are the unintended results of historical development — so they all share certain very general features. We begin by recapitulating briefl y just how each came to be recognised as a particular type of social order (Section I). Here it cannot be stressed enough that each formation fi rst manifested itself in men’s actions (in a specifi c historical context).

Therefore the documents, artefacts and the like resulting from men’s actions — the ‘sources’ for any historical period — also refl ected the eff ect of the gradual emergence of these social formations. And then, as men’s actions continued to manifest these formations, so that they continued to be discernible in the historical data, it came to be realised — subsequently, by observers and inquirers

— that these historical formations each presented an analytical problem also.

In short, in each case we begin with an historical phenomenon already present in concrete, specifi c human actions in a particular historical context, and hence also present in the historical residue from such actions. We realise gradually that there is an analytical problem and then ask, what kind of analytical novelty are we observing? This means refl ecting on and then trying to articulate — categorise — the kinds of human actions involved in the formation of these historical phenomena.

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1. We saw in chapter 1 that the (private) English common law was the fi rst historical phenomenon to be recognised as a separate and distinct type of social order: an order which appeared only as the outcome of historical development — ie the cumulative actions of many generations of men. Although the common law manifested itself in people’s actions, it could not be explained as a deliberate or self-evident design. Thus it was not easy to discern this order — it required much study and refl ection. Among those who contributed to this realisation were Sir Edward Coke, Sir Mathew Hale, Edmund Burke, David

Hume, Adam Ferguson, and Dugald Stewart. Again the timing of this realisation is signifi cant: the common law had been developing, in and through people’s actions, for some 450-odd years before its students realised its general nature needed to be apprehended.

2. This observation of the common law led to the recognition that language too was a complex order of the same kind. It too was a human practice which grew over many centuries — as Mandeville saw. Hale (and Hume) likened linguistic rules to the rules of the common law — both manifested themselves as a custom or practice. Adam Ferguson and Dugald Stewart saw that as the content of people’s communications changed over time, so language changed gradually. The systematic analysis of how diff erent languages appeared and developed was fi rst attempted by Sir William Jones. He was followed by a number of students of linguistics including Wilhelm von Humboldt. Here, too, men have used languages for tens of millennia before students of linguistics appeared and language was recognised as a distinct type of social order.

3. Mandeville was the fi rst to recognise explicitly that social phenomena generally, including economic phenomena, were also the outcome of complex rules manifested in people’s actions. He saw that occupational skills; the various processes involved in the production of various goods; the division of labour; specialisation and exchange — all developed over time, in small steps, as the diff erent participants gradually modifi ed their practices and, in turn, were copied by others. Adam Ferguson, Adam Smith and David Hume extended this insight to include — among other things — the growth of an interregional and an international economy and society, and — at another level — the coordination process summarised in the balance of payments. All such phenomena had appeared in men’s actions and evolved over long periods of time before they came to be studied, and their distinctive nature was recognised.

4. Starting from these insights, the older Austrians penetrated far deeper in discerning the orderliness of those social phenomena that are the unintended results of individual action and historical development. And beyond this, they perceived, for the fi rst time, the existence of two more such social formations:

one explicitly, and the other implicitly.

Menger, Mises and Hayek distinguish explicitly between the two types of social order manifested in people’s actions and hence found in historical phenomena.

a. One type of order is explicable in terms of the pursuit of some hierarchy of ends and values or of a common set of purposes. The social and economic forms classifi ed here either grow around a particular such hierarchy of values or ends — examples include a clan, tribe, manor, household. Or else such purpose-oriented units are organised deliberately around a particular set of ends

— e.g. a fi rm or a club. Obviously, these purposes may change over time, but such units are founded and maintained to pursue some concrete end or ends.

When all or most of their members no longer share such common values or hold common ends — or, for fi rms, their purposes are no longer sustainable

— these units disappear or are deliberately dissolved. Governments are also classifi ed here: legislation and administrative orders are used to organise both civil servants and subjects to pursue specifi c purposes. Again, these purposes change over time, but the various government departments and bodies are each always pursuing some particular ends.

b. The second kind of order is open-ended, abstract and general-purpose in nature. Also, it grows unintentionally over time, and is manifested in the changing content of the actions of numberless individuals. But although it is indispensable to the achievement of human purposes, it is not specifi c to one or more defi nite ends (as is a club or fi rm). And it cannot appear in men’s actions by their deliberate eff ort to establish it there. This type of order manifests itself as a sort of inseparable medium found in human actions, through which numbers of people severally achieve their several ends. This category includes the common law, morals, language, the division of labour, prices, money, the location of economic activity, and many other economic phenomena. The historical development of all such phenomena proceeds from similar social — inter-individual — processes.

In examining the common law, both Hale and Burke had seen that changes in economic activity led to changes in its legal rules. Mises saw further that settled legal rules were the sine qua non for the development and extension of production over time, and for long-term investment in particular. Hayek brought out more clearly how the settlement of practical confl icts shaped and modifi ed common law rules.

5. In analysing economic phenomena, Menger recognised that fi rms, other production units, and households, were all economies proper — i.e., they were all social units that aimed at a hierarchy of specifi c ends. But he went further, into new territory, when he saw that the overall economic order resulting from 320 Early Modern England | Sudha Shenoy

their interactions could not have been formed on the same basis — ie, this overall order was not an economy established deliberately for the achievement of particular purposes. To regard this overall order as an economy was to create a fi ction. The diffi cult theoretical task was to show how individual actions gave rise to such an order — ie. to obtain a more accurate picture of its character and formation.

Here, Mises realised the fundamental role of the division of labour: its greater productivity made it the social tie. Thus the division of labour meant social cooperation, mutuality, interdependence; and so Mises (following Adam

Smith) characterised it as ‘friendly’. Hence Hayek coined the term ‘catallaxy’

for that economic order in which households, fi rms, and other economies are the constituent elements. The catallaxy is created by their interactions — ie, by their mutual interdependence which is the division of labour. Thus the actions of millions of people are coordinated and brought into mutuality by the ‘economic’ ties of the catallaxy.

All three (Menger, Mises, Hayek) recognised that it took millennia to extend the division of labour suffi ciently to develop an exchange order. Hayek, in particular, saw that the development of exchange and its extension to more and more people took perhaps hundreds of generations to evolve.

6. Menger also broke new ground when he analysed the process of production. He began with the output of consumer goods, which he termed goods of the ‘fi rst order’. He saw that other — non-consumption — goods stood in a certain orderly relationship to products of the fi rst order. Some items helped directly in the production of consumer goods; such items belonged to the ‘second order’. Goods that produced second-order items belonged to the ‘third order’; and so on.

Goods in higher orders can be and are regarded as valuable only insofar as they contribute to the production of goods that people fi nd directly valuable

(useful). To produce a particular array of consumer goods, all the appropriate higher-order goods have to be present and in the ‘right’ proportions. If one or more of these goods are absent or available in only the ‘wrong’ amounts, or are of the ‘wrong’ type, then the other higher-order goods are either rendered useless or less productive than they might be. Thus the production of consumer goods is the outcome of producing the ‘right’ mix of higher-order goods: they must all complement one another in just the right way.

Although Menger does not say so explicitly, it follows that the prices of, and returns on, these “higher-order” goods derive from: fi rstly, the relative prices of the fi nal goods and services they (can) help to produce; and secondly, Early Modern England | Sudha Shenoy 321

the availability of complementary higher-order goods in the right mix of types and proportions, necessary to produce these fi nal outputs.

Mises saw that all investments refl ect, in their technology and location, the information available at the time and place they were made — that is, all investments are specifi c and hence are historical in nature. Thus in any historical context, some capital goods are on the way to being discarded, at a faster or slower pace. Other capital goods are still found to be useable, though circumstances have changed since they were made. Still other investments embody the latest information available. Thus all new investments are adapted to such pre-existing capital goods as continue to be used: the process of investment is itself an historical process.

Hayek introduced the term ‘capital structure’ into this fi eld, to emphasise the fact that capital goods were heterogenous. Because of this, it was their integration into a balanced and coherent structure which enabled them to produce a particular ‘mix’ of fi nal consumer goods.

As people generally prefer a ‘mix’ of fi nal goods and services, this entire range is the analytical unit, from which analysis has to begin. Because people prefer a — particular such — ‘mix’, the capital structure encompasses production in all the sectors and industries that contribute to producing that particular fi nal ‘mix’ of goods and services. That is, all the specifi c capital goods involved form the overall capital structure.

Hayek thus emphasised the time-structure of production: ie, the fact that, to produce any range of final goods and services, the specific intermediate goods concerned pass through a series of production stages between the fi nal consumption stage and that stage which is furthest removed. A smaller or a larger number of such production stages may intervene thus; and accordingly, the capital structure may be ‘shorter’ or ‘longer’. At each production stage, labour and other inputs are combined with the intermediate goods coming in from the previous stage, and the changed goods are passed on, for further transformation, to the next stage nearer consumption.

So far as any one firm is concerned, its outputs may ‘fit into’ different points in a number of production stages; or these outputs may be complementary to other investments in only one or two stages. — These other investments are those made by other fi rms, of course. — The capital structure, in short, encompasses all the specifi c investments made by all the fi rms whose outputs contribute to producing that ‘mix’ of fi nal goods with which we started.

The ‘length’ of a capital structure determines the quantity, range and quality of fi nal output: as this ‘length’ increases or decreases, so does the volume of fi nal goods; their quality improves or deteriorates accordingly; their range 322 Early Modern England | Sudha Shenoy

expands or contrasts, and it changes in content. Finally, Hayek brought out very clearly that the capital structure could not be permanent — precisely because it was composed of a heterogeneity of particular goods, commodities and services. As these investments were used up or run down, new investment had to be made. But these new capital goods could gradually form a capital structure which could be of any length — depending on the time-preference of saver-consumers. Corresponding changes would occur in the level and content of the output of fi nal consumer goods.

Lachmann analysed how the investments made by individual fi rms were continuously brought into coordination so as to produce an integrated capital structure, as these and other circumstances changed. As such changes occur over time, fi rms experience changes in returns on the particular capital goods that make up their individual capital combinations. As fi rms experience operating profi ts and losses, capital gains and losses, they alter their collections of capital investments — repeatedly searching out those new combinations that are viable under the new circumstances. And so over time they discard certain capital goods, modify the use they make of others, and add new investments.

Thus the capital investments of each fi rm (or production unit) are brought into complementarity with those made by other fi rms, and so the entire production structure is continually adjusted to produce that changing fi nal mix of goods and services preferred by people.

7. Neither Hayek nor Lachmann say explicitly that the capital structure constitutes an unintended, historically-development social formation, on the same lines as the common law, language and the catallaxy. But that this is the case is abundantly clear. I shall argue (below) that all four have certain common characteristics, on this account. Here, however, one point must be emphasised as strongly as possible: in studying the common law and language, we are investigating social phenomena that manifest themselves in the actions of millions of men through the centuries. This much is now accepted.

But the catallaxy and the capital structure also manifest themselves in exactly the same way — in individuals’ actions. That is why all four may be placed in the same analytical category. And with all four, this analysis is of an already— developed phenomenon — already found in people’s actions (and therefore in the historical data)

II

Common Characteristics

Language; private case-law; the catallaxy; and the capital structure: all share certain characteristics. I shall consider these common features fi rst (Section II) and then look at each of these social orders individually (Section III).

Now, these social formations are historical phenomena: they fi rst appeared in people’s actions, i.e. in a particular historical context, and therefore in the records of these actions, studied by historians. Thus they need particular historical explanations of their appearance and particular course of development.

But in addition they have a general aspect, which requires analytical lenses for its comprehension. Knowledge of this aspect tells the historian something

— which he could not get otherwise — about the historical developments of which these formations are a part.

And so, in discussing their common characteristics, I am trying to answer the question, what type of human action are these social formations? What kind of actions on the part of numberless individuals led to the emergence and further development of these social orders? In other words, I am trying to articulate the analytical features of one category of human action — that is, to develop an analytical tool to help historians. — This is quite distinct from examining the particular developments found in some historical context and then trying to identify the various general infl uences at work.

Individuals’ Actions

i. Language; private case-law; the catallaxy; the capital structure — all four are found only in the actions of individuals. That is, these orders subsist only in men’s actions and nowhere else. But it is not in the ends-pursuing aspect of men’s actions that we fi nd these phenomena and their eff ects. In identifying and studying such formations (in the historical record), we are bringing to light and examining certain highly complex regularities in people’s actions, regularities that have already developed there. They have developed, moreover, through interaction amongst numbers of people over long periods of time — these formations can only develop thus.

This is most obvious with language. But the common law is also a certain kind of custom and practice — this becomes clear from the settlement of cases in court. Obviously each party thought he was acting correctly: nevertheless, there was confl ict. In settling cases, judges pronounce with reference to rules already being acted on — in all those myriad instances in which there 324 Early Modern England | Sudha Shenoy

was no confl ict, or where a legal consultation settled the issue and so no case was brought to court.

That the catallaxy and the capital structure are also regularities present in the actions of individuals, is by no means immediately obvious. We may use an analogy with language here. Language appears only in the form of the untold numbers of communications made by people to one another. Only in studying what people say and write does it become clear that a language exists — the vehicle carrying the specifi c communication, as it were. What we have here are not two separate and distinct sets of actions, but two aspects of the same actions.

One aspect — the specifi c communications made — is obvious. The second aspect — those intricate regularities called ‘language’ — needs systematic and professional study before its existence and nature can be brought out. Just so, individual households, fi rms, and other social units act to achieve particular ends — this aspect of their actions can be seen immediately. That in their actions (in the late twentieth century) they are also participating in a global division of labour and a global capital structure is even more obscure than the intricacies of the languages they use or the common law rules they incorporate into their actions. That the catallaxy and the capital structure are also aspects of individual actions — that these two regularities are also found in what people do — can be seen only through a mental reconstruction: the method of ‘compositive individualism’. This means tracing through the order-forming implications of particular kinds of actions already being undertaken by people.

In short: We cannot mentally reconstruct these social formations by looking at the pursuit of ends by men. Rather — in these same actions — we look for the continuing manifestation of a certain type of regularity. That is: while all men seek to achieve their several ends, it is only when — in pursuit of those ends — they also manifest certain kinds of regularities in their actions that we, as historians, discover the existence and development of these social formations. (This discovery comes eventually, — from their appearance and persistence in the records).

Acting on Rules

ii. Now we (all of us) not only act to obtain particular ends, but in those very same actions we also manifest a certain kind of regularity — we manifest

(diff erent types of ) rules in what we do. We are not even aware that we are doing this — as shown by our use of a language. We make specifi c and concrete communications to one another, but in so doing we also demonstrate in our actions a practical mastery over a most complex grammatical and linguistic apparatus. In using a language, we act on intricate and complicated rules with Early Modern England | Sudha Shenoy 325

no awareness that we are doing so; and we cannot even begin to state these rules explicitly. Nor are we, any of us, aware that as we use our particular language over time, we modify it gradually, such that the cumulative change is immense.

Thus through our interactions with one another we unwittingly develop some particular language. This social formation is in the nature of a general-purpose social tool. Only through a language can we communicate with each other, but it is not something specifi cally designed to obtain one or a few specifi c communications. Rather it enables us all to make all our several communications, whatever their type, content or aim. Thus a language is ‘ends-independent’ in character. And since any number of people may (in principle)

learn and use a language — ie the interactions involved can (in principle) bring in any number of individuals — a language is also an open-ended social order.

The rules of private case-law, too, are a certain type of practice and custom, developed and adapted over the centuries and distilled into the legal rules that frame our exchange and other activities. It is the changing content of these activities that led to the various changes and adaptations in these rules; and this is a continuing process.

The division of labour, specialisation and exchange developed and expanded because the rules of exchange manifested in people’s actions were

(and are) such as to enlarge the circle of exchange — the numbers of people traded with (directly and indirectly). As exchange proceeded, legal disputes arose and were settled, case by case — and so the legal rules being practised and developed were also shaped (unintentionally) to facilitate exchange.

Ends-independent/Means-oriented

Private case-law, the catallaxy and the capital structure are — like language

— instrumental in nature. Individuals achieve their several purposes only by using these formations, but they are not designed to obtain any one end or ends in particular. Thus individual contracts can be written only by using some existing body of contract law, but its rules are instrumental only — they may be used by any and all individuals for whatever specifi c contracts they wish to conclude. Similarly, the division of labour, specialisation and exchange, facilitate immensely the production of whatever material means are required by the participants in this social process for the achievement of their various and several ends. It is these (changing) ends that determine the content, quantity, quality and type of particular means produced (including leisure). Thus the common law, the catallaxy and the capital structure are, like language, ‘ends-independent’ social formations: they too are general-purpose social tools.

And, again, like language, all three are open-ended social formations: any number of people can participate in the division of labour, specialisation and exchange. So too any number can learn, by practice, the ends-independent rules of the common law.

Adam Smith, Adam Ferguson and Mises all recognised that language was coeval with the emergence of Man as a distinct being, separate from the animals. But the common law, the catallaxy, and the capital structure all appeared gradually and because men began to manifest ends-independent rules in their actions (in a particular historical context). As men increasingly acted on (more complex) such rules, these three formations grew and developed over the centuries. How did men come to act thus? The process, as we shall see, was historical in nature — contingent and not inevitable.

Now in pursuing their ends, people necessarily interact with one another:

the division of labour being the second distinctive human attribute, marking men off from animals (as Adam Smith and then Mises realised). At fi rst, exchange interactions were limited and confi ned within a closed group. That is, men initially acted overwhelmingly on ‘ends-oriented’ customs and values

— their practices and attitudes were such as to establish and maintain various hierarchical, closed groups — closed both socially and in terms of exchange.

According to the concrete content and nature of the rules men acted on — the kind of hierarchy of values and ends manifested in their actions — various such social orders grew over time, such as clan, tribe, manor, caste, etc. At fi rst their rules of exchange are (and have to be) autarkic, restricting the division of labour and exchange to family or household and also to tribe, clan, manor, village, etc.

Legal rules and customs and attitudes generally, distinguish sharply between

‘insiders’ and ‘outsiders’ — ie the status held by, or assigned to, individuals.

This status determines the type, content and degree of exchange undertaken, and social interaction too. For ‘insiders’, their position in the hierarchy — their status — determines their interaction, both social and ‘economic’, with the others forming the same group. Thus every individual has a status — as a member of some closed socioeconomic group. We need to know this status — the group to which any individual belongs and his rank in its hierarchy — so we can know which set of social customs and customs of exchange to apply. Thus an ends-oriented social formation of this type is a specifi c social tool: it can assist only its members, and the very existence of (eg) a clan or manor depends on excluding all ‘outsiders’. It also limits the division of labour, specialisation and exchange.

From Closed to Open Rules

To extend the division of labour, specialisation and exchange means acting on rules of a different kind — rules that are more open and that create and maintain regular exchange relationships with people outside the group.

Such action means supplying (some) material means to suit the requirements of these outsiders and relying on them to supply suitable material means in return. When people try this practice and then persist with it, more goods and/ or better-quality goods and/or a wider range, are obtained — for both parties involved. Those individuals and households who follow this new custom — trading intermittently and then regularly with ‘outsiders’ — fi nd their supply of material means is improved. So they continue to extend this practice to more

‘outsiders’. Gradually others follow and the new rules of exchange spread, slowly or more rapidly as the case may be. Adopting this practice requires the degree of autarky be reduced — ie greater specialisation in production. Inter-dependence thus grows — increasingly with ‘outsiders’.

As exchange of this type continues, disputes occur inevitably. In settling these disputes, the judge-arbitrator has to pronounce with reference to the new sorts of customs already being acted upon. These customs are — have to be — more open: the individuals and households involved no longer belong to the same hierarchy in the same closed group. So the new legal rules that are articulated, the new private case-law which develops pari passu with such exchange, is likewise open, abstract and ends-independent.

These new practices of exchange and new legal rules have the potential to be extended to ever-larger numbers of individuals, whether acting singly or jointly as households. To the extent people practise this new type of exchange

— treating all comers alike — to that extent their actions also reduce their autarkic exchanges within their closed group: ie with those families and individuals who belong to this group. To the extent that people increasingly exchange with ‘outsiders’, to that extent the new type of ends-independent legal customs gain in signifi cance. Correspondingly, the hierarchical legal customs that create and maintain a closed group become less and less important and sustainable in practice. So the ends-oriented practices and legal rules confi ning exchange and social interaction to the tribe, clan, manor ... are gradually followed less and less. As and if men continue acting thus, their actions — in due course — alter profoundly the character and content of such ends-oriented social formations.

Some, like the manor, disappear altogether: men no longer practise — for whatever reason — the legal, economic and social rules that held them together in this (relatively) closed group. Agricultural land is now leased or sold to, and 328 Early Modern England | Sudha Shenoy

bought or rented from, anyone with whom agreement can be reached. Similarly, people work wherever they can. Other social formations, such as the clan or tribe, can be adapted. Where this happens, they are transformed into purely cultural and social groupings, upheld by those individuals wishing to do so.

Thus, in India in the late nineteenth century, opportunities arose and were seized, to expand interregional and international exchange. (These opportunities grew out of the expansion of the international catallaxy which developed then). Extending the division of labour required that more people, from various regions, moved and lived in urban areas in India. Urban areas thus came to include not only a much greater mixture of castes but families and individuals from a number of diff erent regions throughout the sub-continent.

So in these people’s actions the rules of caste were increasingly modifi ed and adapted: fi rstly, to permit the growth of a new type of economic interaction among individuals and groups, an interaction independent of the kind of hierarchical, autarkic caste relationships found till then in both rural and urban areas. Secondly, some restricted, unavoidable social interaction also emerged;

this too was of a new type. Since then, economic interaction has expanded vastly; social interaction has grown enormously. But in the late twentieth century caste rules still determine all other areas of life (right down to name, dress, food, etc.) although in many respects these rules are far looser.

In sum: as and when households specialise increasingly in what they produce, they participate thereby in ever-widening exchange relationships with other households (or individuals) who also act on the same principles. Thus, they gradually dissolve or drop that visible and limited network of hierarchical economic, social and legal relationships with known households and individuals. Such a visible and closed network constitutes such closed social formations as tribe, clan, manor, etc. As and if specialisation in production continues, this visible network is replaced gradually by an invisible and open-ended network, created by an ever-widening circle of exchange with an ever-increasing number of unknown and unknowable people. Increasing specialisation and interdependence are possible only as and if people act on — common or compatible

— open, abstract rules of exchange and ends-independent legal rules. Eventually, as and if the division of labour and specialisation proceed, production gradually moves out of the household to specialised production units such as workshops and then factories. Individuals then provide for their family members by participating in production outside the household. Obviously, for most people, maintenance of family relationships and ties is an end in itself.

Historically, men acted fi rst on ends-oriented rules, forming various closed, hierarchical socioeconomic orders. Thereafter, to interact with outsiders, men gradually began to manifest more open, abstract, general rules of exchange Early Modern England | Sudha Shenoy 329

and legal customs in their actions. They departed more and more from some closed set of interactions to develop a new and wider type of interaction. Only as such interactions grow with those outside the closed group, did the common law, the catallaxy and the capital structure begin to develop in people’s actions.

As interactions with outsiders grew in number and complexity and changed in context, the ends-independent rules forming these three social orders likewise became more complex, and developed further.

In this process, some of the ends-oriented social formations tribe, clan, manor that were there at the outset disappeared; others were modifi ed to a greater or lesser degree. In any historical context, how far such a shift develops

— from the ends-oriented to the ends-independent — and how far it goes, has to be ascertained from that context itself.

To further clarify the nature of this shift, we may look at those ends-oriented units that are established deliberately — e.g. a fi rm, club, or voluntary society. The rules of such organisations are also deliberately instituted, so as to achieve their particular ends. Over time, in many cases, people change the purposes served by these organisations, and so also the relevant organisational rules. In addition, in many fi rms, clubs and other similar bodies, a specifi c ethos grows over time. Such an organisational culture further helps to achieve that body’s purposes (whether these change or no).

But in their actions men changed all unawares from the older ends-oriented rules of tribe, clan, manor, etc, to the more open rules that eventually developed into the common law and the catallaxy. This shift was historical: ie.

it was slow, irregular, and contingent on specifi c circumstances. Only because men continued to act on these more open rules did the latter develop over the centuries into the complex general-purpose tools of the common law, the catallaxy and the capital structure.

Complexity

iii. As Hayek has pointed out, ends-independent orders are ‘complex’

phenomena. They utilise in their formation the information about specifi c circumstances only available severally with their participants (however many there are). These formations combine this changing information about ever-changing circumstances with an abstract structure — which itself changes over time. These orders represent a continuing ‘distillation,’ as it were, of the particular knowledge of particular circumstances of all the participants in their formation.

Historyiv. All four of these social formations are also historical in nature — that is, they take shape as the unintended long-term outcome of gradual historical development. All languages are defi nite historical phenomena — the result of specifi c circumstances of time and place, of particular historical occurrences.

So too, the English common law is a defi nite historical entity, part of a particular historical development. Other systems of private case-law — Roman private law, Japanese merchants’ law — are likewise specifi c to their particular historical context. The catallaxy and the capital structure are social orders whose existence was fi rst discerned in a specifi c historical context — the international economic order which developed (further) in the late nineteenth century and continued into the twentieth. The general characteristics considered here are the general features displayed by particular historical entities. Thus the objects being studied are produced by historical infl uences, but they need both historical study and theoretical comprehension, if they are to be apprehended adequately. A language needs both historical and theoretical analysis — but the latter is of an entity which can only appear historically: as a specifi c eff ect of a particular historical context, produced by specifi c historical infl uences, in a particular time and place.

Impossible to Design

v. These four social orders (language, the common law, the catallaxy, the capital structure) not only were never designed, they cannot be created by deliberate intent, even if people so wished. This follows from the features outlined above. A general-purpose social tool is formed in people’s actions only as they manifest ends-independent rules in what they do. Such rules are produced only through a certain type of interaction amongst people. We cannot aim at such an outcome; only after it occurs can we see that this is what happended. In their actions people incorporate their several knowledge of the various circumstances they face severally. The resulting ‘complexity’ of the rules manifested in their actions cannot be duplicated by design, since no single mind can grasp all this concrete information. These social formations are historical in nature: the interactions that produce a ‘complex’ formation can only occur over long periods of time, encapsulating in this formation the

(relevant) changes that occurred in people’s ideas and circumstances. People obtain incalculable benefi ts from using these social orders — but these benefi ts only unfold gradually over time, as these formations develop through people’s actions. Only after the event can we realise what these orders have helped us achieve.

All this is clearest with language (even Volapuk and Esperanto are combinations of features taken from existing ‘grown’ languages). But the common law, the catallaxy and the capital structure are also undesigned orders (how this is, we shall see below).

III

Language

A. i. Language obviously has evolved and developed, is adapted and modifi ed, as the result of human action, by its very use by human beings. People make specifi c communications in specifi c circumstances: all languages exist only in this form. But these communications are made using a structure consisting of a concrete vocabulary and complex rules of usage and grammar.

These regularities need to be studied separately, from the particular concrete ends for which they were used (the literature etc. found in that language).

Even as people communicate with one another (in whatever language), in this very process they gradually and unavoidably change that language (in due course, both its vocabulary and structure). Even Esperanto and Volapuk, if they should ever become used in daily communications, would go through this process of cumulative change. This process continues so long as any language is used by people.

A. ii. Language has distinct rules of usage and of grammar, and a specifi c vocabulary. These are learned — assimilated — only by usage. Very young children, in beginning to use language, manifest in their actions a mastery of an enormously complex apparatus — i.e. they act according to rules only a few highly-trained specialists are capable of articulating. Even very young children can distinguish mistakes in grammar and vocabulary and provide the correct forms: man acted on rules before he could articulate them, and on rules he couldn’t even begin to realise were to be found in his actions.

A language serves as a tool of communication because those who use it all follow the same linguistic rules (though this does not of course guarantee that any particular communication does, or will, occur). Linguistic rules and vocabulary are abstract and general — no concrete purpose can be adduced to explain their emergence. Thus language is an ends-independent social formation — it is a general-purpose linguistic tool, available for whatever communications people wish to make. It may be used to produce the most sublime literature or the grossest pornography (and anything in between).

A. iii. A language is a “complex” phenomenon. It represents the composite outcome of the actions of countless individuals, all using this general tool in 332 Early Modern England | Sudha Shenoy

the pursuit of their several ends. Thus we have a complex structure of abstract rules and concrete vocabulary, emerging from the countless specifi c communications made in an unknowable variety of specifi c circumstances. Some new coinages, new usages survive; others don’t. Thus rules and vocabulary are gradually altered over time — we can explain the principle involved but can never recover the full concrete details. Language is thus an adaptation to far more concrete data than any one mind can grasp.

A. iv. A language is a concrete historical development. All languages are the specifi c outcome of the particular historical developments they went through; the vocabulary, grammar and usage of any language are the result of its particular history. Thus each specifi c language represents a series of adaptations, over a longer or shorter period of time, to a particular series of concrete historical circumstances. Thus the English language of the twentieth century is the unintended outcome of a long historical process dating back to Anglo-Saxon times, in a particular (widening) geographical situation.

A. v. A language cannot be designed: since it is the complex outcome of the communications made by countless people over time (even invented languages, as mentioned, are simply diff erent combinations of existing features found in various languages).

The Common Law

B. i. The common law is the systematic articulation of a particular kind of custom. In interacting with one another, people manifest customs relating to people and to things. When a formal agreement is made or a dispute arises, these various customs are articulated as the diff erent rules of personal and property law. As the process of production and exchange continues, and as families and other social groupings grow and dissolve, lawyers are consulted, agreements drawn up, disputes fi nally taken to court. Thus the rules of this type of customary law are manifested in the actions of individuals aiming at particular purposes. As their countless transactions are concluded, the rules of the common law emerge. Lawyers (and judges) are consulted because practi-cal problems need solving. Their solutions contribute to the further development of the common law.

B . ii. The rules of the common law began as part of an ends-oriented system. In late eleventh-century England, the king established courts for settling disputes among his chief tenants; they, in turn, had courts for their sub-tenants (vassals). (Since land was held in return for military and other services, there were often further sub-tenants, as land was subinfendated). Both kinds of court were for “freemen” — those who lord was the king. Landholding meant Early Modern England | Sudha Shenoy 333

lordship over the men who actually worked that land. Such men belonged to a manor — i.e. to its lord; they went to their manorial courts, presided over by their lord’s steward (or bailiff ). On most manors, there were also some “free”

tenants, directly on the land.

In pursuit of their land and other disputes, freemen (including free tenants), began seeking remedies in the central courts at Westminster. They took their cases there directly, or by removing such cases from their lords court or a country court. Gradually, these other courts contracted; honour courts actually disappeared relatively early. As land disputes came into Westminster from all parts of the King’s realm, common rules began to be articulated for land— holders, rules that, in due course, eff ectively liquidated feudal tenure. In other cases, too, common rules gradually emerged.

Manorial customs were those of a restricted, hierarchical socioeconomic order. The “villeins” on a manor were part of the ownership unit. This meant that only those who belonged to a manor had access to its land; outsiders had to be admitted specifi cally. Compared to free tenants, villeins were subject to various disabilities: they paid higher and variable money rents; had higher, uncertain labour services, and paid heavier heriots and entry fi nes. Villeins paid merchet when their women were married off ; they paid chevage for permission to live off the manor, and had to leave all “their” chattels behind — as villeins belonged to their lord, so did any moveable property in their possession — plus, of course, “their” land. Villeins also paid various uncertain imposts (tallages).

Free tenants suff ered none of these personal disabilities: they left freely, paid lower and fi xed money rents, lower heriots (if any) and “relief ”; their labour services were lighter and clearly defi ned, or they had none. They could hold land on more than one manor.

Land on a manor was also divided: it was held “in villeinage” or it was

“freehold”. Villeinage land paid the lord for all transfers; freehold land did not.

Lords naturally tried to prevent or severely restrict their villeins from holding freehold land (even by lease or purchase); lords also prevented or restricted freemen from taking up villeinage holdings. And fi nally, lords levied a fi ne for the sale of beasts or grain off the manor.

Nevertheless, as the division of labour gradually widened, so did inter— manorial and especially inter-sectoral contacts. With the Black Death, villeinage (serfdom) naturally became unviable. Tenants increasingly took land on

“free” terms only, rejecting also the personal disabilities of villeinage — ie they acted as freemen. As royal justices too found extended grounds for declaring freedom in disputed cases, villeinage disappeared in practice by the fi fteenth 334 Early Modern England | Sudha Shenoy

century; so too did manorialism and the manor court. The vastly increased numbers now resorting to the central courts gave a striking impetus to the further development of legal rules “common to all the realm”.

The rules of the common law are ends-independent, abstract, and general in character. Thus a body of contract law is a general-purpose tool — it is used in writing a wide variety of individual contracts, each of which is written for a specifi c purpose. Over the centuries, as contracts are concluded and disputed, and as lawyers solve their clients’ problems, a body of general rules gradually emerges. These rules are again gradually altered and reshaped by the same process. Thus as the general tool is used for specifi c purposes, it is itself slowly modifi ed. In all branches of the common law, we saw a similar emergence and adaptation of general rules, used for an ever-changing range of particular purposes.

All these various rules do not stand in isolation, of course — they form the ends-independent order of the common law. This order is in the nature of a general facility impartially available to all. As mentioned, contract law (for example) is a general-purpose tool, used to write a range of specifi c contracts.

It develops and is modifi ed as a by-product of its use. But it forms a defi nite body of rules, distinct from the specifi c contracts written using it. We do not arrive at these rules by examining the concrete terms and specifi c contents of all the actual contracts written under these rules. (A language is distinct from the literature in that language, although the language is embodied in its literature).

General rules, of course, cannot determine a specific outcome — that depends on particular circumstances. Thus the judge when settling a dispute is not concerned with the outcome for either party to the case. He seeks rather to fi nd the general rule under which its particulars may be subsumed. His judgement is concerned not with the relative merits of the ends pursued by the parties involved, but with stating this general rule more clearly. This statement

(which may be its fi rst articulation) is intended to provide a guide to action in the future.

Thus in settling particular cases, the judge actually contributes to the gradual extension, revision and adaptation of the whole body of rules. His judgement relates the rule stated to the context of this general body — i.e. he seeks to derive a rule which is consistent with this wider body: he discovers, he does not invent, the law. Since legal rules are rules of action, the consistency sought is consistency in the actions undertaken by individuals in the future. Thus rules which led to frequent disputes would be inconsistent. As judges continue to aim at reducing disputes by clarifying rules, the entire body is made more and more ends-independent.

In the settlement of every dispute, there is a winner and a loser: someone’s expectations must be disappointed. But the judgement here is not that the loser aimed at the “wrong” end, but that he was mistaken in the rule on which he tried to rely — i.e. he used the wrong tool. This means he should try to fi nd another rule — one which will not bring him into confl ict again. Disappointment of some expectations is thus essential to the process which makes rules more ends-independent.

As an ends-independent order, the common law is open-ended: any number of people may learn to act according to its rules.

B. iii. The common law is thus a ‘complex’ phenomenon: it represents an orderly adaptation by countless people to a far wider range of circumstances than anyone could encompass mentally. In passing judgement on countless cases, judges are faced with settling particular practical problems. Thus in their judgements they in eff ect incorporate into their statements of the rules the general lesson to be learnt from each practical diffi culty. So too when lawyers seek to solve their clients’ immediate diffi culty, they contribute to a modifi cation of the general rule. Thus the rules represent a sort of distillation of experience, as they are gradually articulated, revised and adapted, both by judges and by lawyers.

B. iv. Any legal system arises and develops in specifi c historical circumstances. The content of rules, their particular development, are all the outcome of their specifi c history. Thus the common law is the unintended outcome of historical development.

It arose fi rst in twelfth-century England; by 1914 it had spread to the English-speaking countries in both the developed and the underdeveloped world.

The growth of the common law was intertwined with that of the catallaxy — as the division of labour was extended, so the need for legal agreements increased, and so, too, did disputes. The growth of regional and then interregional and international exchange led to the accelerated development of legal tools in response to clients’ demands and thus to the continued modifi cation of legal rules to make them more and more ends-independent. Conversely, the development of common rules throughout England and then internationally, facilitated the widening of exchange. Thus the common law is a complex historical order.

B. v. The common law could not have been designed because its rules distil the changing practical experience of many generations (as we saw above).

The Catallaxy

C. i. The catallaxy begins to develop as and if men act so as to extend the division of labour beyond a closed group. This manifests itself in the changing content of men’s productive activities.

Let us begin with early Anglo-Saxon England. Each agricultural household (the bulk of the population) was highly autarkic, producing most of its foodstuff s and textiles. The latter were woven from the yarn made from the wool of the household sheep fl ock. Spindle and loom came from a carpenter, who obtained his wood from a woodcutter and his tools from a blacksmith; the latter was supplied by an iron worker and charcoal-burner. These craftsmen were part-time agriculturalists also, producing much of their food. Other foodstuff s, some textiles, cash, etc., came from the barter or sale of their craft output.

Here in the actions of men aiming at ends, we fi nd a high degree of autarky, and a relatively low level of exchange. The division of labour has hardly proceeded very far: people produce (overwhelmingly) for the known needs of known people.

Extending the division of labour means acting on diff erent, more open rules of exchange. As and when the division of labour is continuously extended and intensifi ed, the various processes that produce fi nal outputs are ever more fi nely subdivided and interlinked, so that any one production unit contributes a smaller and smaller part of these fi nal outputs: each production unit now produces far beyond anything seen previously. Take, for example, a plant producing ball bearings in the late twentieth century. It produces only one tiny part out of the multifarious parts that make up the various machines in which such bearings are used. A host of other factories provide all these other parts.

These diff erent machines, in turn, use a variety of inputs to produce a variety of outputs, both intermediate and fi nal goods. Consider, for one, a harvester which cuts wheat (say) amongst other crops. This wheat, in turn, passes through a number of diff erent production units and processes as it becomes bread in a retail bakery. Consider now all the other fi nal goods (and services)

to whose production ball-bearings have also contributed (and consider too all the inputs needed to make the ball-bearings). In short, the ball-bearing plant is a minute element in an immense production network, consisting of a huge variety of units each producing some specifi c item or range of items. All these are produced because they contribute, at whatever remove, to the output of a (particular) range of fi nal goods and services (including leisure). The existence and continuation of the units in this network derive from the (changing)

content of this range, and hence the kind of intermediate and other production goods required.

Via their participation in one of the units forming this production network, people contribute severally to the output of that huge array of fi nal goods and services made up of what they severally wish to obtain. Thus increasing special-isation means ever-greater interdependence. The numbers of people who now participate severally in the production of the fi nal outputs they severally want, is now immense (and the range, quality, quantity, and content of these fi nal outputs would be wholly unimaginable at lower levels of the division of labour).

All these people are held together — participate in the same social formation — by their interdependence in production and exchange, made possible because they follow common or compatible rules of exchange and legal rules.

Thus in the content of people’s productive activity we see a certain regularity: the extent of the division of labour. The individual production units — the elements of the catallaxy — aim at specifi c ends (particular outputs). But while so doing, people now participate — in the late twentieth century — in a global network of production and exchange.

C. ii. A social formation as extensive as the catallaxy can develop only as and if people follow ends-independent rules in their actions. Exchange across the boundaries of closed groups means acting on wider, ends-independent rules. Disputes now require reference to such a body of general-purpose rules, already being acted on. As the exchange network widens, as more and more people are drawn in, as new products and techniques are developed, so the content of agreements changes (and hence that of disputes taken to court).

Thus ends-independent legal rules develop pari passu with the growth of the exchange network.

The catallaxy is a general-purpose social tool: an ends-independent order.

Via the division of labour, specialisation and exchange, people obtain that range of material means they need (including leisure) to pursue whatever ends they aim at. The catallaxy is instrumental only. By participating in exchange, we contribute to producing that entire range of fi nal goods and services — the various material means required for the several ends of the several participants in the catallaxy. Because the division of labour is open-ended — any number may join — we contribute, through the catallaxy, to providing the material means

(unknown to us) sought by unknowable people: just as people completely unknown to us contribute (unknown to them) to produce the fi nal goods and services that we buy. Thus the catallaxy, in its spread across the globe, peacefully incorporates its immense range of cultural groups — from fi shermen in the West of Ireland to Zulu factory workers, Japanese executives, and more.

C. iii. A catallaxy is a ‘complex’ phenomenon: it is formed from the ever-changing information about concrete circumstances available with all its 338 Early Modern England | Sudha Shenoy

participants. Given the global extent of the catallaxy (in the late twentieth century), participation in exchange means that we individually adjust our actions to far more data than we are ourselves directly aware of, or could ever become acquainted with. When South African coal is transported via Japanese ships to Japanese steel mills whose output is converted into cars and transported

(in Japanese ships) for sale in the US and in Western Europe — it is clear that merely local circumstances cannot explain the fortunes of South African coal mines. And the same is true for all the productive activities composing the catallaxy.

Participants in the catallaxy change the ends they pursue (for a variety of reasons). So their material requirements also change. People discover (or realise) new ways of meeting these requirements, or of providing new means altogether. Also, the greater productivity of roundabout methods — further extending the division of labour — requires that equipment, labour and other inputs be more specialised, often in new ways.

Information about all these possibilities is dispersed severally — as varying information available with diff erent people about various alternative uses for the resources they know about. Often people simply know how to fi nd such information. Alertness to change also diff ers.

As particular individuals discover (or realise) new opportunities, and others perceive that old opportunities are closed off , all those involved revise their plans and actions. Thus they alter the data perceived by other participants, who now have to adjust what they do — in the light of the various circumstances known to each individually. All these revisions and adjustments occur as changes in the range of goods and services and in the terms of exchange off ered. Thus prices too are complex phenomena: they incorporate the relevant information about specifi c circumstances, available with the numerous participants in this process.

This adjustment process means that some people’s plans and expectations must be disappointed. Other individuals (fi rms, households) fi nd their plans succeed well beyond expectations. Thus the process of price formation leads to changes in relative incomes and asset values — raising some, lowering others. Both are essential to the discovery procedure of the market process. Operating and capital gains and losses are necessary to “maximise” the information conveyed by price changes and to coordinate productive activities.

C. iv. The catallaxy is an historical phenomenon. The twentieth-century catallaxy began (partly) in twelfth-century England. In the intervening 800 years, it spread through England; the sixteenth century saw the beginnings of its global spread, as production in Western Europe and in England linked Early Modern England | Sudha Shenoy 339

up and as Asian trade began. In the nineteenth century, Britain and Western

Europe became only the British and Western European sectors in a global production process which incorporated practically all the regions of the world.

Thus the catallaxy was discerned in the concrete activities of specifi c people in a particular historical context. In analysing their actions, the existence and operation of this social formation was realised — as particular kinds of interconnections amongst these actions came to be comprehended.

C. v. The catallaxy is an undesigned order. No one intends or even realises that when a wider range of material means are supplied to fi nal buyers, these material means are now the outcome of such an extensive and ever-growing series of exchanges. No one has an overall view of the entire network of production (and exchange) nor is such a comprehensive survey possible.

Everyone is concerned only with what they buy and sell. But a social formation — a catallaxy — has now developed; and information now passes through the production network via price changes and other changes in the terms of transactions.

The Capital Structure

D. The growth of the capital structure is also the orderly outcome of the extension of the division of labour beyond a closed group i.e., the capital structure develops pari passu with the catallaxy. Thus the capital structure shares the general features of the catallaxy.

Here, we have to start with the particular array of fi nal goods and services

(including leisure), being produced in whichever historical context we are considering. This particular array forms the analytical unit whose production we investigate. We take this collection as our object because men aim to obtain, not just one single fi nal good or service, but a specifi c such “mix” (which includes leisure.) Thus no single fi nal output is ever produced in total isolation by itself:

people always produce, and exchange, an array of such fi nal outputs.

This collection of fi nal goods and services may be narrower or wider, of course. Clearly, the range of fi nal outputs which men can produce is limited by the range and type of capital instruments they have. This constraint may be narrower or wider, according to the development of the capital structure

(as we shall see.) Within such limits, men aim severally at diff erent and divergent hierarchies of specifi c ends. So, whatever its range, the “mix” of fi nal outputs refl ects what people severally rank higher and what lower, on their several value-scales. These rankings and the contents of what men aim at, obviously change over time, often drastically. So there are corresponding changes in the specifi c, concrete make-up of the array of fi nal outputs (including leisure.) But, 340 Early Modern England | Sudha Shenoy

in any historical context, people are able to produce whatever material means they do produce (to achieve their several ends), because of the range and type of capital instruments available to them.

These capital instruments are specifi c, concrete capital goods. That is, they are not homogenous — they are not all perfect substitutes for one another.

Rather, capital goods are heterogenous: they are complementary to one another in producing fi nal goods and services (as we shall see). Since capital goods are instrumental — they are not fi nal goods — it is the particular “mix” of fi nal outputs that people wish to obtain (with these capital goods), which determines the specifi c form and content that these capital instruments take. Obviously, a wider range of capital instruments will enable people to produce a wider range of fi nal outputs (including leisure). But capital goods remain instrumental, whatever their range and type: it is still the specifi c content of the fi nal outputs produced, which determines the specifi c content and form of such capital goods as are available. So in any historical context, to analyse the production of the range of fi nal goods found there, is to analyse the array of productive instruments also found there: since it is these instruments that enable people to produce these fi nal outputs. The two sets of goods and services thus constitute one analytical unit — an historical unity.

Short and Long Structures in History

A practical comparison is possibly the clearest way of demonstrating the development of this social formation — the capital structure — in people’s actions. Let us begin with the array of fi nal goods and services in an autarkic agricultural household in early Anglo-Saxon England. This collection would include: coarse food grains; some fruits, vegetables, dairy products, meat, ale;

some simple footwear and clothing; some pottery; a few brooches. Virtually all these items would be produced within the household (except for some footwear; some pottery; the brooches).

Looking now at the household production of simple clothing: This fi nal good requires as inputs (from the previous production stage) — cloth; bone needles; woollen or linen thread; a knife (for cutting); and of course (female)

labour. Except for the knife, these capital goods are again produced in the household. In the preceding stage of production, cloth is woven at home;

before this, the yarn is spun from the fl eece of the household sheep. Moving back one stage — spindles and looms are produced by the carpenter (as mentioned), the metalsmith supplies the knife. The carpenter uses tools made by the smith and wood from the woodcutter. In this preceding stage: the smith, in turn, uses inputs provided by the ironworker and charcoal-burner — who Early Modern England | Sudha Shenoy 341

use tools and implements supplied by the smith; the ironworker also uses charcoal. (The carpenter produces spindles and looms — closer to the fi nal consumption stage; ironworker and charcoal burner use their tools to produce iron ore and charcoal — further from the consumption stage — the smith must fi rst use these in producing carpenter’s tools and implements). Thus the smith produces capital outputs used in more than one stage of production; so too the charcoal-burner. (Succession of investments in stages from fi nal consumption

— weaving of clothing — to stage further removed — eg mining of iron ore).

Household production of agricultural items would require agricultural tools from the smith (plus labour and land, of course). The brooches (bought or bartered for) would come from the metalworker (who would use various metals, plus charcoal and tools).

Here, in the actions of men aiming at ends, we fi nd a very low degree of specialisation and exchange, and the production of small quantities of a narrow range of fi nal outputs, generally coarse in quality. The production structure for these fi nal goods is relatively short — there are only a few short investment processes, belonging to only a few investment stages, between fi nal consumption and the stage furthest removed. Likewise, the capital goods involved are simple and not very specialised. They enable people to produce only a very limited range of fi nal goods and services. — But even here, fi nal goods are produced by a “chain” of specifi c investments, forming a production structure with defi - nite stages. All the complementary investments in each successive stage are needed to produce the fi nal output.

A Lengthy Structure

Turning now to the late twentieth century catallaxy: Out of the enormous array of fi nal goods and services produced in the “developed” areas, let us take a washing-machine as a fi nal good from which to start. The installed machine provides a fl ow of fi nal services, so in the preceding investment stage transport and technical services are invested in shifting the machine from the retail shop and installing it in the house. The retailer receives his stock (via transport)

from the wholesaler whose stocks come (via transport) from the factory. At this latter stage of production, the washing-machines are turned out using installed machinery, skilled labour, and other inputs (steel, various rubber and metal parts, electrical motors, etc). The steel is transported from a steel mill, which again uses heavy installed plant and equipment, other types of skilled labour, iron ore, coal, etc. The iron ore and coal are transported to the mill from mines using both skilled labour and mining machinery. Where the latter is installed, it is in turn transported from factories that use steel, skilled labour, other inputs. 342 Early Modern England | Sudha Shenoy

In all stages of production, legal, marketing, and insurance services are used. In short, a very large number of investment processes all contribute to the output of this one fi nal good — a washing machine; the processes and inputs we have barely sketched here are only the most obvious. In turn, the washing-machine is only one amongst tens of millions of fi nal goods and services produced in this late-twentieth-century catallaxy, in the “developed” areas. The investment processes so briefl y outlined here contribute variously to producing many — most — of these as well. Thus, all fi nal outputs are produced through a series of such investment “chains” or stages of investment.

We may now re-examine some of the main general characteristics of the capital structure.

a. All capital goods are heterogenous: any substitutability is extremely limited and applies only at the same point in the capital structure. But some investment goods are versatile in the sense they contribute to the production of a wider range of fi nal outputs (goods and services). Other capital goods are more specifi c: they can help to produce only one or a few fi nal outputs. In all cases, however, the cooperation of a myriad other investments is also needed.

Thus steel goes directly into the manufacture of cars, fridges, other electrical goods. But, steel is also used in the manufacture of a wide variety of diff erent kinds of machinery, which in turn is used to produce both intermediate and fi nal goods. For example, woodworking machinery is used (with other inputs)

to produce furniture; and diff erent such machinery is installed in the sawmill from which timber is sent out to help produce a wide range of outputs: from furniture to packing-cases (for fruit and vegetables, among other things). Thus each of the investment goods here mentioned (steel, timber) is used in the production of a number of fi nal goods (e.g. cars, fridges, etc; furniture, the supply of fruits and vegetables, etc).

But, in each case, the investment good contributes to only one or some of the successive production stages involved. Other complementary investments are needed, in all stages down to that of fi nal consumption, for the fi nal goods concerned to supply fi nal services. Consider, for example, only some of the successive, complementary investments needed to convert trees into furniture in the house: a managed forest, logging equipment, sawmills, woodworking machinery, wood polish, wholesale and retail investments, together with diff erent kinds of labour, transport, insurance, legal and managerial services at all stages...

In short, no investment can, by itself, produce fi nal goods: complementary investments are always required, even in the autarkic conditions of early Anglo-Saxon England (as we saw above) In the late twentieth century catallaxy, a steel mill (for example) does not suffi ce on its own, to produce a washing-machine Early Modern England | Sudha Shenoy 343

or other fi nal goods. As outlined above, a myriad of complementary investments must intervene: in factories and machines, to utilise the steel along with other inputs. Where factories produce intermediate goods (such as machinery), further investments and inputs are needed (in succeeding stages, nearer consumption) to produce fi nal output. Then investments must be made in distribution facilities, to bring the fi nal goods to the point of use. Steel output, in sum, is changed into fi nal consumption goods only in cooperation with a series of complementary, heterogenous investments, made in a defi nite succession of stages down to fi nal consumption. The same is true of all other investments and capital goods. In short, any investment can help to produce fi nal goods only as part of a “chain” of complementary investments, “completed” to fi nal output stage.

Thus in this catallaxy, the particular array of final goods and services required by its participants is produced by lengthy “chains” of heterogenous investments, both “fi xed” and “circulating”. To produce this fi nal output, each investment link in these “chains” of production must be in place: from the retail stage (nearest fi nal consumption) to the stage furthest removed.

Now in any historical context, that collection of fi nal goods and services actually in people’s hands, obviously constitutes the fi nal consumption stage of the investment structure found in that context. All the various heterogenous investments that go to provide these fi nal outputs, may then be classifi ed as contributing to stages closer to, or further from, fi nal consumption. A retail shop obviously is closer to fi nal consumption than a steel mill, while the latter is further removed. Some investments are specifi c to stages further from, or closer to, the fi nal consumption stage. Again, a steel mill obviously will always be further removed from consumption than a retail shop, while the latter will always be closer to the fi nal stage. Other investments are versatile and may be used at almost any point in the production structure. For example, a lorry may be used to transport goods at any stage, while electricity is used at all stages — from fi nal consumption to the stage furthest removed.

The outputs of a single production unit may be used at several diff erent stages. Thus a paper mill may supply a greeting card manufacturer (closer to fi nal consumption) and also a manufacturer of legal stationery. This stationery may be used in advising the head offi ce of a steel mill (much further removed from consumption.) (And the legal fi rm may also supply legal services to a retail shop — perhaps selling washing-machines — much nearer fi nal consumption.)

We have seen that steel output goes to produce washing machines and other similar fi nal goods (closer to fi nal consumption stage) Steel is also used 344 Early Modern England | Sudha Shenoy

in producing mining machinery (much more distant from fi nal consumption.)

Even in Anglo-Saxon England, the metalsmith supplied tools to the carpenter (nearer consumption) as well as the woodcutter and charcoal-burner (further removed from consumption.) We have to begin with the fi nal goods being produced, and trace through the “chains” of investment producing these fi nal goods, in order to obtain the diff erent stages in which these investment goods are used.

Turning now to production and consumption in early Anglo-Saxon England: if we compare this with the huge array of fi nal outputs and the intricate production structure in the late twentieth century catallaxy, it is clear that the content, quality, quantity and range of fi nal outputs are all determined by the “lengths” of the production structure involved — i.e. very broadly by the

“length” of the investment chain intervening between fi nal consumption and the stage furthest removed: — the “lengthier” this chain, the greater the variety of specifi c investments and the number of stages into which these investments can be classifi ed, starting from fi nal consumption and working back to the most “distant” stage. But the heterogenous investments and the investment processes forming a “lengthier” capital structure are also more and more specialised. So as the investment structure “lengthens”, the production processes

— i.e. the investments composing them — become ever more fi nely specialised, and an ever-growing number of such highly-specialised processes have to “mesh” together and cooperate to produce any fi nal output. (Consider the examples above — furniture, washing-machines — and generalise to all other fi nal goods and services.)

We have seen that the capital structure consists of various heterogenous investments that form a series of stages of production between fi nal consumption and the stage furthest removed. This means that in shifting from a (relatively) “shorter” to a (relatively) “longer” investment structure, we change from producing one “mix” of specifi c investments and capital goods to another such

“mix”. The outputs constituting the fi rst set “fi t into” fewer stages between fi nal consumption and the stage furthest removed, while the second set “fi t into” more such stages. But in a “lengthier” investment structure output and investment processes also become more specialised. Consider, at one extreme, the relatively limited range and type of capital goods in the relatively “short”

production structure of early Anglo-Saxon England. At the other extreme, consider the vast array of highly-specialised investments and capital goods, their variety and range, and all the diff erent production processes found in the far more extended capital structure found in the late twentieth century catallaxy.

Extending the capital structure means investing in stages further removed from fi nal consumption: versatile outputs are directed to these stages, with a Early Modern England | Sudha Shenoy 345

(relative) decline in stages nearer consumption. (Initially, more steel goes into the production of mining machinery or other types of machinery, less into factories producing fi nal goods. Investments are also made to increase steel output — to provide more inputs when additional machinery is installed in these factories. Investments must be made elsewhere in other stages further removed from consumption, to provide all the other inputs needed...)

In a “lengthier” production structure, the “mix” of investment outputs now includes new capital goods and investments. New processes are also started. Many — most — investment goods used previously, will continue to be used, although at diff erent points in the capital structure, perhaps in other stages — all relative to fi nal consumption. Output of some investment goods will increase; output of others will fall and for some there will be no change.

Many investment goods will have to be discarded: they no longer “fi t into” a more extended capital structure. That is, they cannot complement the various investments now forming this extended production structure.

Some investment outputs are specifi c to “lengthier” production structures:

they can be produced (and are appropriately produced) only when the capital structure is already very considerably extended. Examples include a steel mill or computers. Other capital goods are specifi c to “shorter” such structures — for example, stone tools. Such investment goods are no longer produced as and when the capital structure is extended: they cannot now be used in any production process. Many capital goods are useable in production structures of diff erent “lengths”: e.g. coal, bricks, timber, a wheatfi eld. Such goods are used at diff erent stages in the production process, in relation to the fi nal consumption stage, as and when other, complementary investments change, new investments are produced, and the overall “length” of the production structure is altered. For example, in a (relatively) “shorter” production structure, wheat may be sold directly to bakers or fi nal buyers in a local market. The buyers then convert the wheat into fl our at the local mill (water-powered.) Here, the wheatfi eld is in a stage of production not too far removed from fi nal consumption. In a more extended capital structure, the wheat is sold to manufacturers, who convert it into fl our in mills using power-driven machinery. The fl our may then go via wholesalers and retailers to fi nal buyers. Or it may go to other manufacturers for eventual conversion (in factories using machinery, skilled and unskilled labour and a host of other inputs) into a variety of prepared foodstuff s (such as biscuits.) These then go via a distribution network to fi nal buyers. The wheatfi eld is now used in a stage of production very much further from fi nal consumption. It is also part of a far “lengthier” production structure, one with an entirely new range of new and additional investments and production processes.

Consider also the Shetland and Hebridean knitters and weavers who, in the late twentieth century, produce virtually the same outputs as in earlier periods. But they no longer directly barter with, or sell to, fi nal users. Their outputs go via intermediate buyers to urban retail establishments fi tted out by professional shop-fi tters, the fi ttings (in turn) produced in machine-using factories, and transported in lorries from warehouse to shop. Legal and insurance services enter into the production of the retail services that provide the fabrics and knitwear to fi nal consumers. Craftsmen might continue to make the spinning-wheels and looms used by weavers, but the craft tools are factory-produced, the outcome of a far “lengthier” production structure. And the knitters now use steel (not bone) knitting needles.

Another instance: the Midlands furniture factory which, from the 1920s to the 1970s, produced substantial, durable furniture, sold to wholesalers. It then switched to lighter, more colourful and varied furniture sold directly to fi nal customers. But in the 1970s, the machinery, the fabrics and other inputs used are the product of “lengthier” investment structures. Many fabrics, for example, are made from artifi cial fi bres i.e. chemically; the lorries and ships used are almost certainly Japanese; the machinery may be made from Japanese steel; and so on...)

In sum, to say the capital structure is altered is to say that there are changes in the content of investments and/or the production stages in which they are used (relative to fi nal consumption.) In addition, many investments are moved to other locations.

Extension of the capital structure means intensifying the division of labour

— greater specialisation and exchange. Again, consider the autarkic production of early Anglo-Saxon England. Much the larger part of the production process for virtually all fi nal goods, was carried out within the household: i.e., there was only some restricted specialisation of labour. Turning now to the vastly extended production structure of the late twentieth century catallaxy:

there are now innumerable diff erent lines of employment and an incomparably greater degree of specialisation. So, as the capital structure is extended over time, new and more specialised lines of employment open up. Old occupations disappear and many others are modifi ed. An extended capital structure and increasing specialisation in employment are two sides of the same coin.

(One need only cast ones mind back to the 1920s, for example, or any period in the nineteenth, eighteenth, seventeenth... centuries to see how many specialisations have disappeared or contracted, while many others have developed and grown).

Finally, to consumption output. Many types of fi nal goods (and services)

can be produced only from fairly “lengthy” — highly specialised — production structures; for example, electronic goods, cars, computer games, etc.

Other goods of consumption goods are produced from capital structures of varying “lengths”. One example is foodstuff s. The diff erence is in content, range, quality and quantity: all improving and changing with the “length” of the investment structure which produced the foodstuff s. (Compare the heavy rye or barley bread produced in early Anglo-Saxon England with the range and quantity and incomparably better quality of the diff erent kinds of wheat bread found in the late twentieth century in “developed” areas. And consider now the entire range of foodstuff s produced there....)

We have seen that extension of the capital structure means changes in the

‘mix’ of capital goods produced — such that they ‘fi t into’ a ‘lengthier’ production structure. In such an extension, existing capital goods and investments, where possible, are shifted into stages further from fi nal consumption or used there more extensively; some capital goods and investments are no longer useable and are discarded; new investment outputs are produced. The composition and timing of fi nal output likewise change. Extending the capital structure means an eventual switch from one collection of fi nal goods and services — those produced from a relatively shorter structure and available in the somewhat nearer future — to a diff erent such collection: produced from a ‘lengthier’

production structure, becoming available somewhat later in time. The time— horizon over which consumption can continue is thereby extended also.

In summary: to extend the capital structure means shifting some resources away from producing fi nal output in the nearer future. That is, in this nearer period, the actual level and variety of fi nal output is kept some distance below some achievable level — in order to supply the resources needed for those investment processes that will eventually provide more and diff erent fi nal output at a somewhat later period — for a somewhat longer period of time. Obviously, the fi nal output available in the nearer future is the limit within which resources can be allocated to maintain and extend the future availability of such output. Where the fi nal outputs produced in the near future are narrower in range and smaller in quantities, there the notional opportunity cost is higher, of shifting resources into stages further from fi nal consumption. With an increase in the range and quantities of fi nal outputs producible in the closer future, the notional opportunity cost drops, of using resources in ‘lengthier’ production processes.

The actual height of these opportunity costs, however, refl ects the time-preferences of those who receive and dispose of fi nal output (in any given context). Where people attach a relatively high value to obtaining such output 348 Early Modern England | Sudha Shenoy

in the nearer future, there the actual opportunity costs are higher, of shifting resources into stages further from fi nal consumption. Conversely, when people value increasingly, the availability of fi nal outputs at a somewhat later time, actual opportunity costs are reduced, of moving resources into ‘lengthier’ production processes.

In short, once a capital structure is ‘lengthened’, it does not maintain itself automatically for all time, irrespective of people’s actions. Such an extended investment structure, as stated, increases the fl ow of fi nal outputs, thus off ering the possibility of reducing the opportunity cost of maintaining and extending these lengthier processes. But people’s time preferences, expressed in their actions, determine what actually happens to that capital structure: — - what is decisive are their relative preferences for obtaining fi nal outputs in the nearer future relative to a later period.

Thus, with an extended capital structure it is possible to increase considerably the fl ow of fi nal outputs in the nearer future by shortening this structure:

i.e. shifting resources into stages nearer consumption and reducing their utilisation in stages further removed. (The potential for such a shortening depends on the “length” of this investment structure). Of course the opportunity cost of this course of action is a reduced fl ow of fi nal outputs at some later date

— since the investment structure has been “shortened”. Conversely if in the nearer future people will accept a lower level of fi nal outputs, then resources may be transferred into maintaining and extending the capital structure — thus ensuring the continued (and improved) fl ow of fi nal outputs at some later time.

In short, in any context people’s time preferences are expressed in the “length”

of the capital structure in that context: the extent to which people wish to shift available resources into production of fi nal outputs to be had at a later date, relative to production for a closer period.

Again we may look at the fi nal goods and services produced within and by autarkic households in early Anglo-Saxon England: coarse grains, some fruits and vegetables, dairy products, meat, ale, some simple footwear and clothing; some pottery; a few brooches. All these are the outcome of relatively short investment processes; the quantities produced are suffi cient for only a short period of consumption — e.g. from harvest to harvest. In this context, one investment which would (in eff ect) extend the production structure is an improved metal-tipped plough; another such would be an improved metal-tipped hoe. Both implements help to raise the quality and quantity of agricultural output. Under given conditions (e.g. variations in the weather) and with given harvest fl uctuations, these investments enable slightly larger food stocks to be carried from one harvest to the next, for as long as the tools last.

In exchange for the metal tips made by the smith, the farmer supplies him with grain, cloth or some combination. In doing this, the farmer decides to reduce his (and his household’s) consumption in the nearer future — in order to obtain fi nal goods at a later date, for a longer period. Here the farmer is not acting qua farmer — but as a recipient of fi nal outputs: he is deciding how to dispose of these fi nal goods over time — i.e. he determines the time-shape of the consumption he can obtain with the resources of his particular context. As farmer, he produces fi nal outputs. As recipient of these outputs, he determines their disposal over diff erent time-periods.

In transferring some consumption goods to the smith, the farmer in eff ect moves his and his wife’s labour, and other resources, from the investment stage nearest consumption to stages further removed: i.e. he shifts from producing consumer goods in the nearer future to producing fi nal goods for a later and longer time-period. The smith puts in additional time at his forge, making more use of his tools, using inputs supplied by the charcoal-burner and ironworker. They get some grain and cloth in exchange; and they, in turn, put more eff ort and other resources into producing additional quantities of charcoal and iron. Metalsmith, charcoal-burner and ironworker either put a little less eff ort into their own food production or give up some leisure or both, to achieve this greater output of investment goods (charcoal, iron, metal tips.)

Once he begins using his new and more productive implements, the farmer has to decide whether to allocate some of the additional output to repairs and replacement or consume the lot. This decision is neither automatic nor mechanical nor fore-ordained: it expresses his time-preferences as a receiver of fi nal goods; and these time-preferences could have changed. If he now attaches a very high value to obtaining more fi nal outputs in the nearer future, he will not set aside any grain or cloth for repairs and eventual replacements — i.e., he will make no provision for raising fi nal outputs at a later date and for a longer period. Only if he wishes to continue providing into a later period in the future, will the farmer use some of his higher grain output to pay the smith for repairing and then replacing these implements. Only in such a case will the extended capital structure be maintained, with the smith and other artisans continuing to produce additional investment goods — i.e., devoting more time and other resources to production stages further removed from fi nal consumption.

I hope it is clear that in thus cooperating to supply the farmer with improved implements, these artisans are not demonstrating their own time-preferences: they act only as the farmer’s agents. Suppose (for example) the smith made these tools on his own decision, but specifi cally intending to sell them to the farmer. If the latter refused to buy them, the smith would have 350 Early Modern England | Sudha Shenoy

lost his time and other resources, and lost some of his own grain production to boot. The farmer will buy the tools only if he wishes to reduce his own consumption and transfer the resources to producing fi nal goods for a longer period, into the future.

Suppose again the smith took payment from the farmer but failed to deliver the implements (or repair them, if they were already made.) The farmer would then demand a return of the grain and cloth; he would look for another smith prepared to do the job (assuming, that is, that he still wished to alter the time-shape of his consumption.) And since (in this context) all households are very largely autarkic (producing much of their own food and other consumption items) — let us further suppose the smith and other artisans also wished to have such improved agricultural tools. To implement this decision, they too would have to reduce the time and other resources going into food production, and transfer these inputs to produce more charcoal, iron, and metal tips.

(They would also have to work out how to barter these items amongst themselves, probably along with some grain and cloth.) Now, in deciding to reduce their consumption in the near future, and provide instead for consumption later in time, these artisans too are acting in their capacity as recipients of fi nal output, not as producers of investment goods.

The farmer’s son, in due course, will inherit his father’s agricultural implements and other assets. Obviously this inheritance means he can already provide for a longer future period than otherwise. But again this son’s actions will express his time-preferences. He may choose to raise his consumption in the near future and not allow for repairs and replacement, thus reducing the fl ow of fi nal outputs at some future time. Or he may continue to set aside grain and cloth to pay for maintenance and renewal of these tools, thus maintaining the existing investment structure. If he chooses to extend the time horizon of his future consumption even further, he may use some of his higher grain output to pay for other improved tools. Or he may plant some of his land to a new variety of rye or barley (relying on stocks of grain of known varieties to cover any failure).

In any given context, the “length” of the capital structure manifests the time preferences of those who dispose of fi nal outputs. In their actions they demonstrate the particular time-shape of consumption they will act to secure:

how much in the nearer future and how far into the later future to provide for

(within the limits set by such fi nal outputs as are available in that context.)

In sum:D. i. A capital structure manifests itself in the changing content of people’s productive and exchange activities. It refl ects their composite, changing ‘time preferences’: desire to provide for future consumption.

D. ii. A capital structure is an instrumental, ends-independent social order. — Given its overall ‘length’, as determined by people’s composite time preferences:- The composite concrete range of changing fi nal outputs that people buy and utilise, determine its form and extent. These fi nal outputs determine the specifi c, concrete capital combinations and production processes that make up the links in the investment chains involved.

D. iii. A capital structure is a ‘complex’ phenomenon, incorporating all the changing information about changing production conditions, possessed by all its participants. Its formation and continued functioning utilise all the particular changing knowledge of particular circumstances that its participants acquire. Capital and operating gains and losses transmit this ever-changing information.

D. iv. A specifi c capital structure is an historical development, specifi c to particular historical circumstances.

D. v. A capital structure is an undesigned order; it cannot be designed, as it consists of the ever-changing concrete investments made in all fi rms involved in producing the range of fi nal outputs.

F O O T N O T E C H A P T E R 6

1. L. M. Lachmann, Capital and Its Structure (Kansas City: Sheed Andrews 2nd ed

1978).