Has Capitalism Been Invalidated?

Tibor R. Machan*

“...we need not choose between a chaotic and unforgiving capitalism and an oppressive government-run economy. That is a false choice that will not serve our people or any people....” Barack Obama (IHT, 3/24/09)

The French president Nicholas Sarkozy, whose parents include a Hungarian father and, given Hungary's tragic brush with Soviet style socialism, who ought to know better, recently made headlines by announcing that "Le laisser-faire, c'est fini," meaning that free market capitalism is finished.(1) Sarkozy isn't alone in voicing this opinion—such Americans as University of Texas political scientist James Galbraith and Princeton's Nobel Laureate economist Paul Krugman have also gone on record with it. Some indeed, have shown a good bit of glee about what they take to be laissez-faire's failure.(2) One bit of irony about Sarkozy's having said this is that the term "laisser-faire" refers to how one French feudal government official was answered, back in the 17th century, when asked what he could do for business. He was told to get out of the way!

Accordingly, laisser-faire came to refer to a system of economics, a version of which was also defended by Adam Smith and by much of the classical liberal and libertarian political economic tradition, in which the government plays the sole role the American Founders assigned to it, namely, "to secure [our] rights." Just as referees do at games, government has the important role of making sure the rules are followed and violators are punished. In the case of a society, including its economic system, the rules are that the rights to private property and freedom of contract are strictly respected and protected. In the criminal law this approach is characterized as deploying due process and avoiding any prior restraint. Not unless citizens are seriously suspected of rights violating crimes or have in fact been convicted of them may their liberty be curtailed.

This idea has never, ever been fully implemented in any country but here and there, especially in America, it has gained some inroad in public affairs. Certainly compared to the rest of human history and the rest of the globe, America’s economy has often been relatively free but clearly still quite heavily regulated by every level of government. But as with most democracies which may not ban the input of even the most undemocratic ideas, the best that has been achieved from the viewpoint of classical liberal, libertarian political economy is a mixed economy, one with official socialist, capitalist, fascist, theocratic, and even communist features. Thus a genuine, fully free market never existed anywhere, not even in the so called most capitalist country in human history, the United States of America.

Still, whenever some upheaval with economic implications does occur in America and other mixed economies, defenders of some variation of the ancient regime of mercantilism—which include champions of all kinds of statist economic systems such as socialism, fascism, etc.—quickly announce what Sarkozy said, namely, that free enterprise is now dead, proven to have failed. In the current financial fiasco this is all too evident. Day after day one encounters this opinion, in The New York Times, The New Republic, letters to various magazines and newspapers, and certainly on the more prestigious media, such as on PBS TV's The News Hour With Jim Lehrer. On one level this can be written off as nothing more than special pleading—government officials and those aspiring to social engineering, after all, naturally wish to rule the realm and a system that in principle deprives them of the power to rule the economy is likely to be resisted by them and their intellectual supporters. But this is to approach the issue more as a matter of human psychology than is appropriate for a discussion of political theory. In such a discussion it is the arguments for maintaining and even expanding state power over the economy that need to be considered. And while doing this would involve a very lengthy task, a few elements of those arguments can be considered even in a brief discussion such as this one.

A regular feature of the defense of state intervention, put forth often by those who have shown at most minimal sympathy for free enterprise, is to mention that people in the business world are often complicit in promoting state interventionism. But that’s no news at all, of course. Adam Smith already observed it back in the 18th century. As he warned:

"The proposal of any new law or regulation which comes from [businessmen], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it." The Wealth of Nations, vol. 1, pt. xi, p.10 (at the conclusion of the chapter) (1776).

It should be mentioned here that Adam Smith himself was no consistent or radical libertarian and by his lights arguably many welfare provisions would be part of the legal system of a just human community. Although this might be a misinterpretation based on a primarily political reading of his A Theory of Moral Sentiments, written several years before The Wealth of Nations. Smith does stress the importance of such moral virtues as generosity and empathy but not necessarily by means of government. After all, governments really cannot be generous or exhibit empathy—they must, for example, conscript the citizenry or confiscate its property in order to provide aid to the poor.

A more serious theoretical problem is that in mixed economies it is often difficult to detect the precise source of economic problems such as a business cycle. Critics of the fully free market—many of whom would naturally prefer to regulate the world of commerce and finance since they tend to believe (following the lead of a certain reading of Plato) that only they are truly qualified to promote justice—too readily blame freedom, including free enterprise, probably in part because that is the main obstacle to their being in charge. Yet, I will argue here, following Oliver Cromwell, that "It will be found an unjust and unwise jealousy to deny a man the liberty he hath by nature upon a supposition that he may abuse it."(3) As Immanuel Kant pointed out, "ought implies can." So if people should help the needy, they must be free of coercion and choose to do so themselves, not be made by law to do so. So as far as moral obligations are concerned, the welfare state isn't a valid means to make room for them. It robs people of the requisite liberty to choose to help.

A way out of this quandary is to maintain that people do not really own their own labor, work, or property, the state does. This is implicit in some old and new arguments for extensive state intervention for the sake of wealth redistribution.(4) A very clear statement of this position is offered by 18th century French thinker, Auguste Comte:

"Everything we have belongs then to Humanity…Positivism never admits anything but duties, of all to all. For its social point of view cannot tolerate the notion of right, constantly based on individualism. We are born loaded with obligations of every kind, to our predecessors, to our successors, to our contemporaries. Later they only grow or accumulate before we can return any service. On what human foundation then could rest the idea of right, which in reason should imply some previous efficiency? Whatever may be our efforts, the longest life well employed will never enable us to pay back but an imperceptible part of what we have received. And yet it would only be after a complete return that we should be justly authorized to require reciprocity for the new services. All human rights then are as absurd as they are immoral. This ["to live for others"], the definitive formula of human morality, gives a direct sanction exclusively to our instincts of benevolence, the common source of happiness and duty. [Man must serve] Humanity, whose we are entirely."(5)

This collectivist way of thinking is contrary to the plain enough fact that those of past generations produced when they thought it worthwhile to do so, on whatever terms they believed were just at the time, except when they were being coerced to produce as serfs and slaves had been. The current generation may be delighted with what it inherited from earlier ones but there is no involuntary servitude they are responsible to submit to so as to "repay" what they have inherited. Normally we do not work so as to bequeath to others apart from our children, perhaps, and sometimes out of charity.(6)

The governmental habit is terribly well entrenched in most societies, including in America. Consider that erudite liberal, Leon Wieseltier of The New Republic who just recently told us that "contrary to what [Americans] have been taught for many years, government is a jewel of human association and an heirloom of human reason; that government, though it may do ill, does good; that a lot of the good that government does only it can do; that the size of government must be fitted to the size of its tasks, and so, for a polity such as ours, big government is the only government...etc." (7)

My simple plea is for people not to accept this facile view. Government--that is, using force against people--is only of value in small, defensive and retaliatory measures, for a limited scope of our social life, just like the cop on the beat, otherwise we promote the police state. The size of government should be fitted to its proper task which is, contrary to what modern but not classical liberals believe, a very limited one, namely, to keep the peace.

Wieseltier is clever and keeps talking of an open society, not a free one. For good reason—openness is a loose idea; a door can be open to a great variety of degrees. But a free society isn't so flexible. You are free if you are the master of your life, if you own it, if you have your right to it fully respected and protected. Otherwise you aren't free and the society in which you live isn't a free one. Ask any former slave whether freedom means not having others intrude on one’s life or whether it means that others intrude only, say, 40 percent.

The current—as all human produced—economic fiasco is mostly the fault of statists who routinely distort the natural ways of an economy. (In this case it had to do with massive amounts of easy money doled out in the name of helping the poor, minorities, and so forth and then, of course, what this policy engendered in the financial markets where the actors are all alert to any opportunity to earn good returns on even the strangest of investments.) As usual, such interference results in disaster. Without official malfeasance, such as governments leaving their post and entering the playing field they are meant to shield from coercive interference, free markets can, of course, experience misconduct but these tend to be self-correcting since in the long run free men and women do better if they are also virtuous than if they routinely misbehave.

Unfortunately those who are responsible for official malpractice have no intention to confessing their guilt in making a fiasco such as that experienced in the world just now and one effective way to hide that fact is to point the finger at the innocent party, human liberty. Freedom isn’t much trusted by those who see themselves as needed to keep others on a righteous path, be they from the Left or the Right. Their influence is considerable.

When President Obama stated that “we need not choose between a chaotic and unforgiving capitalism and an oppressive government-run economy,” he was giving clear indication of his agreement with the views of his former colleague and friend, Professor Cass R. Sunstein, now at Harvard University’s School of Law, who has been a champion of a radical restatement of America’s principles of individual rights. Instead of viewing these rights as they are laid out in the Declaration of Independence, following the philosophy of John Locke and the libertarian tradition which takes such rights to be negative--that is to say, prohibitions of intrusions on individuals--Obama and Sunstein see rights as demands on the lives and properties of individuals to support various projects they deem worthwhile.(8)

There is no need for a Second Bill of Rights, however. Such a doctrine assumes that people are helpless without the use of force against their fellows, without invoking government’s coercive powers so as to secure the necessities and amenities of life in a free society. As the American Founders stated, in their sketch of their truly radical and anti-paternalist political philosophy, what governments are for is to keep the peace, to protect the rights to life, liberty and the pursuit of happiness. Once the freedom such protection makes possible, citizens will be able and mostly willing to pursue the benefits that Sunstein, Obama & Co. want to secure through a policy for involuntary servitude for all.

Endnotes:
(1) Wikipedia states that “the exact origins of the term ‘laissez-faire’ as a slogan of economic liberalism are uncertain. The first recorded use of the 'laissez faire' maxim was by French minister René de Voyer, Marquis d'Argenson, another champion of free trade, in his famous outburst:
Laissez faire, telle devrait être la devise de toute puissance publique, depuis que le monde est civilisé.... Détestable principe que celui de ne vouloir grandir que par l'abaissement de nos voisins! Il n'y a que la méchanceté et la malignité du coeur de satisfaites dans ce principe, et l’intérêt y est opposé. Laissez faire, morbleu! Laissez faire!! (In English this would be “Leave them be, that should be the motto of every public authority, according to which the world is civilized..... A detestable principle that which would not wish us to grow except by lowering our neighbors! There is nothing but mischief and malignity of heart in those satisfied with that principle, and interest is opposed to it. Leave them be, damn it! Leave them be!”)
According to historical folklore, the phrase stems from a meeting c. 1680 between the powerful French finance minister Jean-Baptiste Colbert and a group of French businessmen led by a certain M. Le Gendre. When the eager mercantilist minister asked how the French state could be of service to the merchants, Le Gendre replied simply "Laissez-nous faire" ('Leave us be,' lit. 'Let us do').
(2) When Professor Galbraith gave a lecture at Chapman University in late 2008 he began his talk referring to having just walked past a sculpture of Milton Friedman in the Chapman University Quad. Galbraith quipped "it was a bust, and how appropriate," clearly suggesting that Milton Friedman's laissez-faire economic philosophy has proven to be a bust! Some others, including Nobel Laureate Amartya Sen, are more cautious and propose only that capitalism be re-conceived along lines of FDR's "second bill of rights," with numerous positive or welfare rights given protection equal to those laid out in the Bill of Rights or the Declaration of Independence or the criminal law. See his "Capitalism Beyond the Crisis," The New York Review of Books, March 26, 2009: 27-30.
(3) Oliver Cromwell, from THE WEEK, February 21, 2009, p. 19.
(4) See Liam Murphy and Thomas Nagel , The Myth of Ownership (Oxford University Press, 2004) and Stephen Holmes and Cass Sunstein, The Cost of Rights: Why Liberty Depends on Taxes (W. W. Norton & Co., 1999).
(5) Auguste Comte, The Catechism of Positive Religion (Clifton, NJ: Augustus M. Kelley Publ., 1973), pp. 212-30.
(6) I develop an extensive defense of an individualist conception of morality in my Classical Individualism (Routledge, 1998).
(7) Leon Wieseltier, "Love Me I'm a Liberal," The New Republic, March 4, 2009, p. 48.
(8) Cass R. Sunstein, The Second Bill of Rights: FDR'S Unfinished Revolution and Why We Need It More than Ever (New York: Basic Books, 2004). For President Obama’s position on this, see Mark Whittington, “Barack Obama and ‘The Second Bill of Rights’,” AP, October 28, 2008.