6. The New World of Capitalism

In the face of overwhelming evidence of the prosperity of capitalism, Marxists were forced to rephrase their arguments from material provisions to quality of life. Robert Nozick, a brilliant philosopher of liberty, became a libertarian. Anarchy, State, and Utopia, his main book, dominates debate in political philosophy.

Why were intellectuals so hostile toward the market place and private property? Only state interventionism was seen as virtuous. Hayek saw that intellectuals had egalitarian biases, but felt they meant well. They just had scientistic prejudice. Schumpeter remarked that Hayek was polite to a fault.

Schumpeter held that the key to intellectual hostility was the education and literacy that the capitalist wealth machine made possible – the freedom to nibble at the foundations of the capitalist society. This analysis is in his most popular book Capitalism, Socialism, and Democracy.

Mises was not polite to a fault. His focus on this issue cites work about money making having been stigmatized. Western culture has had contempt for money making, commerce, merchants and business people. Entrepreneurs and capitalists themselves are swayed by the moral outlook which damns their activity.

Transcript: Lecture 6 of 10 from Ralph Raico’s History: The Struggle for Liberty.

[This transcript is edited for clarity and readability. The Q and A at the end of the lecture has been omitted. Annotations have been added by Ryan McMaken.]

I’d like to say a few more things in regard to the Industrial Revolution, considering that it is such an important topic. Rosenberg and Birdzell sum up the historical and statistical evidence as follows: “By now, it is quite clear that the new factories and towns were a large part of the solution to Europe’s problem of employing a rising population outside of agriculture; they were not part of the problem.”1 The assessment of the rise of industrial capitalism as an unprecedented revolution in economic growth is supported by much of the recent work of economic historians. This is especially the case with cliometricians—that is, historians who use sophisticated mathematical methods—although there are disputes over particular sets of statistics and the appropriate analyses.

It’s interesting that Marxist historians like Eric Hobsbawm and E.P. Thompson have been reduced to a rearguard defense of the older conventional wisdom, mainly by shifting the grounds of the debate from material standards of living to the “quality of life.”2 You can take, for an example, the position of E.P. Thompson and his celebrated work, The Making of the English Working Class.3 In approaching the old question of living standards—this was a standard question that was supposed to be the decisive question—living standards served as the criterion of the success or disastrous failure of the Industrial Revolution, Thompson states: “It is quite possible for statistical averages and human experiences to run in opposite directions.”4

Uh-oh, what’s he up to now? He continues: “A per capita increase in quantitative factors may take place at the same time as a great qualitative disturbance in the people’s way of life … [p]eople may consume more goods and become less happy or less free at the same time.”5 When you read Thompson, you find the decisive concession that he is about to make. He concedes: “Over the period 1790-1840, there was a slight improvement in average material standards.”6 By the way, it’s also suggestive that one selects the year of 1840 rather than 1850, since big changes occur in that decade. But, he says, “By 1840, most people were ‘better off’…than their forerunners had been fifty years before, but they had suffered and continue to suffer the slight improvement as a catastrophic experience.”7

Note there are there are scare quotes around “better off.” The most that can be produced in regard to this last statement—that they continue to suffer this slight improvement in material standards of living as a catastrophic experience—tends to be totally anecdotal. It is safe to say that the old “immiseration thesis”—as it was called, and as the celebrated Fabian husband and wife team of J.L. and Barbara Hammond put it, “the Industrial Revolution fell like a war or a plague” on the working people of England—is dead.8 Thus, for instance, to take an example at random, the University of Wisconsin historian Theodore Hamerow—a scholar clearly unsympathetic to the market economy—grants that there was no general immiseration in the early stages of the Industrial Revolution either in Britain or on the continent. For the later stages, he says “[n]ever before had there been such a substantial growth in the income of the labor force in such a short period of time.”9 Hamerow even quotes the East German communist economic historian, Kuczynski: “Even Jurgen Kuczynski … concedes that the income of the working class improved rapidly after the early stages of economic rationalization.”10

I want to mention one thing in particular before I forget and that is the question of the labor of women and women in factories. Women of course, as we all know, have never really done very much work in the history of the human race. All they did was raise the kids and take care of the house, do all the gardening for fruits and vegetables, take care of the chickens and pigs, bring the water from the well, and a number of other really similarly very minor tasks. It was the men who went out and hunted for mammoths and other wild beasts and had a really great time as a kind of “guy thing,” dragging chunks of the mammoth back home as the wife kept with her trivial chores of taking care of the kids and everything else about the family and the household. The guys would sit around and say things like “did you see the way I killed that mammoth… you killed the mammoth? No, I killed the mammoth.” And things went on like that. So, women really have not counted very much in regards to labor of the human race through history. It was really just the Industrial Revolution that drove them to labor. Before that, they used to have a lot of hobbies—macramé and ceramics and so on, and learning enough Italian to read opera libretti, and that kind of thing.11

Well, obviously that’s a big fantasy. Women—except for the higher classes and the elite—have always worked, have always worked their fingers to the bone, and within the context of the patriarchal family. What the Industrial Revolution did for the first time was allow women an independent source of income. They didn’t have to go from their father’s house immediately into the house of their husband and then for the rest of their lives, remain under the thumb of their husband regardless of how he chose to behave and conduct himself for the years to come. Women could go out and work in a factory and that was experienced as an enormous liberation by women. To take the example of America, there were the textile factories of New England, the cigarette factories of the Carolinas and Virginia, and so on. Afterwards, when the telephone came in, there were hundreds of thousands of female telephone operators. This was a liberation from the psychological cage that very often the husband-dominated family was. She was bringing in her own income, so she had a certain place in the family for that reason. Or if it came to that, “to hell with the louse,” and she could go out and make a living on her own. We see this in third-world countries as well. The factory system and the other accoutrements of industrial capitalism were a liberation for women. This explains why legislation to limit the work of women and exclude women from certain occupations, or limit the hours women could work and so on, were pushed not by women’s groups, but by the male-dominated labor unions. It was to do away with the increasing competition that women presented to male union labor.

Changing Scholarship on the Industrial Revolution

The stage of the debate on the Industrial Revolution that has been reached is clear in this statement from a totally mainstream British historian named E.J. Evans. Evans wrote a textbook on England in this period which was critical of the Industrial Revolution, in certain respects, on quality-of-life grounds. What Evans says is this: In judging the Industrial Revolution, “it is relevant to mention a counterfactual point…” a hypothetical point. “What would have happened to Britain’s teeming population had industrial growth not rescued it from a Malthusian poverty trap? It is difficult to see how a ‘check’ on an even more catastrophic scale than the Irish famine of 1845-47 could have been avoided, and to this not inconsiderable extent the Industrial Revolution brought the benefit of permitting a much larger population to survive and, in the long term, thrive.”12

Evans means “check” in the sense that Malthus used the term. That is, when the population reaches a certain level, outgrowing the means of subsistence, then nature provides certain checks. As Evans says, the Irish famine was such a check. And now, he says, hypothetically there could have been a check on the British population on an even more catastrophic level than the Irish famine. How could that have been avoided without the Industrial Revolution?

T.S. Ashton, one of the major so-called “optimist” historians that I mentioned before, puts it this way. If you want to see an area or territory that has undergone a population explosion without industrialization, then go to Calcutta or go to famine-torn Ireland.13 There were none of these terrible smokestacks. None of this terrible pollution. None of this awful dreadful industrialization. None of the Satanic mills. So, we see what happened there.

The “democratization of consumption,” a term that was used by some historians, was a key feature of the modern capitalist revolution. This has been analyzed especially by an historian named Neil McKendrick, of Cambridge University. McKendrick arranges himself solidly on the side of the optimists. He emphasizes the benefits that ordinary people derived from the Industrial Revolution and the accompanying revolution in consumption. He contrasts the new world that capitalism made with the older world of poverty. After all, what was it that these factories were producing? They were not producing silk and linen fabrics for the elite. They were producing wool, and especially cotton. They were producing cheap ceramics and pottery, cheap cutlery, and cheap everything for consumption by the masses.14

Now one crucial claim on the pessimist side was that the Industrial Revolution represented a deterioration. But, precapitalist stages have been increasingly shorn of their Garden of Eden myths, Kendrick believes. This is seen in the kind of social history fostered by the Annales group of French scholars—a group of French historians connected with the journal called Annales. The Annales school and their trademark was to investigate deeper levels of social history, to get a sense of the fabric of life, of the people of the time rather than great historical or military political events.

One of the most famous of them was Fernand Braudel, who wrote this about France: “The poor in the towns and countryside lived in almost complete deprivation…. the average man’s income was so low that even a poor man’s diet absorbed 60-80 per cent of that income … in good times. … In pre-industrial Europe, the purchase of a garment, or the cloth for a garment, remained a luxury common people could only afford a few times in their lives.”15 McKendrick points out that “Even the clothes of plague victims were eagerly sought by their relatives; and … we learn of the low expectation of life, the high infant mortality” and the chronic sickness and very few comforts.16 That a major revisionist effort is involved in the work of McKendrick and other more recent historians is clear. Among the targets of attack are historians themselves who for generations so assiduously portrayed businessmen as exploiters and parasites. As McKendrick states: “When Napoleon dismissed England as a nation of shopkeepers, he little knew how eager English historians would be to try to live down the jibe, and to efface from the record of historical significance the efforts of those busy, inventive profit-seeking men of business” whose activities had helped bring the new world of plenty into existence.17

What I presented here is a quite different view from the one that had been instilled in all of us. I mentioned earlier the idea that the Middle Ages are simply dark ages to many, and no matter how many facts to the contrary—and obvious realities that were contrary—one brings up, it is very hard to erase that idea from the mind. Similarly, for the masses, it would be hard to imagine how much effort by the economic historians and other scholars would be necessary to get rid of the ideas so deeply embedded in their minds about the Industrial Revolution. These ideas were created by Dickens and other authors—and movies and everything else people were taught in public school—saying the Industrial Revolution was a catastrophe.

Unfortunately, I don’t know whether that will ever change. In this connection, I’ll mention that back in 1830, there was a debate on the Industrial Revolution—a kind of an interesting polemic between two authors. One was Robert Southey, who was the Poet Laureate of England at the time and Southey wrote a book called The Colloquies of Thomas More.18 He imagined in his book that the great statesman and saint and scholar had come back to England during the early nineteenth century and looked around. The book described how horrified the sixteenth-century man would be to see what industrialization had done. It was just something to cry over, how awful England—merry old England—had become.

Southey goes on and on about this and he’s answered by a great famous historian, the classical liberal historian of the nineteenth century named Thomas Babington Macaulay. Macaulay was one of a series of British historians who presented historical accounts with an underlying classical-liberal lesson and theme. He was a classical liberal. He wasn’t a total libertarian, and that’s fine, but he certainly believed in private property, the rule of law, civil liberties, and so on. He was the most popular historian of his time. He was a brilliant historian. He was a brilliant man. He had a photographic memory, which is pretty useful for a historian. One time he was traveling over to Ireland and somehow his books had been left behind. The journey was going to be some hours long, so he simply sat down on a deck chair and closed his eyes and repeated Milton’s Paradise Lost to himself.

As a child even, he showed promise. As a very young child, since he hadn’t spoken very much at all, people thought that he was somewhat retarded. When he was around four years old, his aunt happened to spill tea on his foot while she was pouring tea for the family and they were very worried about “little Tommy” and his aunt said, “How are you, how do you feel?” He said, “Madam, the pain which at first was very great, is now much abated.”

Macaulay’s most famous book is The History of England.19 The History of England is in a number of volumes even for the short period of time that it deals with.20 His essays, which are more manageable, range all around the place. He was a master of many, many languages. He loved literature as much as he loved history, and wrote reviews on many different topics. Really, he had a masterful style, as far as I’m concerned.

So, he decided to enter the lists against Southey on behalf of the new England—of the Industrial Revolution. If you don’t get a chance to read his other essays, you might read this one. Macaulay begins by talking about Southey’s background. Southey started as a Jacobin, as a supporter of the worst excesses of the French Revolution. Now, he’d become a total reactionary, not only against the Industrial Revolution, but also against civil liberties, in favor of the total power of the Church of England, and on. So, Macaulay says, “Southey has passed from one extreme of political opinion to another.”21

(By the way, when I read this, you might think to yourself of the neoconservatives, beginning as proteges of Trotsky, many of them, and winding up now as American hyper-imperialists.)

Macauley writes “Southey has passed from one extreme of political opinion to another, as Satan in Milton went round the globe contriving constantly to ‘ride with darkness.’”22 You can get the astronomical image there. So we see, Southey has in store for him a real hatchet job. He attacks Southey for being a reactionary, but a funny kind of reactionary because this Tory is verging on modern socialism.

Southey carries his hatred of the free market to the point of demanding total government control— better the government than these profit-seeking greedy businessmen:

He conceives that the business of the magistrate is, not merely to see that the persons and property of the people are secure from attack, but that he ought to be a jack-of-all trades, architect, engineer, schoolmaster, merchant, theologian, a Lady, Bountiful in every parish, a Paul Pry in every house, spying, eaves-dropping, relieving, admonishing, spending our money for us, and choosing our opinions for us. His principle is, if we understand it rightly, that no man can do anything so well for himself as his rulers, be they who they may, can do it for him, and that a government approaches nearer and nearer to perfection, in proportion as it interferes more and more with the habits and notions of individuals.23

You see that there’s a not very fine or clear line between hyper-conservatism and socialism. Indeed, in the early decades of the nineteenth century, socialists and conservatives combined against the new liberal society and capitalism. 

This is an example of Macaulay’s flashy style, I think: he says that Southey and his ilk think that the working people of England are so bad off, yet “It will scarcely be maintained that the lazzaroni who sleep under the porticoes of Naples or the beggars who besiege the convents of Spain, are in a happier situation than the English commonality.”24

Again, he’s contrasting what the Industrial Revolution is doing for common working people in England with the old static society that’s not able to spark economic growth in, for instance, Spain or Naples. Much along the same lines, and he ends on this note: “History is full of the signs of this natural progress of society”25 in the absence of obstacles set up against it. “We see in almost every part of the annals of mankind how the industry of individuals struggling up against wars, taxes, famines, conflagrations, mischievous prohibitions, and more mischievous protections, creates faster than governments can squander, and repairs whatever invaders can destroy.”26

We see how in these historical works, there’s much of this that’s simply history and not just the presentation of his political principles. Within these historical works of the most famous and popular historian of his time, we see embedded the classical liberal philosophy that then is imbibed and absorbed by the people who read him. He points out something that I had mentioned before. “Yes,” he says, “things are very distressful in England. What would you expect? Thanks to the Napoleonic wars England has had “a war, compared with which all other wars sink into insignificance; taxation such as the most heavily taxed people of former times could not have conceived; a debt larger than all the public debts that ever existed in the world added together; the food of the people studiously rendered dear…”—a reference to the Corn Laws—“…the currency imprudently debased…”—that is, going off the gold standard—“…and then imprudently restored.”27 Yet, there has been progress because of the efforts of the people.

With Macaulay I wanted to make you—as I did before through Cobden and Bright—to an extent, familiar with some of these actors in the history of classical liberalism.

Capitalism and the Intellectuals

Now, I want to turn my attention to another topic and that is the role of the intellectuals in society. It’s what has sometimes been called the problem of the intellectuals and the marketplace.

Most of you probably are familiar with the name of Robert Nozick. Nozick became a libertarian which was a big plus for us. He was a Harvard professor and known as a hotshot and universally admitted as one of the brightest young philosophers of his time. Throughout his brief career—he died unfortunately too young—he was regarded as a very important philosopher.28 Nozick was a brilliant philosopher. His best known work is Anarchy, State and Utopia, which was a turning point because, for the first time, conventional academic philosophers had to deal with free-market and libertarian arguments.29 There’s a lot of original stuff in the book. On the other hand, there’s a lot of stuff in Anarchy, State, and Utopia—which won all kinds of prizes— that will be familiar to any one of us. However, for academic philosophers, it came as a revelation; his demolition of Marxist theory, the labor theory of value, and the idea that workers are always at the mercy of their employers, and on and on. Nozick deals with these and philosophers were amazed, saying “wow, we thought it was a lot more simple than that.”

In one of his essays, Nozick writes of an experience he often had when he came to reply to criticism of laissez-faire capitalism. Bob said that after he refuted some particular charge that laissez-faire leads to monopoly—or to systematic overproduction, or to pollution, or whatever— he would answer that charge, but then the other person drops the point and quickly leaps to another. But what about child labor? What about racism? What about advertising that brainwashes people into buying things they don’t need?

Bob writes that “[p]oint after point is given up. … What is not given up, though, is the opposition to capitalism”30 He concluded that the particular arguments are not important; the particular charges that are brought up are not important since “there is an underlying animus against capitalism.”31 I think that many of us will find this experience very familiar. That is, you answer one point and they immediately go to another point and once that’s answered, to another point. Why? Well, because Bob says there’s an animus against capitalism. This is relevant to the question of the intellectuals in the marketplace because the people that Bob is talking about—the people he habitually would come into contact with—would be other intellectuals. 

Another example of this is given by Ronald Coase, Nobel Laureate in economics. He relates an incident highly revealing of the state of mind of opinion molders in America. It concerns the natural gas shortage of the 1960s. An economist at the University of Chicago, Edmund Kitch, had written a study demonstrating the part that short-sighted federal regulation played in the shortage of natural gas. He was presenting his findings in a public lecture in Washington in 1971. This is what Coase wrote about it:

Much of the audience consisted of Washington journalists, members of the staff and Congressional committees and others with similar jobs. They displayed little interest in the findings of the study, but a great deal of interest in discovering who had financed the study. Many seem to have been convinced that the Law and Economic Program at the University of Chicago had been bought by the gas industry. A large part of the audience seemed to live in a simple world in which anyone who thought prices should rise under certain circumstances, was pro-industry and anyone who wanted prices to be reduced was pro-consumer. I could have explained that the essential of Kitch’s argument had been put forward earlier by Adam Smith, but most of the audience would have assumed that Adam Smith was someone else in the pay of the American Gas Association.32

In this episode we see a microcosm of the world habitually inhabited by antimarket intellectuals. Continued flourishing of this class remains an enduring puzzle and problem with classical liberals and libertarians.

Now, I don’t propose to solve this problem and give you the ultimate solution this afternoon, but I will suggest the various theories that have been put forward, and try to sift them for the ones that seem to be most plausible.

At the 1951 meeting of the Mont Pelerin Society at Beauvallon, a distinguished panel of scholars discussed the treatment of capitalism by the historians. The papers and some others were later published in that book, that I mentioned to you, edited by Hayek.33 In one paper, Bertrand de Jouvenel, a distinguished French political philosopher, described one of the most striking characteristics of modern intellectuals: their animosity towards the marketplace.34 Why should this be? The reason cannot lie, as de Jouvenel argued, in the puritanical disdain for social arrangements that satisfied the hedonistic demand of selfish individuals. After all, modern welfare democracy is also such an arrangement and is not subject to the antagonism of the intellectuals. De Jouvenel claimed, somewhat surprisingly, that the intellectual’s hostility to the businessman presents no mystery as the two have by function wholly different standards. The businessman’s motto is the customer is always right and the intellectual’s task is to preserve the highest standards of his field, even against the weight of popular opinion. But, I don’t find this very convincing. For instance, in democratic welfare states, politicians and bureaucrats also are supposed to serve the public rather than to struggle to preserve standards of excellence. Yet, the intellectual’s enemy is not typically directed against democracy, the welfare state, or its leaders and functionaries.

Twenty-one years later, in 1972, there was another panel on the intellectuals in the marketplace. The Mont Pelerin Society kept dealing with the question again and again for obvious reasons and R. M. Hartwell, the historian of the Industrial Revolution, spoke on “History and Ideology.”35 Hartwell had occasion to remark on the widely held aversion to the economic and political system which provided the institutional framework for modern economic growth. As a historian, he naturally stressed the crucial role of historical myths, concocted and circulated by academic historians in nursing this version. Hartwell’s lecture is particularly noteworthy for drawing attention to the systematic character of the anti-capitalist onslaught as experienced by the typical educated citizen of a Western democracy. Consider whether this at all reflects your own educational experience. He notes history “is only one element in a battery of self-reinforcing prejudice” against private property and the market economy. In literature, economics, philosophies, sociology and other subjects, the student is continually subjected to data and interpretations that converge on a single point: the viciousness of private enterprise and the virtuousness of state intervention and state-supported labor unionism. Hartwell observed “what schools and universities propagate in formal education, many other institutions reinforce”—particularly the churches, creative arts, the mass media.

Some years later, I presented a paper on the same topic at the Mont Pelerin Society and I noted to them the fact that we were coming back to the same old topic, the same old question. That doesn’t argue for the futility of doing so, but shows, rather, the central importance of the question. Most of the people there had lived long enough to understand the truth of Joseph Schumpeter’s assertion that “capitalism stands its trial before judges who have the sentence of death in their pockets.”36 The only thing that changes, Schumpeter wrote, are the particulars.37 The ever-changing indictment is presented over and over and over again by the intellectuals.

Schumpeter notes that in earlier times, intellectuals indicted capitalism for the immiseration of the proletariat, inevitable depressions, and the disappearance of the middle classes. A little later, the indictment extended to imperialism and the inevitable wars among the imperialists or so-called capitalist powers.

In more recent decades, the indictment again changed, as earlier accusations became too blatantly untenable. Capitalism was charged with being unable to compete with socialist societies and technological projects. Believe it or not, that was the rage as I entered grad school around 1960. There had just been Sputnik. Statistics showed that in the Soviet Union, they were producing three or four times as many engineers a year as we were, and also the capital investment was just enormous. Nobody cared whether the capital was going to be used efficiently or not. But, the inputs were enormous. So, it was inevitable that they were going to, as Khrushchev said, catch up with us and easily surpass us.38 So, we were told capitalism could not compete with socialism. Capitalism was accused of promoting automation, leading to catastrophic permanent unemployment in the 1960s. Capitalism was accused of both creating the consumer society in its piggish affluence, and of proving incapable of extending such piggishness to the underclass. Capitalism with charged with neocolonialism, with oppressing women, racial minorities, and even sexual minorities. Capitalism was charged with spawning a meretricious popular culture, and now as we know, with destroying the earth itself.

George Stigler, a famous University of Chicago professor who was no ideologue or fanatic in any sense, remarked about his time: “A constant stream of new criticism—such as the problem of homeless families—is being invented, discovered, and heavily advertised.”39 These are a presentation of the state of affairs, of the facts. Could there be any doubt about this?

But the question remains, what is at the root of this ever-changing never-ending indictment? What accounts for the intellectual unremitting hostility to the market economy? Well, people on our side have tried to give a number of answers to this question. Hayek was acutely concerned with our problem, since he too was firmly convinced of the importance of the intellectuals.

However, Hayek’s view of the intellectuals is flatteringly benign. Their ideas, he says, are determined by and large by honest convictions and good intentions. He has an essay called “The Intellectuals and Socialism,”40 one of his famous essays, and worth reading. He does mention in passing the intellectual’s egalitarian bias. However, his analysis is basically in terms of their scientism. I don’t know if Hayek invented this term. I have a feeling he did. In any case, he certainly used it, and it means the inappropriate application of the methods of natural science to social-scientific affairs. So he thinks that the intellectuals are basically against the market economy because they had this scientistic prejudice. Actually, he talks about scientism in one of his books that I consider one of his best books, called The Counter-Revolution of Science, an older book of his.41

In Hayek’s view, the chief influence on the intellectuals has been the example of the natural sciences and their applications. Basically his idea is this: as man has come to understand and control the forces of nature, intellectuals have grown infatuated with the idea that an analogous mastery of social forces could produce similar benefits to mankind. Intellectuals are under the sway of such beliefs—that “deliberate control of conscious organization is also in social affairs always superior to the results of spontaneous processes which are not directed by a human mind.”42 Hayek even makes the following astonishing statement: “That, with the application of engineering techniques, the direction of all forms of human activity according to a single coherent plan, should prove to be as successful in society as it has been in innumerable engineering tasks is too plausible a conclusion not to seduce most of those who are elated by the achievements of natural science. It must indeed be admitted both that it would require powerful arguments to counter the strong presumption in favor of such a conclusion and that these arguments have not been adequately stated.”43

Hayek is saying that it’s natural to have such a strong presumption in favor of a conscious overall planning of society by a few people according to scientific principles. Hayek continues and says the scientistic argument “will not lose its force until it has been conclusively shown why what has proved so imminently successful in producing advances in so many fields, should have limits to its usefulness and become positively harmful if extended beyond those limits.”44

I hope you’re able to follow that in general. For me, it is exceedingly difficult to understand Hayek’s reasoning here. He appears to be saying that because the natural sciences have made great advances, and because innumerable particular engineering projects have succeeded, it is quite understandable that many intellectuals should conclude that the direction of all forms of human activity according to a single plan, will be similarly successful. In the first place, the advances of the natural sciences were not brought about in accordance with an overall central plan. They were rather the product of many separate decentralized but coordinated researchers, coordinated through informal mechanisms. These efforts were produced analogously in some respects to the market process, but there wasn’t any central planning in connection with the successes of science to begin with, which is Hayek’s premise. Second, from the fact that many particular engineering projects have succeeded, it does not follow that a single vast engineering project, one subsuming or particular project, is likely to succeed. Nor does it seem likely that most people would find such a claim plausible.

Why, then, is it natural or logical or easily comprehensible that intellectuals should reason from the triumphs of decentralized scientific research and of individual engineering projects, to the success of a plan by a supreme authority undertaking to direct all forms of human activity?

Joseph Schumpeter reviewed Hayek’s book, The Road to Serfdom, when it came out and I think it’s appropriate here to cite Schumpeter. He remarked that “Hayek was polite to a fault” towards his opponents in that he hardly ever attributed to them “anything beyond intellectual error.”45 But, Schumpeter declares, “not all the points that must be made can be made without speaking more plainly.”46 Schumpeter here implies an important distinction. Civility in debate, including the formal presumption of good faith on the part of one’s adversaries, is always in order. That’s always called for. But there’s also a place for the attempt to explain the attitudes, for instance, of anti-market intellectuals. In this endeavor, it may be suggested, “politeness” is not precisely what is most called for. As regards to positivist intellectuals who argued from the successes of natural science to the need for central planning, it may well be that this false inference was no simple intellectual error, but it was facilitated by their prejudices and resentments, and perhaps their own will to power. (Another term for scientism would be positivism, not in the strict philosophical sense of logical positivism, but in a sense I’ll explain in an upcoming lecture where I discuss the Saint-Simonians.)

In any case, Hayek, as I told you before, was the head of my dissertation committee and a perfect gentleman. Maybe when he talked about these issues and these problems, he was too much of a gentleman. For example, he dedicated The Road to Serfdom to “socialists of all parties.” That would be like Ayn Rand dedicating Atlas Shrugged to “thugs of all descriptions.” It really strikes me as a little off, and to tell you truthfully, I’ve never heard of anybody ever convinced by Hayek’s arguments. I know that some people—some socialists, Trotskyists, for instance—were convinced by Mises’s arguments. Mises was very hard hitting and not too polite in his attitude towards his opponents. Well, that’s the way Hayek was. But that isn’t a reason to make statements that are very strange.

This is what he says about intellectuals: “Orthodoxy of any kind, any pretense that a system of ideas is final and must be unquestionably accepted as a whole, is the one view which of necessity antagonizes all intellectuals, whatever their views on particular issues.”47

This is an amazing statement. This is a statement Hayek makes about a category of persons that in the twentieth century was notorious for including thousands upon thousands of prominent intellectuals and apologists for Soviet Communism in all countries. Yet Hayek claims that they opposed any form of orthodoxy, that they had to be convinced in a perfectly logical way.

This, is it seems to me, is indeed politeness to a fault. Hayek seemed to think that all intellectuals were sort of like Bertrand Russell or somewhat like himself. Yet there were tens of thousands of intellectuals who supported Stalinism. There were thousands of intellectuals who supported fascism and National Socialism. A man who was one of the great American poets of the twentieth century, Ezra Pound, happened to be in Italy during the war. He delivered radio broadcasts on behalf of Mussolini and he considered himself a friend and a supporter of Mussolini. And there would be many other examples of something like that. So, what Hayek is talking about, I don’t know. I think that that treating intellectuals with kid gloves is not the way to go.

Well, now we come to Schumpeter and his own theory of the intellectual proletariat. In chiding Hayek, as I quoted above, Schumpeter suggested that he might have learned a useful lesson from Marx. Now what this involves is this: Schumpeter had a lifelong engagement with Marxism, mainly as a critic, but he had some similarities with Marx as well. Like Marx, he offered a highly pessimistic prognosis for the capitalist system, although for different reasons. While Schumpeter holds that the intellectuals will play a key role in capitalism’s demise, he in no way relies on the scenario set forth in The Communist Manifesto.

In the Marxist scenario, as announced by Marx and Engels, as the final revolution approaches, a section of the bourgeois ideologists will go over to the side of the proletariat. These will be the ideologists, as they say, who have worked their way up to a theoretical understanding of the historical movement as a whole. Note this is not that the people are going to go over from the middle class where they were born, to the communist movement. It’s not because they understand that communism is just or that it will bring about a better society. It is that they understand the theoretical movement. See what’s involved there? That’s a kind of Hegelianism. They understand how history is inevitably evolving. To be on the other side, to go against the current of history is to be absurd, like somebody trying to fly by jumping off a building and waving his arms. When they see the trend of historical movement, on penalty of being absurd and insane, they support the proletarian cause. But this is not out of any idea that communism is more just or superior.

This above scenario is what Marx and Engels would claim will happen in their laughably self-serving description. But that would not appeal to a skeptic like Schumpeter. Instead, Schumpeter’s “Marxism,” if you want to call it that, consisted in examining capitalism as a system with certain necessarily attendant sociological traits, and exposing the class interests of the intellectuals within that system. Schumpeter says, compared to previous social orders, capitalism is especially vulnerable to attack: “unlike any other type of society, capitalism inevitably and by virtue of the very logic of its civilization creates, educates, and subsidizes a vested interest in social unrest.”48

In particular, capitalism brings forth and nurtures a class of secular intellectuals. This is not the sort of intellectuals who existed in most other societies connected with religion. These are secular intellectuals who wield a power of the spoken and the written word. The capitalist wealth machine makes possible cheap books, pamphlets, newspapers—or today: radio, television, and the internet—for the ever widening public that reads them and subsidizes education and literacy.

The freedom of speech and of the press enshrined in liberal constitutions—that is capitalist freedoms—entails also, in Schumpeter’s words, “freedom to nibble at the foundations of capitalist society.”49 This is analysis contained in a few pages of his famous book, Capitalism, Socialism, and Democracy. Within a liberal order, there is this constant gnawing away that is promoted by the critical rationalism inherent in capitalist society. Moreover, when we contrast earlier regimes, the capitalist state finds it difficult to suppress dissident intellectuals. Such a procedure would conflict with a general principle of the rule of law and the limits to the police power, that are dear to the bourgeoisie itself.

The key to the hostility of intellectuals to capitalism, in Schumpeter’s view, is the expansion of education, particularly higher education. This creates in capitalist countries—and we’ve seen this in developing countries also—a situation in which an enormous portion of the youth of the country go on not only through high school, but now through college and university, as well. The aim of the British Labour government is to get every young person into college or university and that has been more than halfway reached in the United States.

One of the results of that, of course, is the dumbing down of higher education. You can’t have the whole young population in college and universities, and expect colleges and universities to be the same thing that they’ve been before.

In many cases, there’s this enormous increase in students attending higher education institutions. This creates unemployment or underemployment among the university-schooled classes of people. Many of them become psychically unemployable in manual occupations without necessarily acquiring employability in say, professional work. That is, it is beneath them now to work as auto mechanics or in pizza parlors and they’re not really very good as lawyers, although that’s what they’re going to try to get into. Many of them will get into teaching in the public schools and a large proportion of my own students are future public school teachers and high school teachers also. And, just as the worst people in med school, according to their grades and so on, become psychiatrists, the worst people in colleges, according to their grades and so on, become teachers. And this is not to say that there are not good teachers, obviously, but we’re talking in terms of averages.

The point is, as Schumpeter indicates, that they just feel that they’re too good to do the sort of thing which in previous generations, people in their position would have done. The tenuous social position of these intellectuals breeds discontent and resentment, which are often rationalized as objective social criticism.

This is what Schumpeter writes. This emotional malaise “will much more realistically account for hostility to the capitalist order than could the theory—itself a rationalization in the psychological sense—according to which the intellectual righteous indignation about the wrongs of capitalism, simply represents a logical inference from outrageous facts…”50

Remember, Nozick and Stigler talked about this underlying animus, regardless of what particular accusations are raised and answered. Schumpeter says, ignore those. Content yourself with the good answers that you’ve given to those accusations and then look to see what’s behind them. Why this constant production of attacks on capitalism? A major merit of Schumpeter’s argument is that it elucidates an abiding feature of the sociology of radicalism and revolution: the hunt for government jobs, which I talk about in connection with the industrialist group and their analysis. The interconnection between overeducation, a widening reservoir of unemployable intellectuals, the pressure for bureaucratic positions, and political turmoil, was a commonplace among European observers of the nineteenth century.51

Later revolutionary movements, whether of the right or the left, can be understood, to a large extent, as the ideologically camouflaged raid on the great state employment agency. This would be the case in the nineteenth century. 

From this perspective, we obtain a deeper understanding of the claim that the welfare state saved capitalism. Maybe you’ve heard that, but what the welfare state has actually accomplished is to furnish a never-ending source of state jobs that are mainly middle-class products of what is still referred to as a university education, without, as in the nineteenth century, requiring a revolutionary assault. There are the jobs in the EPA, and endless social work of one kind or another, and all the other aspects of the welfare state. Well, these are jobs now, and those who are university educated but can’t find jobs in the private sector, now have a source of income.

While there’s doubtless a good deal of truth in Schumpeter’s identification of the systemic surplus of intellectuals as a source of anticapitalism, it also presents certain difficulties, the most important of which is this: it is not so much the unemployed intellectuals who are the problem, but the ones who are employed. Intellectuals unable to find suitable jobs may well provide a receptive subculture—let’s say in Greenwich Village, as well as occasional cannon fodder for revolutionary movements—among communist anarchists in the late nineteenth century and some third-world countries today. In Germany after the First World War, artists and writers frozen out of the avant-garde culture of Weimar were prominent among the early National Socialists.

But, Schumpeter’s thesis does not hold for many other cases, probably the historically most significant ones. Emile Zola and Anatole France, Gerhard Huffman and Berthold Brecht, H.G. Wells and Bernard Shaw, John Dewey and Upton Sinclair were scarcely unemployable in the intellectual world. Today there are the stars of the mass news media in all advanced countries, and one could mention newspersons in America who earn two million dollars a year or more— such being the savage inequalities of capitalism. These people are typically nibblers at the system of private enterprise. Just listen to the tone of their voice when they have to deal with issues of this kind, note the news stories that they emphasize and put at the top about big business and its terrible misdeeds. This goes on day after day, hour after hour, day after day, year after year, and the question is rather why so many successful and highly influential intellectuals become carping critics of the free economy.

Well, let’s turn our attention to Ludwig von Mises. If Schumpeter declined to be polite to a fault when it came to antimarket intellectuals, what are we going to say about Hayek’s mentor, Ludwig von Mises? Mises frequently probed the basis of the anticapitalistic mentality. He has a book by that title.52 That’s not his best. Often, he emphasizes invidious personal motivation, resentment, and bitter envy as a source of this mentality. He also notes the replacement of the society of status—the older society of status—by a society of contract. A society of status is where whatever you did in life was pretty much determined by the position you were born into. A society of contract is one in which whatever you do in life is to a very large extent dependent on your own efforts. The replacement of one society by another aggravated feelings of failure and inferiority among those who did not succeed. With a quality of opportunity in all careers open to talent, lack of financial success became a judgement upon the individual. This is a burden that some attempt to shift by scapegoating the social system. Intellectuals, according to Mises, share this weakness perhaps in an accentuated form. On occasion, Mises goes so far as to trace the psychological roots of anti-liberalism to a mental pathology. The scapegoating of the social system by those unable to cope with the reality of their relative failure in life, as Mises claims, is a mental disorder which psychiatry has so far neglected to classify. Engaging in a bit of volunteer psychiatric nosology himself, he ventures to label this condition the “Fourier Complex” after the early French socialist, Charles Fourier. Psychiatrists, as far as I’m aware of have not been eager to accept Mises’ volunteer work.

Although Mises’ focus on envy and resentment is the best known of his attempts to explain this anti-capitalist mentality, I submit that there is a second and different approach of his that may be more fruitful.

In an early essay entitled “The Psychological Roots of the Resistance to Economics,” Mises launches a radical attack on the strand of traditional Western morality that has stigmatized money making.53 Citing a famous work by the Roman Cicero as an exemplary text, Mises identifies the contempt for money making as deeply ingrained in Western culture.54 This, he says, is the source of the hostility against capitalists, against trade, and against speculation, which he thinks dominates our whole public life, politics, and the written word. This contempt, nurtured and sustained through the centuries and the change of regimes, is the natural outgrowth of class morality.

Mises, as you can imagine, given his views, is very distressed by this contempt for money making, for commerce, for merchants, and for businesspeople that permeated our civilization and our culture. This is one reason that he had such enormous respect for Ayn Rand’s Atlas Shrugged when it was published. Now this cluster of values, he said, is the natural outgrowth of a particular class morality, specifically the morality of the classes that are sheltered from the market by the circumstance that they live from taxes. They don’t have to worry about the market. They don’t have to care about speculation or making a profit. In our own day, it is a morality generated, as he says, by priests, bureaucrats, professors and army officers, who look with loathing and scorn on entrepreneurs, capitalists and speculators. Insight into the prevalence of this antimarket ethic helps explain, as Mises’ other envy-based approach does not, the antimarket attitudes often found among the economically successful, even in the private sector. Mises says, “No one escapes the power of the dominant ideology.”55 Thus, “entrepreneurs and capitalists themselves are swayed by the moral outlook that damns their activity.” It’s not a rare occurrence that even successful businessmen who made the money—but very especially his sons and daughters—turn against the capitalist system. This is, as Mises explains, “because of the dominant ideology that they are exposed to. They suffer from a bad conscience and feelings of inferiority.”56 As Mises says, “it shows itself, among other things, in the support given to socialist movements by millionaires and their sons and daughters.”57

• 1

  Nathan Rosenberg and L.E. Birdzell, Jr., How the West Grew Rich: The Economic Transformation of the Industrial World (New York: Basic Books, 1986) p. 147. 

• 2

  See Eric Hobsbawm, The Age of Capital: 1848-1875 (New York: Vintage Books, 1975). 

• 3

  E. P. Thompson, The Making of the English Working Class (New York, NY: Pantheon Books, 1963).

• 4

  Quoted in Martin Breaugh, The Plebian Experience:  A Discontinuous History of Political Freedom, trans. Lazer Lederhendler (New York: Columbia University Press, 2013)p. 221.  Breaugh provides a full discussion on Thompson’s claim that worker’s admitted economic gains were offset by an alleged negative impact on the workers’ “wayof-life.” 

• 5

  E.P.Thompson, The Making of the English Working Class, p. 221.

• 6

  Ibid., p. 212.

• 7

  Ibid., p. 212.

• 8

  J.L. Hammond and Barbara Hammond, The Skilled Labourer 1760-1832 (London: Longmans, Green, and Co., 1919) p. 4.

• 9

  Theodore S. Hamerow, The Birth of a New Europe: State and Society in the Nineteenth Century (Chapel Hill, NC: University of North Carolina Press, 1983) p. 141.

• 10

  Ibid.

• 11

  Raico is being sarcastic here, with clear humorous effect for the audience in the original audio. He is addressing the myth that women did not “work” until the Industrial Revolution. 

• 12

  Eric J. Evans, The Forging of the Modern State: Early Industrial Britain, 1783-1870 (New York: Routledge, 2013) p. 196. 

• 13

  T.S. Ashton, The Industrial Revolution 1760-1830 (New York: Oxford University Press, 1964) pp. 5-7, 110-111. 

• 14

  Neil McKendrick, John Brewer, J.H. Plumb, The Birth of a Consumer Society: The Commercialization of Eighteenth-Century England. (Bloomington, IN: Indiana University press, 1982) p. 98.

• 15

  Quoted in McKendrick, Brewer, Plumb, The Birth of a Consumer Society, pp. 30-31. 

• 16

  Ibid., p. 31. 

• 17

  Ibid. pp. 5-6. 

• 18

  Robert Southey, Sir Thomas More, or, Colloquies on the Progress and Prospects of Society (London: John Murray, 1829).

• 19

  Thomas Babington Macaulay, The History of England from the Accession of James the Second (London: Longmans Green, and Co., 1889). Originally published in 1848 in five volumes. 

• 20

  The book covers a 17-year period from 1685 to 1702.

• 21

  Thomas Babington Macauley, “Southey’s Colloquies on Society” in Critical and Historical Essays, vol 1(London: Longman, Brown, Green, and Longmans, 1848) p. 226. 

• 22

  Ibid.

• 23

  Ibid., p. 241.

• 24

  Ibid,. p. 260. 

• 25

  Ibid., p. 266.

• 26

  Ibid.

• 27

  Ibid., p. 266.

• 28

  Raico here points readers to a 2002 short article on Nozick’s turn to libertarianism: Ralph Raico, “Robert Nozick: A Historical Note,” retrieved online, June 1, 2024, https://mises.org/power-market/robert-nozick-historical-note

• 29

  Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974). 

• 30

  Robert Nozick, “Why Do Intellectuals Oppose Capitalism?” in The Future of Private Enterprise, ed. Craig Aronoff and John L. Ward (Atlanta, GA: Georgia State University Business Press, 1986) p. 134. 

• 31

  Ibid. 

• 32

  Ronald H. Coase, “Economists and Public Policy,” in Daniel B. Klein, ed., What Do Economists Contribute?  (London: Palgrave Macmillan, 1999) p. 36. 

• 33

  F.A. Hayek, ed., Capitalism and the Historians (Chicago: University of Chicago Press, 1963).

• 34

  See Bertrand de Jouvenel, “The Treatment of Capitalism by Continental Intellectuals” in F.A. Hayek, ed. Capitalism and the Historians (Chicago, IL: University of Chicago press, 1963) pp. 91-121. 

• 35

  See R.M. Hartwell, History and Ideology (Menlo Park, CA: Institute for Humane Studies, 1973).

• 36

  Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (New York: Harper. 1950) p. 144. 

• 37

  In an aside, Raico refers to Schumpeter as a “a fine and valuable thinker.”

• 38

  The phrase “catch up and overtake America,” reflecting a concept pushed by Soviet premier Nikia Khrushchev, became a slogan for Soviets who were sure that socialist economies were becoming more productive than market economies. 

• 39

  Quoted in Ralph Raico, Classical Liberalism and the Austrian School (Auburn, AL: Mises institute,2012) p. 116.

• 40

  F.A. Hayek, “The Intellectuals and Socialism,” The University of Chicago Law Review 16, no. 3, (Spring 1949): 417-433.

• 41

  F.A. Hayek, The Counter-Revolution of Science: Studies on the Abuse of Reason (New York: The Free Press, 1952). 

• 42

  Hayek, “The Intellectuals and Socialism,” p. 426. 

• 43

  Hayek, “The Intellectuals and Socialism,” p. 426. 

• 44

  Ibid. 

• 45

  Joseph A. Schumpeter, “Review of The Road to Serfdom,” Journal of Political Economy 54, no. 3 (June 1946): 269.

• 46

  Ibid.

• 47

  F.A. Hayek, Studies in Philosophy, Politics, and Economics (Chicago, IL: University of Chicago Press, 1967), p. 193.

• 48

  Schumpeter, Capitalism, Socialism, and Democracy, p. 146.

• 49

  Ibid., p. 151. 

• 50

  Ibid., p 153.

• 51

  Raico dissusses this in more detail in his essay “Intellectuals and the Marketplace” in Ralph Raico, Classical Liberalism and the Austrian School (Auburn, AL: Mises Institute, 2012) p. 123-24.

• 52

  Ludwig von Mises, The Anti-Capitalistic Mentality (Auburn, AL: Mises Institute, 2008). Originally published in 1956. 

• 53

  See Ludwig von Mises, “Die psychologischen Wurzeln des Widerstandes gegen die nationalökonomische Theorie.” in Grundprobleme der Nationalökonomie (Jena: Gustav Fischer, 1933) pp. 170-188. Raico appears to rely on the original German for his citations. Avaialble online: https://www.mises.ch/library/Mises_Grundprobleme.pdf . The essay is also available in English as Ludwig von Mises, “The Psychological Basis of the Opposition to Economic Theory,” in Epistomological Problems of Economics, trans. George Reisman (Auburn, AL: Mises Institute, 2003) pp. 195-216. 

• 54

  See Marcus Tullius Cicero, On Duties, ed. M.T. Griffin and E.M. Atkins (Cambridge: Cambridge University Press, 1991).

• 55

  Mises, “Die psychologischen Wurzeln des Widerstandes gegen die nationalökonomische Theorie,” p. 184.

• 56

  Ibid.

• 57

  Ibid.