From the very first we run into grave problems with the term "capitalism." When we realize that the word was coined by capitalism's most famous enemy, Karl Marx, it is not surprising that a neutral or a pro-"capitalist" analyst might find the term lacking in precision. For capitalism tends to be a catchall, a portmanteau concept that Marxists apply to virtually every society on the face of the globe, with the exception of a few possible "feudalist" countries and the Communist nations (although, of course, the Chinese consider Yugoslavia and Russia "capitalist," while many Trotskyites would include China as well). Marxists, for example, consider India as a "capitalist" country, but India, hagridden by a vast and monstrous network of restrictions, castes, state regulations, and monopoly privileges is about as far from free-market capitalism as can be imagined.
If we are to keep the term "capitalism" at all, then, we must distinguish between "free-market capitalism" on the one hand, and "state capitalism" on the other. The two are as different as day and night in their nature and consequences. Free-market capitalism is a network of free and voluntary exchanges in which producers work, produce, and exchange their products for the products of others through prices voluntarily arrived at. State capitalism consists of one or more groups making use of the coercive apparatus of the government — the State — to accumulate capital for themselves by expropriating the production of others by force and violence.
Throughout history, states have existed as instruments for organized predation and exploitation. It doesn't much matter which group of people happen to gain control of the State at any given time, whether it be oriental despots, kings, landlords, privileged merchants, army officers, or Communist parties. The result is everywhere and always the coercive mulcting of the mass of the producers — in most centuries, of course, largely the peasantry — by a ruling class of dominant rulers and their hired professional bureaucracy. Generally, the State has its inception in naked banditry and conquest, after which the conquerors settle down among the subject population to exact permanent and continuing tribute in the form of "taxation" and to parcel out the land of the peasants in huge tracts to the conquering warlords, who then proceed to extract "rent." A modern paradigm is the Spanish conquest of Latin America, when the military conquest of the native Indian peasantry led to the parceling out of Indian lands to the Spanish families, and the settling down of the Spaniards as a permanent ruling class over the native peasantry.
To make their rule permanent, the State rulers need to induce their subject masses to acquiesce in at least the legitimacy of their rule. For this purpose the State has always taken a corps of intellectuals to spin apologia for the wisdom and the necessity of the existing system. The apologia differ over the centuries; sometimes it is the priestcraft using mystery and ritual to tell the subjects that the king is divine and must be obeyed; sometimes it is Keynesian liberals using their own form of mystery to tell the public that government spending, however seemingly unproductive, helps everyone by raising the GNP and energizing the Keynesian "multiplier." But everywhere the purpose is the same — to justify the existing system of rule and exploitation to the subject population; and everywhere the means are the same — the State rulers sharing their rule and a portion of their booty with their intellectuals. In the nineteenth century the intellectuals, the "monarchical socialists" of the University of Berlin, proudly declared that their chief task was to serve as "the intellectual bodyguard of the House of Hohenzollern." This has always been the function of the court intellectuals, past and present — to serve as the intellectual bodyguard of their particular ruling class.
In a profound sense, the free market is the method and society "natural" to man; it can and does therefore arise "naturally" without an elaborate intellectual system to explain and defend it. The unlettered peasant knows in his heart the difference between hard work and production on the one hand, and predation and expropriation on the other. Unmolested then, there tends to grow up a society of agriculture and commerce where each man works at the task at which he is best suited in the conditions of the time, and then trades his product for the products of others. The peasant grows wheat and exchanges it for the salt of other producers or for the shoes of the local craftsman. If disputes arise over property or over contracts, the peasants and villagers take their problem to the wise men of the area, sometimes the elders of the tribe, to arbitrate their dispute.
There are numerous historical examples of the growth and development of such a purely free-market society. Two may be mentioned here. One is the fair at Champagne, that for hundreds of years in the Middle Ages was the major center of international trade in Europe. Seeing the importance of the fairs, the kings and barons left them unmolested, untaxed, and unregulated, and any disputes that arose at the fairs were settled in one of many competing, voluntary courts, maintained by church, nobles, and the merchants themselves. A more sweeping and lesser-known example is Celtic Ireland, which for a thousand years maintained a flourishing free-market society without a State. Ireland was finally conquered by the English State in the seventeenth century, but the statelessness of Ireland, the lack of a governmental channel to transmit and enforce the orders and dictates of the conquerors, delayed the conquest for centuries.
The American colonies were blessed with a strain of individualist libertarian thought that managed to supersede Calvinist authoritarianism, a stream of thought inherited from the libertarian and anti-statist radicals of the English revolution of the seventeenth century. These libertarian ideas were able to take firmer hold in the United States than in the mother country owing to the fact that the American colonies were largely free from the feudal land monopoly that ruled Britain. But in addition to this ideology, the absence of effective central government in many of the colonies allowed the springing up of a "natural" and unselfconscious free-market society, devoid of any political government whatever. This was particularly true of three colonies. One was Albemarle, in what later became northeastern North Carolina, where no government existed for decades until the English Crown bestowed the mammoth Carolina land grant in 1663. Another, and more prominent example was Rhode Island, originally a series of anarchistic settlements founded by groups of refugees from the autocracy of Massachusetts Bay. Finally, a peculiar set of circumstances brought effective individualistic anarchism to Pennsylvania for about a decade in the 1680s and 1690s.
While the purely free and laissez-faire society arises unselfconsciously where people are given free rein to exert their creative energies, statism has been the dominant principle throughout history. Where State despotism already exists, then liberty can only arise from a self-conscious ideological movement that wages a protracted struggle against statism, and reveals to the mass of the public the grave flaw in its acceptance of the propaganda of the ruling classes. The role of this "revolutionary" movement is to mobilize the various ranks of the oppressed masses, and to desanctify and delegitimize the rule of the State in their eyes.
It is the glory of Western civilization that it was in Western Europe, in the seventeenth and eighteenth centuries, where, for the first time in history, a large-scale, determined, and at least partially successful self-conscious movement arose to liberate men from the restrictive shackles of statism. As Western Europe became progressively enmeshed in a coercive web of feudal and guild restrictions, and of state monopolies and privileges with the king functioning as the feudal overlord, the liberating movement arose with the conscious aim of freeing the creative energies of the individual, of enabling a society of free men to replace the frozen repression of the old order. The Levellers and the Commonwealthmen and John Locke in England, the philosophes and the Physiocrats in France, inaugurated the Modern Revolution in thought and action that finally culminated in the American and the French Revolutions of the late eighteenth century.
This Revolution was a movement on behalf of individual liberty, and all of its facets were essentially derivations from this fundamental axiom. In religion, the movement stressed separation of Church and State, in other words the end of theocratic tyranny and the advent of religious liberty. In foreign affairs, this was a revolution on behalf of international peace and the end to ceaseless wars on behalf of State conquest and glory to the ruling elite. Politically, it was a movement to divest the ruling class of its absolute power, to reduce the scope of government altogether and to put whatever government remained under the checks of democratic choice and frequent elections. Economically, the movement stressed the freeing of man's productive energies from governmental shackles, so that men could be allowed to work, invest, produce, and exchange where they wished. The famous cry to power was laissez faire: let us be, let us work, produce, trade, move from one jurisdiction or country to another. Let us live and work and produce unhampered by taxes, control, regulations, or monopoly privileges. Adam Smith and the classical economists were only the most economically specialized group of this broad liberating movement.
It was the partial success of this movement that freed the market economy and thereby gave rise to the Industrial Revolution, probably the most decisive and most liberating event of modern times. It was no accident that the Industrial Revolution in England emerged, not in guild-ridden and State-controlled London, but in the new industrial towns and areas that arose in the previously rural and therefore unregulated north of England. The Industrial Revolution could not come to France until the French Revolution freed the economy from the fetters of feudal landlordism and innumerable local restrictions on trade and production. The Industrial Revolution freed the masses of men from their abject poverty and hopelessness — a poverty aggravated by a growing population that could find no employment in the frozen economy of pre-industrial Europe. The Industrial Revolution, the achievement of free-market capitalism, meant a steady and rapid improvement in the living conditions and the quality of life for the broad masses of people, for workers and consumers alike, wherever the impact of the market was felt.
An undeveloped and sparsely populated area originally, America did not begin as the leading capitalist country. But after a century of independence it achieved this eminence, and why? Not, as the common myth has it, because of superior natural resources. The resources of Brazil, of Africa, of Asia, are at least as great. The difference came because of the relative freedom in the United States, because it was here that the free-market economy more than in any other country was allowed its head. We began free of a feudal or monopolizing landlord class, and we began with a strongly individualist ideology that permeated much of the population. Obviously, the market in the United States was never completely free or unhampered; but its relatively greater freedom (relative to other countries or centuries) resulted in the enormous release of productive energies, the massive capital equipment, and the unprecedentedly high standard of living that the mass of Americans not only enjoy but take blithely for granted. Living in the lap of a luxury that could not have been dreamed of by the wealthiest emperor of the past, we are all increasingly acting like the man who murdered the goose that laid the golden egg.
And so we have a mass of intellectuals who habitually sneer at "materialism" and "material values," who proclaim absurdly that we are living in a "post-scarcity age" that permits an unlimited cornucopia of production without requiring anyone to work or produce, who attack our undue affluence as somehow sinful in a perverse recreation of a new form of Puritanism. The idea that our capital machine is automatic and self-perpetuating, that whatever is done to it or not done for it does not matter because it will go on perpetually — this is the farmer blindly destroying the golden goose. Already we are beginning to suffer from the decay of capital equipment, from the restrictions and taxes and special privileges that have increasingly been imposed on the industrial machine in recent decades.
We are unfortunately making ever more relevant the dire warning of the Spanish philosopher Ortega y Gasset, who analyzed modern man as finding himself in a world so excellent, technically and socially, [he] believes that it has been produced by nature, and never thinks of the personal efforts of highly-endowed individuals which the creation of this new world presupposed. Still less will he admit the notion that all these facilities still require the support of certain difficult human virtues, the least failure of which would cause the rapid disappearance of the whole magnificent edifice.
Ortega held the "mass man" to have one fundamental trait: "his radical ingratitude towards all that has made possible the ease of his existence." This ingratitude is the basic ingredient in the "psychology of the spoiled child." As Ortega declares:
Heir to an ample and generous past … the new commonality has been spoiled by the world around it … the new masses find themselves in the presence of a prospect full of possibilities, and furthermore, quite secure, with everything ready to their hands, independent of any previous efforts on their part, just as we find the sun in the heavens…. And these spoiled masses are unintelligent enough to believe that the material and social organization, placed at their disposition like the air, is of the same origin, since apparently it never fails them, and is almost as perfect as the natural scheme of things….
As they do not see, behind the benefits of civilization, marvels of invention and construction that can only be maintained by great effort and foresight, they imagine that their role is limited to demanding these benefits peremptorily, as if they were natural rights. In the disturbances caused by scarcity of food, the mob goes in search of bread, and the means it employs is generally to wreck the bakeries. This may serve as a symbol of the attitude adopted, on a greater and more complicated scale, by the masses of today towards the civilization by which they are supported.
In an era when countless numbers of irresponsible intellectuals call for the destruction of technology and the return to a primitive "nature" that could only result in the death by starvation of the overwhelmingly greatest part of the world's population, it is instructive to recall Ortega's conclusion:
Civilization is not "just there," it is not self-supporting. It is artificial and requires the artist or the artisan. If you want to make use of the advantages of civilization, but are not prepared to concern yourself with the upholding of civilization — you are done. In a trice you find yourself left without civilization…. The primitive forest appears in its native state, just as if curtains covering pure Nature had been drawn back.
The steady decline in the underpinnings of our civilization began in the late nineteenth century, and accelerated during the World Wars I and II and the 1930s. The decline consisted of an accelerating retreat back from the Revolution, and of a shift back to the old order of mercantilism, statism, and international war. In England, the laissez-faire capitalism of Price and Priestly, of the Radicals and of Cobden and Bright and the Manchester school, was replaced by a Tory statism driving toward aggressive Empire and war against other imperial powers. In the United States the story was the same, as businessmen increasingly turned to the government to impose cartels, monopolies, subsidies, and special privileges. Here as in Western Europe, the advent of World War I was the great turning point — in aggravating the imposition of militarism and government-business economic planning at home, and imperial expansion and intervention overseas. The medieval guilds have been re-established in a new form — that of labor unions with their network of restrictions and their role as junior partners of government and industry in the new mercantilism. All the despotic trappings of the old order have returned in a new form. Instead of the absolute monarch, we have the President of the United States, wielding far more power than any monarch of the past. Instead of a constituted nobility, we have an Establishment of wealth and power that continues to rule us regardless of which political party is technically in power. The growth of a bipartisan civil service, of a bipartisan domestic and foreign policy, the advent of cool technicians of power who seem to sit in positions of command regardless of how we vote (the Achesons, the Bundys, the Baruchs, the McCloys, the J. Edgar Hoovers), all underscore our increasing domination by an elite that grows ever fatter and more privileged on the taxes that they are able to extract from the public hide.
The result of the aggravated network of mercantilist burdens and restrictions has been to place our economy under greater and greater strain. High taxes burden us all, and the military-industrial complex means an enormous diversion of resources, of capital, technology, and of scientists and engineers, from productive uses to the overkill waste of the military machine. Industry after industry has been regulated and cartelized into decline: the railroads, electric power, natural gas, and telephone industries being the most obvious examples. Housing and construction have been saddled with the blight of high property taxes, zoning restrictions, building codes, rent controls, and union featherbedding. As free-market capitalism has been replaced by state capitalism, more and more of our economy has begun to decay and our liberties to erode.
In fact, it is instructive to make a list of the universally acknowledged problem areas of our economy and our society, and we will find running through that list a common glaring leitmotif: government. In all the high problem areas, government operation or control has been especially conspicuous.
Let us consider:
Examine the problem areas, and everywhere, like a red thread, there lies the overweening stain of government. In contrast, consider the frisbee industry. Frisbees are produced, sold, and purchased without headaches, without upheavals, without mass breakdowns or protests. As a relatively free industry, the peaceful and productive frisbee business is a model of what the American economy once was and can be again — if it is freed of the repressive shackles of big government.
In The Affluent Society, written in the late 1950s, John Kenneth Galbraith pinpointed the fact that the governmental areas are our problem areas. But his explanation was that we have "starved" the public sector and that therefore we should be taxed more heavily in order to enlarge the public sector still further at the expense of the private. But Galbraith overlooked the glaring fact that the proportion of national income and resources devoted to government has been expanding enormously since the turn of the century. If the problems did not appear before, and have appeared increasingly in precisely the expanded governmental sector, the judicious might well conclude that perhaps the problem lies in the public sector itself. And that is precisely the contention of the free-market libertarian. Problems and breakdowns are inherent in the operations of the public sector and of government generally. Deprived of a profit-and-loss test to gauge productivity and efficiency, the sphere of government shifts decision-making power from the hands of every individual and cooperating group, and places that power in the hands of an overall governmental machine. Not only is that machine coercive and inefficient; it is necessarily dictatorial because whichever decision it may make, there are always minorities or majorities whose desires and choices have been overridden. A public school must make one decision in each area: it must decide whether to be disciplined or progressive or some blend of the two; whether to be pro-capitalist or pro-socialist or neutral; whether to be integrated or segregated, elitist or egalitarian, and so on. Whatever it decides, there are citizens who are permanently deprived. But in the free market, parents are free to patronize whatever private or voluntary schools they wish, and different groups of parents will then be able to exercise their choice unhampered. The free market enables every individual and group to maximize its range of choice, to make its own decisions and choices and to put them into effect.
It is ironic that Professor Galbraith does not seem to be very happy about the public sector as it has lately been manifesting itself: in the military-industrial complex, in the war in Vietnam, in what Galbraith has himself properly derided as President Nixon's "Big Business Socialism." But if the glorious public sector, if expanded government, has brought us to this pretty pass, perhaps the answer is to roll government back, to return to the truly revolutionary path of dismantling the Big State.
Indeed, American liberals — who for decades have been the main heralds and apologists for big government and the welfare state — have increasingly become unhappy at the results of their own efforts. For just as in the days of oriental despotism, state rule cannot endure for long without a corps of intellectuals to spin the arguments and the rationale to gain the support and the sense of legitimacy among the public, and the liberals (the overwhelming majority of American intellectuals) have served since the New Deal as the celebrants of big government and the welfare state. But many liberals are coming to realize that they have been in power, have fashioned American society, for four decades now, and it is clear to them that something has gone radically wrong. After four decades of the welfare state at home and "collective security" abroad, the consequences of New Deal liberalism have clearly seen aggravated breakdowns and conflicts at home and perpetual war and intervention abroad. Lyndon Johnson, with whom liberals became extremely unhappy, correctly referred to Franklin Roosevelt as his "Big Daddy" — and the parentage on all foreign and domestic fronts was quite clear. Richard Nixon is scarcely distinguishable from his predecessor. If many liberals have become strangers and afraid in a world they have made, then perhaps the fault lies precisely in liberalism itself.
If, then, there is to be a rollback of statism, there will have to be another ideological revolution to match the rise of the classical radicals of the seventeenth and eighteenth centuries. Intellectuals will have to shift, in large part, back from their role as apologists for the State to resume their function as upholders of the standards of truth and reason as against the status quo. In the last several years, there have been signs of disenchantment by the intellectuals, but the shift has been largely a wrongheaded one. As a result, in the current split between liberals and radicals among the intelligentsia, neither side provides us with the requisites of civilization, with the requisites for maintaining a prosperous and free industrial order. The liberals have offered us the spurious rationality of technocratic service to the Leviathan State of fitting in as manipulated cogs in the bureaucratic government-industrial machinery. Liberalism's solution to every domestic problem is to tax and inflate more and to allocate more federal funds; its solution for foreign crises is to "send the Marines" (accompanied, of course, by politico-economic planners to alleviate the destruction that the Marines cause). Surely we cannot continue to accept the proffered solutions of a liberalism that has manifestly failed. But the tragedy is that the radicals have taken the liberals at their face value: identifying reason, technology, and industry with the current liberal-mercantilist order, the radicals, in order to reject the current system, have turned their backs on the former necessary virtues as well.
In short, the radicals, feeling themselves forced into a visceral rejection of the world of liberalism, of Vietnam and the public-school system, have adopted the liberals' own identification of their own system with reason, industry, and technology. Hence the radicals raise the cry for the rejection of reason on behalf of emotions and vague mysticism, of rationality for inchoate and capricious spontaneity, of work and foresight for hedonism and dropping out, of technology and industry for the return to "nature" and the primitive tribe. In doing so, in adopting this pervasive nihilism, the radicals are offering us even less of a viable solution than their liberal enemies. For the murder of millions in Vietnam they would, in effect, substitute the death by starvation of the vast bulk of the world's population. The radicals' vision cannot be accepted by sane people, and the bulk of Americans, their ignorance or errors otherwise, are astute enough to recognize this fact and to make loud, clear, and sometimes brutal their rejection of the radicals and their alternative ethic, society, and life-style.
The point of this essay is that the public need not be forced to choose between the alternative of repressive and stifling welfare-warfare state monopoly liberalism on the one hand, or the irrational and nihilistic return to tribal primitivism on the other. The radical alternative is evidently not compatible with a prosperous life and industrial civilization; this much is crystal clear. But less clear is the fact that corporate state liberalism is in the long run also not compatible with an industrial civilization. The one route offers our society a quick suicide; the other a slow and lingering murder.
There is, then, a third alternative — one that has still gone unheeded amid the great debate between liberals and radicals. That alternative is to return to the ideals and to the structure that generated our industrial order and that is needed for that order's long-run survival — to return to the system that will bring us industry, technology, and rapidly advancing prosperity without war, militarism, or stifling governmental bureaucracy. That system is laissez-faire capitalism, what Adam Smith called "the natural system of liberty," a system that rests on an ethic that encourages individual reason, purpose, and achievement. The nineteenth-century libertarian theorists — men like the Frenchmen of the Restoration era, Charles Comte and Charles Dunoyer, and the Englishman Herbert Spencer — saw clearly that militarism and statism are relics and throwbacks of the past, that they are incompatible with the functioning of an industrial civilization. That is why Spencer and the others contrasted the "military" with the "industrial" principle, and judged that one or the other would have to prevail.
What I am suggesting, in short, in the oversimplified categories made popular by Charles Reich, is a return to "Consciousness I" — a Consciousness that is brusquely dismissed by Reich and his readers as they proceed to take sides in the great debate between Consciousness II and III. To Reich, Consciousness I was made obsolete by the growth of modern technology and mass production, which made the turn to the corporate state inevitable. But here Reich is not being radical enough; he is simply adopting the conventional liberal historiography that big government was made necessary by the growth of large-scale industry. If he were familiar with economics, Reich would realize that it is precisely advanced industrial economies that require a free market to survive and flourish; on the contrary, an agricultural society can plod along indefinitely under despotism provided that the peasants are left enough of their produce to survive. The Communist countries of Eastern Europe have discovered this fact in recent years; hence, the more they industrialize the greater and more inexorable their movement away from socialism and central planning and toward a free-market economy. The rapid shift of the East European countries toward the free market is one of the most heartening and dramatic developments in the last two decades; yet the trend has gone almost unnoticed, for the left finds the shift away from statism and egalitarianism in Yugoslavia and the other East European countries extremely embarrassing, while the conservatives are reluctant to concede that there may be anything hopeful about the Communist nations.
Furthermore, Reich is clearly unaware of the finds of Gabriel Kolko and other recent historians that completely revise our picture of the origins of the current welfare-warfare state. Far from large-scale industry forcing the knowledge that regulation and big government were inevitable, it was precisely the effectiveness of free-market competition that led big businessmen seeking monopoly to turn to the government to provide such privileges. There was nothing in the economy that objectively required a shift from Consciousness I to Consciousness II: only the age-old desire of men for subsidy and special privilege created the "counter revolution" of statism. In fact, as we have seen, this development only cripples and hampers the workings of modern industry; objective reality would require a return to Consciousness I. In this world of remarkably swift changes in values and ideologies, such a change in consciousness cannot be ruled out as impossible; far stranger things have been happening.
In one sense, the adoption of libertarian values and institutions would be a return; in another, it would be a profound and radical advance. For while the older libertarians were essentially revolutionary, they allowed partial successes to turn themselves strategically and tactically into seeming defenders of the status quo, mere resisters of change. In taking this stance, the earlier libertarians lost their radical perspective; for libertarianism has never come fully into being. What they must do is become "radicals" once again, as Jefferson and Price and Cobden and Thoreau were before them. To do this they must hold aloft the banner of their ultimate goal, the ultimate triumph of the age-old logic of the concepts of free market, liberty, and private property rights. That ultimate goal is the dissolution of the State into the social organism, the privatizing of the public sector.
In contrast to the dysfunctional vision of the New Left, this is a goal wholly compatible with the functioning of an industrial society — and with peace and freedom as well. All too many of the older libertarians lacked the intellectual courage to press on — to call for total victory rather than settle for partial triumph — to apply their principles to the fields of money, police, the courts, the State itself. They failed to heed the injunction of William Lloyd Garrison that "gradualism in theory is perpetuity in practice." For if the pure theory is never held aloft, how can it ever be achieved?