The ideology of capitalism and the ideology of liberalism

by John MacBeath Watkins

I live in a sort of society generally referred to as liberal democracy, which features private property and democratically elected representative government.  It is based on a set of ideas known as classical liberalism.  That set of ideas is now challenged by a radical ideology that I will describe here.

John Locke is generally considered the father of liberalism.  His Two Treatises of Government was published in the late 1600s, well before the invention of capitalism.  His influence can be seen in the Declaration of Independence; whereas Locke maintained that we are born with property, in that we own our lives and cannot sell, or "alienate" them, the Declaration says that, among its self evident truths is "life, liberty and the pursuit of happiness."  Pretty much what Locke said.

Jean-Baptiste Colbert was writing at about the same time as Locke, and articulated the French version of mercantilism.  Most writers on economics between 1500 and 1750 were what we would now call mercantilists.

From Wikipedia:

The Austrian lawyer and scholar Philipp Wilhelm von Hornick, in his Austria Over All, If She Only Will of 1684, detailed a nine-point program of what he deemed effective national economy, which sums up the tenets of mercantilism comprehensively:[7]
  • That every inch of a country's soil be utilized for agriculture, mining or manufacturing.
  • That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials.
  • That a large, working population be encouraged.
  • That all export of gold and silver be prohibited and all domestic money be kept in circulation.
  • That all imports of foreign goods be discouraged as much as possible.
  • That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of gold and silver.
  • That as much as possible, imports be confined to raw materials that can be finished [in the home country].
  • That opportunities be constantly sought for selling a country's surplus manufactures to foreigners, so far as necessary, for gold and silver.
  • That no importation be allowed if such goods are sufficiently and suitably supplied at home.

Mercantilism has, of course, never completely disappeared.  The above sounds very much like the current policies of China.  But as a dominant intellectual paradigm, the challenge to mercantilism began, coincidentally, at about the time of our nation's founding.

1776, in addition to being the date of the Declaration of Independence, was the year Adam Smith's The Wealth of Nations was published.  Its impact was not immediate, and mercantilism continued to be the dominant paradigm for national policy.  The intellectual challenge to mercantilism of course preceded the shift to a free-trade paradigm.  For example, The Economist, a magazine devoted to the repeal of England's corn laws, was started in 1843, and the tariffs imposed by those laws were repealed in 1846.  The word "capitalism" was first used in its modern sense about 1850.

Students of history will recall that the Communist Manifesto was published in 1848.  About the time capitalism was becoming the dominant economic paradigm, its most important critique had arrived.

Capitalism was an economic system, not a system of governance, so the ideology of America and England continued to be liberalism.  Communism came as a full package, or at least the form of it that came to dominate a number of countries did.  While the countries that practiced capitalism were ideologically liberal, Marx defined capitalism as an ideology.  It is perhaps coincidental that at about the time the volumes of Capital were coming out that capitalism began to become an ideology.

An ideology is a set of ideas that gives one a comprehensive world view.  The founding fathers, if they thought much about economics, tended to be mercantilists.  The American System, championed by Alexander Hamilton, Henry Clay, John Quincy Adams and others, was distinctly mercantilist, including high tariffs which, in addition to encouraging domestic manufacture of things that would otherwise be imported, were to finance improvements such as roads and canals that would make possible the development of the untapped resources of North America.  They had no problem with public expenditures on projects like the Erie Canal, because there was no question in their minds that government could create useful goods that contributed to the well-being of the commonwealth.

The ideology of capitalism claims that the capitalists are the creators of wealth.  In the Gilded Age (a term invented by Mark Twain and Charles Dudley Warner in 1873) railroad and steel magnates, lumber barons and financiers possessed far greater wealth than the landowners and merchants who made up the bulk of the founding fathers.  The morality of such unprecedented concentrations of wealth required justification, and it came in the guise of science.

William Graham Sumner, a cousin of Charles Darwin, came up with a philosophy of "social biology," later referred to as social Darwinism, which claimed that social differences reflected different levels of "fitness" to survive, that in fact this was nature's cruel but necessary working out of who should get the rewards in life.

A biologist might have pointed out to him the classic observation that "the rich get richer and the poor get children," which means those who devote themselves to gathering wealth are less likely to pass on their genes than those who devote themselves to family, so natural selection seemed to be working the other way.  But not all intellectuals serve the function of discovering truth.  Many serve the function of justifying what those passing out the honors in society wish to see justified.  This seems to have been the difference between Darwin and his cousin.

Social Darwinism seemed to say that the rich should be rich, because, after all, they were the fittest.  Jay Gould, the railroad robber baron, hired strikebreakers in 1886, saying "I can hire 0ne-half of the working class to kill the other half."  Could such a cynical thought occur to a man who did not see himself as a better sort of creature?

Sumner, in his book What the Social Classes Owe Each Other,  argued that assistance to the poor harmed them, by weakening their ability to survive in society.  Therefore, not only did the rich deserve to be rich, their disinclination to help the poor was justified as well.

Gould made his infamous statement about the working class in the middle of the Long Depression, a period of slow growth and deflation that started with the panic of 1873 and ended in 1896.  The Long Depression did a great deal to delegitimize social Darwinism, because defining most people as "unfit" because they have failed to prosper in a desperately bad economy turns out not to be persuasive to most people.

The failure of laissez-faire capitalism to perform well, first in the Long Depression, later in the Great Depression, undermined the ideology of capitalism.  Its resurgence required an outside threat and a long period of prosperity.

The outside threat was again Communism, in the post-WWI world.  Americans defined themselves in contrasts to the Godless Communists: President Dwight Eisenhower allowed Billy Graham to convince him to get baptized and to get Congress to make "in God we trust" an official motto of the U.S. government.  At about the same time, God was added to the Pledge of Allegiance.  In addition, while liberalism had assumed the existence of private property, the Cold War put this in stark contrast to the assumptions of Communism, making this distinction more important.

New Deal politics still had some life to it, but the coalition of the New Deal was broken up by the introduction of civil rights legislation by President Lyndon Johnson.  Johnson is supposed to have said that in passing that legislation, he had lost the South for the Democratic Party for a generation.  As it happens, he was wrong.  The realignment of the parties was rapid at first, as Southern Democrats defected to the Republican Party, but it was not until a black Democrat, Barak Obama, was elected president that the realignment was completed.  Two years after he was elected, most of the remaining Southern Democrats in Congress were defeated.

America now has a political party that is conservative from top to bottom, unlike the coalitions of an earlier age.  With that development has come a conservative ideology that combines social conservatism, religiosity, nativism,  nationalism, and a capitalist ideology that seems straight out of the Gilded Age.

Senator Mike Lee (R-UT) has argued that child labor laws are unconstitutional.  Sen. Jon Kyle (R-AZ) has argued that unemployment insurance keeps people from looking for jobs "because people are being paid even though they're not working."

A couple years ago, then Republican National Committee Chairman Michael Steele  said, "Not in the history of mankind has the government ever created jobs."

The Founding Fathers would have found this a peculiar notion.  Article 1 section eight of the Constitution specifically authorizes Congress "to establish post offices and post roads."  It was well understood that building a post road enabled no only communication necessary for commerce, but commerce itself, since anyone could use the road.  Indeed, as mercantilists, they would have considered the role of the state in encouraging and regulating commerce essential to the development of the commonwealth.

Steele was articulating a view widely held on the right, and disseminated by such spokesmen for the conservative movement as Rush Limbaugh.  It reflects an ideology that is, in the end, opposed to most of academic economics and alien to the principles of the nation's founders.  Liberalism, the movement they were a part of, was about how we should be governed.  For Locke, property was a starting place for describing the proper way to organize society.  From the need to defend our property (which includes our lives) we get the need for the social contract.  The social contract makes society and government possible.  But the new ideology of capitalism seems to say that only property relationships outside of government are legitimate, which is a very different thing.

Consider this passage from the Second Treatise of Government:

Sec. 89. Where-ever therefore any number of men are so united into one society, as to quit every one his executive power of the law of nature, and to resign it to the public, there and there only is a political, or civil society. And this is done, where-ever any number of men, in the state of nature, enter into society to make one people, one body politic, under one supreme government; or else when any one joins himself to, and incorporates with any government already made: for hereby he authorizes the society, or which is all one, the legislative thereof, to make laws for him, as the public good of the society shall require; to the execution whereof, his own assistance (as to his own decrees) is due. And this puts men out of a state of nature into that of a common-wealth, by setting up a judge on earth, with authority to determine all the controversies, and redress the injuries that may happen to any member of the commonwealth; which judge is the legislative, or magistrates appointed by it. And where-ever there are any number of men, however associated, that have no such decisive power to appeal to, there they are still in the state of nature.

I suspect this notion of a commonwealth would be considered suspect by  the advocates of the ideology of capitalism.  They prefer the vision of the state of nature, and the survival of the fittest, defined by the state of one's bank balance.  Locke's writing, tremendously influential for men such as Jefferson, who wrote the Declaration of Independence, said that in forming a social contract we become something larger.  Thus, the motto that still appears on our quarters and on the Great Seal of the United States, E pluribus unum, "out of many, one."

The newer ideology of capitalism is skeptical of this old-fashioned notion, preferring a more individualist approach.  How this will changed liberal democracy, the form of society in which we live, remains to be seen.  It has certainly become distinctly different from the classical liberalism from which is has developed.