- the widespread acceptance and defense of private property;
- mostly free labor (no chattel slavery);
- established markets in both consumer goods and producer goods (including sophisticated financial markets); and
- the use of mass production through the division of labor primarily for consumption by the masses themselves.
Key features necessary for the onset of capitalism include
- the accumulation of capital through savings (“abstinence” from consumption, as Nassau Senior put it);
- respect for (or cultural valorization of) work and trade;
- tolerance of natural inequality, a general culture deprecating envy;
- a willingness (even eagerness) to form voluntary associations for mutual and general benefit;
- a widespread-enough sense of justice to undergird the division of responsibility; and
- a culture that encourages and expects its members to take charge of their lives at fairly young ages, to control sexual appetite, regulate population growth through something like marriage and family, and foster education and the cultivation of human capital.
Some or all of these factors must begin outside of a capitalist context, which evolves and, in some cases at least, presumably reinforces the bulk of them by self-subsumption.
In our real-world experience of capitalism, for instance, some of the necessary limitations on the scope and power of governments arose for a variety of reasons; religion played a key role in the early development of education and the habit of voluntary co-operation, as well as the enforcement of sexual practices that allowed some stability in families.
It is crucial in such discussions to distinguish two antagonistic poles of government policy towards capitalism, neatly expressed in the French terms “laissez faire” and “dirigisme.”
Many people mean by “capitalism” the former policy — and there is some reason for that. However, a word of caution: mercantilism (Adam Smith’s term for the variant of dirigisme popular in his day) was almost universally present as industrial capitalism took off in the 18th century. Laissez faire was an alternate policy approach advocated chiefly by intellectuals based on extrapolations they made from observing how trade works, and what the complete consequences of mercantilist policy were. The laissez faire economists ably demonstrated that mercantilist practice did not intellectually back up social outcomes of the policy.
Though some of the first advocates of laissez faire’s hands-off policy argued for it in terms of its “natural” quality, it is worth noting that laissez faire is a policy designed to limit the natural activity of state control of economic life. It is a rule-of-law policy to curb “corruption” and inefficient-to-the-public rent-seeking and zero-sum wealth transfers. It is not a description of our system, or any previous governmental policy, as such.
Modern capitalism has mostly evolved in the context of sovereign states, which have practiced, to varying degrees, protectionism, wage and price controls, a myriad forms of taxation, goofily partisan operations of industry and “security,” vast wealth transfers, plunder and confiscation, corvée labor, monetary manipulation and credit control, and occupational licensing, not to mention the historical defining features of the State, conquest and war.
It is obvious that “capitalism” covers a lot of ground, and also that there is a lot of “ruin in a nation” (h/t Adam Smith) ruled by states of whatever kind.
To repeat: laissez faire (“let them act”; “let-alone,” as a later economist translated it) might best be seen as a system of controls (limits) upon government. It is in an important sense a regulatory regime, only the target of regulation is largely government itself, which is seen as dangerous beyond a certain level and scope. (The regulation of the minutia of economic life is left to individuals and groups vying with each other to serve each other’s values. The order exhibited by markets, especially left free, is a sort of cybernetic, emergent property of decentralized decision-making. Adam Smith offered a powerful and influential metaphor to explain this tendency to order: “the invisible hand.” Frédéric Bastiat referred to this observable phenomenon as “economic harmonies.” Economists of a more theoretical bent have tried to capture some of the ideas, here, in various notions of “equilibrium.”) Even a cursory glance at history shows us that these controls on government have, historically, tempted fewer folks than those enamored of controls by government.
For a variety of reasons, most people “naturally” tend to prefer over laissez faire more arbitrary and malleable systems — systems that allow for mass coercion, intricate political hierarchy and the constant game of positioning to gain at the expense of everybody else. Via force.
This is to say that “dirigisme” (political control of markets and private property) wins most policy battles, and sometimes extremist versions of it, such as socialism, make huge (if temporary) gains.
The current system in America, along with most places elsewhere, is dirigisme. Such systems entail an interventionist state that usually receives the appellation “welfare state,” since the common justification for its vast wealth transfers is human betterment, or “welfare.” But its characteristic policies are probably best described as “mercantilism with a socialist face.” The policies are very old, a revival of ancient, closed-society practice. The difference of today’s mercantilism from that of the 18th century lies mainly in that the group interests appealed to tend to be radically different. Which groups that are actually served, on net, are arguably very different.
The open secret of modern society is this: the representative political systems governing the regulatory and redistributive programs of modern states tends to be captured by what used to be called “the monied interests” is under-appreciated by dirigisme’s most enthusiastic public supporters, who, instead, blame “the free market” (a non-existent creature nowadays) for our apparent plutocratic structures.
Also not appreciated? The sheer unwieldy volume of transfers both outright and hidden (regulations), which scuttle any realistic accounting of who wins and loses by the system.
It is not for nothing that political philosopher Anthony de Jasay offers an alterternate name for the modern welfare state: “the churning state.” As Jasay sees it, there is a constant churning of policies — with each turn of the crank creating new advantages and disadvantages. This constant shuffling yields a kind of chaos, a feature prophesied in the 18th century by C-F Volney, who identified the nature of such systems as examples of “an intestine war.”
The modern state incorporates the all-against-all warfare of the theorized “state of nature” into the fabric of government policy, the better to bind participants to the state.
To advocates of laissez faire, the whole edifice of modern ideology and politics looks like nothing other than a long con.
Meanwhile, the system does not fall into utter chaos because of the resilience and productivity of the markets — the freedoms — that are allowed. It is obvious that our modern churning states have survived for decades, though their sustainability over a long run (which we may be approaching an end to) is certainly questionable.
Unquestionable is the extent to which these policies have altered human culture and moral perspectives. The changes in this latter have been vast . . . some good, some bad.
The dream of laissez faire still remains a mirage-like goal, on the whole.