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Free Market Economy

Modernity is unthinkable without capitalism

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Our world is the result of a “cluster of changes,” as French sociologist Jean Baechler wrote, that have helped us evolve from feudal to modern society.

The sense of transition from one era to another is present in dichotomies introduced by thinkers such as Henry Sumner Maine, who noted the transition from a world of status relations to a one of contract relations.

The sense of breaking with the past is clear; there is a pre-capitalist society, and a capitalist society. That is to say: modernity is unthinkable without capitalism.

In the studies of Max Weber, capitalism is framed as a process of rationalization. And yet, more than a half century later, Ayn Rand defined capitalism as an unknown ideal, one which people did not understand its benefits. But why?

Capitalism catapulted us into modernity extremely quickly

The answer, in part, can be found in how quickly capitalism transformed the world. Where the Neolithic Revolution — the transition from hunting and gathering to agriculture — took millennia, the Industrial Revolution remade the world in a few centuries.

Never before had our species witnessed such a rapid and tumultuous transformation. It is, therefore, understandable how it has caused bewilderment, fear, even aversion.

The emergence of the factory, the poster child for early capitalism, urbanized the peasant masses and formed the workers’ proletariat. Faced with this sudden change, there was no shortage of idealizing a seemingly idyllic past in contrast with the harsh conditions of the first factories. Aristocrat Alexis de Tocqueville writes that he saw hell in Manchester.

Capitalism was accused of impoverishing the masses and plunging them into an existence of inhuman deprivation. Paradoxically, capitalism was then also accused of coercing the proletariat into buying a wide range of mostly useless goods, which would necessitate the concession that capitalism actually increases people’s purchasing power. 

Exactly how the anti-capitalists managed to shift between denouncing capitalism for stripping the masses and decrying its role as the prime driver of consumerism is yet to be determined.

Perhaps this can be understood by recalling how socialist thinkers place the mode of production as central to the economic system; Marx thought labor power was the defining factor in what produces value.

It took the Copernican revolution of marginalism, especially in the hands of the Austrian School, to place the consumer at the center of the economic universe, with their choices that direct the production process. 

But nobody illustrated this transformation so intensely as Ayn Rand.

Ayn Rand defined the struggle of the individual

Rand highlights the importance of entrepreneurs, the driving force of capitalism, with their innovative skills. The businessmen exalted in The Unknown Ideal are the real-life versions of Kira Argounova, Equality 7-2521, Howard Roark, and John Galt, the protagonists of We the Living, Anthem, The Fountainhead and Atlas Shrugged

Rand’s Objectivism is a “systematic” philosophy that, starting from metaphysics, establishes that reality does exist and comes to embrace social sciences such as politics and economics in order to define the rational egoism which constitutes the cornerstone of Rand’s conception of man. 

As the architect, Roark states in his defense at the trial that sees him accused of having destroyed a residential complex as a distortion of one of his projects: 

“I do not recognize anyone’s right to one minute of my life. Nor to any part of my energy. Nor to any achievement of mine. […] I wished to come here and say that I am a man who does not exist for others. […] I recognize no obligations toward men except one: to respect their freedom and to take no part in a slave society.”

Born Alysa Rosenbaum in 1905 in St. Petersburg, as a young girl, Rand witnessed the first attempt to implement communism’s ideals. Her love for freedom pushed her to flee at age twenty-one to the United States, where she arrived in 1926, convinced that she had finally arrived in the land of the free

She became famous as a novelist, then decided to make her philosophy explicit in nonfiction. In 1966 she published a collection of essays (some by Nathaniel Branden, Alan Greenspan and Robert Hessen) titled Capitalism: The Unknown Ideal. In those forty years, she had become convinced that the system of free enterprise and the market economy were no longer the flagships of American society.

The Randian ideal, though, is both an ideal and an ideal-type in the Weberian sense of the term: not only a goal to be pursued with passion and rationally defended, but also a concept distilled in purity to compare it with reality.

We need a different system to maintain modernity

And the reality of her time, in Rand’s opinion, was that of the mixed economy, characterized by state intervention. The Great Depression and World War II had led to an unprecedented expansion of the public hand in U.S. politics and economy. Rand traces antecedents of this process back to antitrust law and the corruption of politicians in the days of the early major railroads.

Capitalism is so central to Rand’s philosophy of Objectivism that she liked to call herself a radical for capitalism. From a political point of view, she argues that the only role of government in a free society is to provide for national defense, internal order and the administration of justice.

The catch was this system was to be funded without taxation, as she considered it an initiation of aggression. As she explains in The Virtue of Selfishness, government funding can only be legitimately done on a voluntary basis. 

With borders defended, internal order guaranteed and the punishment of criminals and compliance with contracts assured, free individuals — mediated by the division of labor and exchange — would be able to produce the goods and services that consumers need.

Capitalism’s challenges have fundamentally changed

Alan Greenspan, who was among the inner circle of Rand’s associates, also deserves a mention. Chairman of the Federal Reserve for five terms from 1987 to 2006, Greenspan found himself at the center of criticism from opposing sides. 

Democrats reproached him for his “ideological” faith in the spontaneous mechanisms of the free market, while many advocates of Rand’s philosophy accused him of having betrayed the purity of the ideal by conducting a monetary policy far from his beliefs based on the gold standard. 

Greenspan defended himself by arguing that his role required him to compromise. Little surprise, then, that one of his early essays, featured in the Italian second edition of Capitalism, is “The Anatomy of Compromise.”

Is capitalism still an unknown ideal, almost sixty years after the publication of Rand’s book? Unknown in the sense of ignored, of course not. In the sense of misrepresented, misunderstood, caricatured, undeniably. For many, communism is no longer the cure, but capitalism remains the disease. 

The nature of the proposed cure has instead changed from big state communism to ideas that appear more innocuous. In the encyclical Laudato si’ (Praise Be to You) from 2015, for example, Pope Francis comes to wish for a certain degrowth. Deep green environmentalism is a growing rebuttal to capitalism that, on close inspection, rejects industrial society. 

And this is the fundamental point about capitalism. Without it, there is no modern, industrial society, and its critics should be transparent about their values. For most, modernity is a desirable good, and without capitalism, it remains an illusion.

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