In a free, market-based economy, there is no conflict between different industries, economic interests, or sectors of the economy. There is no “class conflict”—as Marx imagined it—because, thanks to the division of labor, voluntary trade and competition reward consumers, producers, and asset owners alike. This is what Ludwig von Mises called the “harmony of interests.”
In the presence of the state, however, things are different. There is always class conflict as different groups jockey with each other to gain the favor of state agents. In this context, each interest group understands that the state is a lucrative tool for exploiting other groups through regulation, taxation, and inflation.
This divides societies into two groups: the class of exploiters, allied with the state, are on one side. On the other side are the exploited classes, the productive workers and capitalists whose output is stolen and redistributed by the regime. The coercive power of the state ensures there will always be this conflict between those who subsist through production on the one hand, and the parasitic state-allied groups on the other hand.
This view of the state and economic interests stands in stark contrast to the view of pluralism, which was popularized in the twentieth century and presents politics as more of a benign process of political compromises between interest groups, and which leads to a more “representative” democratic process.
The nineteenth-century liberals had it right, though. As Frédéric Bastiat stated, the political system is a system of “legal plunder” and spoliation, and resembles more a zero-sum game than a process of benevolent compromise. We would do well to reconsider many of the trenchant observations of the earlier exploitation theorists who. It was these radical anti-state liberals who, by identifying the true nature of the state, did much to limit the growth of regime, even into the twentieth century.
Class Conflict: True and False
In the Marxian view of class conflict, property owners and workers are necessarily in conflict. That is, since capitalist employers “exploit” a portion of the worker’s output, there is a natural state of conflict between the two groups. This, we are told, is inherent to the economic system itself.
The shortcomings of this theory were described in detail by Eugen Bohm-Bawerk in his devastating analysis—devastating for Marxism—on labor and exploitation found in Karl Marx and the Close of His System. Nonetheless, the general idea of inescapable conflict between economic classes has persisted.
This, however, is not at all an essential part of economic production in modern economies. Ludwig von Mises shows this in Human Action in his discussion on the division of labor. Mises writes:
What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests. For where there is division of labor, there is no longer question of the distribution of a supply not capable of enlargement. Thanks to the higher productivity of labor performed under the division of tasks, the supply of goods multiplies. A pre-eminent common interest, the preservation and further intensification of social cooperation, becomes paramount and obliterates all essential collisions. … The fact that my fellow man wants to acquire shoes as I do, does not make it harder for me to get shoes, but easier. What enhances the price of shoes is the fact that nature does not provide a more ample supply of leather and other raw material required, and that one must submit to the disutility of labor in order to transform these raw materials into shoes. The catallactic competition of those who, like me, are eager to have shoes makes shoes cheaper, not more expensive.
In other words, the natural tendency in modern competitive economies is to produce more goods and lower prices and this benefits all market participants when markets are allowed to function.
Once states enter into the equation, however, various economic interests set to work convincing state agents to intervene in the economy so as to limit competition and subsequently raise prices for those groups that gain the state’s favor. These economic interests, however, cannot be broken down along the same lines as they are in Marxian theories and similar Marx-influenced ideologies.
This is why Murray Rothbard notes:
[B]ecause of (a) the harmony of interests of different groups on the free market (for example, merchants and farmers) and (b) the lack of homogeneity among the interests of members of any one social class, it is fallacious to employ such terms as “class interests” or “class conflict” in discussing the market economy. It is only in relation to state action that the interests of different men become welded into “classes,” for state action must always privilege one or more groups and discriminate against others. The homogeneity emerges from the intervention of the government in society.
We cannot say that property owners are necessarily in conflict with wage workers in any economic sense. Once the political system begins its work of exploitation, however, we can say that some social classes—the classes that benefit from state exploitation—are in conflict with others.
It is in this conflict that we must read the work of the classical liberals, Jeffersonians, and Jacksonians who described conflicts between farmers, merchants, industrialists, bankers, and workers. This type of class conflict originates with the state, and not with private property or free markets.
The conflict does not arise because of the nature of banking or industry or farming in and of themselves. Rather, the conflict arises because, generally speaking, banking has tended to be an industry that lobbies for state intervention, and which succeeds in doing so, at the expense of others.
The Jeffersonians and Jacksonians
This was the view of one of the earliest American political economists, John Taylor of Caroline. Taylor, like Bastiat 20 years later, saw governments as tools of legal plunder and sought to identify how some groups use the power of the state to exploit other groups. Taylor broke this up into a dichotomy of small enterprise (artisans, farmers, and small merchants) against the financiers, banks, and large manufacturers who lobbied for protectionism and monetary inflation. Taylor was also an early critic of the American central bank, viewing it as a tool against true market competition and private property.
Perhaps his sharpest rebukes of the class conflict created by state power can be found in his 1822 essay Tyranny Unmasked. In it, Taylor lays out how government power is employed as an enormous wealth-transfer scheme. He describest how the productive classes of farmers and petite bourgeois property owners—which he here calls “labour” (but not in a Marxist sense)—are the victims of the “privileged” classes that enjoy the benefits of government protection:
[N]o species of property-transferring policy, past or existing, foreign or domestick, ever did or ever can enrich the labouring classes of any society whatever … [I]t universally impoverishes them. To this fact not a single exception appears in the whole history of mankind. What then can be more absurd, than that the agricultural and mechanical classes, or either of them, should conceive that they will be benefited by such a policy? … The mercantile class, as merchants only, must be impoverished by this policy; but a few individuals of this class, more frequently evade its oppression, than of other labouring classes, by blending the capitalist with the mercantile character; and becoming bankers, lenders to government, or factory owners. So far also, as the agricultural and mechanical classes, are interspersed with individuals endowed with pecuniary privileges, such individuals derive emolument from the property-transferring policy, not as mechanics or agriculturists, but in their privileged characters. Those who gain more by banking, by the protecting-duty monopoly, or by loaning to the government, than they lose by these property-transferring machines, constitute no exception to the fact, that the property-transferring policy invariably impoverishes all labouring and productive classes.
Here we find the basic foundation of what would become the Jacksonian view of class conflict throughout the nineteenth century. This class conflict focused on two areas: protectionism and the central bank. Both were viewed as tools for subsidizing and protecting the interests of large financiers and manufacturing interests. In the political arena, this state-fueled class conflict was expressed by the Jacksonians as support for certain social classes.
As summarized by historian Sean Wilentz, Jackson himself focused especially on disestablishing the central bank, and he described the Bank War “in the broadest way as a struggle of virtuous farmers and mechanics against corrupt financier aristocrats, he provided a common ground on which entrepreneurs (seeking more banks or an end to legislative control over banking) could unite with wage-earners and small producers who sought to abolish banks or to remove bank control over the currency.”
Again, though, it is important to note that the opposition to bankers and financiers was grounded on the fact that the banker-financier sector was so often found to be in support of government-allied banking. A truly free market could provide a fair and level playing field, so long as government favors were not at play and different economic interests were equal in terms of law and policy. The presence of protectionism and central banking destroyed this equality. John Ashworth describes the Jacksonian opposition to the banks as means of creating artificial political and economic inequality:
A still more glaring evil than the protective tariff was the banking system. … For the banking system violated Jacksonian conceptions of equality at every turn. The power of certain banks to determine who qualified for credit and by printing money to set the price level within the economy was a clear violation of the equality of power. The and cycle of boom and contraction which followed from the banks’ ability to print notes which did not have adequate specie backing threatened to destroy the equality of conditions. For at the end of every cycle “the chasm between rich and poor is wider and deeper. In an inflated economy the prospects of sudden windfall gains would seduce indivuduals away from honest industry and into speculative enterprises. The large gains or losses which would follow would create unacceptable inequalities within society.
(It is interesting that here we find a description of central banking that would sound very familiar to the Austrian-School economists of later generations, complete with condemnations of credit-fueled malinvestment and the boom-bust cycle.)
Certainly, the neat-and-tidy division of economic interests into the financial sector on one hand, and farmers and artisans on the other, is too crude to be fully accurate. But within the context of political debate, broad generalizations are sometimes necessary. The problem at the core of these class designations was not in the economic system, but in the political system. The goal was not to abolish bankers or manufacturers, but to force them out of their cozy relationship with the state.
This opposition to government favors is what made the Democratic party—the party of the Jeffersonians and Jacksonians—into the laissez-faire party in this period. Or, as described by by William Graham Sumner late in the nineteenth century: “The democratic party was for a generation, by tradition, a party of hard money, free trade, the non-interference theory of government, and no special legislation”,”
Rothbard put it this way: “The Jacksonians were libertarians, plain and simple. Their program and ideology were libertarian; they strongly favored free enterprise and free markets, but they just as strongly opposed special subsidies and monopoly privileges conveyed by government to business or to any other group.”
The Jacksonian laissez-faire position continued well into the late nineteenth century and we find Grover Cleveland, in his 1893 inaugural address making a statement against what we would call corporate welfare today. Cleveland denounced the principle that the functions of the federal government should include “the support of the people”—by which he meant the welfare state for pensioners and also subsidies for big business. He stated that once we refuse to exploit the taxpayers to support certain political interests, this “leads to a refusal of bounties and subsidies, which burden the labor and thrift of a portion of our citizens to aid ill-advised or languishing enterprises in which they have” no stake. These “languishing enterprises” were the politically favored large corporate interests that Cleveland believed could not survive in a truly competitive market, but relied on protectionism and other anti-competitive measures to stay afloat.
Nor can we say this view was even peculiar to the American backers of laissez-faire. Everywhere that the old classical liberalism still held sway at the dawn of the twentieth century, opposition to “plutocracy” in the form of protectionism and central banking was common. Thus, in 1912, Gustave de Molinari, the grand old man of radical liberalism (libertarianism) in Europe, effectively agreed with Cleveland and the Jacksonians, writing:
[I]n America, the Civil War, which had ruined the defeated provinces, led to a resurgence of protectionism in the northern provinces and among the victorious industrialists of the East, resulting in the trust system and the creation of billionaires. … As much as the free traders have faith in the usefulness of your competition, and strive to extend it, the protectionists treat it as an enemy and work actively to prohibit it. After having confined themselves to prohibiting external competition, they are now striving to suppress inferior competition, and for this purpose they are setting up trusts in the United States; in Germany cartels.
Note the concern over the creation of billionaires, which Molinari viewed as a byproduct of state intervention. In this, Molinari echoes his contemporary and fellow radical William Graham Sumner who gave us the terms “plutocrat” and “plutocracy.” When the ultra-rich are sustained by central banks or special favors found in tax policy, this is not a sign of economic progress, but of economic regression back to the days of mercantilism and absolutism.
In all this we find what could de described as a darker view of politics to which modern-day Americans are not accustomed. In the view espoused by Taylor and Sumner and the Jacksonians, state intervention in the market is exploitation, pure and simple. Who gets exploited depends on which group is victimized by government policy. The point, however, is that there is a class of victims, just as there is a class of those who benefit from the state’s coercive power.
Pluralism vs. Exploitation
During the twentieth century, however, these liberal insights on the true nature of state-fueled exploitation were eclipsed by a more naive view of politics called “pluralism.” Pluralism holds that diverse interest groups compete for “voice” within a democratic political system, and this “participation” by various interests leads to more representative governance. In this way of thinking, competition among interests does not lead to exploitation but to “broader representation.” Pluralists often tend to insist that a balanced and “fair” political system can be achieved through political compromise, negotiation, and bargaining. Moreover, pluralism tells us that the process ensures that no single interest can dominate the political system without cooperation from a broad spectrum of society. And finally, pluralism holds that the state itself is merely a neutral third party that seeks to balance various interests and ensure peaceful negotiation. In this, view, the there is no ruling elite with its own agenda.
This happy-go-lucky, pie-in-the-sky view of the political process—still popular among high school social studies teachers and US-focused political scientists—helped to pave the way for unprecedented expansion of state power in the twentieth century. “Out” was the old idea that state power is coercive and exploitive. “In” was the new pluralist view of “participation” and “inclusion.” With pluralism as a foundation of their political education, American voters were easily hoodwinked into believing that, no matter the political problem at hand, compromise and political “participation” could lead to an agreeable and fair solution for all.
The old theorists of exploitation, were they around today, would not be so easily fooled.
