Essay on “Has Capitalism Been Invalidated?”

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.

—————————–
*Machan holds the R. C. Hoiles Chair in business ethics and free
enterprise at Chapman University, Orange, CA. His collection of columns
(unproofed) may be found at http://tiborrmachan.blogspot.com/

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