Mises Daily Articles
The Roots of Capitalism
[Excerpted from the prologue to The Roots of Capitalism]
In 1776 Adam Smith's Wealth of Nations, an economic treatise which had grown out of its Scots author's preoccupation with the wider problems of free choice as a foundation of moral philosophy, was first published.
That same year Thomas Jefferson, a man whose predilection for free choices had endowed him with many accomplishments (he could "calculate an eclipse, survey an estate, tie an artery, plan an edifice, try a cause, break a horse, dance a minuet and play the violin"), retired for seventeen days to an upstairs room in a bricklayer's house in Philadelphia and produced the Declaration of Independence.
Between the two events there was more than the casual relationship of coincidence. Each document was the summary of an epoch — the distillation of what hundreds of people had been thinking and saying, usually with considerably less felicity. Each had come out of the same "forcing house" — the fifteen years that stretched between the end of the Seven Years War (or the French and Indian War, as the conflict was known in America) and open defiance of the efforts of a "planning" king, George III, to remake the world in a mercantile planner's image.
Each, in different ways, carried to completion the thinking of John Locke, the libertarian philosopher of the English Revolution of 1688. But the truly important connection between the two documents lay in the future, not in the past.
The one was a prophetic economic blueprint, not without its flaws, for the vast outpouring of human energy which was to create the modern world; the other was a simple guarantee that the blueprint could be made palpable within the physical growing space of a new continent.
When Adam Smith — a mild, professorial, inquisitive, and absentminded man — was expanding his classroom lectures into a book between 1759 and 1776, he was sanguine for the future, both of his own fledgling science of political economy and what were still the British colonies of North America.
Writing in the spring of 1776, he spoke of the "late" disturbances across the water as if they were shortly to be settled. Despite the "planning" predilections of George III, the British Constitution, as amended in various grants of liberties through the centuries, seemed to stand eternal guardian of the immemorial rights of Englishmen.
Speculating on the moral and mental causes of "opulence" or decay in different societies, Smith had said
The difference between the genius of the British constitution which protects and governs North America, and that of the mercantile company which oppresses and domineers in the East Indies, cannot perhaps be better illustrated than by the different state of those countries.
Yet even as Smith was writing, the attempted counterrevolution from the top against English liberties was gathering increased momentum. The counterrevolution was embodied in that worst of menaces to the human spirit, a political executive with a "let me do it" complex. (It is of such people that the Chinese say: "A great man is a public calamity.")
King George III, the first of the Hanoverian line of monarchs to be born on British soil, came to the throne at the close of the midcentury French wars with his mother's famous "George, be a king" resounding in his ears. Young (he was only 22), handsome, moral, and proper, with a taste for upright country life (he raised turnips), he had resolved from the outset to do his people nothing but good, even if it were to kill them.
Such purism was an attempt to revive the spirit of the Stuart kings, and England had long since had enough of that. For a generation the realm had been governed by the great Whig landowners, who believed in a wise laxness.
The Whigs were close to the soil of the shires, but they were also interested in their alliances with all the new forces that were a compact of the liberating energies of scientists, tinkerers, shopkeepers, commercial chance takers, and overseas adventurers. The Whigs were not above corrupting parliament to get their way, but it was creation, not coercion, for which they wished to clear the road.
Meanwhile the first two Hanoverian Georges let the English world wag, preferring to take their ease in their ancestral lands in Germany to reigning on the spot in London.
Under the Whigs, England prospered, the standard of life rose, and the nation won its battles. But George III, a perfectionist, had read his Bolingbroke and absorbed the idea that a king should be above faction and party — which, in an England that depended on parliament, meant corrupting or browbeating a majority to royal whim.
During George Ill's reign the attempt was made, by way of a shift in the Poor Law, to legislate a basic free income for every man or woman, whether able-bodied or not, with no tests required. The result was to divide England, not into Disraeli's "Two Nations" of rich and poor, but into workers and drones.
Prior to George Ill's assumption of authority, England had paid lip service to the mercantilist theory that a state prospers by gathering gold, not goods, and by licensing a few favorites to do overseas business with an eye to the personal aggrandizement of a court circle.
But, as a popular gag has phrased it, England was not so much a mercantilist state as it was "a piece of land entirely surrounded by smugglers."
Even the ministers of the Crown, though they were sworn to uphold the laws, were not above smuggling: when he was Chancellor of the Exchequer, Sir Robert Walpole, the leader of the Whigs, had bought contraband lace from Holland; and, as a younger placeholder, he had boldly used an Admiralty launch to slip wines past the customs. Indeed, Sir Robert had his pet smuggler, a rough sea captain who waited periodically at the doors of Houghton, the Walpole country estate, for settlement of his bills.
The North American colonies, too, had raised smuggling to a fine art. The colonists ignored the Molasses Acts, lured British coastguard ships into shoal waters where they grounded, and traded in and out of the Caribbean for rum and sugar quite as they pleased.
The standard of life rose in North America every time a king's agent was bilked: a tax avoided. Wages were high in New York, money earned good interest, yet the necessaries of life were cheap. Said Adam Smith in 1776: "The price of provisions is everywhere in North America much lower than in England. A dearth has never been known there."
America was doing very well, thank you, without any benevolent or enlightened despot's five-year plan, and once the menace of the French had been removed by British and colonial successes in Canada during the French and Indian War, there seemed less reason than ever to put up with any nonsense that violated the immemorial rights of Englishmen on North American shores.
It was at this point, as we are sometimes reminded on July 4, that George III grew particularly stuffy about his relations to overseas Englishmen. There was, first, the Stamp Tax, a slight impost on colonial legal documents designed to raise money for keeping British troops in America.
Though the Stamp Tax was a mere nothing, the colonists rioted over it, for it was the same "taxation without representation" which had set their forefathers against the Stuarts and helped cause the settlement of New England in the first place. The tax was repealed, but there were even more obnoxious laws — the tea tax, for instance — to come.
When the colonists finally rose in resistance, then in rebellion, Horace Walpole expressed his fear that if King George III were to win a victory in his American war the sequel would be chains on Englishmen at home.
Sir Edmund Burke, the elder Pitt, and the other great Whigs more or less openly took the part of the Americans; not without reason they felt that the colonists, in rebelling, were defending the liberties of Englishmen in London, Leeds, Sheffield — and everywhere else.
George III failed in his mania to revive benevolent despotism in England. He failed largely because he was defeated by the colonists in America. The common energies of his age, as expressed by the rising tide of individual self-sufficiency, were against him.
It was not without struggle, however, that Adam Smith's "natural liberty" — or Edmund Burke's "natural society" — prevailed and the bonds of mercantilist caution were broken in England. And it was only after considerable travail that Thomas Jefferson's Declaration of Independence — that "all men are created equal, that they are endowed … with certain unalienable Rights" — was transmuted into the American constitution, which says that life, liberty, and property shall not he touched without due process of law.
Smith had to wait upon the slow processes of technology, the diversionary effects of the Napoleonic wars, and the collapse of markets after the wars, before the energies for which he had designed his blueprint could roll up and force the issue of freedom in the economic realm. And his revolution could hardly take place in a day in a North American colonial world devoted mainly to agriculture.
But the physical space was there in America; there were no inhibiting feudal laws and institutions preventing the free transfer of property; and, thanks to the Founders, the requisite freedom-in-federation was soon to come.
The categories and the institutions of capitalism — which is the economic expression of the morality which says a man must be free to choose between alternatives of good and evil if his life is to have Christian meaning — were all present in Wealth of Nations.
In the America of Thomas Jefferson's Declaration these categories and institutions were to have the opportunity which they were never fully to achieve in their constricted English home.