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What Did Capitalism Require to Emerge?

By Walter Donway

November 21, 2021

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This essay originated, and still bears traces, of a polemic reply to a self-identified neo-liberal who asserts that capitalism’s emergence depended upon slavery, colonialism, imperialism, expropriation of property from tribes, and theft of native wealth.

What was required to bring into existence what is called (redundantly, but today necessarily) laissez-faire capitalism:

  1. Consistent constitutional limits on government powers
  2. An equal guarantee of absolute property rights and absolute intellectual liberty to every individual
  3. Implementation by government confined to the retaliatory use of physical force against violations of individual rights through initiation of physical force against its citizens by domestic criminals or foreign powers [Genuine fraud is an initiation of force. I pay you for goods you don’t deliver. You refuse to return my money. I have no recourse but to reclaim my money by force—because “passively” you have used force against me.]

Those are three principles of ethics and politics. They are derived from a more fundamental philosophical-logical chain of ideas—a conceptual superstructure of objective reality, validation of reason, and validation of the individual’s moral right to live for his own sake.

Those are three principles of ethics and politics. They are derived from a more fundamental philosophical-logical chain of ideas.

How long did it take for those ideas to emerge among us? How long to be conceived, demonstrated, promulgated, and widely accepted enough to make possible a political system implied by them—a system largely (but never fully and consistently) capitalist?

One answer: Until about the middle of the nineteenth century in a first few countries (Great Britain and the United States). Another answer: Never yet have these ideas taken hold to sustain laissez-faire capitalism.

The point is that the principles of laissez-faire capitalism have logical foundations in affirmation of an objective reality, the validity of man’s reason, and an ethics affirming man’s moral right to live for his own sake.

Those fundamentals of philosophy:

  1. Ancient Greece and Rome: reason, epistemological method, logic, rights of citizens, rule of law
  2. Intermittently sustained in the West: e.g., under Charlemagne
  3. The Renaissance: secularism, humanism
  4. The Protestant Reformation: sufficiency of individual conscience against the clerisy
  5. The Enlightenment: validation of reason, individualism, rights, constitutionalism
  6. The Scientific Revolution: all nature open to man’s observation, experimentation, and reason
  7. The Industrial Revolution: methods of reason, science, and technology applied to economic production
  8. The political revolutions, notably in Britain, America, France: government power curtailed by securing rights, declaring the people sovereign, applying democratic method.

 

What Capitalism Was Not

None of these developments was laissez-faire capitalism. They were philosophical advances achieved at first slowly, and then accelerated, during periods of feudalism [8th to 15th century], mercantilism [16th to 18th century], imperialism [16th to early 19th century, but often confused with exploration and trade], colonialism [roughly 1880 to 1914], and slavery [always existed and exists today, but ended in the West by 1865]. Laissez-faire capitalism’s emergence is obfuscated by labeling mercantilism “merchant capitalism.”

To emerge is, by definition, to emerge at a point in history. Is this proof that only that history could have given birth to capitalism? That is a resolutely Marxist viewpoint.

If capitalism emerged last, does it logically follow that it is built upon, and required, all these systems? It is true, of course, that they all shaped the world into which capitalism emerged. But that is a tautology. To emerge is, by definition, to emerge at a point in history. Is this proof that only that history could have given birth to capitalism? That is a resolutely Marxist viewpoint: economic conditions determine ideas. It also is postmodernist: all ideas are rationalizations of political (class, racial, sexual) relations.

Man’s future is a consequence of his ideas because with his defining characteristic, his volitional rational faculty, his choices and actions are implementations of his ideas—in particular, fundamental ideas of man’s nature, his way of knowing, and his good. The ideas forming and struggling for acceptance during centuries of feudalism and mercantilism ushered in the future. Man’s choices and actions were, and are, fueled by his ideas.

What did not exist during some seven centuries of the era later called “feudalism” was any systematic thinking about social-economic systems. All relationships in “feudalism,” a term made widely known later by Adam Smith, were interpersonal. The “lord” and “vassal” at several levels entering a formal relationship with mutual obligations. The fundamental steps being achieved in the realm ideas did not yet have a branch called politics or political economy. Instead, as empires (e.g., the Carolingian) decentralized, they could not support permanent troops. They exchanged land for military services and thus created hereditary landowners with manorial estates, which became the centers of organized life. The only partial exceptions were the clergy and emerging cities. To repeat: European life before capitalism reflected no general thinking about a “system” of politics and economics. Philosophy had not taken that step for long centuries since Greek and Roman thought about politics was lost.

The hard-won foundation of ideas that preceded capitalism—reason, humanism, secularism, science, individualism, and technology—and their first political/economic expression—certainly yielded enormous benefits for freedom, rising standards of living, public health, objective law, rights, democracy—also culture, the arts, and science.

These benefits of these earliest elements of a capitalist system were gained as the ideas supporting them won men’s minds. What was occurring in the wider world during this emergence of freedom of enterprise and its benefits was not caused by the ideas behind capitalism or by the early changes they wrought. What was occurring in the wider world had preceded them and simply co-existed with them. Even as the long march of thought in Western Europe finally created the base emerging free enterprise, most of the rest of the world remained poor, unfree, often with serfdom/slavery. It is baseless to assert those evils were caused or necessitated by the first hard-won steps, in a few nations, toward capitalism.

As laissez-faire capitalist ideology gained ground in Britain and the United States, slavery came under attack and was finally abolished.

That slavery, imperialism, colonial exploitation, and wars for national aggrandizement still existed when capitalism’s philosophical base was in place and its very first implementation began [mid-18th century] does not show in any way that they were “necessary” for capitalism. As laissez-faire capitalist ideology gained ground in Britain and the United States, slavery came under attack and was finally abolished. Later, imperialism and colonialism succumbed to demands for freedom, national sovereignty, and rights that echoed around the world from the West.

Another theme was democracy. From Athens, through many Medieval tribal governments, and in the city states of early Europe the notion of the people deciding questions of policy and government never flagged. But such democracy is inconsistent with individual rights and therefore with capitalism, which recognizes individual inalienable rights. Authoritarian dictates and democratic demands both threaten individual rights. Not a democracy but a constitutional republic, guaranteeing individual rights against all claims, is consistent with capitalism. Within the sphere of individual rights, and consistent with rights, decisions such as election of officials may be decided by vote.

Elections cannot periodically put up for grabs the rights to liberty and property. We cannot vote by an overwhelming majority in the next election to deprive women of property rights. That was the magnificent intent of the U.S. Constitution. It took centuries for the determined enemies of liberty and capitalism to find vulnerabilities in the document’s language to interpret away protections of property—the last barrier to socialism.

Today, in America, at each election politicians bid for the most popular way to spend the income and wealth of citizens—all justified by the “democratic process.” Tax billionaires? Exempt capital gains? Tax or borrow another trillion dollars for social programs? Or infrastructure? It is all up to the electorate. Those who abhor the dictates of tyrants as trampling individual rights sanctify the dictates of 100 million people—called democracy. Is “right,” or “justice,” a quantifiable calculation?

 

Laissez-faire for 40 to 60 years

In the agrarian semi-feudalist slave-holding South, industry by 1830 was a generation behind the capitalist North; by the Civil War, the South’s economy except for export of cotton was inferior to the North’s or that of leading European nations. What gave the South its rapid growth for a few decades was the export of cotton to Britain and Europe—the single largest export from the United States. Historical statistics that suggest the South, in dollar terms, was a large economy are counting the market value of its slaves, not its production. In real “capital,” the South was a small fraction of the North.

By about 1870, in the northern United States, the first laissez-faire system on earth existed. The North had turned from agriculture to manufacturing, industry, trade, invention, technology, and new concepts of production. They made the United States by 1900 the world’s most prosperous economy—despite the ruin that was the former slave-holding economy of the South

The land in North America when the colonists arrived was traversed and hunted by Native Americans. It was not property, which inheres in the value added by human effort. In relatively few cases did “property” exist among North American natives.

Prehistoric tribalism of America’s first “immigrants” did have achievements, of course, and even a beauty–along with routine murder and torture–but missed advances the world had made in every field. The North American native had created little wealth beyond subsistence—except in a few cases where agriculture had improved the land. There was little economic value for the arriving Europeans to take.

The tribes always had warred to protect their tribal hunting grounds; they now chose war against the new trespassers—and lost. There were instances of injustice toward Native Americans. Andrew Jackson’s attack on the Seminoles in Florida wiped out stable villages. But there is no basis for the fantasy that capitalism’s wealth was stolen from Native Americans. A marker of the chasm between tribal culture and European culture was that over many decades remarkably few “Indians” took advantage of the open offer to become American citizens.

But there were afoot drastic changes to the philosophical base of capitalism, which, accelerating during the Enlightenment, had changed the Western world. In the late nineteenth century, the philosophical (including political) ideas underlying capitalism—which triumphed at the end of the eighteenth century and by the last quarter of the nineteenth century had their full economic and political expression in laissez-faire—had been defeated in the world of philosophy.

The world’s greatest tragedy was unfolding. A new fundamental philosophy and politics, the anti-Enlightenment idealism of Germany, which had emerged during the triumph of Enlightenment philosophy at the end of the eighteenth century, had laid siege to and occupied the Western world’s academic institutions. By the middle of the nineteenth century, the German anti-Enlightenment philosophy of irrationalism, secular altruism, collectivism, and statism laid the foundation for a new politics and economics.

We can say that by 1910, at the latest, the ideas and political implications that had undergird capitalism had been supplanted. By 1930, they had been overturned to make way for collectivism, welfarism, economic interventionism, and all-out attack on property rights…

Laissez-faire capitalism had achieved its most consistent expression in the 1870s and, by 1920, only its huge achievements in invention, technology, industry, and organizational innovation—plus the blessed foresight in the U.S. Constitution and the fighting retreat of those who understood capitalism’s beneficence—were left to keep America somewhat free, slowly less prosperous, less an inspiration to the world.

 

Anti-Capitalism

By the 1940s, anti-Enlightenment ideas had produced the systems of Marxism and national socialism in Germany. Communism in practice took hold in Russia and National Socialism in Germany, Italy, and elsewhere. The burden of opposing them in the name of mostly traditional American ideas of freedom, rights, and enterprise, fell on the United States.

The nation that fought down Nazism, fascism, and communism in the twentieth century was not capitalist. It was an interventionist welfare state strengthened by remaining elements of freedom and with a tradition of Enlightenment philosophical ideals.

Those who died in WWI and WWII were victims of statism, then socialism, not capitalism. To the new philosophies of socialism, of course, all American workers were wage slaves, and all victims of war were victims of international capitalism. But people worldwide by the millions under Nazism and communism yearned with all their hearts to be American wage slaves with an ever-rising standard of living and relative freedom.

It is a moral obscenity to equate the deliberate murder [political purges], policy dictates [planned famine], and wholesale extermination [death camps, class extermination] of socialism—all actualities of socialism in a defined period—with centuries of deaths attributed to every dubious variant of capitalism. And then, to declare them equal on balance.

From Soviet Russia, Nazi Germany, Fascist Italy, the European “captive nations,” Red China, Vietnam, Cambodia, Cuba, and Venezuela hundreds of millions fled or died trying. How many fled the United States or Western Europe?

The United States in its “wars to spread its ideology” brought its bitterest enemies—Japan and West Germany—into freedom, free enterprise, the community of nations.

The United States in its “wars to spread its ideology” brought its bitterest enemies—Japan and West Germany—into freedom, free enterprise, the community of nations. Russia violently took over more than half-a-dozen eastern European nations that waited through WWII only to be free, again—and now after half-a-century are free. Victorious communists in China created a totalitarian, one-party, communist dictatorship.

Is there no difference in principles, values, intentions, and results between twentieth century socialism and capitalism? It is monstrous to suggest that both stand for mass murder, slavery, colonialism/imperialism, wars of conquest…

And unfathomable to suggest that nations in poverty today cannot have capitalism without repeating (why??) the world history of systems and evils through which capitalism once struggled to emerge.

Shifting from the vicious to the ludicrous, do nations today seeking benefits of science need to begin with alchemy and rehearse centuries of the West’s struggle toward the scientific revolution [beginning about 1543]?

 

Summary: Laissez-faire capitalism emerged out of centuries of philosophical progress in the West. When that philosophy achieved the requisite maturity and acceptance, the first elements of laissez-faire capitalism emerged both in theory and practice: property rights, freedom of contract, the pricing and profit systems, and protected savings and investment. Capitalism was an intellectual achievement attained despite feudalism, mercantilism, colonialism, imperialism, and slavery. Early capitalist elements co-existed with those evils and eventually ended them.

Laissez-faire capitalism did not become a consistent reality until the second half of the nineteenth century, and mostly in the United States and Great Britain. But by then, the philosophical roots from which it sprung had been choked by German anti-Enlightenment philosophy. Inevitably, laissez-faire was under assault by 1910 and overturned and replaced by 1930. The twentieth-century United States was not capitalist; it was a mixed economy, an unstable and disintegrating jumble of capitalism and socialism.

Nations today do not need slavery, imperialism, colonialism, mass slaughter, or invasion of other lands to climb to capitalism.

Other nations today do not need slavery, imperialism, colonialism, mass slaughter, or invasion of other lands to climb to capitalism. Those ancient evils long predated capitalism; they existed before and while the philosophical foundation and early practice of capitalism emerged. And where capitalism emerged, those evils withered away. Nations of the world today begin their journey with the capitalist system and its philosophical roots fully defined; capitalism has been demonstrated in practice. These are a great gift of Western civilization to the world.

Nations, even the poorest, need intellectuals who understand, advocate, and fight for laissez-faire. And they need to be inoculated against the venom of irrational, anti-historic, profoundly obfuscated, rabble-rousing attacks on capitalism as the modern world’s root of all evil.

And our world still waits to discover what Ayn Rand called “Capitalism: The Unknown Ideal.”

 

 

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