Hasn't the exchange been successful?

At this point I have proposed that the exchange is problematic, that it came from a certain concept of justice, and that it has persisted despite these problems because of legal institutions and people who are empowered by it. But there is also another common argument, which is that the exchange has been wildly successful in comparison to other types of economic system, and that it has benefited society greatly in a way that no other economic system could.

The claim is largely associated with liberal market economies and placed into comparison with two other systems: the apparent feudal system that preceded liberal market economies, and communist or socialist societies, especially as they have been practised in the USSR and China.

The modern liberal market economy, in this argument, was developed from more primitive (but still complex and robust) market systems, with the invention of debt-based trade, central banking, capital investment markets, and the stock market. Not all of these are genuinely modern inventions: ancient Egypt had centralised banking through royal granaries and grain receipts, debt has existed in many forms in many societies, and capital investment markets existed in ancient Rome in some form (and their failure led to an economic collapse in 33CE). But the specific form and combination of them that developed from the 1400s onwards are said to have spurred economic activity by increasing liquidity (allowing people to trade with each other more easily) and diversifying risk (allowing people to hedge their bets).

Moreover, the argument goes, Western Europe and the US, using liberal market economies, outcompeted communist Eastern Europe and the USSR, making liberal market economies the most prosperous economies in all of history. And even if this competition were considered uncontroversially fair and the comparative success completely true, the further conclusion - that liberal market economies are the greatest economies possible - is not really warranted unless communism (in the form practiced by the USSR) is the only other system possible.

Are there other explanations for the success of liberal market economies, or are they predicated on the success of the exchange themselves? There are a few alternative possibilities: colonialism concentrating power and wealth to Europe and selected colonies, industrialisation giving dominance to certain states, democracy being more important than markets, and the presence and use of non-reciprocal gifting itself.

Colonialism

Colonialism was driven in part by a discourse about racial and civilisational hierarchy. The discourse goes something like this: Europeans had built orderly, prosperous and complex civilisation and other groups, at least by European reckoning, had not. Therefore, Europeans concluded that they were in some manner more moral and occupied a higher place on the natural hierarchy of peoples. They used this to justify the use of power over others, including exploitation, dispossession, occupation, slavery and genocide. "Colonisation" is generally just a word that replaces "invasion" but which sounds, to some ears, more justified.

A map of the world that highlights developed liberal economies is very similar to a map of the world that highlights European countries and countries that were permanently settled by European colonists. There are three main reasons this could be the case. First, Europeans extracted an enormous amount of wealth from invaded countries, accruing that wealth for themselves and leaving invaded countries more impoverished. Second, Europeans often constructed conditions in invaded countries that deliberately sabotaged their stability, such as the manner in which they drew borders, organised political institutions, pitted groups against each other, and destroyed the labour force. Third, Europeans largely enforced a world order in which concepts of economics, politics and statehood were European concepts. This was advantageous to European countries. The economic discourse was that of the exchange, which favoured European countries because they had lots of exchange capacity they had extracted from invaded countries. The discourse of politics was that democratic politics was more moral and civilised, which allowed them to justify the use of power over countries that were, in their reckoning, deficient or amoral. And the discourse of statehood was one of sovereignty, where the internal affairs of states should be up to the state themselves, which allowed wealthy European countries to justify that they did not need to help invaded countries, and that invaded countries would not be justified in pursuing some sort of reparations or retribution.

The success of liberal market economies might therefore not be because of the liberal market economies themselves, but because those countries that championed the concept of liberalism were also historically those countries that invaded and exploited others, and their wealth is a result of this extraction of resources rather than some market principle.

Industrialisation

One of the results of colonialism was a British Empire that had control of a great amount of land and resources around the world, a complex network of trade, a surplus of resources, and a developed culture of business and management. These were excellent ingredients to produce industrial innovation, where mechanical power allowed production at a scale never before seen. Industrialisation spread across Britain, then many other places in Europe, and then across the world.

Industrialisation is most viable when there is a surplus of wealth and a capacity to direct labour from agriculture to other jobs - it could therefore not be immediately exported as a practice to every other country in the world. Those countries with particular traditions of agriculture, strong trade networks and which had extracted a lot of resources (often from other countries through colonisation) were therefore best placed to take advantage of. Even today, the spread of industrialisation is uneven, and those places that colonialism had extracted resources from and left destabilised have been worst placed to implement it.

But industrialisation allows for a more efficient use of resources and a greater production of wealth, so this unevenness produces wealth inequality between countries. The consequences of uneven industrialisation and the impacts of colonialism have led to two major economic blocs, one of which (the "Global North") has historically taken advantage of the other (the "Global South").

The disparity of wealth and economic success is therefore not unambiguously between countries that embraced liberal market economies and ones that did not, but between countries that have had various historical factors that placed them into an advantaged or disadvantaged context in world trade.

Democracy

It is not the case, however, that countries are static and cannot develop more prosperous economies, or that they will keep more prosperous economies if they have developed them. Economic studies show that one very significant factor is the implementation of stable and inclusive economic and political institutions - that is, one of the main factors of success is the quality of democracy. Countries with higher quality democratic institutions, including citizen participation and rights, tend to have better quality of life outcomes than places that are authoritarian or engaged in civil conflict.

While colonialism did have an impact on which places had established and stable political institutions, there are many other factors that affect whether stable democratic institutions are implemented, or whether they fail. Democratisation has occurred in several waves over the last few hundred years and, once again, coincides with the success of liberal market economies. Many democracies are liberal democracies that are completely intertwined with liberal market economies, but they vary in the level of liberalisation and government intervention.

Economic studies show that liberal market economies are not enough "on their own", but that inclusive political institutions and some level of regulation are also required. Democracy diffuses power (even though it is relevant to argue whether it diffuses it enough), preventing too much concentration of wealth amongst too few people, which is ultimately unproductive and leads to questions about the health of the economy (the mega yachts-but-homelessness question).

Modern democracy - like industrialisation and globalisation - is only a couple of hundred of years old. It is particularly difficult to properly disentangle their impact on prosperity given that they have often emerged together, first in the Global North and then to some degree in the Global South. But placing too much emphasis on liberal market economies in particular is dubious.

Non-reciprocal gifting

One of the major policies of modern democracies is welfare, a redistribution of resources away from the wealthier through taxes and toward the more disadvantaged through policies of non-reciprocal gifting. Perhaps it is a controversial take, but the success of modern liberal market economies could quite possibly be a result of the implementation of non-reciprocal gifting through democratic welfare policies. Markets of all sorts simply cannot function without some level of non-reciprocal gifting, after all.

One could test for this by comparing the success of different liberal market economies with differing welfare policies. (Note that when there are extensive and deeply embedded welfare policies, these economies are sometimes called "mixed economies", but they are still characterised by their extensive and deeply embedded markets.) There is some trouble with any analysis of this sort, however, which is choosing how to measure it. For example, Gross Domestic Product or GDP has been a common measure, and it tells us how much economic activity has occurred in the economy. This economic activity isn't necessarily productive, and if the price isn't an entirely reliable representation of actual value then this number is a little unreliable, but the general principle is fine. Alternatively, there are other measures, such as quality of life measurements (accessibility of healthcare and education, for example), life expectency, happiness, or leisure time. And while some economies do better on some measurements (the US has an excellent GDP per capita) other economies do better at other measures (happiness for the Nordic countries, and leisure time for much of Europe, as well as life expectency for various European and Anglo countries). Another measure is income inequality or wealth inequality, where the US, for example, does poorer, but Canada and Norway do very well. The relative success of any particular economy depends upon which measure is picked.