The essays of my fellow responders raised the issue of language and its manipulation amidst a rising tide of illiberalism among American academics. With regard to the New Historians of Capitalism, the question has often been posed: To what does ‘capitalism’ refer? Brad Birzer points out that those espousing free labor and free soil sentiments in the 19th century would have been stunned at the suggestion that their goal of social mobility in a free society somehow necessarily involved slavery! Conversely, defenders of the institution such as George Fitzhugh might have been even more shocked at the suggestion that his precious institution was a necessary plank in a capitalist platform. Instead, he saw the plantation as a beautiful specimen of socialist planning with no greater goal than the proper and orderly rule by a class of natural aristocrats over those who he believed could not rule themselves. He even hoped to include poor whites as well, in order to put all poor sops in their proper and most harmonious place. But these historical perspectives may not, in the end, matter to the New Historians of Capitalism. Michael Douma makes an incisive point about the conundrum we’re in. Even if these historians could be convinced by Magness’s arguments that slavery did not make the West rich, “they would still be united in seeing greed and coercion as essential elements of capitalism responsible for the rise of American slavery.” In other words, capitalism may not require slavery, but slavery does require capitalism.
Herein lies the rub, and I wonder if it doesn’t offer us a moment of self-reflection about the language that many have adopted in defense of capitalism. In Milton Friedman
’s 1971 attack on the concept of corporate social responsibility, he insisted that the manager of a publicly traded company must, as a matter of fiduciary duty, work to increase profits within the appropriate legal and ethical bounds. He was quite right. Loosely, though, the notion of the ‘profit motive’ has become bastardized to paint a nasty picture of life in business as requiring greed and cultivating oppression. While medical or education students are encouraged to think of themselves as fulfilling a meaningful calling to serve others, business students are told by their own professors, textbooks, and by popular culture and art that their professional work is inherently amoral, or perhaps even immoral. Corporate social responsibility, then, becomes a chance to “give back” to a community one has apparently taken something from, a kind of redeeming oneself for one’s sins. Never mind that most doctors will make much higher incomes than many who go into business.
One might argue that the New Historians of Capitalism are parroting the most common way of presenting capitalist endeavor, as motivated by nothing but the desire for monetary profit, and as requiring more ruthlessness than most other professions. Is the term ‘profit motive’ appropriate? I think not. When defending capitalism it is more appropriate to say that capitalism works well because business people follow profit and loss signals. This adjustment in language achieves several goals. First, it reminds us that markets depend just as much on allowing business people to lose as they do on allowing them to win. When we don’t let them lose, we create massive distortions in the economy, as we all experienced in 2008. But more importantly, it’s simply not true, psychologically speaking, that the vast majority of people engaged in a capitalist system are motivated by profit. Profit is required to cover one’s costs and to direct business toward satisfying customers, but I cannot name an entrepreneur that I’ve ever met who said they went into their business primarily for the sake of making money. Entrepreneurs tend to be people who are passionate about solving problems and building things, and are often as likely to lose everything (at least temporarily) as they are to gain success in any particular venture. Instead, profit and loss signals indicate what to do next, allowing the entrepreneur and other economic participants to calculate economically.
demonstrates this distinction between profit as a signal and profit as a motive when he describes one of the moments in his young life that lit a fire for liberty within him. At one point his slave-holder allowed him to make labor contracts in the town. Douglass experienced making the agreement with an employer, doing the work, and receiving his pay. But at the end of the week, he had to hand over 9/10ths of his wages to his ‘owner.’ Nothing could have been more infuriating. Of course, his slave-holder had been stealing his labor all along! But watching that money pass out of his hand into the hand of someone who had been involved in no part of the process was too much to bear. He was determined to be free!
Did Frederick Douglass want the money? Of course he did! But it would be ridiculous to reduce this story down to his desire to keep the other 9/10ths of his wages. The issue was a question of dignity, self-respect, and justice. In fact, many early laws against Blacks owning property blatantly state that the problem with property ownership is that it confers too much self-esteem! For the rest of his life, Douglass argued against the socialists in some of his abolitionist circles. He insisted that wage labor is not slavery and that it was offensive to use the term in that way; that it’s good and right for a man to save up for his future and his family; and that those who believe you can only ever gain by making somebody else lose are guilty of “honest stupidity.”
Presumably, slave-traders, whether living 200 years ago or 2000 years ago, really always have been especially motivated by greed for profit (even though many slave-holders were not). So a capitalist system that claims to be all about the ‘profit-motive’ would seem to be exactly the system driving slavery. But Adam Smith
wrote The Wealth of Nations
to argue against mercantilism, or economic protectionism. Government schemes that hope to prop up domestic industry by keeping other goods out are perfectly compatible with the profit motive, especially for the politically well-connected. And mercantilism is perfectly compatible with slavery and other immoral forms of trade. The doctrine of free trade, on the other hand, is not. It is straightforwardly committed to the freedom of the individual to build his human capital, move to where his labor is most needed, and trade as he sees fit. The free trader guards against schemes to increase profits at the expense of the competitive environment. Smith warned that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
The popular notion that the central marker of capitalism is the profit motive has given rise to the kind of confusion we see among the New Historians of Capitalism. It’s a good reminder to retain the moral language of property rights, freedom of movement, individual dignity, and human flourishing. The mechanisms of the price system are a miracle of information dispersal and resource allocation, something to be deeply appreciated and utilized, but probably not a great reason to wake up every morning and go about one’s business. Let’s not let the academic enemies of capitalism get away with sloppy, catch-all definitions of the term or somehow claim the higher moral ground. Great prosperity, far more evenly spread across populations than ever before, arises from institutions that protect individual rights and a civil society that praises innovation and the virtue of integrity among business people. The institution of slavery opposes such a society in every possible way.
Copyright and Fair Use Statement
“Liberty Matters” is the copyright of Liberty Fund, Inc. This material is put on line to further the educational goals of Liberty Fund, Inc. These essays and responses may be quoted and otherwise used under “fair use” provisions for educational and academic purposes. To reprint these essays in course booklets requires the prior permission of Liberty Fund, Inc. Please contact firstname.lastname@example.org if you have any questions.