The Home of American Intellectual Conservatism — First Principles

April 24, 2014

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Free Markets & Civil Society

ISI recommends reading through the introductory essay before following the embedded hyperlinks or before working through the course itself. The essay can orient your reading and reflection so that like Caleb and Joshua you are calm and perceptive in the face of the intellectual giants you will find in this land.

The exchange of goods and services through markets is as old as human civilization itself—indeed, depending on what one means by “markets” and “civilization,” it may even be older. But the study of the economy, politics, and society as discrete subjects, together with their relationship, is a relatively recent historical development, beginning only in the eighteenth century—about the time of the American Founding. As the American conservative intellectual movement began to coalesce in the early 1950s, it was natural that economics—the “free economy,” or more broadly, the “free society,” with a rich civil society of associations beyond the reach of state control—would be a central theme of conservative reflection. On the one hand, libertarian-minded conservatives were still contesting the welfare state that Franklin Roosevelt had constructed in the 1930s, seeing it as a centralizing, socialist threat to liberty. On the other hand, the global ideological competitor for America and the West was Soviet communism, and of course, Karl Marx had claimed that politics and culture were merely surface phenomena, reflecting the “relationship to the means of production” in the economic “base” of society. Since Marxist-Leninists deployed economic arguments to address political, social, and moral questions, communism’s adversaries would attempt to meet them on their own terrain, mustering economic arguments of their own. As a result, the intellectual project of American conservatives during the period of the Cold War was substantially shaped by classical liberal economic concepts.

Adam Smith, 1723-1790

“Classical” economic theory blossomed in the late eighteenth and early nineteenth centuries with such thinkers as Adam Smith in Scotland and A. R. J. Turgot in France (though antecedents can be found in the sixteenth-century School of Salamanca, and even earlier). These early political economists believed that the self-interested choices of individuals in free markets—that is, markets in which buyers and sellers may trade freely and prices are determined by supply and demand rather than by government edict—would lead to greater prosperity for the whole of society. As Smith famously wrote in The Wealth of Nations, “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.” It was also believed that in a “commercial republic”—a consensual, rights-respecting polity oriented to commerce—the causes of war and civil war would be removed, and so an unprecedented social harmony was to be expected in the new regime. Manners would be “gentled” as “irrational” motives such as glory and religious devotion gave way to the decent, cautious virtues of the secular bourgeoisie.

Since we ourselves are inheritors of the legacy of the classical liberal economists, we too often fail to consider what a moral revolution these ideas entailed. The classical philosophy of the Greeks and Romans had affirmed the warrior virtues and generally contemned mere commerce as a servile occupation. Christian theology was wary of self-interest and considered riches a source of sinful temptation. Given the powerful arguments of these traditional perspectives, the theoretical victory of classical liberal economics has never been entirely secure—however successful liberal economics has been in practice.

In Smith’s day, “civil society” was still a near synonym for “political society” or society in general, including, most decisively, the state. Over the course of the nineteenth century, however, the term came to signify instead those institutions of the social order which were independent of government—the myriad intermediary groups between the individual and the state, such as churches, neighborhoods, trade associations, guilds, labor unions, clubs, and, on some accounts, families. (Some nineteenth-century thinkers, such as G. W. F. Hegel, classified the family as a pre-civil institution, because the family tie is unchosen, involuntary.) Businesses typically were not considered part of civil society, on the theory that they are private rather than civil concerns. As the institutions of civil society came to be distinguished from both the state and the economy, the study of society became a discipline in its own right—“sociology,” as Auguste Comte christened it.

Classical liberalism—the political expression of free-market economics that extends a concern for individual liberty to other spheres beyond the economy—supplied the dominant paradigm of political thought in the nineteenth-century Anglo-American world. Society and the economy, it held, would flourish best with minimal government intervention, and existing impediments to social and economic freedom should be abolished. This school of thought was not without its critics both among conservatives and on the newborn socialist Left. As early as 1790, the British statesman Edmund Burke had warned of the dangers attendant upon replacing an older social order with one conceived by rationalist “sophisters, calculators, and economists”—though Burke, a friend of Adam Smith, appreciated market freedom within its own sphere. Before long a literary backlash against liberalism, utilitarianism, and the “dark satanic mills” of the Industrial Revolution marshaled intellectuals into support for emerging working-class movements and various forms of socialism, including, after 1848, Marxism. Liberalism itself, meanwhile, frequently strayed from its laissez-faire ideals into imperialism (in Great Britain) and plutocracy (in the United States). Nevertheless, it was a liberal age, and as late as 1925 President Calvin Coolidge could justly say, “the chief business of the American people is business.” What was not always acknowledged, nor reflected upon, was that the social context in which business flourished was built upon the civil associations Alexis de Tocqueville had described in Democracy in America.

Already by the time Coolidge spoke, the liberal social and economic order was approaching a crisis. Critics had long attacked the free-market economy along four lines, arguing that it was unjust because of the unequal distribution of wealth it produced; immoral because of the free rein laissez-faire gave to acquisitiveness and selfishness; inefficient relative to socialism, which could marshal much greater economies of scale by nationalizing entire industries; and inherently marred by “market failures” and the business cycle of booms and busts. World War I, which seemed to discredit the liberal dream of world peace through free trade, also gave socialists concrete examples of how governments could centrally plan national economies, and indeed society itself. The Soviet Union, which arose as one consequence of that war, looked to many intellectuals like the wave of the future. Finally, the stock market crash of 1929 and the ensuing Great Depression dealt a near-fatal blow to the free-market system, shattering the American public’s confidence in the market’s ability to provide jobs and goods—and shattering as well the public’s confidence in civil society’s ability to provide independently for the sick, the destitute, and the aged.

food line during the Great Depression

Around the world, the economic downturn of the 1930s fed into socialist movements and new ideologies that proposed to use state power to save society and put people back to work. Benito Mussolini encapsulated the spirit of the age in his description of fascism: “Everything for the State; nothing outside the State; nothing against the State.” This was the very inversion of classical liberalism: instead of the economy and civil society existing independently of the state—which, indeed, was conceived of as merely a framework for supporting the market and society—the economy and daily life would be subsumed under government power. Though nothing like overt socialism or fascism caught on in the United States, the direction of change was similar: Franklin Delano Roosevelt’s New Deal expanded controls on the U.S. economy and erected a welfare state to fulfill functions once served by families and free associations within civil society.

Ironically, the man who would do most to undermine the free-market system in the U.S. and Great Britain was not an avowed socialist but a defender of capitalism. But this man, the British economist John Maynard Keynes, believed that capitalism had grown old and decrepit, in need of life-support from government. His was a vision, as his critic and fellow economist Joseph Schumpeter said, of “capitalism in the oxygen tent.” Keynes believed, among other things, that in “late” capitalism the public had a propensity to save too much, which stalled the engine of the economy. To rev that engine back up, government must stimulate aggregate demand through public spending—particularly deficit spending. Roosevelt’s New Deal, itself a project designed to rescue, rather than replace, the free market, was already well underway by the time Keynes published his seminal General Theory of Employment, Interest and Money in 1936. But Keynes’s theory would provide a coherent philosophy for what had been ad hoc New Deal measures. And Keynesianism would endure as the basis for U.S. economic policy through the 1970s.

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