All Commentary
Thursday, November 1, 1956

The Myth of Capitalist Colonialism

Dr. Sennholz is Professor of Economics at Grove City College, Pennsylvania.

The exploitation of colonial possessions is inconsistent with the concepts of competitive private enterprise and voluntary exchange.

When the Egyptian government seized the Suez Canal Company’s property, the American public again became aware of the world-wide movement of anti-colonialism. The eyes of the West, usually fixed on the Iron Curtain, now suddenly turned to the dark clouds over Suez.

In the past few years the governments in nearly all underdeveloped areas have attacked the political and economic position of the West. Discriminatory controls have been imposed upon Western trade and investments. Whole industries built and owned by American or European businessmen have been seized and confiscated. The West was just recuperating from the shocks inflicted by Iran’s oil nationalization and Indonesia’s repudiation of her debt to the Netherlands, when Egypt nationalized the Suez Canal.

The anti-Western movement of trade restriction, debt repudiation, and nationalization of private property is accompanied by strong agitation for “freedom from colonial rule.” Since 1946 about 680 million people in Asia and Africa have in fact achieved national independence.

This world movement has all the characteristics of a synthesis of socialism and nationalism. It is socialist by way of its governmental controls over the national economy and its gradual abolition of private property in the means of production. It is nationalist insofar as it militantly advocates national independence and incites hostility toward foreign influence.

Both ideologies had their early roots in European soil. In countless incidents the governments of European nations nationalized important industries or seized them through a multiplicity of controls. And nationalism in Europe ran rampant, leading to a number of aggressions and wars. Having demonstrated repeatedly the seemingly unlimited power of collectivist governments, the white man now reaps the whirlwind of his own making. In this respect the Western nations bear full responsibility for the revolt of the black, the brown, and the yellow peoples against the white man’s world order. Their uprise merely signals complete adoption of the prevailing Western ideologies.

American Sympathy for Backward Nations

The American public is confused and bewildered by the present train of events. Consideration for our European alliances demands that we befriend the European nations, or at least do not oppose their vital interests. On the other hand, Americans entertain great sympathy for colonial nations in their drive for national independence. This discord of American feeling often finds its reflection in our uncertain foreign policies.

Our sympathy for the colonial peoples and our hostility against colonialism stemmed originally from our liberal conception of the natural rights of all men. Liberty and independence were precious ideals worth every sacrifice to gain and defend.

But the nineteenth century liberals often committed tragic blunders by encouraging liberation movements which in fact were nationalist movements toward the substitution of one collectivist order for another. The concepts of individual liberty and the inviolability of property rights were so foreign to most dependent nations that their uprising meant only the displacement of the established order by an even less desirable order.

Present-day American sympathy for the new countries and their economic policies mainly stems from two other sources. Our welfare planners are enthusiastic about every new scheme of central planning on the part of any government. Full moral and economic support from Washington is assured to every government that announces central plans of “construction” and “development.” Thousands of young Americans are being sent out to foreign governments to advise and instruct them in the “science of central planning.”

Finally, the present sympathy for the new nations partially stems from the American search for new friends and allies in our opposition to world communism. Many billions of dollars of American tax funds were poured into the laps of governments of underdeveloped areas in the hope for gratitude and friendship in return. But with a few notable exceptions the new Asian and African countries are stanchly neutralist and oppose any regional defense agreement with the West. They demand and take American aid, but continue to flirt with the Kremlin.

Echoing the communist leaders in their attacks on the West, they level the charge that Western colonialism has kept the economically backward nations subjugated for more than two centuries. Western capitalism tortured and exploited colonial people, they say, until they began to free themselves from the strangling grip of capitalism.

The Marxian Interpretation of Colonialism

This is by no means a new charge. The writings of the arch communists, Marx and Lenin, are full of expositions on colonialism. From London and Zurich they made their famous observations which then were spread through communist propaganda channels into all literature. Today there is hardly a textbook on recent history that is not perverted in one form or another by Marxian and Leninian ideas on capitalist colonialism.

What a communist conceives to be “colonialism” is in the words of V. I. Lenin “the territorial expansion of the system of exploitation of labor by capital.” New human capital is drawn into the orbit of wage slavery through colonial conquest. Once the world was divided among the colonial states of Western Europe, finance capital—especially from America—then became the decisive power of subjugating whole countries and nations to the capitalist profit greediness, even though these nations retained their political independence. The latter stage often is labeled “capitalist imperialism.”

The very premise of “capitalist exploitation” is an absurdity. Where the price of labor is determined through the operation of demand and supply in a free labor market, exploitation is impossible. Only where the mobility of labor is impeded through government decrees and regulations can labor possibly be underpaid. Indeed, true exploitation may be observed in all socialist and communist economies.

Equally untenable is the communist contention regarding American financiers and their imperialist endeavors. By investing their capital funds abroad they increase the productivity of the backward areas. They attract the services of foreign labor not by brute force, but through higher wages and better living conditions. Of course, their incentive is the possibility of profits to be derived from the new wealth created through their initiative.

Colonies Acquired under Mercantilism and Nationalism

The existence of colonies, i.e., underdeveloped territories dependent on a ruling power, is not a phenomenon of capitalism, as its enemies so ardently contend, but of the very absence of it. The colonial empires of the Western nations were built in periods of mercantilism or rising nationalism. During the short intervening age of capitalism, colonies were considered in herited burdens to be disposed of sooner or later. “Our colonies are millstones around our necks,” said the British stateman, Disraeli, in 1852 when Great Britain was about to embark upon her famous open-door policy.

During the seventeenth and eighteenth centuries England, Holland, France, and Spain were the foremost colonial powers. That was the age of mercantilism. And mercantilist ideas led governments to acquire dependent territories. Every nation endeavored to be self-sufficient through tariffs, other import restrictions, and acquisition of colonies. The balance-of-trade theory prevailed and the notion that one nation’s prosperity is another nation’s loss and misery determined international relations. Europe was always fighting or preparing to fight.

The adherent of capitalism need not defend the acts of mercantilist governments, for capitalist philosophers and economists have exploded and opposed the doctrines of mercantilism since the beginning of the eighteenth century. Even today they are the bitter enemies of the modern expressions of mercantilist international relations.

The hostile attitude of the fathers of capitalism toward the existence of colonies can easily be recognized by the role they played in the American War of Independence. They were the friends of the colonists and insisted that colonial independence should be granted and maintained even after the War of 1812. Furthermore, has there ever been a more devastating critique of colonialism written than the one by Adam Smith in his famous Wealth of Nations? To attach colonialism to capitalism is an obvious absurdity.

Capitalism Transformed the British Empire

Around the 1820′s England was practically the only colonial power. The Spanish and Portuguese colonies had become independent and the remaining French and Dutch possessions depended on the grace of the British Navy. But England, at this time, refrained from further expansion of her empire because British liberalism had begun to shape Britain’s foreign policies. Capitalism fundamentally began to transform the British Empire into a market economy.

By the middle of the nineteenth century the British overseas settlers were virtually independent—enjoying a dominion status. All other territories dependent on British rule were governed according to open-door principles. Britishers, foreigners, and natives were treated alike. The British Empire became a vast free-trade area in which the British government merely undertook to maintain law and order.

Complete evacuation of all foreign territories would have been the logical solution for British liberalism. But such a step in almost all cases would have brought about anarchy, civil war, and famine in the colonies evacuated. India, for instance, would most likely have disintegrated again into a conglomeration of maharaja states fiercely fighting each other. The natives themselves, therefore, approved of British rule. This is clearly attested to by the fact that tiny occupation forces sufficed to maintain peace and order among natives outnumbering them immensely.

And yet in spite of her most beneficial administration, England today is reaping the bitter hostility of natives because of her policies of racial segregation. The British civil servants in their exalted positions among the natives seldom withstood the temptation for social snobbishness and racial pride. This grievance on the part of hundreds of millions of Asians undoubtedly contributed to the dissolution of the British Empire in Asia.

Expansion of Colonies under Nationalism

During the last three decades of the nineteenth century the colonies of the Western nations experienced an unprecedented expansion. France vastly expanded her empire in Africa, and Germany acquired dependent territories in Africa and Polynesia. Also Russia, Japan, and the United States occupied new territories in various parts of the world. In all these cases of colonial acquisition adventurous governments under various pretexts seized foreign territories against the interest and advice of business and finance in order to reap cheap glories and advantages for their own administration.

Take the example of German colonial acquisition. There is abundant proof that the German bankers and businessmen opposed as senseless every single occupation of colonial territories. Even after the Imperial Government had assumed their administration and established protection and benefits for colonial trade, German business remained disinterested. At the outbreak of World War I less than one-half of one per cent of Germany’s foreign trade was conducted with her own colonies. And fewer than 25,000 Germans, most of whom were civil servants and their families, lived in the German colonies extending over one million square miles. Almost every major city in the world had a bigger German settlement than existed in all her colonies combined.

The German colonies were acquired by an interventionist government which constantly disparaged capitalism, and loved the display of its own political and military strength. To accuse capitalism for the existence of German colonies acquired by the Iron Chancellor Bismarck and his Kaiser is founded on neither fact nor reason.

In the case of territorial acquisitions by Japan and Russia the political conditions were similar. Omnipotent governments under their absolute sovereigns embarked upon colonial conquest under various pretexts. No matter what their stated reasons, Japan and Russia did not invade foreign countries because of pressure by conspiring businessmen, or to improve the lot of their capitalists whom they despised and taxed, and whose property they nationalized. Neither the Czar nor the Mikado was a stooge of his subject bankers and merchants. Had they been advised by their businessmen, they would have learned that prosperity results from voluntary exchange, not from suppression and plunder.

During this period of nationalist and interventionist colonization France was a republic. But the military debacles of the Franco-German War of 1870 severely hurt the pride and self-confidence of the French Army. It urgently needed new fields of activity from which to feed again its pride and glory and display its fighting morale to itself and the world. And it found a welcome opportunity in the campaigns against the natives of North Africa. In these adventures the French Republic was greatly encouraged by Bismarck who hoped that the French would then forget the Franco-German War and the provinces Alsace-Lorraine ceded to Germany. The following expansion of the French colonial empire thus was the outcome of diplomatic considerations and feelings of military glory and pride. The French generals fighting in the passes of the Atlas Mountains wanted war with the natives, not trade relations.

Also, the American acquisitions of dependent territories following the Spanish-American War of 1898 were clearly the doings of an ambitious administration. We need not enter into the question of who started the war. But we must bear in mind that the Spanish possession, Cuba, was a subject of American concern for most of the nineteenth century. President Grant even made an unsuccessful offer to buy Cuba.

President McKinley’s ultimatum to Spain demanded that Spain evacuate Cuba; but in the peace treaty signed in Paris eight months later, Spain had to evacuate not only Cuba, which became independent under U. S. supervision, but also Puerto Rico, Guam, and the Philippines, which became colonial territories of the U. S. A. Now what economic interests could American bankers and businessmen possibly have had in Puerto Rico, Guam, and the Philippines? Even today American trade and investments in these territories remain insignificant. To blame American bankers and brokers for the conquests of a political administration that looked to Europe for guidance, is an outright misrepresentation of facts.

Throughout this period England continued to conduct her open-door policies. While the other colonial powers more or less severed their territories from the unhampered world market through tariffs and other trade restrictions, England clung to free trade. At the outbreak of World War I, Great Britain and her colonies were practically the only unhampered part of the world market. Several times during this period Britain expanded her territorial control over underdeveloped areas merely to safeguard the world market and its international division of labor. Occupation by any other colonial power would have meant further destruction of world trade and aggravation of international relations through more trade barriers.

Britain Follows Suit

But toward the end of the nineteenth century the spirit of interventionist colonization also came to Great Britain. It was the time of the Fabians and the growth of social conflict through socialist and neo-mercantilist ideas. “To solve the social conflict and to spare England a murderous civil war, we colonial politicians must acquire new territories which are to receive our surplus population.” This was Cecil Rhodes’ excuse for his colonial conquests in South Africa; and his reasoning was socialist, if not Marxian. A liberal philosopher or economist finds no social conflict in capitalism, rejecting the Marxian doctrine of proletarian revolution and denying the possibility of exploitation in capitalism which, according to all our experience, improves the living conditions of the workers. He knows that capitalist countries are the desired targets of immigration; not emigration, as Rhodes believed.

Today the British Commonwealth is a “system of cooperation” in which the member nations have pledged to grant each other “preferential treatment” as to their protective tariff barriers. In this age of numerous trade restrictions the British nations grant each other 10 to 15 per cent relief from their tariff restraints. But tariffs are the least important means of restriction at the disposal of modern government. The British Empire indeed has become an area of mutual trade barriers with insignificant tariff preferences for member states. And with every new trade restriction the dissolution of the Empire follows step by step.

It is a sad fact that the Asian and African nations who have gained, or sooner or later will gain, their liberation and independence, are animated by ideas of nationalism and other forms of collectivism. They despise and sneer at the Western concepts of individual liberty and capitalism. Encouraged by the West’s own abandonment of capitalism and by the slogans of communism, they hate and abuse the very system that offers the only solution to their poverty. To them, political independence offers an opportunity to confiscate and nationalize prosperous industries, to destroy their own currencies, to further disrupt the international division of production, and to introduce other anti-capitalist measures. The inevitable outcome of such a philosophy must be oppression, anarchy, and disaster. []


A Costly Monopoly

The monopoly of the colony trade, therefore, like all the other mean and malignant expedients of the mercantile system, depresses the industry of all other countries, but chiefly that of the colonies, without in the least increasing, but on the contrary diminishing, that of the country in whose favour it is established . . . .

To propose that Great Britain should voluntarily give up all authority over her colonies, and leave them to elect their own magistrates, to enact their own laws, and to make peace and war as they might think proper, would be to propose such a measure as never was, and never will be adopted, by any nation in the world. No nation ever voluntarily gave up the dominion of any province, how troublesome soever it might be to govern it, and how small soever the revenue which it afforded might be in proportion to the expence which it occasioned. Such sacrifices, though they might frequently be agreeable to the interest, are always mortifying to the pride of every nation, and what is perhaps of still greater consequence, they are always contrary to the private interest of the governing part of it . . . .

Adam Smith, The Wealth of Nations

  • 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.