The Perils of Utopia

A response to Elle Griffin's A brief history of capitalism (& socialism & communism)

Elle Griffin has recently written a brief history of capitalism (& socialism & communism). Very fairly, she acknowledges that her brief survey lacks nuance and details, and asks for forbearance on that score. This I fully grant, and I ask the same for this similarly brief and sketchy essay. (And forgive me if I seem a little off my usual balliwick here, but this is very much related to my Anomalous Now series, particularly the article on Trade Economy vs. Craft Economy.) But the problem with Griffin’s piece is not that it gets the details wrong, but that it gets a couple of fundamental things wrong. Griffin begins:

In the late 19th century, capitalism wasn’t really working. It had started out ok, small companies were able to make a small amount of money and entrepreneurship was available to almost anyone with a small amount of capital. But then industrialization set in and a few of those small companies became larger ones—much larger ones. 

Yes, the 19th century saw the rise of many large corporations, but there was nothing new about that. The Medicis, after all, were a very large and very rich concern. There never was a Shangrila in which everyone was a small prosperous artisan. Vast inequalities of wealth have always been a feature of human life and economy. On the other hand, the rise of large corporations has never prevented the formation of small ones. It didn’t then, and it doesn’t now. In fact, there are far more Davids than Goliaths, and the Goliaths come crashing down with surprising frequency.

But the real question here is what Griffin means by capitalism “not working.” Griffin isn’t anti-capitalist. She is a utopian and wants to create a “better capitalism.” But this presumes that capitalism is a system devised and implemented with a purpose in mind, which is a fundamentally socialist way of looking at it. Indeed, while not anti-capitalist herself, Griffin essentially takes her account of capitalism from the socialist textbook. It is the socialist who puts capitalism and socialism side by side as theories, decides what goals they ought to achieve, and proclaims which of them is best suited to meeting those goals.

But this is not what capitalism is at all. Socialism and communism are theories thought up by academics. Capitalism is simply how people organize themselves economically if left to their own devices. There never was a Capitalist Manifesto. The Wealth of Nations, for instance, was an attempt to explain what was already happening, and an argument that it was, by and large, a good thing to let it happen. If there are theories about capitalism, they are theories to explain why what is already happening works, not theories about a system that should be invented from whole cloth and imposed from without. (I’m not arguing that capitalism is better because it is natural or that socialism is bad because it is artificial. I am simply making the distinction that one arises naturally and the other is an invention.)

Capitalism arises from two very fundamental rights: the right to property and the right to free association. The right to property permits a person to make things with their own stuff and sell it to other people for a profit. The right to free association permits a group of people to pool their resources, make more stuff, and sell it for more profit. That is capitalism. Grant those basic rights and you will have capitalism. Deny them, and you will have slavery, for a slave is defined more than anything else by their inability to own property and choose their own friends. But if you want to have any other economic system, you have to take those rights away, because as long as you grant them, you will get capitalism. That’s the reason that socialist countries are the way they are.

Capitalism “works” in the sense that it meets the goals of the people who participate in it. To argue that it does not work, you have to impose some other, external standard against which to judge it. The socialist goal (nominally at least) is equality. Griffin says, “Wealth inequality has become a huge issue and we should probably fix that.” Capitalism doesn’t work, according to socialist thought, because it produces inequality. The argument goes thus: we have capitalism, and we have inequality, therefore capitalism causes inequality. And since the goal is equality, it follows that capitalism isn’t working.

The problem with this is that it’s backwards. Capitalism does not cause inequality. Inequality existed long before there was capitalism in the modern sense. The fundamental wealth of most societies before the rise of modern industrial economies was land. Landholding was based on military service, yielding societies in which, in one form or another, most people were bound to the land, serving the local lord, who was a soldier, and paying rent to him in kind. Most people were subsistence farmers; a few were wealthy landholders, sometimes with enormous estates; a few were craftsmen with specialized skills that made them somewhat better off; and a few were merchants or government officials who could be, but were not all, substantially wealthy. Almost everybody was poor, a few people were rich, and a few people were in the middle.

And after capitalism, the situation is largely the same, except that the baseline is much higher so everybody is much better off, even the poor. And — this is the important part that Griffin neglects — the middle class is much much bigger, to the point where in most developed and even developing countries today, the middle class comfortably outnumbers the poor.

Griffin describes the growth of capitalism as if the middle class did not exist:

The choices available weren’t good ones. You could either work for the big company in town and make a tiny bit of money or you could not work at all. Even the children were working. Everywhere was like Oliver Twist, or that scene from Les Miserables where Fantine, who is already paid so little she can hardly support her daughter, gets fired from her factory job and instantly has to resort to prostitution. Charles Dickens published the former in 1837, Victor Hugo published the latter in 1862. (And both are incredible Broadway musicals, as it happens.)

Whole cities became downtrodden. In 1890, William Morris called London “‘slums;’ that is to say, places of torture for innocent men and women; or worse, stews for rearing and breeding men and women in such degradation that that torture should seem to them mere ordinary and natural life."

But these were not the only options. There were enterprises of all kinds. There was service, which occupied vast numbers of the poor. And as for children working, children have always worked, across the world and in all times and places. Like inequality, child labor is not something new, not a creation of capitalism, it is a consequence of poverty, and the poor have always been with us, just not as many now as there were before.

The question we should be asking is, why did all these people leave the countryside to work in these awful towns? And why do they continue to do so today across the less developed world? Because, hard as things were in the cities, they were worse in the countryside. What the movement into the towns did was concentrate the poor into cities that they shared with the middle class, bringing them to the attention of middle-class novelists and academics.

Because this is the thing that we should understand about capitalism and socialism: they are both the product of the middle class. The ancient farmer/soldier economy that dominated most settled peoples around the world had only a small middle class, of limited influence. But with the growth of industry and trade, the middlemen — the merchants and sea captains and bankers and accountants and lawyers and everyone who kept the wheels of trade and industry moving — developed into a powerful “middle” class between the soldier nobility and the farmer peasantry. Their wealth was in the form of money, not land, and they soon discovered that by pooling their “capital” they could create profitable enterprises and become richer. Only some of them did so, of course. The less entrepreneurial middle-class people — the scholars, the journalists, and the novelists, among others — noted the growing wealth of their more entrepreneurial contemporaries and set out to explain “capitalism” and either applaud it, improve it, or destroy it.

The nobility were never the capitalists. The capitalists were and are the middle class. Look at the biography of any of the notable capitalists of today, and they all basically started in middle-class garages. And if you are middle-class today, you are also a capitalist. Because, Bill Gates and Elon Musk aside, most companies today are owned by pension plans and mutual funds — and that includes most state pension plans as well as private plans such as RRSPs and 401Ks. So, basically, if you are entitled to a pension of any kind, congratulations, you are a capitalist.

And the socialists? They were middle class too. Engles’ family-owned textile mills. Marx’s father was a Lawyer. Lenin’s father was a director of public schools. Dickens’s father was a clerk in the Navy pay office. Edward Bellamy was a journalist and the son of a Baptist preacher. William Morris was born to a wealthy middle-class family.

And who are today’s socialists? They are mostly well-off tenured university professors and professional politicians. Elizabeth Warren taught at Harvard. Bernie Sanders is a millionaire.

The entire question of capitalism vs. socialism, then, is not a class war between the rich and the poor. It is a squabble among the middle classes about how things should be managed and which of them should do the managing — the entrepreneurs or the theorists. Socialism is a theoretical construct dreamed up by philosophers and political scientists who think they can run things better than they are being run now. Capitalism is what happens naturally when you have the freedom to own property, freedom of association, the enforcement of contracts, and a stable money supply. But middle-class people don’t like it when other middle-class people have more money and influence than they do, particularly if they think they are smarter than them (which invariably they do). Elle Griffin is a middle-class person. So am I. Of the two of us, she is by far the more entrepreneurial. I am not making apology for my own kind. I am simply observing what we are.

Capitalism does not create inequality. Some people are just born with more of the gifts that make them successful at making money. The rights to property and free association enable those people to find each other and work together and thus multiply their advantage. In that sense, capitalism magnifies the effect of inequality, but it does not create it. Every prior system of organization and economy has magnified the effects of inequality as well because the enterprising people in those societies find each other and thus multiply their advantage in the same way. Money sticks to the fingers of those who manage the money, no matter what “economic system” you espouse or what its nominal aims may be. But Capitalism, as Griffin rightly points out, raises the baseline for everyone. It reduces poverty if not inequality.

We should be clear that while capitalism is the name we give to the economic activity that results when the rights to property and free association are not grossly infringed, capitalism definitely benefits from certain social institutions and specific laws. A stable money supply allows people to make reasonable estimates about the return on an investment. The enforcement of contracts by the courts allows you to do business with people you are not related to by blood. The limited liability corporation, which limits the loss of an investor to the amount invested, means that far more people can afford to invest and thus grow richer. All these are good specific things that do make capitalism “work better”. But “working better” here means only that it makes commerce do what commerce does more effectively. It does not tie it to some outside theoretical goal, such as equality. We do not say that typewriters do not work because they are not saucepans.

Griffin goes on to describe socialist ideas in broad terms, and I have no real quarrel with what she says on this score:

In a socialist society, the state would become as Bellamy said, “the one capitalist in the place of all other capitalists, the sole employer, the final monopoly.” The idea was that we would join the workforce the way one might join the military today. That is, we would be placed in a job by the government according to our interests and abilities, where we would serve the terms of careers while the government equitably distributed the earnings among the people.

A fair enough description. She then goes on to describe how Marx wanted to go a step further to the withering away of the state altogether. Griffin then says:

Unsurprisingly, all these ideas become very popular among the working class, which was everyone.

And there are two problems with this. First, it was not everyone. There was also the middle class, and it was large. Second, these ideas did not become very popular among the working class. The working classes are not much on abstract political theorizing, being too practical for that kind of thing. The ideas became popular with a segment of the middle class. What did become popular with workers were unions, because it is human nature to band together to fight for something you want. And what did unions want? Middle-class wages for their workers? Where are the most powerful unions found today? In those middle-class bastions of public service and teaching. Those segments of the middle class attracted by socialism did participate in forming and advocating for unions. Recognizing which side their bread was buttered on, unions, became reliable supporters of certain middle-class politicians. Socialism is, and always has been, a middle-class thing, just like capitalism.

Griffin goes on to chart the failure of the various socialist experiments of the 20th century and the corresponding successes of Ccapitalism in the West. I have some quibbles with what she says about FDR regulating capitalism, because governments had been regulating capitalism for centuries before FDR tried his hand at it, but I’ll pass over that because I want to talk about this:

Wealth inequality has become a huge issue (In 1981, Reagan cut all those taxes on the wealthy from 73% down to 28%), and we should probably fix that. And there are huge parts of the world that have no economy at all and thus have not been able to enjoy the prosperity that comes from living in a capitalist state, and we should probably fix that too. Sometimes the government isn’t very good at regulating capitalism, which can be a problem. And capitalism is actively harming the world we live in, which is also bad because we live here. Not to mention, the benefits of capitalism for the typical worker kind of peaked around 1980 and then really took a turn for the worse, at least in the United States. AsRobert Reichrecently put it: “This is the harshest form of capitalism in the world.”

Set aside the quibble that there is nowhere in the world that does not have an economy. It’s the focus on “fixing things,” all leading to the quote from Robert Reich, that great middle-class advocate of “fixing things.” “Fixing things” is the great obsession of the middle class, and, for the most part, the source of their prosperity. All kinds of things need fixing, and things generally get better if people get on and fix them rather than complaining about them or shrugging and ignoring them.

But the problem with the middle class, and with the academic middle class in particular, is that they think they can fix everything, including human nature itself. In fact, it is the academics, who, in their daily lives, fix nothing at all, who are convinced that they can fix the world. In many ways, of course, this is an expression of their own capitalist tendencies. Their big books full of blue-sky ideas can sell a lot of copies and land them lucrative speaking gigs and consulting fees. Clear and simple ideas that fix everything sell very well. They just don’t work. They don’t work because human nature is not clear or simple. (On this score, see Eric Hoel’s latest piece on why you can’t fix social media. Because human nature.)

There are endless debates about the correct type and amount of regulation in a market economy. There is literally no one who wants no regulation at all. Even the most die-hard liaise-faire capitalist want contracts enforced and a stable money supply, and good roads and ports, and safe streets. But since every regulation has both desirable and undesirable effects, and every party argues for their own advantage, the regulatory schemes will continue to be tinkered with eternally, the main problem with this being less whether the regulations are “right” or “wrong” but that the constant changes create uncertainty, which is generally bad for markets.

And this is not to suggest that regulation is not a good and necessary thing. The tragedy of the commons means that the market cannot be the sole arbiter of what is and is not done. No one really argues with this in principle, only in specifics. But Griffin is wrong to say that “capitalism is actively harming the world we live in.” The tragedy of the commons is a universal human problem and characterizes all economic systems. The phrase itself comes from an older agrarian economy in which “the commons” — the land held in common by a community — tended to be over-grazed. The environmental damage done by socialist regimes is substantial and well-documented.

It might be more balanced to say that industrialization is actively harming the world we live in. It is also industrialization that has transformed the planet from one capable of carrying a billion people in poverty circa 1750 to one capable of carrying 8 billion people in growing, if not equally distributed, prosperity today. Neither of these statements invalidates the other. Certainly, capitalism made the financing of industrialization possible, so in some sense capitalism is responsible. But if you are in the mood to “fix” things, it is important to distinguish between fixing capitalism and fixing industrialization.

But it’s the notion of fixing things on these scales that worries me. Those who advocate the big fixes do acknowledge that the previous attempts at socialism failed and failed disastrously. Next time, they assure us, it will be different. Because, one must presume, they are so much cleverer or better intentioned than the last lot who tried. What they do not see — or will not see — is that it was not the specifics of any previous socialist regime that were at fault. It was not the specific ideas of socialism at all. It was the idea of the big fix itself.

Because the big fix is not about changing this regulation or that. It is about changing human nature. You can believe, with Adam Smith, that human beings acting in their own interest, will be guided by an invisible hand to contribute to the common good. Or you can believe that they will eventually burn the planet to a crisp. But if you believe that the solution is to stop people from acting in their own interest, then to do so you are going to have to take away all the basic rights that our society holds dear, like the rights to property and free association. Because as long as those exist, people are going to act in their own interest and you will have capitalism. And even if you do take them away, people are going to act in their own interest anyway, and then you will have corruption. And when you have corruption, you have poverty and war, and with them, environmental degradation. This fate is not specific to socialism. It is the fate of any form of big fix.

This is why all forms of utopianism alarm me. It is not that any one of their plans is nutty and would cause chaos, though they are all nutty and would cause chaos. The problem is that the project of utopianism itself depends always on “fixing” human nature. And you can’t fix human nature. Your attempts to do so will inevitably result in the stripping away of rights. How else can you stop people from following their nature? Eventually, it will lead to mass executions, as it always has. The only “fix” for human nature is death.

Again, I am not defending capitalism here. Capitalism is simply a name we give to a natural phenomenon that arises when enterprising human beings have basic rights and wealth in any form other than land. You might as well set out to defend gravity. It is not good or bad. It just is. Capitalism is not a theory or a system. It is an expression of human nature. You can suppress its effects with tyranny or with corruption, but not to any good end. You can and should regulate it. No one argues with that, though they will argue endlessly about what the regulations should be.

We may even get wiser in time about what the regulations should be. We certainly have done so in the past. Regulation is partly a game of advantage, but it is also a social experiment that sometimes turns up results that a stable majority believes are worth keeping. That won’t stop the game of rival regulatory schemes favoring different groups, but it will find improvements here and there that work for everyone.

Does this mean that I believe that the world will just keep getting better if we just stop trying to fix human nature? Not at all. I have no idea if that will prove to be the case. Our progress over the last quarter of a millennium has been remarkable. But will our ability to generate solutions continue to outpace our ability to create problems? I have no idea. All I can say is that a scheme of regulation that accords with human nature, and thus with the continual fight over what the regulation should be, has a better chance of a good outcome than a big fix that aims to fix human nature (or that would require a change to human nature in order to work). The big fix is doomed to failure and misery, not because of any of its specifics, but because you can’t “fix” human nature. There is no new big-fix idea out there that will solve everything. It is the concept of the big fix itself which is the problem. And it is the lucrative nature of big-fix ideas and the book contracts and speaking fees and newsletter subscriptions that they attract that makes them dangerous. The biggest danger to capitalism might actually be the capitalist exploits of its putative enemies.

This is why we have to be careful how we construct our historical narratives, even admittedly sketchy big-picture ones like Griffin’s and like mine. It is all too easy to build the conclusion into the argument, and presenting capitalism as if it were an academic theory on par with socialism and communism is the first step to believing there is a big fix out there to be had. After all, if capitalism started as a theory and it mostly worked, why shouldn’t the next theory work better?

Similarly, focusing on the extremes, on the rich and the poor, sets up a dynamic of opposition that again feeds big-fix theories. Recognizing that capitalism vs socialism is actually an internecine fight within the middle class does not lend itself to such easy utopian theorizing.

Show me a useful new regulatory scheme that can get passed by the present government and survive its successors and I’m interested. Show me the big fix for capitalism, and I’m out. Capitalism, whatever its blessings and its curses, isn’t a theory. It is an expression of our nature. And you can’t fix human nature. You can and should regulate its expression, but you can’t fix it.

Utopian thinkers, however erudite and well-intentioned they may be, are a dangerous bunch of capitalists.