To fully understand capitalism — its nature and genesis — it is necessary to know the source of its fundamental principles. Where did the ideals of individual rights and political-economic freedom originate?
The principle of individual rights – including the right to property – on which America was founded first became dominant during the Enlightenment. The 18th century period in Western culture was an era stressing reason, science, progress and the rights of man. In science, the ideas of Isaac Newton, and in philosophy, those of John Locke, were widely influential.
Locke’s Two Treatises of Civil Government, published in the 1690s, argued that human beings have inalienable rights that they are born with, that belong to them simply by virtue of being men. Chief among these are the rights to life, liberty and property. It follows then that a foremost moral responsibility of all is to leave other men free to live their lives and dispose of their property without interference.
Locke’s ideas were widely studied and admired on the other side of the Atlantic. “A succession of thinkers [during the Enlightenment] developed a new conception of the nature of government. The most important of these men and the one with the greatest influence on America was John Locke. The political philosophy that Locke bequeathed to the Founding Fathers is what gave rise to the new nation’s distinctive institutions.” Such writers, patriots and statesmen of America’s Revolutionary Period as Thomas Paine, Benjamin Franklin, John Adams, Thomas Jefferson and James Madison (among others) applied Locke’s ideas to the specific circumstances of England’s North American colonies, helping to found the new republic on the principle of the rights of man. 6
But the essence of the Enlightenment, and of its influence on the new nation, was its uncompromising commitment to man’s faculty of reason. For this, the 18th century philosophes owed much to Newton, whose identification of fundamental laws of nature showed 18th century thinkers how much was possible to the human mind. The leading thinkers of the 18th century – from Voltaire, Diderot and Adam Smith to Franklin, Jefferson and Thomas Paine – hungered for the sight of applied human intelligence finally resolving the long intractable problems of poverty, famine and disease.
Nor did the 18th century philosophes flinch from the logical though controversial political conclusions of their principles. If man was a rational being, they argued, he was preeminently capable of self-government, and must be free from tyranny of all kinds. Locke, the Enlightenment thinkers held, had established in his Essay Concerning Human Understanding that all human knowledge, regardless of complexity or technicality, originated ultimately in ordinary sense experience, and not in innate ideas or divine revelation. That being the case, the knowledge required for right living took no specialized expertise, no cultivated capacity to interpret Holy Scripture or explicate principles deeply embedded in the human mind. It took rather observation of nature and the application of rational intelligence, which were capacities possessed by every individual.
Unfounded, therefore, were traditional claims of clergy, aristocrats, kings and royal scholars to either divinely-inspired knowledge or a divine right to rule that superseded the minds and rights of commoners. In this regard, Diderot’s Encyclopedie, that compendium of knowledge for all intelligent men regardless of class or social rank, was the perfect expression of the philosophes’ most cherished epistemological and political principles. The era of individual thought and individual liberty was at hand. Free minds required free political institutions, among them notably the rights to freedom of speech, freedom of the press and freedom of religion.
Further, if man was a rational being, and not an impulse-riddled creature, inexorably driven by lascivious urges and sinful, fleshly desires, as the Calvinists claimed, then he required no all-powerful authority, whether transcendent or worldly, to curb his passions and enforce his obedience to moral law. Human beings could be left free to pursue their private gain, because there was no need to fear or prohibit the self-interested activities of rational – as opposed to irrational – men.
The potency and value of man the rational being means the potency and value of the individual who exercises his reason. Therefore, man the individual – man the rationally thinking individual – had self-discipline, moral worth and an inviolable right to his own life. The individual, not the aristocracy, the Church, the king or the state, was now seen to be the unit of social value. A government existed to serve its individual citizens, not, as formerly thought, the other way around. “Throughout history, the state had been regarded as the ruler of the individual – as a sovereign authority…an authority logically antecedent to the citizen and to which he must submit. The Founding Fathers challenged this primordial notion. They started with the premise of the primacy of the individual.”
As Locke had written, and Jefferson later affirmed, individuals had certain inalienable rights, among which are, according to the provisional constitution of New Hampshire in 1766, “the enjoying and defending of life and liberty; acquiring, possessing and protecting property; and in a word, of seeking and obtaining happiness.” 7
The only economic system logically correlative to such political liberty was and is a free market. If men have a right to their own lives – and are not the chattel of state or church – including the right to pursue their own happiness, then it follows that they must possess the right to own the product of their intellectual and bodily effort, and to exchange their work and its products voluntarily for whatever other goods they desire. Capitalism is freedom – and this involves freedom of the marketplace fully as much as freedom of the mind.
Such leading thinkers of the European Enlightenment as John Locke and Adam Smith understood the importance of the rights to private property and the pursuit of profit. In a famous passage, Locke argued that when a man puts forth his effort to transform the raw materials of nature into finished products – such as using the wood of trees to construct a cabin or build furniture – the end result belongs to him, and he can dispose of it as he sees fit. “Every man has a property in his own person. This nobody has any right to but himself. The labor of his body and the work of his hands…are properly his. Whatsoever he removes out of the state nature has provided, and left it in, he has mixed his labor with, and joined to it something that is his own, and thereby makes it his property.” 8
Similarly, Adam Smith, as fully of the Enlightenment in his thinking as in his lifespan, advocated a system of “natural liberty.” In his masterwork, The Wealth of Nations, he revolutionized the science of modern economics. On grounds of both economic utility and the rights of man, Smith endorsed economic liberty – the rights of the individuals to compete freely and peacefully, free of coercive interference from the government. In arguing against state-imposed apprenticeships and licensing requirements, for example, in favor of the unfettered rights of workers to enter a field, and of employers to hire them, Smith echoed the teachings of Locke: “The property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable…and to hinder him from employing this [labor] in what manner he thinks proper without injury to his neighbors, is a plain violation of this most sacred property. It is a manifest encroachment upon the just liberty of both the workman, and of those who might be disposed to employ him.” For the government to coercively restrict a man’s entry into a profession is a policy “as evidently impertinent as it is oppressive.” 9
Like most of the other philosophers, Smith supported freedom and the rights of man as a universal principle, with virtually no exceptions. Tariffs, government-supported monopolies, guild restrictions on the labor market, legally-enforced apprenticeships – all of these had to go. Such freedom of the marketplace, Smith was confident, would lead to increasing wealth for all; it would result in “universal opulence which extends itself to the lowest ranks of the people.” 10
Capitalism has been instituted on three continents – in Western Europe, North America and Asia. These nations – England, France, the United States, Japan, Hong Kong, etc. – are the world’s freest countries. Their citizens enjoy freedom of speech, of the press and of intellectual expression. They have freedom of religion. Similarly, they possess economic freedom, including the right to own property – their own home or farm – to start their own business, and to seek profit. These countries hold free elections, and their governments are subject to the rule of law.
The Enlightenment upheld three fundamental principles: the rational mind, the rights of the individual, political-economic freedom. These principles form the essence of capitalism. Capitalism is – historically and philosophically – the political/economic system of the Enlightenment.
The results, in action, have been dramatic. With the mind glorified and liberated, it has created a technological, industrial and agricultural revolution in the Western world. Thinkers such as James Watt, Edward Jenner, Samuel Morse, Cyrus McCormick, Thomas Edison, Alexander Graham Bell, and the Wright Brothers developed the steam engine, the cure for smallpox, the telegraph, the reaper, the electric lighting system, the telephone, the airplane respectively – and such a list merely scratches the surface of life-promoting advances created during the capitalist era. As Ayn Rand established in Atlas Shrugged, the mind is man’s instrument of survival, and the mind requires freedom. When the mind is free, it creates abundance. Capitalism, the system of freedom, is the system of the mind – or, stated conversely: capitalism, the system of the mind, is the system of freedom.
This is the fundamental reason that the capitalist nations have created the enormous prosperity they have, a staggering amount of wealth undreamed of in the pre-capitalist eras and societies. The correlation between freedom and wealth in the world today is stunning. The Index of Economic Freedom, published jointly by the Wall Street Journal and the Heritage Foundation, shows this clearly. The Index ranks 155 nations in terms of freedom and shows the economic results. For example, Hong Kong, ranked number one in freedom, has a per capita GDP of $21,726. In less than 50 years, the freedom of Hong Kong fueled its growth from destitution to wealth, including for millions of penniless refugees who fled mainland Communism. Singapore, ranked number two in freedom, enjoys a per capita GDP of $31,139. The United States, ranked number five in freedom, has a per capita GDP of $31,201. 11
References:
6. Leonard Peikoff, The Ominous Parallels (New York: New American Library, 1982), pp. 109-110.
7. Ibid., pp. 108-110.
8. John Locke, Two Treatises of Government (New York: New American Library, 1963), Section 27, pp. 328-329.
9. Adam Smith, The Wealth of Nations, ed. Edwin Cannan, (New York: The Modern Library, 1994), p. 140.
10. Ibid., pp. 12 and 629. Mark Skousen, The Making of Modern Economics: The Lives and Ideas of the Great Economic Thinkers (Armonk, NY: M.E. Sharpe, 2001), pp. 13-43.
11. Gerald O’Driscoll, et. al., The 2001 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and The Wall Street Journal, 2001), pp. 197-198, 327-328, 377-379.)
