Fateful Lightning: A New History of the Civil War & Reconstruction

Nature and Causes of the Wealth of Nations (published, in a significant coincidence, in the same year as the American Declaration of Independence), Smith cast down the restraints on commerce and trade imposed by contemptuous aristocrats all across Europe in favor of allowing the instinctive human passion for competitiveness a free hand in determining economic outcomes. “Every individual,” wrote Smith, “intends only his own security; and … intends only his own gain, and he is in this … led by an invisible hand to promote an end which was no part of his intention,” in just the same way that Newton’s apple obeyed a law of gravity. Just as it would be absurd to ask governments to intervene in the laws of physics, it should be considered just as absurd for governments to intervene in the laws of the markets. “The obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.” The irony of this, however, is that “by pursuing his own interest he frequently promotes that of the society more effectually. …” ¹⁴

Speaking of Adam Smith and The Wealth of Nations means that it is also necessary to speak about capitalism, if only because capitalism has become synonymous with Smith’s description of a “natural liberty” in economics. Actually, capitalism represents at least four different ways of organizing a nation’s production and consumption of goods. Capitalism can be understood as shorthand for the pursuit of profits from the sale of goods or services, and in that sense, capitalism has been around since the dawn of history itself—hence Smith’s claim that it was “obvious and simple.” Capitalism might also be regarded as a system of economic organization where governments, eager to promote the prosperity of their nations, open a “level playing field” and do no more than wish that the best economic man win. However, it still remains government’s task to define the rules and police the boundaries of the playing field, since the great temptation of every competitor is to bribe the referees and kill the competition, literally or otherwise. Capitalists, in that respect, were the last people whom government should wish to entrust with the keys to the playing field’s maintenance locker, and Smith was certainly no exponent of removing government’s referee role. In the most complicated sense of the word, capitalism refers to a system by which the owners of productive mechanisms—whether the “mechanism” is a farm or a factory—employ laborers to whom they pay wages. The wages are never equivalent to the value the laborers put into the goods and services they produce. Because they do not own these mechanisms, laborers have no say in what price the real owners obtain for those goods and services. Hence, the owners sell the goods and services but only pay the producers a wage; the difference between the selling price and the wages (the “surplus value”) becomes the owners’ capital and is plowed back into the farm or factory to hire more wage laborers and produce more goods. This version—which is how Karl Marx defined capitalism—is also the most negative, as though capitalism were little more than systematic theft of the real value that exploited laborers imparted to goods. On the other hand, at its simplest the term capitalism can be used to describe any system in which an attitude of entrepreneurship and self-improvement is the key.

Monarchies were never friendly to capitalism, any more than they were to republicanism. They preferred stability in their nations’ economic as well as political lives, and the more rigid the structure of a nation’s monarchy, the less favor with which it was likely to look upon the brash self-promotion of shopkeepers, shoemakers, and town burgesses (burgess being the term from which bourgeoisie developed to describe the class of people most friendly to capitalism). But this self-promotion, based on cleverness, talent, and a strict eye to the main chance rather than noble birth, is also why the Enlightenment, which was in the business of overthrowing irrational appeals to mere authority, found in capitalist entrepreneurs and an independent-minded bourgeoisie its favorite heroes. “I don’t know which is the more useful to the state,” Voltaire (the pen name of the French satirist François-Marie Arouet) speculated wickedly, “a well-powdered lord who knows precisely what time the king gets up in the morning and what time he goes to bed, and who gives himself airs of grandeur while playing the role of slave in a minister’s antechamber, or a great merchant who enriches his country, sends orders from his office to Surat and to Cairo, and contributes to the well-being of the world.” Joseph Addison was “wonderfully delighted” to see “the grand scene of business” among London’s merchants, “thriving in their own private fortunes, and at the same time promoting the public stock … by bringing into the country whatever is wanting, and carrying out of it whatever is superfluous.” ¹⁵ The Enlightenment’s ideal social order would thus be a mix of mildly democratic republicanism in the political realm and a free-market regime in the economic realm, a combination that became known through the early decades of the nineteenth century simply as liberalism.

France liked to think of itself as the intellectual home of the Enlightenment, but (ironically, for American observers) enlightened French thinkers looked to Britain as their favorite model of a liberal society because there the monarchy’s reach was at its weakest in all of Europe, and its shopkeepers and entrepreneurs were at their most vigorous and unrestrained. “Commerce,” added Voltaire, “which has brought wealth to the citizenry of England, has helped to make them free, and freedom has developed commerce in its turn.” ¹⁶ British capitalists were also the most scientific, for it was the British who invented the