Erik von Kuehnelt-Leddihn
(Originally posted on Mises.org)
In many minds, “capitalism” has come to be a bad word, nor does “free enterprise” sound much better. I remember seeing posters in Russia in the early nineteen-thirties depicting capitalists as Frankenstein monsters, as men with yellow-green faces, crocodile teeth, dressed in cutaways and adorned by top hats. What is the reason for this widespread hatred for capitalists and capitalism despite the overwhelming evidence that the system has truly “delivered the goods”? In its mature stage it indeed is providing, not just for a select few but for the masses, a standard of living cordially envied by those bound under other politico-economic arrangements. There are historic, psychological and moral reasons for this state of affairs. Once we recognize them, we might come to better understanding the largely irrational resentment and desire to kill the goose that lays the golden eggs.
In Europe there still survives a considerable conservative opposition against capitalism. The leaders of conservative thought and action, more often than not, came from the nobility which believed in an agrarian-patriarchal order. They thought workers should be treated by manufacturers as noblemen treated their agricultural employees and household servants, providing them with total security for their old age, care in the case of illness, and so forth. They also disliked the new business leaders who emerged from the middle classes: the grand bourgeois was their social competitor, the banker their disagreeable creditor, not their friend. The big cities with their smoking chimneys were viewed as calamities and destroyers of the good old life.
We know that Marx and Engels in The Communist Manifesto furiously attacked the aristocratic social movement as a potential threat to their own program. Actually, most of the leading minds of Christian anticapitalist thought (equally opposed to socialism) were aristocrats: Villeneuve-Bargemont, de Mun, Liechtenstein, Vogelsang, Ketteler.
Bias against Capitalism Not of Worker Origin
Armin Mohler, the brilliant Swiss-German neo-conservative, has recently explained that one of the weakest points of contemporary conservative thought, still wrapped in the threads of its own obsolete agrarian romanticism, is its hostility against modern technology. How right he is! The exception might have been Italy with its tradition of urban nobility and of patricians who, even before the Reformation, engaged in trade and manufacture. Capitalism, indeed, is of North-Italian origin. It was a Franciscan, Fra Luigi di Pacioli, who invented double-entry bookkeeping. Calvinism gave a new impetus to capitalism but did not invent it. (Aristocratic entrepreneurs in Italy? Count Marzotto with his highly diversified business empire of textile plants, paper mills, hotel chains and fisheries is a typical example. His labor relations are of a patriarchal nature involving substantial fringe benefits which also characterize Japanese business practice.)
The real animosity against free enterprise did not originate with the laborers. Bear in mind that in the early nineteenth century the working class was miserably paid, and this for two reasons: (1) the income from manufacturing was quite limited (true mass production came later) and (2) the lion’s share of the profits went into reinvestments while the typical manufacturers lived rather modestly. It is this ascetic policy of early European capitalism which made possible the phenomenal rise of working class standards. Seeing that the manufacturers did not live a life of splendor (as did the big landowners) the workers at first viewed their lot with surprising equanimity. The Socialist impetus came from middle class intellectuals, eccentric industrialists (like Robert Owen and Engels) and impoverished noblemen with a feeling of resentment against the existing order.
As one can imagine, the artificially created ire then was turned first against the manufacturer who, after all, is nothing but some sort of broker between the worker and the public. He enables the worker to transform his work into goods. In this process he incurs various expenses, such as for tools, and a part of the costs of marketing. He hopes to make a profit from these transactions in order to render his efforts worth while. Curiously enough, his responsibility toward the enterprise is of far greater scope than that of many workers. No wonder that the interest, once centered on accidents in the factories, is shifting more and more to the manager diseases. The entrepreneur sacrifices not only his “nerves” but also his peace of mind. If he fails, he fails not himself alone; the bread of dozens, of hundreds, of thousands of families hangs in the balance. The situation is not very different in a stock company. There, the stockholders sometimes make profits in the form of dividends—and sometimes they do not. The worker always expects to be paid. The bigger risks are thus at the top, not at the bottom.
Yet, how well the worker is paid depends on several factors, the first of which is the readiness of consumers to pay for the finished goods a price high enough to warrant high wages. Here we come to the brokerage side of the capitalist. Secondly, there is the decision of the entrepreneur (sometimes the stockholders) how much of the gross profits will be distributed (as dividends, bonuses, and the like) and how much should be reinvested or laid aside. It is evident that the enterprise, being competitive, has to “look ahead” in a far more concrete way than does the often improvident worker. The business usually must be planned years ahead. It not only has to adopt the best means of production (which means the purchase of new expensive machinery), but also needs financial assets as reserves. Finally, the wages have to be in a sound relationship to the marketing possibilities, and also to the quality of the work done, the sense of duty of the workers and employees. Virtue enters the picture. Even the net profits paid out are not necessarily a “loss” to the workers, because a profitable enterprise attracts investors; what is good for the enterprise obviously is good for its workers.
There is a commonalty of interests which can be gravely upset by either side. Needless to say, the most common way to upset the applecart is through excessive wage demands which, if yielded to, tend to eliminate the profits and to make the merchandise unmarketable. Politically organized workers also may pressure governments into inflationary policies. Strikes cancel production for a given period and mean economic loss. The inability to sell due to excessive wages and prices or to protracted strikes can bankrupt the economy.
This mutual relationship between costs of production and purchasing power is frequently overlooked—especially in the so-called “developing nations.” The insistence on “a living wage,” often by well-meaning Christian critics, in many cases cannot be met without pricing the products out of the market. Such critics forget that workers might prefer to work at a low wage rather than not to work at all.
Saving Begins at Home
One thing is certain: nascent industrial economies have to start on an ascetic, a Spartan level. This is true of all economies, free or socialistic. The apologists of the USSR can well use this argument in the defense of Soviet economies in their initial stage, but only up to a point: the introduction of socialism in Russia effected immediately a tremendous decline of working-class, peasant-class, and middle-class living standards which, compared with 1916 levels, have improved only in spots. Large sectors still are worse off than before the Revolution. A microscopic minority, however, lives very well indeed1.’ In the meantime, free economies have made such enormous strides that the gap between Russia and the West is greater than in 1916. There are two reasons for this state of affairs. First, the Eastern Bloc with the exception of Soviet-occupied Germany, Latvia, and Estonia, completely lacks the famous “Protestant Work Ethic.” Secondly, free enterprise is basically more productive than state capitalism because of: (a) the snowballing of millions of individual ambitions into a huge avalanche, (b) the element of competition based on free consumer choice which improves quality and efficiency, (c) the strictly non-political management based on efficiency and responsibility.
So, whence comes the wave of hatred directed against free enterprise? Dissatisfied intellectuals designing utopias and decadent noblemen do not account entirely for the phenomenon. Though nascent capitalism has not yet “delivered the goods” (children can only show promise, no more) mature capitalism has proved that it can provide. Empirically speaking, capitalism has justified itself in comparison with socialism (for the existence of which we have to be grateful in this one respect).
The assaults against free enterprise are launched with the help of theories and of sentiments, sometimes working hand in hand. Frequently these attacks are made indirectly, for instance, by criticizing technology. This critique might be genuine, but often serves as a detour. Much of the current antipollution campaign is subconsciously directed at capitalism via technology. (This particular problem is less acute in the Socialist World only because it is less industrialized; it is nevertheless amusing to see the Left embracing all the idle dreams of the old conservative agrarian romanticism.) However, if we examine closely the attack against free enterprise, we find the following elements:
(1) The charge that business cycles are the consequence of freedom rather than political intervention, though proof to the contrary is well established.
(2) The attack against the man-consuming, soul-killing, slave-driving forms of modern production. In this domain, however, the main culprit is the machine rather than the human factor. Technology per se is strictly disciplinarian. In this respect, socialism or communism would not bring the slightest alleviation. On the contrary! Let us remember the ideal of the Stakhanovite, the absence in socialist countries of genuine labor unions, the limitless means the totalitarian state has for coercion, regulations, and controls. We must bear in mind that the free world also has a competitive labor market. Man can choose the place and conditions of his work.
(3) The critique of “monopoly capitalism,” shared in a milder way by the “Neo-Liberal” school, is opposed to all forms of bigness. Still, in the free world we find that most countries have legislation against monopolies in order to keep competition alive, to give the consumer a real choice. Any criticism of monopolies by a socialist is hypocritical, because socialism means total monopoly, the state being the only entrepreneur.
Yet these attacks are frequently only rationalizations of much deeper resentments. At the very roots of anticapitalism we have the theological problem of man’s rebellion against Original Sin or, to put it in secular terms, his vain protest against the human condition. By this we mean the curse to which we are subject, the necessity to work by the sweat of our brow. The worker is in harness, but so is the manager and so is everybody else. For this uninspiring, sometimes unpleasant state of affairs, the average man will stick the guilt on somebody; capitalism serves as the convenient scapegoat. Of course, work could be greatly reduced if one were willing to accept a much lower living standard—which few people want to do. Without the opportunities free enterprise provides for highly profitable work, the living standards would go down to early medieval levels. Still, the resentment against this order is directed not so much against an abstraction—such is human nature—as against persons. Thus, the culprit is taken to be the “Establishment”—of the “capitalists.”
This gives us a hint as to the nature of the anticapitalism which has more and more surfaced since the French Revolution and the decline of Christianity: envy. Ever since 1789, the secret of political success has been the mobilization of majorities against unpopular minorities endowed with certain “privileges”—particularly financial privileges. Thus, in the nineteenth century, the “capitalist” appeared to be the man who enjoyed considerable wealth though he apparently “did not work” and derived a vast income from the toil of the workers “who have to slave for him.” Apart from the incontrovertible fact that they mostly “slave for themselves,” there is some truth to this.
The Entrepreneurial Role
Almost every worker will usually contribute in a minor way to the income of the entrepreneur or of the stockholders. This is perfectly natural because a broker must always be paid; and an entrepreneur, as we have said before, is actually a broker between the worker and the consumer by providing the former with the necessary tools and guidance in production. (The merchant is a sub-broker between the manufacturer and the public.) It is also natural to pay for borrowed tools for the simple reason that their value is diminished by use. (Thus the traveling salesman will have to pay for a rented car, the commercial photographer for a rented camera, and so forth.) Beyond, this, the entrepreneur (who is, as we have seen, a broker as well as a lender) takes the risk of failure and bankruptcy. This situation also may be encountered in the USSR where anyone can get an “unearned income” for money he puts into a savings bank or where he can buy a lottery ticket. The purchase of such a ticket is based on an expectation (i.e., to make a profit) but also entails a risk (i.e., not to win anything).
Risk characterizes all of human existence: to make an effort without exactly foreseeing its success. Thus, a writer starting a novel or a painter putting the first lines on his canvas is not sure whether he can transform his vision into reality. He might fail. Often he does. The farmer with his crop is in the same boat. But the typical worker entering the factory can be certain that he will be paid at week’s end. It should be noted here that in Austria and Germany, for instance, the industrial laborer works an average of 43 hours a week (the 40-hour week is in the offing), while the self-employed put in an average of 62.5 hours a week. In other words, the rule within our mature economy is this: the “higher up,” the greater the work effort—and the higher, too, the work ethics; the slack employee cheats the employer but the slack employer only cheats himself.
Facts and Fiction
The trouble, as Goetz Briefs once pointed out, is that the current notions about the profits of the capitalists are totally out of touch with reality.2 The reason for these wrong ideas is partly mathematical! Let us look at some statistics. Too many people think that a radical redistribution of profits would truly benefit “the little man.” But what do the figures tell us? According to the Economic Almanac, 1962, published by the National Industrial Conference Board, (page 115), of the national income in the United States, the compensation of employees amounted to 71 per cent; the self-employed earned 11.9 per cent, the farmers 3.1 per cent. Corporation profits before taxes were 9.7 per cent of the total national income (after taxes only 4.9 per cent) and dividends paid out were 3.4 per cent. Interest paid to creditors amounted to 4.7 per cent of the national income. Yet, were the recipients of these dividends and interest payments all “capitalists”? How many workers, retired farmers, widows, benevolent associations, and educational institutions were among them? Would this sum, evenly divided among all Americans, materially improve their lot? Of course not.
In other parts of the world the situation is not much different. According to earlier statistics (1958), if all German incomes were to be reduced to a maximum of 1000 Marks (then $250.00) a month and every citizen given an even share of the surplus, this share would have amounted to 4 cents a day. A similar calculation, expropriating all Austrian monthly incomes of 1000 dollars or more, would in 1960 have given each Austrian citizen an additional 1 1/4 cents a day!
But, let us return to corporate profits. The 13 largest Italian companies composed in 1965 a full-page advertisement which they tried to place in the leading dailies of the Peninsula. This statement told at a glance what the dividends had been in 1963, what they were over a 10-year period, what salaries and wages were paid, how much industry contributed to social security and old-age pensions. The relationship between the dividends and labor cost was roughly 1 to 12. The companies added that the estimated number of shareholders (obviously from many walks of life) was over half a million—double the number of the employees. Interestingly and significantly enough, two of the dailies refused to carry the paid advertisement: one was the Communist Unita, the other the Papal Osservatore Romano whose excuse was that it was published in Vatican City, which means outside of the Italian State.
Rooted in Envy
To the advocate of equality, the fact that certain individuals live much better than others seems to be “unbearable”. The internal revenue policies which try to “soak the rich” often have their roots in man’s envy. It seems useless to demonstrate that a redistribution of wealth would be of no advantage to the many or that an oppressive tax policy directed against the well-to-do is self-defeating for a country’s economy. One usually will get the reply that in a democracy a fiscal policy which might be economically sound could be politically unacceptable—and vice versa. Pointing out that the spending of wealthy persons is good for the nation as a whole may bring the snap reaction that “nobody should have that much money.” Yet, people who earn huge sums usually have taken extraordinary risks or are performing extraordinary services. Some of them are inventors. Let us assume that somebody invents an effective drug against cancer and thereby earns a hundred million dollars. (Certainly, those who suffer from cancer would not begrudge him his wealth.) Unless he buries this sum in his garden, he would help by lending to others (through banks, for instance) and by purchasing liberally from others. The only reason to object to his wealth would be sheer envy. (I would add here that had it not been for the liberality of monarchs, popes, bishops, aristocrats, and patricians it would not be worthwhile for an American to pay a nickel to see Europe. The landscape is more grandiose in the New World.)
Still, it is significant that one of the few outstanding Christian sociologists in Europe, Father Oswald von Nell-Breuning, SJ, not noted for conservative leanings, has recently (Zur Debatte, Munich, February 1972) taken a firm stand against the myths of the beneficent effects of the redistribution of wealth. As one of the architects of the Encyclical Quadragesimo Anno he emphasized that Pius XI was thoroughly cognizant with this incontrovertible fact but that, in the meantime, this knowledge has been nearly lost and that therefore demagogical ideas have largely invaded Catholic sociological and economic thinking. Especially in the domain of “Third World” economic problems, the learned Jesuit hinted, the hue and cry for “distributive justice” has done a great deal of mischief.
It has become fashionable to attack free enterprise on moral grounds. There are people among us, many of them well-meaning, idealistic Christians, who freely admit that “capitalism delivers the goods,” that it is far more efficient than socialism, but that it is ethically on a lower plane. It is denounced as egotistic and materialistic. Of course, life on earth is a vale of tears and no system, political, social or economic, can claim perfection. Yet, the means of production can only be owned privately, or by the State. State ownership of all means of production certainly is not conducive to liberty. It is totalitarianism. It involves state control of all media of expression. (In Nazi Germany private ownership existed de jure, but certainly not de facto.) The remark of Roepke is only too true, that in a free enterprise system the supreme sanction comes from the bailiff, but in a totalitarian tyranny from the hangman.
The Christian insistence on freedom—the monastic vows are voluntary sacrifices of a select few—derives from the Christian concept that man must be free in order to act morally. (A sleeping, a chained and clubbed, a drugged person can neither be sinful nor virtuous.) Yet, the free world which is practically synonymous with the world of free enterprise, alone provides a climate, a way of life compatible with the dignity of man who makes free decisions, enjoys privileges, assumes responsibilities, and develops his talents as he sees fit. He is truly the steward of his family. He can buy, sell, save, invest, gamble, plan the future, build, retrench, acquire capital, make donations, take risks. In other words, he can be the master of his economic fate and act as a man instead of a sheep in a herd under a shepherd and his dogs. No doubt, free enterprise is a harsh system; it demands real men. But socialism, which appeals to envious people craving for security and afraid to decide for themselves, impairs human dignity and crushes man utterly.
Originally published in The Freeman, November 1972, pp. 657–65.
- 1.See “Free Enterprise and the Russians,” The Freeman, August, 1972.
- 2.Das Gewerkschaftsproblem gestern end heute. (Frankfurt am Main: Knapp, 1955), p. 98.
Erik von Kuehnelt-Leddihn (1909-1999) was an Austrian nobleman and socio-political theorist who described himself as an enemy of all forms of totalitarianism and as an “extreme conservative arch-liberal” or “liberal of the extreme right.” Described as “A Walking Book of Knowledge,” Kuehnelt-Leddihn had an encyclopedic knowledge of the humanities and was a polyglot, able to speak eight languages and read seventeen others.