“When I say ‘capitalism’, I mean a full, pure, uncontrolled laissez-faire capitalism – with a separation of state and economics, in the same way and for the same reasons as the separation of state and church.” Ayn Rand, ‘The Objectivist Ethics’ The Virtue of Selfishness
“In a capitalist society, all human relationships are voluntary. Men are free to cooperate or not, to deal with one another or not, as their own individual judgments, convictions, and interests dictate. They can deal with one another only in terms of and by means of reason, i.e., by means of discussion, persuasion, and contractual agreement, by voluntary choice to mutual benefit. The right to agree with others is not a problem in any society; it is the right to disagree that is crucial. It is the institution of private property that protects and implements the right to disagree – and thus keeps the road open to man’s most valuable attribute (valuable personally, socially, and objectively): the creative mind.” Ayn Rand, ‘What is Capitalism?’ Capitalism: The Unknown Ideal
“Observe the paradoxes built up about capitalism. It has been called a system of selfishness (which, in my sense of the term, it is) – yet it is the only system that drew men to unite on a large scale into great countries, and peacefully to cooperate across national boundaries, while all the collectivist, internationalist, One-World systems are splitting the world into Balkanized tribes. Capitalism has been called a system of greed – yet it is the system that raised the standard of living of its poorest citizens to heights no collectivist system has ever begun to equal, and no tribal gang can conceive of. Capitalism has been called nationalistic- -yet it is the only system that banished ethnicity, and made it possible, in the United States, for men of various, formerly antagonistic nationalities to live together in peace. Capitalism has been called cruel – yet it brought such hope, progress and general good will that the young people of today, who have seen it, find it hard to believe. As to pride, dignity, self-confidence, self-esteem – these are characteristics that mark a man for martyrdom in a tribal society and under any social system except capitalism.” Ayn Rand, ‘Global Balkanization’, The Voice of Reason
Since my columns are so favorable to laissez-faire capitalism, let me define the term more precisely, picking up on the above-outlined thoughts of Ayn Rand. For without question, I share her enthusiasm for the economic system that enabled the United States to achieve its former greatness as a nation; a greatness that now has been squandered in a rush to state capitalism and progressive socialism. For the United States economy has not remotely resembled laissez-faire capitalism since Woodrow Wilson used World War I as an excuse to build a command economy. Since March 21, 2010 the United States is a social market economy, virtually indistinguishable from Germany, France and the United Kingdom. Under progressive anti-capitalist leadership, it is headed towards liberal fascism in a manner not at all dissimilar to Mussolini’s Italy during the 1930s.
Laissez-faire, a French term that translates loosely as ‘let things alone’, originated in the eighteenth century with a school of French economists known as the Physiocrats, who opposed trade restrictions that supported mercantilism. Adam Smith popularized the term and gave it added influence in his 1776 book, The Wealth of Nations. Smith argued that a nation’s well-being and economic progress are assured when individuals are free to apply their capital and labor, without state intervention, in a competitive market economy. He outlined how the self-interested activities of individuals promotes the general welfare under such conditions. The doctrine of laissez-faire thus involves not only a policy implication of non-intervention by the state, but also a positive philosophy that recognizes a natural harmony between individual and social interests.
In the hands of Jeremy Bentham, the doctrine of laissez-faire became a philosophy of individualism and of utilitarian ethics. The doctrine reached its zenith during the nineteenth century, in the writings of the young John Stuart Mill, who defined what has become accepted (with the exception of anarchists in the tradition of Murray Rothbard) as the minimum level of state intervention. Among such interventions for the greater good, Mill included the power to secure property rights and to enforce contracts, as well as to provide for internal order, protection from external threats, and such public goods as transport systems, sanitation, public health and state-supported education. Throughout the second half of the nineteenth century, following the Repeal of the Corn Laws, Great Britain epitomized the system of laissez-faire capitalism, thus creating the wealth that enabled it to become the greatest Empire that the world had ever known.
The United States never adhered unconditionally to the doctrine of laissez-faire, either theoretically or practically. Tariffs were key revenue-raising components of American trade policy almost from the country’s independence. Antitrust laws – in the form of the Sherman Act (1890) and the Clayton Act (1914) similarly violated laissez-faire principles. During the first half of the twentieth century, numerous examples of state intervention – minimum wage laws, workers’ compensation statutes, hours legislation, and social security laws belied professed allegeiance to laissez-faire principles. Since the Great Depression and World War II, only a small minority of Americans espouse laissez-faire capitalism, correctly defined.
Truth, however, is not to be found necessarily in numbers. In my judgment, the Remnants are correct in their judgment that laissez-faire capitalism is the only system known to mankind that simultaneously promotes individual freedom and the wealth of a nation to the highest feasible levels. As such, the doctrine is to be revered and not derided, as is the current unfortunate, irresponsible tendency throughout the United States.
Tags: Adam Smith, individual freedom, Jermey Bentham, John Stuart Mill, liberal fascism, mercantilism, progressive socialism, the laissez-faire doctrine, the wealth of nations
April 1, 2010 at 3:31 am |
[...] Laissez-Faire Capitalism « Charles Rowley's Blog [...]
April 1, 2010 at 10:54 am |
As you said, the US never was a Laissez-Faire nation ever. When it’s mentioned in debates, it’s only ever invoked as an excuses of Government failure, not market failure.
I’m becoming ever more skeptical of the whole notion of Market Failure, that I was taught in Microecon.
What’s your thoughts on the Internet as the only pure (or as close to it as humans can possibly get) Laissex-Faire market? I’m no economist but a recent Econtalk podcast got me thinking about it.
Can you give me some constructive criticism on my post here; http://zombiehero213.wordpress.com/2010/03/23/the-internet-is-laissez-faire/
April 1, 2010 at 10:52 pm |
zombiehero there will always be people who will try to control the market. This also happens on the Internet.
April 2, 2010 at 11:08 am
I know there will always be people that will try. My point is, for now, there is very very little control on the Internet. I know Obama wants to levy a tax on the internet, which will do irrepressible harm to internet commerce.
Looking at the level of innovation, consumer choice and what not, I can’t think of any other market that could be considered (almost) a perfect competition.
April 3, 2010 at 1:31 am
Over the past few years I have been dealing with Traffic Exchanges. This is where people try to advertise what they have for “sale”. A lot of those things are ponzi schemes. It is an odd world.
I bring this up because one particular group of exchange owners were trying to muscle out some of the smaller bit players. Also, the number of people purchasing the software to run an exchange increased at a rapid rate. Quite naturally some of these exchanges have to or already have failed.
The thing here is, and this supports the notion of perfect competition is that the big boys could not totally control the little guys, and neither could they control the market for people looking to find a means of advertising their wares.
Near perfect competition itself exists on the Internet, but like a lot of other markets, there are always those who seek to dominate.
April 1, 2010 at 11:19 am |
[...] } Charles Rowley’s blog has an excellent post on Laissez-Faire Capitalism. I highly encourage everyone to read. The United States never adhered unconditionally to the [...]
April 2, 2010 at 12:19 am |
Here is what I think (probably erroneously) that is, John Stuart Mill has the right idea about laissez-faire capitalism. I think this goes back to the descriptions by Samuelson and J.M. Keynes of perfect competition. It simply does not exist, and never will exist anywhere in the world.
Some of the Government interventions have been necessary and I certainly think that there is a good case to retain some of these interventions to ensure that people are not dragged into slavery again. Here I am think of : workers’ compensation and laws relating to worker health and safety. Any employer should have to maintain a safe working environment, and if the worker is injured or killed because of the employer negligence then that injured worker or his/her family deserves some form of compensation because of the loss of capacity to work. Take for example my own great-great grandfather, a railways linesman working for Victorian Railways (not sure if it was privatized at that point in time). He died August 6 1906 as a result of injuries sustained when hit by a train. I was fortunate enough to find the newspaper story and the inquest with regard to what took place. In this case the employer withdrew the flagman that should have been there to signal to the workers to get off the line because a train was approaching. The train driver said he blew the whistle three times but the workers, because of the noise did not hear it!! Clearly the employer was negligent in removing the flag man. My grandfather did not die on impact but as a result of internal bleeding in the hospital. He was lucid enough to tell his oldest son Henry that the flag man had been withdrawn. In those days there was no workers compensation and my great-grandmother was left as a widow with several of the 13 children still at home. My grandfather was 5 at the time of the accident. It was a time when no social security or widows pension was available.
There was a need in the early days to cap working hours and to specify the age that children could be set to work. This was to stop some rather obvious exploitation. In some industries where the light was dim the workers risked going blind – especially true for lacemakers, knitters etc. etc. where the work was very fine and the lighting very poor.
However, what occurs now is the exploitation of these rules for the benefit of the unions. This is as bad as the exploitation by the original capitalists. Workhouses, poor houses and the like were open to exploitation and yes there was a need to bring that kind of thing under control. This is why there is that need to provide for the minimum acceptable standards of pay and conditions. Then government should leave everything else alone.
I have recently read through the United States vs Butler decision, the case that struck down the Agriculture Adjustment Act. Plus I have read bits and pieces of other cases involving the commerce clause, one being Raich vs Gonzales. Interestingly the SCOTUS did not strike down the Second Agriculture Adjustment Act even though it was restricting the production of wheat, which is relevant to the Raich case involving the production of pot for personal use. The difference seems to be that which was for the common good. The growing of wheat for home use, but actually growing more than allowed, was said to affect the overall market and price of wheat. The Second Agricultural Adjustment Act in my view was interfering with the market price of wheat by restricting production. This was a departure from laissez-faire principles. It was a departure from the principles of supply and demand, because the Government was not leaving it up to the market of suppliers to determine whether or not they should remain in the market!!
April 2, 2010 at 11:06 am |
“Interestingly the SCOTUS did not strike down the Second Agriculture Adjustment Act ”
That’s because of the FDR’s court packing scheme. You might have heard of the phrase “A switch (or stitch) in time saves nine.” Well the nine were SCOTUS, Justice Roberts switch to a pro-New Deal stance during West Hotel v Parrish. FDR was angry about SCOTUS declarations that his New Deal was (and still is, IMO) Unconstitutional, he wanted to exploit the fact that the Constitution didn’t specify a certain number of SCOTUS like it does for Congress and Executive, and pack the courts full of his Yes-men.
Justice Roberts is, IMO, the reason for the decline of the US. His switch signaled the shift from Constructionist to Progressivst interpretations of the Constitution, which have resulted in the over expansion of the welfare state.
April 3, 2010 at 1:39 am
Do not forget to make the distinction between the two men by the name of Justice Roberts
I do know the background about FDR being angry with the SCOTUS. That would be as a result of the Butler case, since the SCOTUS rightfully struck down the original AAA.
The SCOTUS will likely face the same kind of dilemma with the present POTUS because there is a real chance that they will be striking down some more parts of the McCain-Feingold Act, and I think that it will not end there. I do believe that there is a possibility that they will strike down Abomination care because its provisions are unconstitutional.
How strange that the present SCOTUS is being headed by another Justice Roberts.
April 19, 2011 at 3:26 am |
A pure capitalism is uncivilized. It’s Darwin’s survival of the fittest exactly. If you don’t measure up – tough. It means a constant war between business and labor. As the fittest often control the government through the money they’ve accumulated on the backs of the lesser people’s, it means they can also take an unfair advantage of them through the laws and rules they put forth.
But, as always, the peasants will finally get fed up, cut off a few heads, and make the fittest start over again. It’s just a matter of time before the cycle repeats. It will happen, because the fittest are unable to control their greed, even in the face of rising unrest.
That cycle is why I’m a Social Democrat – a more civilized system then dog-eat-dog conservatism.
December 11, 2011 at 7:01 am |
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