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Notes on the state and 19th century capitalism


"Socialist" -- the word turns up everywhere, from the coarse and schizoid ramblings of AMERICAMAN1776 on Yahoo's comments section to the meant-to-be-profound speeches of GOP presidential hopefuls (in 2009, Mike Huckabee told an audience at the Conservative Political Action Conference that "Lenin and Stalin would love" Obama's stimulus plans). While the word has seemingly displaced half of the average conservative's vocabulary, we would do well to remember that liberals were the first to speak the term in the current debate, using it to disparage President Bush at the end of his term.

In October 2008 the liberal Washington Post columnist Eugene Robinson accused the Bush administration of "tossing aside Atlas Shrugged and speed-reading Das Kapital." A day later in a column entitled "In Bush's bailout, echoes of Marx," Star Ledger columnist John Farmer declared that "the Bush administration has come full circle -- from Karl Rove to Karl Marx." By the middle of the February of '09, this prognosis was confirmed when the cover of Newsweek declared "we're all socialist now" (a play on Nixon's statement "we are all Keynesians now"). If America has become socialist, the converse implication, of course, is that America is no longer capitalist. Once again this was not an opinion of fanatical conservatives. Dean Takahashi, formerly of the San Jose Mercury News, mused in VentureBeat in October of 2008 that "when they write the textbooks when this is all over, I'd like to see how they describe the U.S. economic system. Is it capitalist? Not at the moment."

Underlying all of these proclamations, whether uttered by the left or right, is a very superficial understanding of what is the totality of a society's economic activity. For, if the United States suddenly became a "socialist" country with the passage of a few bailout bills, then it's clear that in most eyes capitalism and socialism are seen as virtually identical economies, differentiated only by the level of state intervention. If the state intervenes little, the economy is capitalist. If the state intervenes more than a little, this economy immediately becomes socialist. Thus Hugo Chavez only half-jokingly called Bush a "comrade." Even sophisticated definitions of capitalism (i.e., the kinds you find in textbooks, not internet comments) fall into this same trap, as Dobb notes:

According to this, capitalism is identified with a system of unfettered individual enterprise: a system where economic and social relations are ruled by contract, where men are free agents in seeking their livelihood, and legal compulsions and restrictions are absent. Thereby Capitalism is made virtually synonymous with a regime of laissez-faire and in some usages of the term with a regime of free competition (3-4).

In an extreme example of this line of thought, one conservative writes in an Amazon review that "capitalism can only exist when the State exerts no influence over the market. It is impossible for a country to be capitalist and have a government that exerts control over the market, for instance via environmental regulation, minimum wage laws, etc etc etc." One problem with this reasoning is pointed out by Dobb:

Few countries other than Britain and U.S.A. in the nineteenth century conformed at all closely to a regime of "pure individualism" of the classic Manchester type; and even Britain and U.S.A. were soon to pass out of it into an age of corporate enterprise and monopoly or quasi-monopoly, when laissez-faire as a policy has been in decline.

Other scholars concur. Supple writes:

Indeed, in the context of modern world history, a laissez-faire economic policy seems less like an orthodoxy than a brief aberration from a norm of detailed government intervention in economic affairs (302).

This is a point we shall elaborate on later. For now, let us take it for granted that capitalism with strict laissez-faire policies means that one must be willing to concede that capitalism existed only for a brief spell in the 19th century. The absurdity of this position is evident, but absurdity has never deterred defenders of capitalism! Moreover, one could easily argue that is not complete non-intervention, but some relative measure of non-intervention, that is an inherent characteristic of capitalism. In either case, those arguing at just what size or reach a state becomes capable of transmogrifying a capitalist economy into a socialist economy are wasting their time, as far as we're concerned, for what really sets capitalism apart from previous -- and future -- economies, what defines it, has nothing to do with non-intervention.

After all, the state didn't even exist for the vast majority of our history as a species, yet we don't speak of hunter-gatherers or nomadic pastoralists as living in capitalist societies. In antiquity, the almighty slave-owners were virtually unchecked by the power of the state -- but no one would call them capitalists. Neither was the Feudal baron a capitalist merely because he was free to dispose of the products of his peasants labor as he wished.

If capitalism isn't an economic system defined by the absence of state intervention, what is it? For Marx and those following his method, what distinguishes capitalism from previous economic formations is that for the first time in history the majority of what is produced are commodities -- items produced to be sold -- and that the human capacity to labor is the foremost of those commodities. In short, to quote Fine and Saad-Fihlo, "what characterises capitalism is ... the purchase and sale of the workers' capacity to labour and its use in commodity production for profit" (22). Buick and Crump offer a six-point definition of capitalism that's more detailed, but stresses essentially the same thing. In their view, capitalism consists of:

  1. Generalised commodity production, nearly all wealth being produced for sale on a market.
  2. The investment of capital in production with a view to obtaining a monetary profit.
  3. The exploitation of wage labour, the source of profit being the unpaid labour of the producers.
  4. The regulation of production by the market via a competitive struggle for profits.
  5. The accumulation of capital out of profits, leading to the expansion and development of the forces of production.
  6. A single world economy.

In such a view, the involvement -- or non-involvement -- of the state is of little consequence.

Using such a conception, we can turn to the history of capitalism -- having secured our flanks against the objection that talking about state intervention and capitalism is a contradiction in terms -- to see that the state played a central role in introducing, developing, expanding, and maintaining the system of wage labor, i.e. capitalism.

The state and the 'invention' of capitalism

In feudal society, those who worked and those who exploited had a very different relationship than those classes today. The serf toiled on the lord's manor, handing over a portion of his production, not in money, but in kind. If the serf reaped 100 bushels, perhaps the feudal lord received 50 or 70 or however many. This was, by and large, a moneyless economy, one in which production for the market barely existed; what the serfs produced, they themselves ate for their sustenance or was eaten by the parasitic landlords. Consequently, production was for need. Eventually, however, the market economy intruded. Lords turned their fields into pastures and pushed off the small farmers. The state assisted in this process, with vast areas being closed off to peasants, the land that was once held in common being forcibly divided, and heavy punishments being imposed on those who were made homeless through this process but which didn't find wage-labor in the cities or on other farms (vagabonds).

Later, a world market emerged. In the Communist Manifesto, Marx and Engels wrote that

The discovery of America, the rounding of the Cape, opened up fresh ground for the rising bourgeoisie. The East-Indian and Chinese markets, the colonisation of America, trade with the colonies, the increase in the means of exchange and in commodities generally, gave to commerce, to navigation, to industry, an impulse never before known, and thereby, to the revolutionary element in the tottering feudal society, a rapid development.

This "trade with the colonies," this "open[ing] up [of] fresh ground" was accomplished by the state. The journeys of Columbus, Magellan, Cabot, Cartier, et al., were financed by Europe's monarchs; later, the British state played an instrumental role in making that country the center of the capitalist world economy. As Supple writes,

Perhaps the most striking indication of this is the powerful role which the state played in the creation and defence of the Empire, in the extension of an international trading network of which Britain was the centre, and the regulation of commercial and imperial relations so as to benefit the domestic economy and British businessmen. This was, in fact, 'mercantilism' of a different sort: navigation laws which attempted to monopolize imperial trade for British and colonial business interests; which obliged colonial imports to pass through Britain; and which stipulated the use of British or colonial ships. It also meant wars which were ultimately successfully fought to expand and defend Britain's colonial possessions and trade. If by the 1760s Britain was indeed the centre of the world's biggest free trade area, if her trade and shipping enjoyed a worldwide dominance, if her merchants and manufacturers had privileged access to large markets in Asia and America, if she was a major entrepot for Europe, and if, as seems likely, these developments were critical components of her 'readiness' for industrialisation -- then the state did play an important, though indirect, role in the pioneer Industrial Revolution (314-316).

Turning to Supple once again, we find that he contends that "historically, the most important way in which the state stimulated industrial growth in a capitalist setting was through its ability to create a capitalist setting in the first instance." Sometimes this involved a monarch or a parliament legislating away age-old laws that hindered the development of capitalism, or preventing any burdensome legislation from affecting the financial and mercantile classes, but in other cases the state played a more coercive and active role in clearing away the choking vines of feudalism.

The French Revolution is the example par excellence of a bourgeois revolution. The bourgeoisie, first rising and then victorious, decimated the reactionary aristocracy. As Soboul wrote, a capitalist transformation of French society

required that the individual laborer be free, and therefore that serfdom be abolished; it required freedom of production and hence the destruction of seigneurial monopolies like the banalities; it required the free disposal of property, and hence the suppression of primogeniture, of the feudal right of repurchase, and of the franc-fief; it demanded the formation of a unified national market, and hence the abolition of internal tolls and tariffs (59).

But even as the French Bourgeoisie's hour of the victory was rung in with the execution of its enemies by grapeshot and the guillotine, a tendency towards state ownership and intervention was evident. In the first place, the state was happy to set maximums on the price which could be charged for goods like bread -- not out of any sort of Bolshevism, as some have later alleged, but as a necessary measure for keeping the 'rabble' in line. More dramatically, after the French Republic declared war on Old Europe, the French state pressed nearly every man who wasn't at the front into munitions factories operated by the state. These factories might not have been capitalist enterprises, as they weren't producing commodities for exchange. On the other hand, the discipline imposed by the overseers was identical to that being imposed on the early factory workers in England at the time. Moreover, the French soldier and his musket, sent to the front by the state, were essential for defending democracy -- and as one member of the Committee of Public Safety said, "democratic government is always more favorable than the monarchy to the prosperity of commerce and merchants" (Palmer, 230)."

But however much the state did to get the ball rolling and to protect the trade on which the fledgling capitalist economy survived, it wasn't until the 19th century that the state actively applied its lucre and energy to clearing the way for a modern economy based on wage labor and industry. These efforts of the state were so extensive and so universally applied that it is impossible to write a short narrative history of government aid to industry in the 19th century that includes each country; instead, I will point out a examples from England and America. This is in no way comprehensive -- there's a wealth of literature on the subject that can provide more details -- but it does provide enough to demolish the myth that equates capitalism with laissez-faire.

State capitalism in Britain

Even though Britain was one of the most 'liberal' capitalist societies of the 19th century, with a state that did little to intervene, it is clear that the state set the stage for the development of capitalism. To Supple, recall, "the most important way in which the state stimulated industrial growth in a capitalist setting was through its ability to create a capitalist setting in the first instance." As regards Britain, he suggests that

it is worth remembering that the very characteristics of the market environment which distinguished Britain's position from that of the other European countries were in large part a function of state action. Thus, the whole evolution of government since the civil strife of the seventeenth century had resulted in an unmatched degree of political stability and social harmony, while the early political and administrative unification of the country helped create a relatively compact and unified market. In addition, compared with its neighbors, Britain enjoyed the benefits of a standard currency, tax and tariff system, and a sound structure of commercial law. Finally, and in some respects most significantly, the governing classes in what was still a heavily landed society were broadly sympathetic to, and indeed, representative of, the commercial and financial interests which helped transform Britain's economic institutions and opportunities from the late seventeenth century onwards (314-315).

At the end of the Napoleonic wars, government action consisted primarily of removing as many barriers to capitalist development as possible. In a sense, this trend towards laissez-faire paradoxically shows the role of the state in the development of capitalist society; after all, laissez-faire was a policy dictated by the state, not some "natural state" that exists precisely because of the state's non-intervention.

Still, there was some direct intervention. In 1844, the Railway Act gave the British state the option of buying out the railroads after 21 years. The state passed up on this option, but it did buy the telegraph system in 1868 and hand it over to the Post Office. Between 1892 and 1911, the telephone system was also nationalized. According to Buick and Crump, "the reason for these nationalisation measures was clear: the state, acting on behalf of the private capitalist class as a whole, bought up an industry of use to all enterprises in order to ensure that its product was made available to them on a uniform basis and prevent a particular group of private capitalists from holding the rest of the private capitalist class to ransom" (25).

The British state also funded technological developments. For instance, between 1823 and 1834, William Stanley Jevons was given over 17,000 pounds by the state to further development of his Difference Engine (Maas, 100).

The Factory Acts provide were one of most important examples of direct state intervention in 19th century Britain. Enacted over the entire course of the 19th century, these acts limited the number of hours workers could work in certain industries and set other rules for safety and working conditions in factories. While it is tempting to view these as an obvious attempt to improve the situation of the working class (or placate it) and to leave them at that, in an interesting debate by Booth and Lawrence that took place in the pages of the Review of Social Economy, Booth argued that Karl Marx viewed the laws as an effort by British capitalists to ensure that the working class was not depleted in a literal sense. This seems hard to credit nowadays, but it must be remembered that the life expectancy of industrial workers in 19th century England was quite low; in 1842, the average age at death for laborers was estimated to be 15 in Liverpool and 17 in Manchester (Thompson, 330)! Lowering the hours of work would increase life expectancy and prevent wages from skyrocketing. Booth explains the need to impose these laws society-wide thusly:

In modern terminology, a limitation on the working day is a public good for the capitalist. If such a limitation is imposed on all capitalists, the result will be a larger and more productive supply of labor power. Without such a limitation, the working day would be excessive, threatening the labor reproduction process. No single capitalist can gain very much by voluntarily limiting the working day. The limiting of the working day for a relatively few workers would have little impact on the reproduction of the total working class population, and it is the totality of that population that determines supply conditions in the market for labor power. Moreover, if capitalists of today are unconcerned with labor supply conditions faced by capitalists in the future, then there is an absence of either a private or collective incentive to pursue limitations on the working day. Hence there is a need for state intervention (Booth, 142).

Lawrence disagreed that a strategic, class-based interest for the preservation of the working class's ability to reproduce its labor power was the motive force behind the Factory Acts; instead, he attributed the legislation to an attempt by the largest factory owners to drive their smaller competitors out of business by increasing costs. Booth himself also suggested that one reason the acts managed to get passed was because the smarting aristocracy sought revenge for the repeal of the Corn Laws, a move which benefited the factory owners (who benefited from cheaper foreign corn, as it lowered wages) while harming the landed aristocracy (who now had to compete with cheaper foreign corn).

State capitalism in the United States

As with Britain, the myth of American laissez-faire is pervasive. Even worse, it's a common notion that, while laissez-faire doesn't prevail anymore, it's only because Obama (or whichever president) killed it off at the beginning of his presidency. As we will see, however, the U.S. government has always played a large role in the economy.

In the United States in the 19th century the military played a much more aggressive role in exporting and defending American commerce than it does today, if you can believe it. In the entire period 1789 to 1993, American military power was "used" abroad 234 times (Collier). Contrary to the notion that the U.S. only entered the arena of imperialist struggle with the acquisition of Hawaii or the war with Spain in the 1890s, over 100 of the 234 instances of military use abroad occurred in the 19th century -- and were usually undertaken in order to defend maritime commerce by combating pirates or to "defend American interests," then as now a euphemism for protecting the property of the wealthy. Indeed, as the Secretary of the Navy said in 1853, "it is very desirable to make our navy an efficient branch of the government, both in extending and protecting commerce and trade" (Goodrich). To "extended commerce" was often obviously synonymous with rapaciousness, such as when "Commodore Perry on three visits before going to Japan and while waiting for a reply from Japan made a naval demonstration, landing marines twice, and secured a coaling concession from the ruler of Naha on Okinawa; he also demonstrated in the Bonin Islands with the purpose of securing facilities for commerce" (Collier).

Domestically, the military ruthlessly exterminated native Americans, opening up the way for settlement and commerce, and defended slavery where the whip of the overseer could not reach. For instance, an escaped slave named Thomas Sims was arrested in Boston after living there for a few years. To return him to slavery, 300 soldiers and deputies escorted him to the harbor, where another 250 soldiers were there to load him on to a ship back to Georgia. (In another similar case, the Pierce administration spent 100,000 dollars -- 2 million dollars in 1987 dollars -- to return to slavery another escaped slave called Anthony Burns) (McPherson). These cases were both symbolic 'shows of force,' but the armed might of the state was there when force was really needed. During Nat Turner's rebellion in 1831, two U.S. Navy ships delivered soldiers to help suppress the insurrection, though they arrived after the militia had defeated the insurgent slaves. At Harpers Ferry in 1859 Robert E. Lee led the detachment of Marines that suppressed Brown's brave insurrection. If a larger slave rebellion had ever broken out, there is no doubt that the full force of the army would have been brought to bear. Slavery, of course, wasn't quite synonymous with capitalist production, though the profits of it often went to northern bankers and capitalists. (See Edmund Morgan's American Slavery, American Freedom for more on the link between American prosperity and democracy, on one hand, and slavery on the other.)

The military also explored and surveyed the interior of the country. The Corps of Discovery, under whose aegis Lewis and Clark traversed the continent, was commissioned in 1803 by President Jefferson. One of the objectives of the expedition was to improve the fur trade (Goodrich). Later expeditions sent by the government surveyed rivers and resources, dug wells, built wagon-roads, and made maps, all of which were invaluable for later settlement and for the construction of railroads (Broude).

Once the state mapped the interior and subdued its original inhabitants, the state further effected settlement by the vast interior and the return of produce to the eastern markets through internal improvement projects. Between 1783 and 1861, government investment accounted for 70% of the total investment in canals and 30% of the investment in railroads (Goodrich, XVI). One of the largest and famous of these projects was the Erie Canal, which was funded by the state of New York. At the time it was the world's largest canal. It opened the Great Lakes region to settlement and reduced shipping costs by 95 percent, thus making participating in the market economy feasible for hundreds of thousands of farmers. The famous National Road, or Cumberland Pike, connected the Potomac with the interior of the country. It was financed by the federal government beginning in 1806 and continuing until the late 1830s. Of course, the most famous 19th century mode of transportation was the railroad, and the benevolent hand of the state is seen here as well. Very few of the early railroads going from the seaboard to the interior were made without government aid. The government assisted railroad construction by providing large grants of land to railroad companies in exchange for some say in the routes of the rails. Between 1823 and 1869, 129 million acres (an area equal to the size of Alabama) were given by the government to railroad companies (Goodrich). Beginning in the 1860s, direct financial support was also given to railroad companies. The import of governmental financing of these ventures cannot be overstated. One scholar, Carter Goodrich, questions whether without government funds the Erie Canal would've ever been constructed or railroads would have crossed the Appalachians. In turn, he questions whether a unified national market could have been created without state assistance (Goodrich, XVIII).

Broude notes that one important activity of the state was to remove "roadblocks" to commerce. Such measures were extremely inexpensive relative to their outcomes. Examples of removing roadblocks cited by Broude include clearing rivers of raft, making piers, improving harbors, and building particular roads. Broude also suggests that the state had important psychological benefits for the development of commerce. On one hand, it is hard to imagine that even the hardy settlers of America would brave the hostile interior without some modicum of military protection. On the other, government support for individual businesses increased investors' confidence in a market where most businesses was young and unknown; in Pennsylvania in 1844, government was involved in 150 corporations, whether owning just a few shares or several thousand (Broude, 13). Virginia had a similarly extensive system of "mixed enterprises." Between 1790 and 1820, New York State provided loans to 48 enterprises (Goodrich, 196).

A panoply of other governmental aids to the development of American capitalism should be noted. Broude begins a list by saying "government effected a land tenure policy for the country, controlled immigration policy (conditioning the supply of labor), maintained intervention in the banking system (varied of the period), established protection of trade through tariff and patent legislation, performed the roster of services rightfully' governmental, and represented and strengthened the particular legal framework within which Private business was organized" (Broude, 9-10). One might also add that the state aided business through the establishment of the merchant marine; the establishment of schools, universities, and military universities where engineers were trained, and so on.

Finally, we may add that there was as lively a debate about the role of the state in the economy in the 19th century as there is now in the 21st. Alexander Hamilton's "Report on Manufactures" contained the familiar claim that already industrialized nations had made it difficult for young nations like the U.S. to compete; therefore, like so many 20th century leftists in the third world, Hamilton called for trade protections, subsidies (which Hamilton preferred), and the importation of skilled laborers and modern machinery. In 1808, Secretary of the Treasury Gallatin proposed a 20 million dollar program of internal improvements. Though rejected, most of the proposed projects were eventually carried out. Presidents Madison, Monroe, and Quincy Adams were all favorable towards funding internal improvements, but were each held back by their own doubts as to the constitutionality of such measures. By the 1830s, President Jackson killed off federal funding for development. Two decades later, concern with the "malign influence" of state funding of these improvements and projects led to a backlash ably described by Goodrich:

In Pennsylvania, as Professor Hartz has pointed out, the reaction was marked in the year 1857 by the sale of the 'Main Line' of the Public Works to the Pennsylvania Railroad and by the adoption of a constitutional amendment forbidding either the state or local governments to invest in the stock of improvement companies. By 1860 seventeen other states had adopted similar provisions against aiding companies by at least one of the three methods of loan, subscription, or donation, although most of them did not extend the prohibitions to local authorities. ... These decisions reflected widespread disillusion with government support of improvements, and particularly with the failures and financial losses in the years following the crisis of 1837, although some states like Virginia were still expanding their programs and others would do so after the Civil War (Goodrich, 95).

This heated debated is proof enough that governmental involvement in the economy was hardly incidental or unimportant. Despite these tensions, Broude concludes that "the record does indicate that at the end of the century calls for governmental aid had resulted in the holding by government of approximately 7 percent of the nation's capital assets and the employment of approximately 4 percent of the national labor force" (Broude, 9-10).


State intervention and assistance played an large role in the 19th century in countries like Russia, Germany, France, and Belgium. The role it played in America and Britain was smaller, but still instrumental, constant, and far-reaching; this should give one pause, for if even in the most laissez-faire societies the state is an extremely important economic actor, then we can give lie to the association of state ownership with socialism.

In the 20th century the phenomenon of "statification" of capitalist economies reached grotesque new heights. Engels predicted this in the 1870s, writing in Anti-Dühring:

If the crises demonstrate the incapacity of the bourgeoisie for managing any longer modern productive forces, the transformation of the great establishments for production and distribution into joint-stock companies and state property shows how unnecessary the bourgeoisie are for that purpose. All the social functions of the capitalist are now performed by salaried employees. The capitalist has no further social function than that of pocketing dividends, tearing off coupons, and gambling on the Stock Exchange, where the different capitalists despoil one another of their capital. At first the capitalist mode of production forces out the workers. Now it forces out the capitalists, and reduces them, just as it reduced the workers, to the ranks of the surplus population, although not immediately into those of the industrial reserve army.

But the transformation, either into joint-stock companies, or into state ownership, does not do away with the capitalistic nature of the productive forces. In the joint-stock companies this is obvious. And the modern state, again, is only the organisation that bourgeois society takes on in order to support the general external conditions of the capitalist mode of production against the encroachments as well of the workers as of individual capitalists. The modern state, no matter what its form, is essentially a capitalist machine, the state of the capitalists, the ideal personification of the total national capital. The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist, the more citizens does it exploit. The workers remain wage-workers -- proletarians. The capitalist relation is not done away with. It is rather brought to a head.

In Stalinist Russia and its so-called "Socialist" descendants in the third world, the state practically assumed the role of the entire capitalist class. Elsewhere the state took a more active role in suppressing the rapacity of the individual capitalist through legislation, though only because, as Marx and Engels noted in the 1840s, "a part of the bourgeoisie is desirous of redressing social grievances in order to secure the continued existence of bourgeois society." Today the "socialism" of the bourgeoisie, whether heralded or decried, plays the same role.