American exceptionalism: Capitalism as freedom

One of the things that is exceptional about the United States is that, unlike people in all other countries I know about, we Americans associate capitalism with freedom.

That is not to say Americans are the only people who think that way—Margaret Thatcher in 1980s Britain and Ludwig Erhard in postwar West Germany were as strong believers in capitalism as any American ever was.  But the United States is the only country in which such beliefs go unchallenged.

market-revolution-in-america-liberty-ambition-eclipse-common-john-lauritz-larson-paperback-cover-artJohn Lauritz Larson’s THE MARKET REVOLUTION IN AMERICA: Liberty, Ambition and the Eclipse of the Common Good, which I read on the recommendation of my friend Craig Hanyan, attempts to explain why.

Most of the peoples of the world define capitalism as Karl Marx did—a system ruled by the holders of financial assets, in contrast to older systems ruled by landowning aristocrats and Oriental despots and a hoped-for future system ruled by workers.

Americans think of capitalism as Adam Smith’s “system of natural liberty,” in which each person is free to pursue their own interests in their own way, subject only to “the law of justice.”  I was brought up to believe in this and I still do, although my idea of the “law of justice” is broader than Adam Smith’s probably was.

Larson’s argument is that the United States between the Revolution and the Civil War was the world’s greatest example of Adam Smith’s ideas in practice.   The system of natural liberty didn’t apply to black people or to native Americans,  but white American citizens, especially those in the North, experienced a degree of freedom and rising prosperity that was a wonder of the world.

Colonial America was part of a world economy which included the African slave trade, the West Indies sugar trade, Virginia tobacco plantations, Massachusetts ship-builders and American Indian fur trappers in the hinterland of North America.  But the actors in that world economy were nations, not individuals or independent businesses.

Britain, France and the other European great powers used the power of government to gain control of world trade for themselves, and freeze out the other nations.  Corporations were creatures of government, not independent actors.

In the newly independent USA, Alexander Hamilton wanted the United States to follow its own mercantilist policy.   Thomas Jefferson, although a wealthy landowner and slave owner, wanted a nation of independent yeomen farmers, self-sufficient for food and other necessities, and trading mainly within their local communities.

Out of their conflict emerged something different from the aims of either—the realization of Adam Smith’s vision of an ever-expanding market and an ever-increasing division of labor, in which people gave up the attempt at self-sufficiency and specialized in doing what they did best.  Conditions in the United States were ideal for this because of an ever-expanding territory and population, and because the new nation was free of the hangover of aristocratic and guild privilege.

The early 19th century United States was a golden age of entrepreneurialism and invention—Samuel Colt’s revolver (made of interchangeable parts), Cyrus R. McCormick’s mechanical reaper, John Deere’s plow, Eli Whitney’s cotton gin (engine), Robert Fulton’s steamboat, Samuel F.B. Morse’s cotton gin (engine), among others.

A Yankee Peddler

A Yankee Peddler

With cheap manufactured products available, Americans gave up the laborious effort of trying to make them for themselves.  With a good market for farm produce, farmers started growing cash crops and buying their food.  With good jobs available in manufacturing industry, many people ceased trying to support themselves in family farms and shops.  Unfortunately, when markets crashed, they were left without any way back to their previous ways of life.

One of Larson’s examples is the early textile mills in New England.  The first mills were utopian experiments.  The mills were campus-like settings in which young women were well-paid, and in their spare time could pursue cultural interests until, in due course, they found husbands and became full-time homemakers.  But over time, competition in the marketplace drove down wages and turned the mills into sweatshops, and the women who worked in them because breadwinners for families in poverty.  Even factory owners with benevolent intentions acted as if profit were the only consideration, or were pushed aside by those who did.

The book’s chapters on the Panic of 1817 and the Panic of 1837 indicate that they were worse than the Great Depression of the 1930s.  There was no social safety net in those days, and no regulatory firewalls to stop the cascading of business failure and bank failure.  Again, the market was a trap that left workers at the mercy of forces they did not understand and could not control.

But the market’s failures were offset by new inventions and the creation of new industry.  Americans in that era had good reason to believe that their enterprise would create a rising material standard of living material in the long run.  As for Larson, he wrote that it is impossible to draw up a balance cheat of the good and bad aspects of the market system.

Larson acknowledged that the benefits of the system were limited to white American citizens, and mainly to those in the North.   The slave-holding South also was part of the world economy, and was shaped and nourished by the market forces of the world economy.  Cotton was the most important U.S. export, and Southern slaveholders’ investment in slaves exceeded the value of Northern manufacturers’ investment in machinery.

One of the reasons Northerners were inclined to overlook the defects of the free labor system was that the slave labor system was so obviously worse.  In the same way, Americans in a later era were complacent about the defects of American free enterpise because fascism and Communism were so obviously worse.

Larson’s book concludes with an account of the 2008 stock market crash and the bailout, which to him shows how the ideas of the past live in the present.  In fact, the United States economy of today is vastly different from that of the early 19th century.   It is more like Karl Marx’s vision of capitalism than Adam Smith’s vision of natural liberty.  But the ideas of the past live in the present.   Many and maybe most of us Americans still think in Adam Smith’s terms.

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2 Responses to “American exceptionalism: Capitalism as freedom”

  1. Chico Says:

    “…the United States economy of today is vastly different from that of the early 19th century. It is more like Karl Marx’s vision of capitalism than Adam Smith’s vision of natural liberty.”

    I wonder how many more Great Recessions will need to occur before we seriously address the problems of American capitalism?


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