One frequently runs across accounts of the modern world which hold that laissez faire (or some ideally free market) never existed but yet was (or is) somehow responsible for most ills that have faced mankind for several centuries. The writers seem to have it both ways. How, you might well ask, can that be done? Rather easily, it seems.
On the facts, it is usually necessary to concede many historical points raised by critics of business (generally from the Left); indeed, advocates of laissez faire often complain about the very same things as violating their notion of laissez faire. But that reasoning seems to be too subtle for most participants. In such debates, then, “laissez faire” reaches rather early limits. Arbitrary use by both critics and defenders of capitalism has not helped things. Roundly damned, or (less often) praised, on the basis of partisan definitions, “laissez faire” thus resembles “states’ rights” — anti-federalist rhetoric employed by political “outs” and abandoned when they get in. The latter artful dodge is so well-known that critics blithely assume that local autonomy must always mean things such as slavery or segregation. Similarly, laissez faire always means gross exploitation, economic collapse, et cetera.
Capitalism broadly considered
If we take “capitalism” (provisionally) as naming economies defined by private ownership of capital, production for profit, ration-al accounting, market prices, and free wage laborers, it is clear that many, very different societies could claim the title. So far, we would know little about what sorts of capitalism have arisen since 1492. We would, however, soon learn that for many historians, past political and economic relations so crucially defined European and, later, American economic development that early capitalism bears little resemblance to any ideal market economy.
England’s early start in commercial activity notwithstanding, John Stuart Mill could write in his Principles of Political Economy, “The principle of private property has never yet had a fair trial in any country; and less so, perhaps, in this country than in some others.” He added that “the system still retains many and large traces of its origin.” Writing in 1943 of the age-old division of European societies into large-scale proprietors opposed to peasant masses, sociologist Franz Oppenheimer, who influenced Albert Jay Nock and Frank Chodorov, and through them, Murray Rothbard, said,
In this way, the primal distribution of the factors or agents of production came into existence. Rising capitalism inherited it from its predecessor, feudal absolutism. Capitalism took over all of feudalism’s basic institutions, especially two, the privileges of State-administration, and the monopoly of land…. [It] took over feudal class-domination and class-distribution.
For both liberal (Whig) historians and Marxists, the arrangements called “feudalism” were the seedbed of capitalism. Remaining questions were how evolutionary or revolutionary the break was, and whether the resulting societies were good. For many writers, few intermediate or “transitional” phases worth noticing intervened. Whig historians and classical liberals do condemn, as “mercantilism,” a period of state-regulated capitalism (while complacently accepting its results as beneficial enough), after which regulation gave way to laissez faire, at least in 19th-century Great Britain and the United States.
“Feudalism” versus “feudal absolutism”
But there was at least one intervening social formation, possibly two. The first “feudal absolutism” resulted from struggles for supremacy (modern sovereignty) between lesser feudal lords and Europe’s aspiring territorial kings. From about 1500, centralizing monarchs allied themselves (when necessary) with urban bourgeois strata, built up loyal bureaucratic hierarchies and large armies, and overawed their feudal rivals. State-building wars between those monarchies culminated in the misnamed 17th-century wars “of” religion. Surviving kings used tamed nobles to head their bourgeois bureaucracies and peasant armies, which raised revenue and magnified royal power. Larger internal markets (not especially free) came into being, partly by sovereign command. It goes almost without saying that feudal-absolutist economic policy favored large property and incomes for those closely linked with the rulers. Everyone one else was merely a source of revenue. Decentralization, reciprocal obligations, and divided sovereignty that had characterized genuine feudalism fell by the wayside, while consequences for land ownership varied by kingdom.
What Marxist scholars call Small Commodity Production (SCP) played an important part in the genuine feudal order and survived into feudal absolutism, with one major exception: England. It lived again, for a time, in Europe’s overseas colonies. Recently some Marxist scholars have sought to theorize that SCP was a full-blown mode of production and possible alternative to both “feudalism” and capitalism. SCP was essentially the program of the 17th-century English “Levellers” (named by their enemies). As things worked out historically, however, SCP did not survive. (Free and fair economic competition was probably not the major reason.)
To clarify underlying issues, economists often oppose ideal notions of the free market to historical facts involving actually existing capitalism. Following this reasonable procedure, let us take as an ideal model what C.B. Macpherson calls “simple market society.” Here we find “no authoritative allocation of work … no authoritative provision of rewards … authoritative definition and enforcement of contracts … individuals [who] seek rationally to maximize their utilities … [and who] have land or other resources on which they may get a living by their labour.” Here SCP is normative — a measuring rod unlikely to assist defenders of those 19th-century capitalist titans whom right-wing economists typically shield from charges of greedy Robber Baron-hood. The point, of course, is that ideal models matter.
Agrarian capitalism in England
If laissez faire really means “leaving things alone,” then such a policy pursued from the 15th century forward would have given SCP a fighting chance in England, if rights to land either remained ambiguous or were settled in favor of small proprietors. Instead, over several centuries, big landholders dominated Parliament and decided such questions entirely in their own interest. The famous Enclosures played an important role, along with other assaults on customary rights. The result has been called “agrarian capitalism,” which did not arise by “leaving things alone.” John Locke was one of its champions, adding slogans about progress and productivity to the system’s weaponry. Here we find postfeudal lords (and gentry) as estate owners, large-scale capitalist farmers as tenants, and descendants of former peasants as wage laborers. Of this classic “triad,” laborers got wages, farmers profits, and landowners rent.
It was a model rent-seeking society. Common law, gradually remodeled, helped secure the new arrangements. With an eye on landholdings and high profits for the right sort, English statesmen turned to overseas colonization, extending their system to North America, where the “merchant State” and “State system of land tenure” got a foothold. (See Albert Jay Nock’s Our Enemy the State, chapter 3: “The State in Colonial America.”)
By the 19th century, profit-making possibilities and political coalitions changed and Britain and America abandoned mercantilism for laissez faire. Thus, these two cases testify to what historically existing laissez faire was or was not. In truth, policymakers simply refrained from using state powers in some areas of economic life, while holding those powers in reserve.
Laissez faire in Great Britain (1846–1914)
A famous 1948 essay by J. Bartlet Brebner ridiculed the idea of sustained, consistent British laissez faire, rightly pointing out the mistake of adducing the influential Jeremy Bentham (fount of bourgeois statism) as a principled proponent of laissez faire. As middle-class social engineers, Benthamites favored cutting restrictions in some areas and increasing them in others. Business itself pragmatically wanted new state services and the state’s incremental interventions were cumulative and systematic. At best, relative laissez faire coexisted with its own countertrend and successor. (“Free trade” involves similar paradoxes, but we cannot examine them here.)
Further, there were numerous overseas exceptions to English laissez faire. Ireland was fair game for economic and social engineering enforced with special police powers. And Manchester liberals, including Richard Cobden, MP, supported state-funded development projects (e.g., railroads) in India to promote cotton production and get products to ports, nicely anticipating sundry World Bank infrastructure projects. (Service of prominent English liberals in the India Office is a valuable clue for anyone pursuing the sources of liberal sellout.)
Laissez faire in the United States (1832–1860? 1865–1900?)
If things were complicated in England, perhaps they were simpler in an Exceptional Nation (and failed federation). It is interesting that the American colonies that revolted in the 1770s were in most respects hotbeds of Small Commodity Production. It was precisely the political creation, as of 1789, of a stronger central apparatus under a new constitution that pushed America into capitalism as such. As in Britain, federal policy was at first mercantilist, but political fortune later favored Jeffersonian-Jacksonian (relative) laissez faire from roughly 1832 to 1860. Throughout, American federal (and state) judges steadily reinterpreted common law to favor industrialization from at least 1810 forward.
By 1897 southern theologian Robert Lewis Dabney could complain that by “establishing corporations and protecting particular industries,” American federal and state legislatures had “already produced, in democratic America, diversities of conditions more gigantic than were found in the feudal monarchies….” Oppenheimer, no friend of the state, noted in 1914 that, “the United States of America, is among the most powerful state-formations in all history,” and economist Wilhelm Röpke, once a president of the Mont Pelerin Society, observed in 1950 that in the United States the interconnection of capitalists and bureaucracies (already an old story) had “probably reached its highest degree.”
So here, then, an important puzzle arises: How did the United States manage to achieve such “feudal” results, given its supposedly free starting point?
Well, one thing that intervened was the war of 1861–1865, which smashed America’s imperfect pre-war laissez faire along with local autonomy. The war decisively moved Oppenheimer’s “political means to wealth” upwards, resulting in considerable federal assistance to capitalist accumulation. Friends and (oddly) foes contrived to call this policy “laissez faire.” Classical liberals have particularly noted the role of America’s high tariffs in producing postwar capitalist fortunes.
History and rhetoric of “laissez faire”
Some of that is a failure to communicate. Parties to the discussion are not using “laissez faire” in the same way. Further, the dodges to which interested parties resort befog the question. Worse, there is often an implicit Hobbesian and centralizing 19th-century framing of laissez faire in which, first, we impose an order meant to be self-regulating and self-sustaining once imposed, and thenceforward we can say we are practicing laissez faire. (There were a number of discussions on these lines in 2002 and 2003, just before armed U.S. bureaucracies destroyed Iraq.) Karl Polanyi argued (1944) that in 18th- and 19th-century Britain the state did impose new “free market” relations of production, although “laissez faire” taken literally would have meant leaving various existing customary arrangements alone. In any case, having reformed the entire property system (“relations of production”), the financial system, et cetera, on the Hobbesian plan, paladins of this kind of laissez faire will countenance no further interferences within their comprehensive new establishment. Such was the posture of Gilded Age big businessmen, lawyers, and judges.
At present, depending on the writer, “laissez faire,” “free market,” or both, can refer (going forward) to corporatism-minus-unions, military-industrial complexes, phony privatizations, or the American empire, while old standby terms such as “mixed economy” and “American empirical collectivism,” in use until the 1970s (and which at least admitted a range of forms to be explored), have disappeared. (The state, too, has disappeared from discussion, much to the relief of both halves of the state-capitalist bloc.)
As already noted, when defenders of laissez faire provide details of why a given market was not “free,” hostile disputants claim victory on the ground that a free market is impossible anyway. We have seen those exchanges a thousand times. Would-be advocates of free markets find themselves in the position of English Marxists after 1956 trying to distinguish between “really existing” socialism (= Soviet [and other] practice) and socialism ideally conceived. Alas for principled friends of market exchange, actually existing capitalism bears little likeness to a normative “free market.” Röpke traced the “plutocratic taint” and “immense accretions of capital and economic positions of power” of early capitalism to the “feudal-absolutist heritage” that gave the system “a false start from the very beginning.” Historian Ralph Raico writes, “The self-proclaimed liberal parties of the nineteenth century were, in fact, machines for the exploitation of society by the now victorious predatory middle classes, who profited from tariffs, government contracts, state subsidies for railroads and other industries, state-sponsored banking, and the legion of jobs available in the ever-expanding bureaucracy.”
Against that background, Oppenheimer asserted, “Free competition is innocent of all the crimes laid at its door…. It has the best alibi imaginable: Free competition has never yet existed.” Murray Rothbard took a similar tack, writing in 1962 that contemporary advocates of laissez faire looked “to the future, but as redeeming the partially-fulfilled promise of the past.” That seems a bit speculative at this late date. “Capitalism” as we know it falls fatally short: rather than being a partial embodiment of free markets, it seems just another power-system standing athwart them.
With that in mind, we shall have to sift through all proposed instances of “laissez faire” with unwontedly great care. Doing so might raise the level of discussion and promote better communication across the political spectrum.
This article was originally published in the January 2014 edition of Future of Freedom.
