Capitalism at a Crossroads: 1875-1900
SEPTEMBER 01, 1987 by J. BRIAN PHILLIPS
Mr. Phillips is a free-lance writer based in Houston, Texas.
The last quarter of the nineteenth century was a turning point for American capitalism. Just when free enterprise seemed to be enjoying its greatest success—with technological advances creating many new industries, opportunities opening for millions of workers, and living standards on the rise—the intellectual roots of capitalism came under relentless attack. When the proponents of capitalism were unable to mount an effective defense, :popular support shifted toward interventionism, and the American era of laissez faire came. to an end.
Who were the critics of capitalism—the collectivists who overthrew laissez faire? Who were capitalism’s defenders at this critical juncture? Let us consider each in turn.
The Collectivists: George, Bellamy, and Lloyd
In 1879, journalist Henry George published the immensely popular Progress and Poverty, in which he argued that private ownership of land is the cause of many of the world’s evils. “To extirpate poverty,” he wrote, “to make wages what justice commands they should be, the full earnings of the laborer, we must therefore substitute for the individual ownership of land a common ownership.” George arrived at this conclusion by declaring that “Land is the source of all wealth.” Consequently, a man who is denied land is denied the right to earn a living.
A man has a natural right to the products of his labor, George argued, and therefore should not be forced to pay rent to a landowner, who contributed nothing to production. To George, the capitalist was an exploiter, who got rich on the backs of the workers.
To ensure that people would be rewarded for their efforts, George devised a system in which an individual would be guaranteed the right to use a specified parcel of land. However, rather than owning that land, the individual would be little more than a rent-paying tenant. This, George assured his readers, would provide opportunities for all and bring a quick end to poverty.
But, if George’s system were fully implemented, such assurances would amount to idle promises. If all land were publicly owned, the public would have the power to determine its use. A man would have no guarantee that the factory he built this year would be allowed to stand the next year, if the public should decide on another use for that land. And, if this policy were applied to land, it soon could be extended to other forms of property. If the source of all wealth is public property, it is only a matter of time before all wealth becomes public property.
In 1888, Edward Bellamy published Looking Backward, a novel in which the hero falls asleep in 1887 and awakens in the year 2000 to find America has been transformed into a socialist utopia. Looking Backward was so popular that “Bellamy Clubs” sprung up across the nation and at one time had an estimated membership of over 500,000. Bellamy’s vision, which included nationalization of the trusts (a common target of collectivists), was often quite similar to Marxism. However, Bellamy believed that the word “socialism” would not be politically palatable in America, and preferred to call his ideas “nationalism.” Nationalists, he wrote, “are socialists who, holding all that socialists agree on, go further, and hold also that the distribution of the cooperative product among the members of the community must be not merely equitable, whatever that term may mean, but must be always and absolutely equal.”
In 1894, a Chicago journalist named Henry Demarest Lloyd published Wealth Against Commonwealth, an attack on the Standard Oil Trust. Lloyd believed that Standard Oil and its founder, John D. Rockefeller, represented everything wrong with society in general, and capitalism in particular.
To Lloyd, the capitalists were as evil and tyrannical as King George III had been prior to the American Revolution. They were individualists, he declared, who placed their own self-interests above the public interests. Individualism, he believed, had served its purpose. “The laissez-faire of social self-interest,” Lloyd wrote, “if true, cannot conflict with the individual self-interest, if true, but it must outrank it always.” In other words, the individual is to be subservient to society.
Lloyd believed that society is the measure of good and evil, right and wrong. “Nothing is needed but one thing,” he wrote, “no new laws nor investigations by Congress, no amendment of the Constitution, nothing but public opinion. Here lies ready to the hands of the people every tool they need.” In other words, laws and Constitutions are irrelevant—all that counts is the will of the people—unlimited majority rule.
In the late nineteenth century, the most prominent defender of the status quo in America was William Graham Sumner, a sociologist at Yale University. Sumner adhered to the theories of Herbert Spencer, an English philosopher who had developed a defense of capitalism based on the work of Charles Darwin. Popularly called Social Darwinism, Spencer’s ideas explained society in terms of the “survival of the fittest.” Industrialists, the theory held, were merely the fittest humans.
The practical result of Social Darwinism was the creation of two classes of men—one class inferior to the other. Furthermore, Social Darwinism provided justification for the superior class to exploit the inferior class. And to the workers and collectivist intellectuals, this was precisely what the capitalists were doing.
While Sumner advocated laissez-faire economic policies, he failed to justify his position on the basis of individual rights. To the contrary, Sumner held that rights are neither inviolable, nor are they applicable to all equally. Rights, Sumner believed, are merely social conventions which have proven to be effective means of promoting production. Expediency, not principles, dictated rights.
On what terms was expediency determined? By the will of the people, “Might makes a right,” Sumner wrote. “Whether that right is or is not rightful, just, fair, good, seemly, or proper, is quite another matter, for it involves a moral judgment.” And it was moral judgments which Sumner sought to avoid. In the absence of moral judgments unfortunately, any political action could be justified.
It is important to realize that capitalism does not ultimately rest on ethical principles, but rather on fundamental premises about the nature of reality and knowledge of that reality, i.e., metaphysics and epistemology. Ethics defines the principles of proper human action. Politics, as the final expression of a philosophical system, is a form of social ethics. Which is to say, politics defines the principles of an individual’s actions within society, and more importantly, society’s actions against individuals.
Andrew Carnegie, one of the great industrialists of the age, was not an ardent advocate of capitalism, but he was a vocal critic of communism. However, Carnegie was not an intellectual, and he had to choose between the popular theories of the day. He chose Social Darwinism.
But Carnegie added an altruistic twist to Sumner’s ideas. Inherited wealth, he believed, is corrupting. Carnegie maintained that the wealthy should give their money to the public, in the form of philanthropic endeavors. To en courage this activity, Carnegie advocated high estate taxes. “By taxing estates heavily at death,” he wrote, “the state marks its condemnation of the selfish millionaire’s unworthy life.” To Carnegie, a man’s wealth was not truly his, but only held in trust for society. It could be relinquished “voluntarily” during one’s life, or forcibly seized upon one’s death.
Another great industrialist, John D. Rockefeller, shared Carnegie’s belief that the rich should use their wealth for the betterment of society. Rockefeller, however, found his guidance in the teachings of the Episcopal bishop of Massachusetts, William Lawrence. Lawrence believed that wealth came only to the moral man. The virtues which resulted in material prosperity, e.g., industry, frugality, and temperance, were also espoused by the clergy. Wealth, Lawrence believed, was God’s means of allowing moral men to help the masses.
At the most essential level, capitalism’s alleged defenders agreed with capitalism’s critics. Carnegie and Rockefeller believed that men are morally bound to use their wealth to promote the public welfare. Henry George agreed, but he wanted the State, rather than capitalists, to determine what the public welfare is. Sumner argued that might makes right; Lloyd agreed, advocating that people use force to seize whatever they want. The Social Darwinists argued that the fittest men have a right to trample on the rights of others. They may have disagreed on the particulars, but each side of the debate concurred that individual rights are neither sacrosanct, nor the basis for a civilized society.
It was within this intellectual atmosphere that American capitalism reached its zenith. But even from its inception, America’s economy was never completely free of government controls. Tariffs and duties were used to collect revenue and protect domestic industries. As the economy grew, the effects of these interventions increased to the point where many industries were completely insulated from foreign competition. Indeed, less than three months after the passage of the Sherman Antitrust Act in 1890, the McKinley Tariff Act imposed the highest and broadest tariffs in the nation’s history. Evading the contradiction, the American people complained about the anti-competitive nature of the trusts, while simultaneously clamoring for higher tariffs to protect domestic industries from foreign competition.
When farmers complained about high shipping costs, they did not question the governments’s role in giving land grants and other monopoly privileges to some railroads; the farmers questioned the morality of the railroad owners. When workers and consumers complained about the trusts, they did not question the government’s policy of high tariffs which curtailed competition; they questioned the morality of the industrialists. When reports of government corruption surfaced, people did not question the ethics of the legislators; they questioned the morality of men who had to resort to bribes to secure government permission to operate their business as they saw fit. Regardless of the issue, the industrialists and businessmen were condemned.
The growing unrest began to manifest itself politically during the 1870s. The Granger Movement united farmers in protest over the policies of the railroads. The agrarian movement continued with the Greenback and Populist Parties. The Populist Party platform for 1892 called for, among other things, nationalization of the railroads, free coinage of silver, a graduated income tax, prohibition on foreign ownership of land, and tighter restrictions on immigration. The Populists, however, did not consider themselves socialists, but espoused collectivism only as a means to a more “enlightened individualism.” The fact is, “enlightened individualism” cannot be achieved by obliterating individual rights—collectivism and individualism are incompatible.
The intellectual climate of the post-Reconstruction era was best described by Henry De-marest Lloyd:
Monopoly and anti-monopoly, odious as these words have become to the literary ear, represent the two great tendencies of our time: monopoly, the tendency to combination; anti-monopoly, the demand for social control of it. As the man is bent towards business or patriotism, he will negotiate combinations or agitate for laws to regulate them. The first is capitalistic, the second is social. The first, industrial; the second, moral. The first promotes wealth; the second, citizenship.
But monopoly and anti-monopoly were merely the political manifestations of a more fundamental conflict—the conflict between individualism and collectivism.
The populist/reform movement was concerned primarily with the distribution of wealth, not its creation. Lloyd and his fellow reformers viewed wealth as a static quantity, and rather than encourage further production, they preferred to advocate more equal distribution of that which already existed. However, they overlooked the fact that when production is discouraged, the amount of wealth available to distribute ultimately falls. This is why plans to achieve equal wealth invariably result in equal poverty.
One of the catch phrases of the era was cooperation. This, the intellectuals argued, was the key to the future of society. Capitalism encouraged competition, to the benefit of the few at the expense of the many. A socialist society would be based entirely on cooperative effort, to the benefit of all.
But as is often the case, the opposite is true. Because capitalism prohibits initiation of force, the only alternative means of interaction between individuals is through cooperation. Conversely, collectivism encourages competition in securing government power. Capitalism encourages men to trade to mutual benefit; collectivism encourages men to join warring factions in order to secure privileges for themselves at the expense of others. In a capitalist society, in which the government has no control over the economy, there is no benefit to be derived from pressure group politics; in a collectivist society, in which the State controls the economy, pressure groups are a matter of economic survival.
Throughout history, some people have enjoyed greater wealth than others. However, American society was the first in which thatwealth was attained, not by conquest or confiscation, but by production and trade. For this, America’s capitalists were condemned.
The few voices which attempted to justify capitalism did so, not on moral grounds, but on the basis of expediency. Conceding morality to their opponents, capitalism’s defenders had no meaningful basis for their arguments. The entire intellectual spectrum agreed that wealth ultimately belonged to society; capitalism’s supporters insisted that it was in society’s interest to allow a few men to enjoy that wealth so that all of society eventually would benefit.
Just as a skyscraper cannot be constructed on quicksand, capitalism cannot be defended by conceding moral premises to capitalism’s enemies. Any defense of capitalism which is not founded on individual rights is a fraud.
America’s Founding Fathers proudly proclaimed that individuals have a moral right to live for themselves, and the purpose of government is to protect that right. This was America’s greatest accomplishment.
But the Founding Fathers were political philosophers, not moral philosophers; therefore, capitalism was never provided with the proper moral justification. Unable to refute capitalism’s superiority, its enemies resorted to lies, misrepresentations, and historical evasions. Unable to construct a new moral code, its defenders abandoned morality altogether. The result was not so much the intentional murder of capitalism, but rather, suicide by default.