Ever since capitalism made its appearance in the late Middle Ages and came to dominate both production and politics in the late 18th century, there has been a vigorous debate on just what the nature of capitalism is. Central to these debates has been the question of capitalism’s relationship to the state, and particularly the question of whether capitalism was an enemy or a child of the state. There have been no shortage of great names in this debate: Smith, Marx, Mill, Mises and many other great minds weighed-in with weighty tomes on the topic. Yet I do believe that the honor of formulating the question in the most succinct and elegant terms possible must go to Sorin Cucerai in his brief but powerful essay, “The Fear of Capitalism and One of its Sources,” in the May issue of Idei in Dialog. Mr. Cucerai is a libertarian philosopher in Romania, and his article is important because it is the most candid look at capitalism I have ever seen from an Austrian libertarian. [Note: the article is in Romanian, but for anyone who wants to read an English translation, please email me.] In but a few pages, and in a few powerful phrases, Mr. Cucerai captures the essence of capitalism and its relationship with the state. Sorin’s arguments are directed primarily at the “anarcho-libertarians” who, like the Marxists, would have a “withering away of the state.” However, the historical reality is that under “conservative” regimes the state grows as fast—or even faster—then it does under liberal and social democratic regimes. Indeed, only the communists could grow the state faster than the conservatives, and they grew the state until it collapsed of its own weight, a feat which the conservatives in America are trying to duplicate, and may yet succeed Certainly something odd is going on here. An historical reality that pervasive and powerful cannot be overlooked or ignored in the name of ideology. However, it must be noted that in “defending” capitalism, Mr. Cucerai raises questions that challenge its very legitimacy. Indeed, Marx in his attacks on capitalism never said anything as negative about that system as Mr. Cucerai does in its “defense.” It is important to understand Mr. Cucerai’s argument in its elegant simplicity. I summarize it as follows:
- Men naturally seek direct access to the means of subsistence, usually in the form of their own land or tools.
- This access makes a man less dependent on his neighbors and therefore less dependent on the markets.
- But capitalism is the condition of dependence on the market for one’s very subsistence. Therefore, “the fundamental condition for the existence of a capitalist order is the absence of the individual autonomy in the sense of owing the source of your food,” and of forcing people to seek a monetary source of subsistence. This is not a natural condition, as is owning one’s own land, because “People do not search instinctively for a source of monetary revenue.” They do so only because they are forced to do so.
- “Capitalism is made possible only if this natural process is interrupted by an instrument that makes sure nobody could have access to food and shelter unless a monetary revenue is used as an intermediary.”
- “Therefore, the capitalist order is not natural. Such an order can be maintained only if there is an institutional arrangement which prevents the individual from not engaging in commercial relations through the agency of money.”
- That “institutional arrangement” is a government that requires people to pay taxes and fees only in the form of money. Only the state can perform this coercive function upon which capitalism depends. “The source of the revenue gets prominence over the source of food; the commercial relations are widespread because, basically, it is impossible to avoid them.”
- The state is necessary for another reason, namely that “free competition is as unnatural as capitalism itself.” In absence of the state, commerce would be a matter of rent-seeking, a behavior only government regulation can prevent.
- Paradoxically, the “freedom and prosperity of capitalism” are possible only “by denying people direct access to food and shelter.” In order to have this capitalist “freedom,” we must be alienated from our own nature. But if this is done, then “the breach created between us and our nature—and between us and nature in general—open a space previously unknown to human freedom and it is a form of civilization.”
- Because of this fundamental alienation from nature, “ any individual that lives in the capitalist order is a fundamentally precarious being, of a radical frailty. It is the precariousness of the one who has no firm ground under his feet.”
What is remarkable about this chain of reasoning is that it can be read as either an attack or a defense of capitalism. Indeed, it is difficult to discern, from within the argument itself, which way it will turn out. Mr. Cucerai offers only an instrumental defense of capitalism, namely that it will result in more goods and higher wages. Aside from the fact that such “consequentialism” is morally suspicious, at best, there is a question of whether the basis of comparison here is valid; one would have to compare the subsistence and security of a wage-based economy with that of a property-based economy, that is, of Mr. Cucerai’s “unnatural” economy with a more natural one. We know that in 16th century England, before capitalism came to dominate social relations, a common laborer could provision his family by 15 weeks of work, and a skilled laborer by 10. A century latter, after the closing of the commons and the seizure of the monasteries, which instantly converted England into a capitalist country, those numbers became 40 weeks and 32 weeks, respectively.1 Moreover, in a global economy, it is necessary, to weigh the wages of the workers in sweatshops before reaching a judgment on this question. Further, the plain fact of the matter is that nations which fed themselves comfortably for millennium before the coming of the capitalists find themselves starving under Mr. Cucerai’s “freedom.”
But laying that question aside, we can address the strength of Mr. Cucerai’s arguments. The first point is that this is very much an Aristotelian argument, even if it reaches conclusions opposite to Aristotle, in its division of economics into “natural” and “unnatural” exchanges. For Aristotle, natural exchange was that necessary to provision the household, while unnatural exchange had money alone for its object. The first sort of exchange was “natural” in the sense of having a natural limit. For example, a man buying bread for his family will buy what he needs and no more. But a man whose object is not bread but money might buy up every loaf of bread and every grain of wheat in order to corner the market and set the price to his own advantage. Since there is no limit to such exchanges, Aristotle regarded them as “unnatural.”
The second point we can note is how well the arguments accord with the actual history of capitalism. The plain, historical fact is that capitalism and government grow hand in hand; the larger the business entities, the larger the government necessary to protect them. This fact had already been noted by Adam Smith in 1776, in The Wealth of Nations, three-fourths of which is devoted to documenting the incestuous relationship between big government and big business.
The third point is that Mr. Cucerai provides libertarianism with something it normally lacks, namely a theory of government. Hence the performance of government can be judged against that standard of its proper function. One may not agree with Mr. Cucerai’s definition of the function of government, but at least the standard is explicit; the question now comes under human intentionality and can therefore be controlled, at least in principle. For the anarcho-libertarians especially, government is despised in and of itself and hence every question of government becomes an “all-or-nothing” question. But framing the question in this way always works to the advantage of the “all” of the state, since in times of crises there are simply not enough nihilists to vote for the “nothing.” Thus, the increase of state power is always and everywhere the unintended consequence of libertarianism.
The fourth point is that Mr. Cucerai has accurately described the rule-bound nature of competition and exchange, and the fact that rules must be external to the market. Indeed, competition, properly understood, only works in a larger framework of cooperation, and this cooperation is expressed in agreement to rules which are imposed by institutions of common consent. Think about a football game. It is certainly a competition, and a violent one at that. Yet, it cannot take place without the framework of cooperation, namely, that all players will be bound by the rules and judged by referees who are not themselves players in the game. Unless the game stops when the referee throws the yellow flag, the game cannot really start. Without the referee, there can be no game, but only warfare, which will continue until one side is utterly defeated or even killed, at which point both the game and competition end.
The fifth point is that Mr. Cucerai has correctly identified monetization as foundational to capitalism. One historical confirmation of this point comes from the “hut tax” that the English imposed on their African colonies. The point of this tax was not revenue; indeed, it probably cost more to collect then it raised in income. Rather, its point was to force the Africans to get something they had never needed before: a job. The climate supported the people in relative comfort with relatively low levels of work, and the Africans, left to their own devices, were happy with this arrangement. But a money tax forced them to take employment in the English mines, plantations, and factories. The point of the hut tax was not revenue, but labor. Finally, we can note that Mr. Cucerai has certainly given us an accurate description of capitalism, and all discussions of any system must begin with an accurate description. However, it is a description that leaves out one crucial element, an element that flows from the description but which Mr. Cucerai does not address. I will return to this point a little later. All that being said, we still cannot determine whether capitalism under this description is a good or a bad thing. Indeed, do we really want a system that alienates man from his own nature and results in a “radical frailty,” a social arrangement in which we have “no firm ground under our feet”? There is a bleak, Orwellian character to Mr. Cucerai’s description in which “freedom is slavery,” in which man has to be a wage slave in order to be free; in which he has to be denied access to the ground of his freedom (that is, property) in order to participate in “free” markets. But is this a proper definition of freedom? Is it even a proper definition of economics? I believe that the author has made two fundamental mistakes: one, he has reduced all markets to monetary markets, and; two, he has confused the “free market” and “capitalism” as if they were the same, when in actual fact they are more often things opposed to each other. A purely “monetary” exchange market is problematic in several ways. The first has to do with the nature of money, which should be merely the unit of account for all the circulating goods within a given economy. However, money can too easily be manipulated apart from the market for real goods and services. The Americans have proved, beyond a shadow of a doubt, that trillions of dollars in financial wealth can be created without having any relation whatsoever to real wealth. Men who contributed not so much as a grain of wheat to the commonwealth are paid billions from the common purse in reward for their failure. And this was done by men operating in largely unregulated markets. Money, as a unit of account, is an abstraction, and the more abstracted an economy becomes, that is, the more monetized, the more easily it may be manipulated by those “in the know” about the mechanics of abstraction, and a completely monetized economy is the easiest of all to manipulate. The truth is that man operates in several markets simultaneously, most of which are not monetized, and all of which serve as checks on the other. When all markets are monetized, all markets fail, and fail decisively, without any hope of recovery.
The first market in which we operate is the gift economy of family and the community. We are first called into being by the ready-made community of the family, and from this community we receive a variety of gifts. Our being, to be sure, but also the gift of our name, our family, our language, our first moral perceptions, our first experiences of love and belonging, and so forth. This economy of grace (gifts) is the primary economy, and all other economic and social activity must be judged from the standpoint of how well it serves the family. Without this check, there is really no way to know whether the economy “works” in any concrete sense. A fully monetized economy erodes the gift economy of the family upon which the whole social order depends. Beyond this family economy, there are economies of community service, economies of political activity (in which votes are the medium of exchange), religious economies, and so forth. All of these depend on the economy of production and exchange (note both terms), and hence are checked by that economy, even as they provide checks for the exchange and production economies. Mr. Cucerai states that capitalism “opens a space previously unknown to human freedom.” But what he does not mention is that this must be a very small space, one occupied by the possessor’s of land and capital alone. That is why we call it “capitalism.” Indeed, the very fact of denying access to the means of subsistence to most men means that a few will end up in possession of the vast bulk of these means. This point flows naturally from Mr. Cucerai’s own description of capitalism, but it is the crucial point which he has left out, and without which his description cannot be considered complete.
Not only is this concentration of capital bad morals, it is bad economics and bad social theory. It is bad economics because all market theory is based on the “vast number of firms” hypothesis, which states that production is spread over such a vast number of firms so that no firm, or no possible combination of firms, can have any influence on market prices; that is to say, they are all price-takers rather than price-makers. When you have consolidation in any industry, the whole basis of the free market collapses, and monopoly and oligopoly are the result. But that is just a part of the problem. I will skip over Mr. Cucerai’s preposterous claim that you can have, simultaneously, a rise in production prices and a fall in consumer prices, as if the latter were not dependent on the former, to note that rising wages are not the norm in capitalism. Indeed, in the United States since 1973 the median wage has remained flat, even though productivity for all classes of labor has increased dramatically in the same period. This means that the workers are producing more goods, but must purchase them with the same rewards. Since this is not possible, the economy has resorted to three stopgaps to maintain consumption. The first is to put more family members to work, and to work longer hours. The second is to increase the role and size of government to absorb more of the output. And the third is simple usury (consumer credit); have the class that is over-compensated—that is, the possessor’s of capital—simply lend the excess to consumers to soak up the excess goods. But all three methods have reached their logical limits. The family is working as hard as it can (to the detriment of that family life which the economy ought to serve), the government cannot expand much further without discovering those limits on expansion that the soviets discovered, and the credit system has collapsed. There is no further that we can go without changing the system. Mr. Cucerai assumes rising wages in a free market. Capitalist defenders assume that “free contract” is sufficient to ensure such rising wages. But Adam Smith noted the problems with this theory:
It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine more easily… A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month and scarce any a year without employment.2
Thus Smith identifies actual wages as the result of a power relationship between masters and workers and not a result of purely “economic” forces; it is power, not productivity, that is arbitrated in a wage contract. An American CEO gets 500 times what the line worker makes not because he is 500 times more productive but because he is 500 times more powerful. The seamstress in a sweatshop gets a pittance not because her productivity is low but because her power is pitiful. The power to negotiate a wage comes only with the power to say “no” to the terms offered, and this power comes only from the possession of an alternative to the wage. And only property confers this power. Where workers have their own property and can make their own way in the world, any wage contract they accept is likely to be a fair one, one that fairly rewards their productivity. But in absence of a real alternative, there is no real negotiation; you cannot negotiate if you cannot say “no.” What a free market really requires is free men, and what men require to be free is access to their own means of subsistence, which is precisely what capitalism denies them. The proper ground of freedom is one’s own proper ground, the very ground which Mr. Cucerai would cut out from under the worker. What is denied to the mass of men must fall to a minority of men, men who will then be the masters of society and the effective rulers of government, co-opting it to their own ends. This is what has happened. The higher the piles of capital gathered in a few hands, the thicker the walls of government necessary to protect that capital, and capital and government combine to limit freedom, to restrict property. Capitalism is therefore not to be confused with the free market, but to be identified as its mortal enemy, and to confuse the one with the other is to totally misunderstand the reality of modern economic, social, and political life. Mr. Cucerai is to be praised for his almost unflinching look at capitalism, but he is to be critiqued because, at the last minute, he flinched, he looked away from the logical consequences of his own description to skip the crucial point upon which the whole discussion must turn. He went to the edge and turned back just a hair’s-breadth from the truth. But we cannot turn back, for only if we have the courage to look at things as they are can we expect to have the strength to make them what they ought to be.