All Commentary
Friday, November 1, 1985

Liberalism and Capitalism

Dr. Sennholz is Chairman of the Economics Department at Grove City College. He is well known to Freeman readers.

To seek freedom as an organizing principle of society and a way of life for the individual is to strive for the freedom to speak his mind, to express and discuss his views, to organize in groups and parties, to choose and change his government, to elect his agents and representatives, and arrange his social and economic life in any way he pleases as long as it is peaceful. For man to enjoy freedom is to work as he pleases, to give and find employment as he sees fit, to buy and sell his products freely and keep the rewards. To be free is to be unhampered and unimpeded in his peaceful economic pursuits.

The ideology and political program for individual freedom is liberalism. At least that’s what it was called throughout most of its history, and what Ludwig von Mises called it in his prodigious writings. It was the dominant ideology in England between the Glorious Revolution (1688) and the Reform Act of 1867, and a broad social and political trend throughout the Western world. Its primary demands were religious liberties and toleration, constitutionalism and individual rights, which in turn gave great impetus to the theory and practice of economic liberty. The French physiocrats and the English liberal economists erected the economic postulate of laissez-faire, that is, unhampered private property in the means of production and self-regulating markets, unre strained by political intervention.

For Ludwig von Mises, the private-property order, commonly called capitalism, was the only practical social and economic order. It gave rise to modern civilization and economic conveniences unknown in the past. “There is only the choice between communal ownership and private ownership of the means of production,” he assured us. “All intermediate forms of social organization are unavailing and, in practice, must prove self-defeating. If one further realizes that socialism too is unworkable, then one cannot avoid acknowledging that capitalism is the only feasible system of social organization based on the division of labor. This result of theoretical investigation will not come as a surprise to the historian or the philosopher of history. If capitalism has succeeded in maintaining itself in spite of the enmity it has always encountered from both governments and the masses, if it has not been obliged to make way for other forms of social cooperation that have enjoyed to a much greater extent the sympathies of theoreticians and of practical men of affairs, this is to be attributed only to the fact that no other system of social organization is feasible.” (Liberalism, p. 85)

No matter how much or how little we may know about the workings of capitalism, we cannot help admiring it for its enduring and resilient qualities. Professors denounce it for causing exploitation and inequality, for breeding monopolies and oligopolies, for contributing to unemployment and waste as a result of its lack of mechanism assuring full employment. And yet, capitalism lives on unperturbed by such charges. Preachers and priests disapprove of it on moral and cultural grounds; and yet, it endures despite their damnation. Politicians talk about the urgent needs of the public sector; and yet, capitalism persists despite all the exactions on behalf of the dependent sector. The basic features of capitalism endure, even in the darkest corners of the world, despite all the laws legislators may pass against it and all the brute force governments may use against the people. Could it be that private property and the social order based on it are deeply rooted in the very nature of man?

It is difficult to find an unhampered capitalistic order anywhere in the world. Governments, which are the political apparatus of coercion and compulsion, interfere with nearly every manifestation of economic life. They levy confiscatory taxes on production and distribution; and yet, entrepreneurs and capitalists manage to produce goods and render services with the leftovers. Governments regulate and restrict output; and yet, the property order, although shackled and mutilated, perseveres in producing goods and services. Governments set wage rates and interfere with the structure of prices; and yet, the market order lives on in black markets and underground activity. Governments indulge in inflation and credit expansion and resort to legal tender legislation; and yet, capitalistic production goes on in the darkness of monetary destruction. Governments bestow economic privileges and legal immunities on labor unions and permit them to disrupt production; and yet, in the end, economic production resumes although labor ceases to function efficiently. Governments engage in war and destruction; and when the killing ceases, and nothing is left for government to plan, ration and distribute by force, there is capitalism. It produces miracles of reconstruction and marvels of recovery.

In most parts of the world, capitalism is the system of last resort. When the communal order has brought poverty and hunger, when every measure of political coercion has failed repeatedly and the political mind is incapable of concocting another economic folly, when the police are exhausted from regulating economic production and the courts are paralyzed by immense case loads of economic crimes, the time has come for the private property order. It needs no political plan, no economic legislation, no economic police, only freedom.

  • Hans F. Sennholz (1922-2007) was Ludwig von Mises' first PhD student in the United States. He taught economics at Grove City College, 1956–1992, having been hired as department chair upon arrival. After he retired, he became president of the Foundation for Economic Education, 1992–1997.