The Violence Inherent in the System

Defenders of free-market capitalism, such as Adam Smith and Friedrich Hayek, have argued that capitalism is both an economic and a moral system, whose moral superiority to other forms of economic organization comes from its strictly voluntary nature. Coercion and violence, they assert, have no place in economies based on the voluntary exchange of goods and the solemnity of freely-negotiated contracts. In my recent entry on Corey Robin's “Nietzche's Marginal Children,” however, I noted that it is very easy to challenge this rose-tinted view. Capitalism, as I've observed before, is an economic system in which capitalists can commodify economic inputs, such as labor and land, and mobilize them through markets to generate profitable returns. Contracts and voluntary exchanges are important to capitalists, providing them with security and flexibility, but they are only means to the ultimate end, which is the maximization of profits. If coercion and force will serve the same end, capitalists are willing to employ them, and as both Prof. Robin and David Graeber have observed, they have in the past proven happy to do so. Indeed, military and legal violence have proven essential to capitalists because some of their economic inputs, notably workers, tend to resist being turned into commodities, and because the most efficient way to mobilize inputs was often through violence. More recently, capitalist states have found violence a useful way to neutralize the “counter-measures,” like labor unions and social-insurance laws, that workers and political reformers created in the nineteenth century to mitigate some of the worst effects of capitalism.

One can easily appreciate the important role that violence played in early capitalism when one realizes that Atlantic slavery, arguably the most important economic institution of the early-modern era, was actually a capitalist form of labor mobilization. Modern historians like Stephanie Smallwood and Walter Johnson have made this point quite eloquently, noting that commodification was key to the success of capitalism and that African-American slavery, unlike many Old World variants of slavery, involved converting people and their labor into wholly fungible commodities. This was a necessarily violent process, in which African and European slavers ripped people from their communities and families and converted them into disposable units of labor. Slavery might appear to be an inflexible labor system, insofar as slave owners had to buy an entire person rather than merely hiring their labor, but in practice masters found ways to maximize the flexibility and profitability of the system: they minimized their labor costs (the average American master spent $2.50 a month on the upkeep of each bondsman), hired out slaves to other masters when the owner had less use for their labor, and sold them when this proved more profitable than continuing to employ them.

Early modern slavery was both capitalistic itself and essential to capitalists in other sectors of the world economy. Native American slaves produced the silver that supplied merchants with much of their actual circulating capital. Indian and African slaves produced the sugar, coffee, and tobacco that built some of the great European mercantile fortunes, as well as the cheap cotton that was the feedstock for the British industrial revolution. Slavery also indirectly justified the harsh treatment of wage laborers, on the grounds that no matter how bad wage labor became, it could never become as bad as slavery. Early wage labor was in fact much harsher than celebrants of nineteenth-century liberalism would have us believe: collective bargaining was difficult in some industrial countries and illegal in others, workplace safety was non-existent, and the ability of workers to quit one job for a better one was impeded by employers' practice (backed by law) of requiring “testimonial letters” from workers' previous bosses, who could thereby deny their employees the right to quit.

I've spent a lot of time here on slavery, but there were other ways in which early modern capitalism depended on violence, notably during the creation of a global free market in land. English and Scottish landlords drove their peasants off the land with enclosure laws, high rents, and anti-poaching statutes, replacing them with more profitable herds of sheep and with recreational hunting preserves. British and European colonists elsewhere in the world seized indigenous lands by force, claiming them by right of discovery, or took them with treaties when they could not immediately overwhelm indigenes' resistance, as in New Zealand and North America. (These treaties were technically voluntary, but usually rested on fraud, bribery, and the threat of force.)

Those who believe the Violent Era of primitive capitalism ended in the nineteenth century need to think again, according to Corey Robin and Naomi Klein. The threat of revolutionary violence in the 1800s and the apparent success of communism in the early twentieth century forced capitalist governments to enact reform measures, such as legalizing labor unions or partially nationalizing some industries, in order to take the edge off capitalism. However, many capitalists bitterly opposed these reforms – witness, for example, the long-smoldering anger of American conservatives toward the otherwise popular New Deal – and when they had the chance they gladly aligned themselves with repressive governments in order to bring back the Golden Age of violent capitalism. American and British corporations gladly aided Francisco Franco in the hopes that he would crush Spain's labor unions and make the country safe for foreign investment; he cheerfully did the former (killing several hundred thousand people in the process) though he held off on the latter until the 1960s. In Spanish America, free-market reactionaries found a better ally in Chile's Augusto Pinochet: after Pinochet seized power in 1973, his army surgically excised the supporters of the previous socialist administration, killing 3,000, torturing tens of thousands more, and terrorizing the rest of the population into passivity. Pinochet then brought in economic advisers from the University of Chicago to create a new capitalist regime, free of unions, social subsidies, and other impediments to exploitation of the nation's resources. Similar “shock-therapy” measures, including the end of food and energy subsidies, were imposed on Iraq by President George W. Bush's viceroys, leading to the displacement of much of the country's farming population and to increased chaos in the cities.

In the cases of Chile and Iraq, free-market reformers had the opportunity to treat ordinary citizens as conquered peoples. When Chicago-school economists tried “shock therapy” in Poland (1989) and Russia (1992), they enjoyed the sponsorship of popularly elected governments, but the circumstances were unusual: in both countries communist regimes had just collapsed, leaving behind huge debts, and the new democracies could not secure the IMF loans they needed to function without embracing austerity and privatization. In both cases the governments in question became deeply unpopular, and Poland's Solidarity Party lost free elections to the communists in 1994, while Boris Yeltsin suspended the constitution and bombarded the Russian Parliament building in order to remain in power. Indonesia, which had opened up its economy to foreign business after Suharto's initial coup, adopted a new round of free-market reforms in 1997 under pressure from the IMF. The IMF did what dictator Suharto's own brutality and corruption could not accomplish: they provoked an internal rebellion which ousted Suharto and instituted a democratic government. Policies that promote free-market capitalism are no more popular today than they were in the eighteenth or nineteenth centuries, and democratic governments that pursue them are likely to find themselves voted or thrown out of office. This may help explain why the most devout American defenders of capitalism aren't very big supporters of voting, or of democracy. More important to them is the right of a few people to become very rich and of everyone else to go hungry or go to prison.

Capitalism Defined: The Index

For those few of my readers wishing to revisit my entire series on capitalism, including my recent entry on the Marginalists, Mises, and Hayek, I present here a short entry index:

Capitalism: A Short Definition
Everything and everyone can be turned into money, and money makes money.

Adam Smith
In which we learn that capitalists are heroic job creators!  And also greedy arseholes.

Karl Marx
Capital is both accumulated labor and accumulated misery.

Max Weber
Men accumulate capital because they are worried that God doesn't love them.

Karl Polanyi
For ordinary people, reciprocity and redistribution are much more important than accumulation and commodification.

Joseph Schumpeter
Capitalism is a form of permanent economic revolution, but at the end of the road lies socialism.

Ayn Rand
Capitalism is the only valid moral system, and those who disagree aren't fit to live.

The Marginalists, Ludwig von Mises, and Friedrich Hayek
Labor is not the source of value - scarcity, aristocratic virtues, and irreproducable native genius are.

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There will doubtless be more to come on this subject, but this will serve for now.

Two Friedrichs and a Ludwig: Nietzsche and the Austrians

A couple of years ago I posted here a series of entries on the origins of capitalism, or more precisely on the evolution of Western thought regarding capitalism, from Adam Smith through Ayn Rand. Looking back, I see that that series excluded some important contributors to this intellectual current, in particular the authors of the “marginal revolution” in late nineteenth-century economics and the creators of the “Austrian school” of the twentieth century. I neglected the former group because I didn't know anything about them at the time, and the latter because I assumed their importance had declined relative to the Nietzschian novelist and cult leader Ayn Rand, about whom I wrote at length. In May 2013, however, political scientist Cory Robin published in The Nation a provocative essay joining all of these men and women – the marginalists, the Austrians, Nietzsche, Rand – into a single school of reactionary thought. “Nietzsche's Marginal Children” became the subject of a forum on Crooked Timber, and generated such hostile commentary there that the author published another long essay in Jacobin magazine defending his conclusions. All deserve some commentary here, if only as a coda to my earlier series and a reflection on the illiberal nature of capitalism.

The marginalists, more specifically William Jevons, Carl Menger, and Leon Walras, introduced to economics the concept of marginal utility, which tied the price of a good or service to the usefulness of one additional unit of that commodity to the consumer. Marginal analysis stipulated that the price of a good depends both on its importance and its scarcity, which is why water is cheaper than diamonds, even though the former is more universally useful. Marginal analysis suggested that labor, being more abundant than land and capital – or, rather, owned by more people than land or capital – should command a lower-unit market price than those latter commodities. It was thus a useful concept for elitists who feared that the revolutions of 1789 and 1848 had destroyed the values of the ancien regime and substituted only Marx's labor theory of value, which gave entirely too much power to the working class – to the mob. Marginalism promoted instead the idea that scarcity and the making of difficult choices determined value.

The same fear the mob lay behind the elitism of Friedrich Nietzsche, whose philosophical works argued that the masses, obsessed with their “finite” lives, could not create anything of enduring value. Value, Nietzsche admitted, was a human invention, but it came only from the works and the esteem of “exalted men of culture,” a tiny minority of warriors, statesmen and artists whose thoughts and struggles were the only sources of beauty and dignity. The purpose of a society, he insisted, was to serve as the support structure for this aristocracy. To borrow a phrase from Theodosius Dobzhansky, Nietzsche believed that common people were “a manured soil in which to grow a few graceful flowers of refined culture” (quoted in Fernand Braudel, The Structures of Everyday Life [U. of California Press, 1992], 186.) A democrat he was not.

Nietzsche had a considerable influence on early twentieth-century European fascists, and on several important American philosophers, notably Leo Strauss and Ayn Rand. His impact on the Austrian economists, particularly the ur-libertarians Ludwig von Mises and Friedrich Hayek, is harder to prove, and Robin argues that Nietzsche did not directly influence them. The three men instead came of age in the same problematized intellectual environment, that of late nineteenth-century middle-European gentry struggling to defend their position and their culture against the working class. The Austrian economists took their initial cues from the marginalists, who argued that landowners and capitalists were more economically valuable (because scarcer) than an equal number of laborers. The marginalists also imparted a certain romance to the marketplace, insofar as “economic man” had to make sacrifices in order to determine what was economically valuable to him.

What Mises and Hayek added to these assumptions was the belief, alien to Nietzsche and unnecessary to the marginalists, that the capitalist market economy was a moral system. Morality, Hayek argued, concerned the ordering of ends, or goals, and because scarcity determines marginal utility, a free market forces individuals to prioritize and rank their goals. “The economy,” Robin observes, thus “becomes a theater of self-disclosure...It is not in the casual chatter of a seminar or the cloistered pews of a church that we determine our values; it is in the duress—the ordeal—of our lived lives, those moments when we are not only free to choose but forced to choose.” Economic man became through his choices a moralist and (because the market was actually a moral theater) an artist.

Thus far the Austrians' view could theoretically support social democracy, insofar as it makes ordinary workers' and consumers' economic lives morally significant. Mises and Hayek, of course, were not social democrats. Instead, they viewed the market as “the proving ground of aristocratic action.” In his 1960 work The Constitution of Liberty, Hayek argued that consumers were never free to make all of their own economic choices; instead, the inventors and entrepreneurs who develop complex technologies and the wealthy capitalists who are the leading arbiters of taste shape the choices of the consuming multitudes.* Economic freedom was not an end in itself but a means to an end: the creation of an economic sphere in which an entrepreneurial and cultural elite could flourish. To give Hayek his due, one should note that he was a trickle-down elitist: a flourishing entrepreneurial class and aristocracy would, he believed, create benefits for society as a whole, providing ordinary schmoes with jobs, security, and access to mass-produced consumer goods. Contrast him with Nietzsche, who argued that the highest purpose for hoi polloi was to support the elite, and Ayn Rand, who described the 99% as “moochers and looters” for whom the great-souled elite should feel nothing but contempt.

Since a society could not flourish without nurturing a free-market elite, however, Hayek viewed any government which threatened capital and markets as a menace, and considered its overthrow, even by a dictatorship, as a positive good. He reserved particular contempt for totalitarian systems like Nazi Germany's, but he believed social democracy was also dangerous, insofar as it replaced a rule-based economy favorable to capital with a discretionary political economy controlled by the mob. A temporary dictatorship, Hayek believed, might occasionally become necessary to purge a nation-state of its constitutional “impurities” and restore a free-market economy. In the early 1960s he sent a copy of The Constitution of Liberty to Antonio Salazar of Portugal, hoping to persuade him to become that nation's law-giver, and later Hayek became an influential cheerleader for Augusto Pinochet of Chile. That Pinochet violently deposed his predecessor, Salvador Allende, and then tortured and murdered his political opponents does not appear to have bothered Professor Hayek. A “liberal” dictator, Hayek argued, was preferable in the long run to an illiberal social democracy. Jeanne Kirkpatrick would certainly have approved.

Robin's essay has its shortcomings. His writing style is diffuse, digressive, and occasionally difficult to follow, and I find his connection of the Austrians with Nietzsche both strained and unnecessary. One may successfully argue that Mises and Hayek were elitists without invoking Thus Spake Zarathustra. I think “Nietzsche's Marginal Children” and the sequel that Robin published in Jacobin, "Nietzsche, Hayek, and the Meaning of Conservatism," are noteworthy for other reasons. Fans of the Austrian school of economics generally characterize Mises and Hayek as the intellectual heirs of nineteenth-century liberalism, and Robin persuasively argues that they were not. They were instead reactionaries, for whom a free market was not an instrument for egalitarian social progress but the crucible of aristocracy. Robin also usefully summarizes the work of another, equally influential Austrian economist, Joseph Schumpeter, whom Mises and Hayek found inspiring but with whose historical conclusions they disagreed. Schumpeter attributed technological progress to a small elite of entrepreneurs and inventors, whom he characterized as eccentric, romantic geniuses willing to flout social norms and destroy older industries. Schumpeter argued that a mature capitalist economy had little place for the entrepreneur, but the other Austrians disagreed, asserting that the entire purpose of a free-market society was to nurture such capitalist heroes.

Perhaps Robin's most controversial contribution is his linkage of Hayek with modern dictators, a liaison which actual classical liberals, like John Stuart Mill, would have found appalling. In noting Hayek's fondness for Salazar and Pinochet, Prof. Robin observes that we do not often appreciate the role of violence in creating capitalist societies, or in transforming socialist countries into free-market ones. This is a point addressed by David Graeber and Naomi Klein, and one upon which I would like to expand in a forthcoming blog entry.

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(The above image, of octogenarian Friedrich Hayek enjoying a sherry and a scowl, is from Wikimedia Commons.)

*  Hayek made analogous observations about free-market price systems: prices are extremely useful for consumers and investors, but they the product of complex socio-economic interactions that most people don't fully understand; one can "use" prices just as one uses advanced technology, without fully understanding the intellectual and social labor that went into them.

Over-Rated, but Inspiring Nonetheless

Today (with tomorrow and Wednesday) marks the 150^th anniversary of the Battle of Gettysburg, which, in addition to producing enough casualties to fill a cemetery, came to inspire an iconic political address, a memorable William Faulkner quote, an excellent historical novel, a mediocre movie, and an array of board and computer games. In his 1990 Civil War series Ken Burns called the three-day battle “the most important...fought in the Western Hemisphere,” which strikes me as exaggerated to the point of inaccuracy. I can think of at least two other battles, namely the 1521 siege of Tenochtitlan and the 1759 Battle of Quebec, which proved more important than any American Civil War engagement, insofar as they determined which European cultures would come to dominate the New World. Moreover, I don't think Gettysburg was nearly as decisive a battle as many Civil War buffs assume. William Fortschen, in the conclusion to the anthology Alternate Gettysburgs (2002), makes a persuasive case for the battle's strategic irrelevance: even if Robert Lee had defeated George Meade at Gettysburg, he would not have been able to go on and take Washington, as that would have required him to slog through several days of hard rain (which began the evening of July 3-4) and attack a well-fortified city defended by 40,000 federal troops. Perhaps a federal defeat at Gettysburg would have fatally undermined Union morale, but I doubt it, given that the Union would shortly learn of the surrender of Vicksburg (July 4), a far more important event. Today I think the Battle of Gettysburg remains important more for the political speech it inspired than the strategic reverse it inflicted on the Confederacy. If one were so inclined one could add a comparative remark about pens and swords, and which was stronger than the other.