How Capitalism Survived The Twentieth Century
One hundred years ago many thoughtful people predicted the decline and disappearance of capitalism. What happened to make their prophecy wrong?
November 1987 | Volume 38, Issue 7
People nowadays interchange gifts and favors out of friendship,” says a character speaking from the vantage point of the year 2000 in Edward Bellamy’s 1888 novel, Looking Backward, “but buying and selling is considered absolutely inconsistent with the mutual benevolence and disinterestedness which should prevail between citizens and the sense of community interest which supports our social system.” Writing a century ago, Bellamy foresaw that by 2000 there would be no money and no wages. Employed or not, everybody would receive the same income in the form of an annual credit card (so called) loaded with more purchasing power than people actually would use in the average year. Work would begin at age twenty-one, on the conclusion of education, and end at a mustering-out day when the citizen reached the age of forty-five.
In the twenty-first century of the novel, a benevolent state determines the occupations of the more talented citizens according to their aptitudes; others simply apply for the jobs they think they would like and are put to work. When there are more applicants than needed for a certain job, the hours of work in that employment are lengthened; when there are not enough applicants, the hours are shortened, to balance supply and demand without differences in pay. People who are inefficient at their work are pitied rather than censured, so long as they try. When there is a glut of one product, people wander over to create another, and so forth. The whole society is very, very rich, thanks to the elimination of “misdirected industry.”
Bellamy’s socialist Utopia was immensely popular and was taken very seriously from his day through the early twentieth century. By 1935, when Columbia University asked the philosopher John Dewey, the historian Charles Beard, and Edward Weeks, the editor of the Atlantic Monthly, to list the most influential books published in the preceding fifty years, all chose Karl Marx’s Capital as the most influential and Bellamy’s Looking Backward as the second most influential. Three years after the publication of Bellamy’s book, Pope Leo XIII issued his encyclical Rerum novarum, which essentially revised the medieval Catholic notion of the just price and the just wage and asserted the responsibility of modern governments to prevent gouging and exploitation.
These ideals of economic justice to a degree inspired both Mussolini’s corporate state and Franklin Roosevelt’s National Recovery Administration, with its elaborate codes of minimum prices and minimum wages and maximum interest rates. In 1935 the Supreme Court declared the NRA unconstitutional, and it was never revived even after the Court had come to accept most of the rest of the New Deal. Still, this urge to put the marketplace under government control does survive. Rerum novarum and its reinforcement forty years later in Pius XI’s Quadragesima anno became the twin charters of the Association of Catholic Trade Unionists in the United States and Dorothy Day’s Catholic Worker. Their echoes were to be heard again recently in the condemnation of “unjust” capitalism by the National Conference of Catholic Bishops, in a much less original (and much more American) document than its supporters or its opponents seemed to believe.
As far back as Thomas Malthus, who hypothesized in 1798 that the arithmetical increase in agricultural production could not feed the geometrical increase in population, up to Stanley Jevons’s insistence in 1865 that modern society was about to collapse as the veins of Britain’s coal were exhausted, economics has been a dismal science producing unwanted answers to avoidable questions. “Getting and spending,” Wordsworth wrote, “we lay waste our powers.” But the height of feeling that market capitalism was indefensible came in the last quarter of the nineteenth century, a time of deflation that squeezed farmer, manufacturer, and laborer alike. The beneficiary of the squeeze, in real terms, was the lender, whose capital yielded declining nominal income (Marx’s unfortunate “iron law”) but constantly increased in value as measured by purchasing power. Unrestrained, the workings of the “free market” seemed certain to produce, as Marx said it would and Bellamy said it already had and the Pope said it must not, “immiserization” of the masses.