Revolution of Self-Love

Capitalism, says Social Philosopher Irving Kristol, "is based on private property, where normal economic activity consists of commercial transactions between consenting adults." The idea seems elementary enough: people have the right to acquire and trade property in a free market, to start and build enterprises without fear of government intervention or confiscation, to expand or languish according to their own abilities. But when early Enlightenment thinkers began to propagate that simple philosophy in the 18th century, it represented a scandalous revolution in a world in which the individual was merely a subject of caste, church and state. Europe for centuries had been under the sway of authority and tradition. Everyone had a place, and there was no place for an entrepreneur. The early Church Father St. Jerome had said it all: "A man who is a merchant can seldom if ever please God."

Prices were to be set at a "just" level so that everyone covered costs and earned enough to support him self. Anything more was avarice. A person's position was established by his family's guild, brotherhood or order.

Changing social position was unthinkable. During the 800 years between the 5th and 13th centuries, there was almost no expansion of wealth or income. By the middle of the 18th century England and The Netherlands, the most advanced countries, enjoyed perhaps a 1% annual growth at most. The state's economic theory by then was mercantilism: the government should closely control business, especially foreign trade, in order to build up a stock of gold and silver, the only real sources of wealth. The European Enlightenment introduced a new view of society. Voltaire, Locke and other philosophers stressed that the individual should be the focal point. A person's status or wealth was not immutably fixed for life but could be improved--or squandered --by his actions. In 1776 Adam Smith, an eccentric Glasgow professor, put together a philosophy of "political economy" for the Enlightenment in some 1,000 dense pages titled An Inquiry into the Nature and Causes of the Wealth of Nations. In a further glorification of the individual, Smith argued that if the state would only leave businessmen unfettered, they would automatically produce not only the maximum profits for themselves but also the most goods for the nation and wealth for its people. In contrast to his adulation of the individual, Smith had contempt for high government officials, whom he castigated as being "always, and without any exception, the greatest spendthrifts in the society." Smith's economic notions were based on what he called man's "self-love." As he wrote, "It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest." When countless people in a society sought to satisfy their self-love by earning profits, they unintentionally served the public interest. As if led by an "invisible hand," the butcher, brewer or baker produced as much as was profitable, which through competition resulted in the lowest prices for consumers. In such a society everyone won, and no one lost. Once adopted as government policy in advanced European countries during the late 18th century and early 19th century, Smith's theories unleashed a surge of economic growth. Writes British Historian Paul Johnson: "After nearly five recorded millennia of floundering about in poverty, humanity suddenly in the 1780s began to hit on the right formula: industrial capitalism." Production and consumption in Britain soared a staggering 1,600% during the 19th century.

In the century of Pax Britannica, between 1815 and 1914, capitalism facilitated the economic takeoff of the Western world. Free enterprise made possible the full achievement of the Industrial Revolution that had been spurred on by the invention of the steam engine. The face of Europe was transformed. Textile mills grew up in Belgium and France. Businessmen flung railroads and canals across the American continent. Germany built the mighty Ruhr steel complex.

These developments, however, also involved wrenching social changes, as people whose families had lived on the land for centuries moved to often crowded, filthy urban industrial centers. Yet this early capitalism represented for millions an escape from a still more oppressive rural poverty. Even Karl Marx and Friedrich Engels wrote in the Communist Manifesto that capitalism "during its rule of scarcely 100 years, has created more massive and more colossal productive forces than have all preceding generations together."

Capitalism has exhibited a phenomenal ability to provide what consumers demand. It has consistently outperformed socialism. Writes Catholic Theologian Michael Novak: "No other system has so quickly and universally raised the levels of health, longevity and income of the entire world."

Early in the 20th century, Japan and Russia stood at approximately the same stage of economic development. Japan went the capitalist route and acquired Asia's highest living standard. Russia went the Communist path and has never produced consumer goods of quality or sufficient agricultural output.

The Great Depression beginning in 1929 was capitalism's harshest test. One-fourth of the U.S. labor force was unemployed, national output fell by half, and some 11,000 banks closed their doors. Capitalism was in large part saved by the innovative theories of British Economist John Maynard Keynes, who advocated temporary enormous government spending to get national economies growing again. Vast wartime expenditures in the early 1940s finally accomplished that.

During the quarter-century after World War II capitalism enjoyed its halcyon days. From 1951 to 1973 growth in the advanced industrial nations expanded by an average 4.8% annually, while inflation generally was low. U.S. presidential advisers by the late 1960s confidently claimed that they had captured the golden fleece of continued, noninflationary, high economic growth. The 53 recessions and depressions that had afflicted U.S. capitalism's previous 165 years were a part of history, they figured, much like the Black Death. This optimism came crashing down during the 1970s, a victim of excessive demand by Government and consumers and a sixteenfold increase in OPEC oil prices.

Yet, having survived wars, slumps and excessive booms, capitalism stands to surmount the current crises. Writes Left-of-Center Economist Robert Heilbroner, one of capitalism's most fervent critics and an advocate of central economic planning: "History has shown capitalism to be an extraordinarily resilient, persisting and tenacious system, perhaps because its driving force is dispersed among so much of its population rather than concentrated solely in a governing elite." After predicting its imminent collapse for well over a century, even capitalism's critics recognize the staying power of its ideas.

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