premodern vs modern economy

In Sapiens, Yuval Noah Harari highlights that the first and most sacred commandment for the modern capitalist economy is: “The profits of production must be reinvested in increasing production.” This, in fact, is the main reason why capitalism is called ‘capitalism’.

This notion may seem familiar, well-known and quite trivial to the people today, but it has been foreign to a majority of people throughout history. As Harari explains, “In premodern times, people believed that the level of production was more or less constant. So why reinvest your profits if production won’t increase by much, no matter what you do? Thus medieval noblemen espoused an ethic of generosity and conspicuous consumption. They spent their revenues on tournaments, banquets, palaces and wars, and on charity and monumental cathedrals. Few tried to reinvest profits in increasing their manors’ output, developing better kinds of wheat, or looking for new markets.”

He further adds, “In the modern era, the nobility has been overtaken by a new elite whose members are true believers in the capitalist creed. The new capitalist elite is made up not of dukes and marquises, but of board chairmen, stock traders and industrialists. These magnates are far richer than the medieval nobility, but they are far less interested in extravagant consumption, and they spend a much smaller part of their profits on non-productive activities.”

This is something that I would really like you to give a deep thought to. How are you living in the modern world right now — as a medieval nobleman with a big appetite for the pleasures that the world offers, or as a capitalist who focuses on making worthwhile investments, both of their time and their money, rather than spending them on pursuits that are far from enriching and productive?

The times have changed drastically. And the modern economy is not a zero-sum game; it’s a growing global pie. Unlike the premodern economy, the profits earned in the modern economy are re-invested to increase production, which further brings more profits, and this cycle continues. 

That’s why if we want to become wealthy and attain financial freedom, it’s crucial that we behave like a member of the capitalist creed and be diligent with the use of the money that we make. Rather than seeking fleeting pleasures, we must be geared towards making significant investments that bring us long-term dividends.

Of course, this doesn’t mean we have to live a life of deprivation and lack. Nor does it undermine the power of giving and making meaningful contributions to the community. We can enjoy things that add value to our lives and practice generosity and altruism, but we should never lose sight of the power of investing — investing in our personal growth, investing in the stock market, investing in a side hustle or business, or any other profitable ventures. 

The bottom line is that if we want to win big in the money game in the modern world, then it’s wise to invest our most precious resources in productive pursuits and activities rather than spending them on pleasures and reckless indulgences. In simple words, become a capitalist, not a medieval nobleman.