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Why Capitalism is Inevitable

Mises Daily: Friday, July 09, 2004 by

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For all the talk about the triumph of capitalism, it seems that the free market—the real thing and not someone's imagined conception of it—has very few friends in politics or the world of ideas. Thus do the writings Murray Rothbard, the leading defender of the market economy of his generation, still have the power to shock and clarify the essential ideological and political battles of our time. This essay in particular constitutes on commentary on his powerful piece from 1973: "A Future of Peace and Capitalism."

The traditional enemies on the left are all-too predictable in their insistence that market processes must be bent, shape, and chopped to conform to the demands of social justice, egalitarian ethics, or environmental concerns. On the right, the neoconservatives insist that global capitalism must be financed by credit expansion and escorted by the US global military empire in order to truly serve the interests of world order. Also on the right, the paleoconservatives cast aspersions on the market for its supposed disruptions of community life, its internationalism, and it baneful moral effects.

 Who now obeys Ozymandias, Caesar, or Ceaucescu? 

The result is that interventions are cheered from all sides. For example, the movement for the (government-imposed) family wage spans left and right, when the state intervenes to curb mass retailing, free trade, sound money, freedom of association, private property, and all the other institutional marks of commercial society, it can count on wide intellectual agreement. Capitalism, it seems, despite its triumphs, remains an irresistible target of the opponents of liberty and property.  

How striking to discover, then, how few writers and thinkers are willing to spell out precisely what they mean when they refer to the economics of capitalism. For many, the term capitalism is nothing but a vessel into which they pour all the people, institutions, and ideas that they hate. And so capitalism emerges as a synonym for greed, dirty rivers and streams, pollution, corrupt businessmen, entrenched social privilege, the Republican Party, criminal syndicates, world Jewry, war for oil, or what have you. In fact, the advocates of capitalism themselves haven't always been entirely clear on the meaning and implications of capitalist theory.

And this is why Murray Rothbard went to such lengths to spell out precisely what he was endorsing when he championed the economics of capitalism. This was especially necessary when he was writing in 1973, a time which was arguably the low point for capitalist theory. Mises died that year, all economists were said to be Keynesians, Nixon closed the gold window, wage and price controls were fastened on industry as an inflation fix, and the US was locked in a titanic Cold War struggle that emphasized government weaponry over private enterprise. Murray Rothbard, meanwhile, was hard at work on his book For A New Liberty:   The Libertarian Manifesto, an effort to breath new life into a traditionally liberal program by infusing it with a heavy dose of political radicalism. It must have seemed like a hopeless task.

The same year, he was asked to contribute an essay in a series of readings called Modern Political Economy (Boston: Allyn and Bacon, 1973). He was to address "The Future of Capitalism" (pp. 419-430), the conclusion of which might have seemed self-evidently bleak. But not to Rothbard. His contribution to the volume was lively, optimistic, enormously clarifying, and prescient to the extreme. Above all, he used the opportunity to explain with great clarity what precisely he means when he refers to capitalism: no more and no less than the sum of voluntary activity in society, particularly that characterized by exchange.

Does that seem like a stretch? Rothbard explains that the term capitalism itself was coined by its greatest enemy Karl Marx, and ever since the term has conflated two very different ideas: free-market capitalism, on the one hand, and state capitalism, on the other. "The difference between them, Rothbard notes, "is precisely the difference between, on the one hand, peaceful, voluntary exchange, and on the other, violent expropriation." This may seem like a small point, but the confusion accounts for why whole swaths of American historiography are incorrect, for example, in distinguishing Alexander Hamilton's supposed sympathy for capitalism from Thomas Jefferson's sympathy for "agrarianism." Rothbard points out that Jefferson was in fact an advocate of laissez-faire who had read and understood the classical economists; as an "agrarian" he was merely applying the doctrine of free markets to the American regional context, even as Hamilton's mercantilist and inflationist sympathies are best described as a preference for state capitalism.

As Rothbard explains, capitalism is nothing but the system that emerges in the framework of free exchange of property and the absence of government efforts to stop it. Whether you are talking about buying a newspaper from a vendor or a group of stockholders hiring a CEO, the essence of the exchange is the same: two parties finding ways to benefit by the trade goods and services. From the exchange, both parties expect to benefit else the trade would not have occurred. The global marketplace at all levels is nothing but the extension of the idea of mutual betterment through peaceful exchange.  

In contrast to market exchange, we have its opposite in government intervention. It can be classified in two ways: either as prohibiting or partially prohibiting an exchange between two people or forcing someone to make an "exchange" that would otherwise not take place in the market. All government activity—regulation, taxation, protectionism, inflation, spending, social insurance, ad infinitum—can be classified as one of those two types of interventions. Taxation is nothing more than robbery (Rothbard challenges anyone to define taxation in a way that would not also describe high-minded theft), and the state itself is nothing but a much-vaunted robber on a mass scale—and it matters not whether the state is conducting domestic or foreign policy; the essence of statecraft is always coercion whereas the essence of markets is always voluntarism.

In Rothbard's conception, it is not quite correct to characterize support for free markets as either right or left. In 1973, he heard as many complaints about the supposed greed unleashed by markets from the followers of Russell Kirk as he did from the new left socialists. The right, in fact, was afflicted with a serious intellectual attachment to pre-capitalistic institutional forms of monopoly privilege, militarism, and the unrelenting drive to war.

This was what Rothbard saw the political establishment of 1973 bringing to the US: the march of the partnership between government and business that is nothing but the reinvention of political forms that pre-dated the capitalist revolution that began in the Italian city states of the 16th century. The US conservatives were entirely complicit in this attempt to reverse the classical liberal revolution in favor of free markets in order to fasten an old-world monopolist system on society.

In this, the conservatives resembled their supposed enemies, the socialists. After all, socialism was, as Rothbard put it, "essentially a confused, middle-of-the-road movement." Its supposed goal of liberty, peace, and prosperity was to be achieved through the imposition of new forms of regimentation, mercantilism, and feudalism. Socialism seeks, in Rothbard's words, "liberal ends by the use of conservative means." ("Left and Right: The Prospects for Liberty," Left and Right, I, 1, Spring 1965).

Conservatives could be counted on to support the means but not the ends, and the result is something that approaches the current status quo in the US: a mixed political system that combines the worst features of egalitarian ideology with corporate militarism—a system that leaves enough of the private sector unhampered to permit impressive growth and innovation. It was precisely the productive power of market, as versus the dead-end of statist methods favored by both left and right, that led Rothbard to see that the gains of capitalism could not finally be reversed.

In addition, he may have been the first to anticipate the way in which the terms left and right would eventually come to mean their precise opposite in the reforming economies of Eastern Europe. He was fascinated but not entirely surprised by the events in old Yugoslavia, where a Stalinist system had been forced to reform into a more market oriented economy. In fact, he noted that the trend had begun in the 1960s, and extended all over Eastern Europe. What was essentially happening, Rothbard wrote, was that socialism had been tried and failed and now these countries were turning to market models.

Keep in mind that this was 1973, when hardly anyone else believed these countries capable of reform: "In Eastern Europe, then, I think that the prospects for the free market are excellent--I think we’re getting free-market capitalism and that its triumph there is almost inevitable." Ten years later, it was still fashionable to speak of authoritarian regimes that could reform, as contrasted with socialist totalitarianism that could not be reform and presumably had to be obliterated. Rothbard did not believe this, based on both theory and evidence.

Rothbard saw that all sectors in all countries moving either toward capitalism or toward socialism, which is to say, toward freedom or toward control. In the US, the trends looked very bleak indeed but he found trends to cheer in the antiwar movement, which he saw as a positive development against military central planning. "Both in Vietnam and in domestic government intervention, each escalating step only creates more problems which confront the public with tile choice: either, press on further with more interventions, or repeal them--in Vietnam, withdraw from the coun­try."

His conclusion must have sounded impossibly naïve in 1973 but today we can see that he saw further than any other "futurists" of his time:

"the advent of industrialism and the Industrial Revolution has irreversibly changed the prognosis for freedom and statism. In the pre-industrial era, statism and despotism could peg along indefinitely, content to keep the peasantry at subsistence levels and to live off their surplus. But industrialism has broken the old tables; for it has become evident that socialism cannot run an industrial system, and it is gradually becoming evident that neomercantilism, interventionism, in the long run cannot run an industrial system either. Free-market capi­talism, the victory of social power and the economic means, is not only the only moral and by far the most productive system; it has become the only viable system for mankind in the industrial era. Its eventual triumph is therefore virtually inevitable."

Rothbard's optimism about the prospects for liberty is legendary but less well understood is the basis for it: markets work and government do not. Left and right can define terms however much they want, and they can rant and rave from the point of view of their own ideological convictions, but what must achieve victory in the end is the remarkable influence of millions and billions of mutually beneficial exchanges putting relentless pressure on the designs of central planners to thwart their will. To be optimistic about the prospects for capitalism requires only that we understand Mises's argument concerning the inability of socialist means to produce rational outcomes, and to be hopeful about the triumph of choice over coercion.

Keynes notwithstanding, in the long run we are not all dead. Instead, the development of markets—locally and globally—would, over the long haul, create the conditions for liberty. Writing in the Southern Economic Journal in 1962, Rothbard expressed a key motif of his historical vision. Replying to an economist who held, somewhat contradictorily, that advocates of laissez faire wanted to return to an earlier status quo, the which status quo, however, had never existed, Rothbard wrote:

"This problem can, however, be resolved fairly simply. There was relatively less government intervention in the nineteenth century than in the other eras—past or present–of human history, and in that sense there was at least a significant shift in favor of laissez-faire. On the other hand, the shift was never completed, so that a certain amount of government intervention still remained. Those economists and social philosophers, few though they may be, who wish to change the present system to one of laissez-faire, are therefore looking to the future, but as redeeming the partially-fulfilled promise of the past."   (Murray N. Rothbard, "Epistemological Problems of Economics: Comment," Southern Economic Journal, XXVIiI, 4 (April 1962), p. 386.)

Rothbard firmly believed that the "partially-fulfilled promise of the past"–heralding freedom, prosperity, and peace–would indeed inform the future, which would be a future of capitalism. Who now obeys Ozymandias, Caesar, or Ceaucescu? 

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Joseph Stromberg is historian in residence at the Mises Institute. Stromberg@mises.org. Jeffrey Tucker is editorial VP. tucker@mises.org. Comment on the Blog.