Robert Hessen is an historian (Ph.D., Columbia University) who was senior fellow at Stanford University’s Hoover Institution. He is the author of Steel Titan, a biography of Charles Schwab, and In Defense of the Corporation. We here summarize his article on the debates over capitalism’s history.
Hessen suggests that economic individualism is a better label than capitalism for a society of natural liberty, in part because capitalism was a disparaging label first attached to it by its detractors
Historians frequently suggest that capitalism is generated from a Protestant or Puritan ethic, but that thesis flies in the face of the historical facts that many non-Protestants—such as the Renaissance Florentines, Jews, and post-WWII Japanese—have embraced capitalism.
Attacks on capitalism during the Industrial Revolution often focused on the hard working conditions (especially of women and children) in factories. “Their claims of increasing misery, however, were based on ignorance of how squalid life actually had been earlier,” and Industrial-Revolution-era work was actually an overall improvement.
Often capitalism’s early defenders offered half-defenses of capitalism by assuming unrealistic “pure” and “perfect” models of competition, under which all producers were equally small and informed. Real capitalist practice, then, was only partly justified to the extent that it did not deviate from that projected ideal—but to the extent it did needed to be corrected by government regulations of many sorts.
The “Robber Baron” thesis gained traction in the late 1800s, making no distinction between capitalists (such as Rockefeller, Swift, and Sears-Roebuck) who earned a large market share by productive innovation and those who did so by political connections, subsidies, and monopolies. New antitrust legislation was applied in principle to all.
Even so, capitalism’s benefits were widely diffused quickly. “At first, the luxuries were cheap cotton clothes, fresh meat, and white bread; then sewing machines, bicycles, sporting goods, and musical instruments; then automobiles, washing machines,” and so on became staples.
More specific critics began targeting capitalist methods: advertising or the modern corporate form and—noting that capitalism had in fact generated huge amounts of wealth—calling for higher tax rates on the economically successful.
Other critics focus on motivations: while granting its dynamic productivity, they charged that its contemporary manifestations are especially immoral for being self-interested, materialistic, and/or anti-social. Hessen notes wryly that “all the new criticisms of capitalism are old ones repackaged as stunning new insights.”
The result of the debates is a “mixed economy.” The USA was once closer to being a “citadel of capitalism” but now “government bestows favors and imposes restrictions with no clear or consistent principles in mind.”
Read Dr. Hessen’s “Capitalism” at the Concise Encyclopedia of Economics. Summary by Stephen Hicks, 2021.