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Tuesday, December 13, 2011

Arthur Seldon, “Capitalism”

Lord Ralph Harris, Arthur Seldon, and Friedrich Hayek
Arthur Seldon, Capitalism (Oxford: Basil Blackwell, 1990).

I can honestly say that until I read Arthur Seldon’s Capitalism several years ago I was a socialist, at least in that vague and unreflective way that many socialists are socialist. It would have been difficult for me not to be, given that I was a scholar who had spent much time in an academic environment, and among academics for whom socialism is almost a conditioned reflex.

To this day I cannot remember what possessed me to read Seldon’s book, since at the time its very title would have held so little appeal to me, given my intellectual interests and proclivities. The experience of reading it ended up being a sort of smallish vision on the road to Damascus, my tiny conversion experience. I could easily entitle this post “How I Learned to Stop Worrying and Love Capitalism”. I have since steeped myself in literature of a free market and libertarian bent, but none of it (except Hayek perhaps) has hit me over the head with a hammer in the way this understated book has. In fact, it produced such a profound effect upon my views that I always make sure I own at least two copies, one for my own use, and another that I can give away to potential converts to the religion of capitalism (much like my optometrist, who keeps a stack of Bibles on his desk in case one of his patients should manifest any signs of receptivity to the “Good News”).

To be frank, there are things not to like about Capitalism. It is very much a book of its time, and many of the political events and figures it deals with are now rather dated. And being of its time, it oozes a sense of triumphalism that can only be found in a book about capitalism published in 1990, at the very moment that global communism was collapsing. To be fair, it is understandable that Seldon would be in a gloating mood. He had spent many decades as a voice in the wilderness, defending what had been — and is again — an unfashionable cause before living to see its ultimate triumph.

Seldon came from very humble beginnings, an orphan from the East End of London whose Jewish immigrant parents had been killed in the Spanish flu pandemic of 1918 when he was two. He was adopted by a childless cobbler and his wife, but the cobbler died when Arthur was eleven. His adopted mother, now widowed, provided for the family by selling stockings out of their home until she remarried, to a tailor. Being a gifted student, Arthur managed to get himself a scholarship to the London School of Economics, where he met and studied under Friedrich Hayek. After the LSE and subsequent wartime military service (where he observed widespread government waste and inefficient allocation of resources first-hand) he worked for a while as a consultant in the brewing industry and an editor of a trade journal, until he was called upon by his friend Ralph Harris to join the free market think tank, the Institute of Economic Affairs (IEA) in 1958, marking the beginning of a decades-long friendship and collaboration. The IEA was started up in 1955 by Sir Antony Fisher, and Harris was its General Director, with Seldon acting as Editorial Director.

Nowadays we tend to think of right-wing think tanks — with considerable justification — as establishment bastions, lavishly funded by corporations and moneyed elites with a vested interest in legitimating the market order. But this was not always the case. To be pro-market and anti-socialist in postwar Britain was to be very much on the wrong side of history (or so it was perceived at the time) and very much outside mainstream thinking. Britain had just come out victorious from a devastating World War, which was won by a massive national effort involving the nationalization of industry and economic central planning. Since such socialistic efforts had helped defeat the Nazis in wartime, it was thought that it could accomplish even more in peacetime. Socialism has become a mainstream idea and the centralizing government policies of the Labour and Conservative parties in this period were practically indistinguishable from each other (which is why Seldon was a lifelong Liberal Party member, at least until they too gave in to the siren call of statism).

Indeed, the very reason Fisher had started the IEA was because, alarmed by the message of Friedrich Hayek’s The Road to Serfdom, he contacted its author with the idea of running for Parliament in an effort to turn back the relentless advance of the state. Hayek told him he would be wasting his time in politics, since politicians of all stripes had long ago come to a consensus on the welfare state. In short, Fisher would get nothing done in Parliament. Instead, said Hayek, he would be better advised to turn to the painstaking but ultimately more effective strategy of influencing the intellectuals, whom he referred to as “the second-hand dealers in ideas”. In other words, before political change could be effected, a change in the general culture was required.

Thus, for many years, the free market policy prescriptions of the IEA were either ignored or ridiculed by the state’s kept intellectuals. Seldon and his colleagues toiled in relative obscurity. However, at least one person of influence was listening to them: Margaret Thatcher. When she came to power, the IEA suddenly had access to the ear of government and became a major source of public policy.

Seldon’s working class origin is a very important component of his thinking, as throughout Capitalism he is at great pains to point out the hypocrisy of socialism’s inflated claims to being the self-appointed guardian and savior of the working class, advocating high-minded social schemes which at the same time do much to hurt that same class. Take for instance, the following pungent criticism of the prevailing socialist intelligentsia:

“I have therefore not withdrawn my criticism of the mostly middle-class academics and writers who, for over a century since the time of Sidney and Beatrice Webb to this day, urged socialist solutions without suffering their coercions nor their foregone living standards, but who continued their comfortable lives as teachers in state-financed universities, politicians in state institutions, writers of ‘fiction’ that transparently condemned capitalism, or beneficiaries of government grants in academia, the arts and cultural life provided in part by the poor whose living standards their teaching and administrations have repressed.” (p. xii)

Scathing stuff, but working in a socialist university, I can identify with Seldon’s barely-concealed rage at the ignorance and self-righteous hypocrisy he saw around him, consisting of half-baked ideas put forth by privileged people who mostly know less than nothing about economics but who have learned that bad arguments can be given a sheen of surface plausibility so long as they are prefaced by hot words such as “equity” and “social” justice (whatever that means).

In reality, Seldon argues, the working class was doing just fine before bourgeois socialism appeared on the scene. As he outlines in Chapter 11 of Capitalism entitled “The Galloping Horses”, the story of the working class in liberal Gladstonian England is one of gradual improvement without the help of government programs. Literacy was very high and getting higher, and this without a government-run school system. Pretty much every child had access to a primary school education, and it was a quality education, unlike today’s public school system (using “public school” in its North American sense). Quite serviceable pension and insurance schemes were available, self-organized by various private and working men’s associations. Contrary to popular mythology, just about everyone had some access to health care, making due allowance for the less improved state of medical knowledge and technology at the time; many doctors served the poor and working class either pro bono, or through reduced fees or in-kind payment — which is more feasible through a private system that was more personal than public health care is today. Doctors back then could make up the difference by charging higher fees to their richer clients, arguably a more equitable way of doing things than, say, the NHS, in which the relatively affluent middle class gets a free ride, over-consuming scarce health care resources at the expense of both the rich and the poor. I doubt today that you will find many doctors who would accept payment for their services from the poor in chickens or trade, even if they wanted to. The system simply doesn’t allow it.

Seldon’s point is that the working classes had access to various services or had found their own creative solutions to problems in the absence of government assistance. Not every problem requires a government “program”. Unfortunately, Fabians and other do-gooding socialist elites decided that they knew better than workers what was good for them, and the self-organization of the working class was strangled in its cradle in order to create a socialist utopia that turned out to be a feeble offspring. Seldon waxes wistfully about what could have been if only the socialists had allowed the British state to develop naturally. I guess we’ll never know. In truth, Seldon’s account of the working class in the pre-welfare state sounds a little too perfect to me, and it is rather at odds with George Dangerfield’s classic The Strange Death of Liberal England (1935) — in Dangerfield’s account it is in part the workers themselves who contrive the downfall of the liberal state for lack of a living wage.

Of course, Seldon could argue that he has no doubt that there was suffering among workers and the poor in Gladstone’s Britain, just as there is today, and as he himself knew from personal experience. But where socialists and Marxists saw the degradation of the working class, the truth was that things were gradually improving. A difference of perspective, I suppose. But at least Seldon can claim some direct knowledge whereof he speaks: all his life he had little patience with the description of his own childhood as “deprived”, and the sense of optimism shared by Seldon and those he grew up with in his East London neighbourhood is rather touchingly portrayed in the afterword of Capitalism entitled “Envoi: A Promise Kept”.

There is one central theme of Seldon’s Capitalism that is right on the money (pardon the pun), and which has had a great influence on my own thinking. Seldon observes — and my own experience tallies with this — that if you read socialist literature, in addition to the obligatory denunciation of the market and of capitalism, you will typically find a lot of rhapsodizing over the limitless possibilities of socialism. In other words, says Seldon, capitalism as it exists is found wanting, while socialism as it supposedly could be is found to be desirable:

“The critics of capitalism have persisted in the device of contrasting imperfect capitalism as it is, or has been, with a vision of socialism as it has not so far been, and could not be in the foreseeable future…. This is an act of faith that sustains the intellectual effort long performed by the critics of capitalism to show its contrasts with the alternative of faultless socialism. The familiar non sequitur, ‘capitalism as we have known it, bad; socialism as it could be, good’ (or at least better) still permeates most socialist writing.” (p. 223)

This is hardly a fair comparison, for a number of reasons. First, capitalism as it is exists in nothing like its pure form anywhere, overlaid as it is by decades of socialist experimentation and adulterated by state tampering. Second, socialist experiments have been tried in various places, so shouldn’t these be the relevant examples to juxtapose against existing capitalism? Third, if we want to speculate on an ideal socialist world, shouldn’t the relevant comparison be an ideal capitalist one?

In Capitalism Seldon from the very beginning proposes a more fair comparison: socialism as it exists/has existed with capitalism as it exists/has existed. On every score Seldon makes a compelling case that in this more fair comparison capitalism comes out smelling like a rose, while socialism comes out smelling like week-old unrefrigerated salmon. Perhaps this was a much easier case to make in 1990 than it is today, but I think that if we were to repeat the exercise in good faith, capitalism would still look pretty good.

Seldon never tries to argue that the fair face of capitalism has no blemishes, and he even makes room for government functions that would not be popular among more doctrinally pure libertarians (e.g. environmental protection, the preservation of cultural heritage, and adaptation to new technologies). But according to another strand in his argument, capitalism has at least one crucial virtue that socialism lacks: corrigibility.

Consider this: The well-functioning of markets depends on the free flow of information, not just of capital. Capital can only be put to its most efficient uses if people have the means of finding out what those most efficient uses are. This requires information. Some of this information will come through the mechanism of price signals in markets (another advantage of capitalism over socialism), and some of it will come through people communicating directly with each other. The best way of facilitating the latter kind of communication is through the free institutions of an open society.

By contrast, in a socialist society information is either unavailable or more costly to obtain, for at least two reasons. First, the absence of free markets (or presence of over-regulated ones) means that price signals are missing or distorted. Second, the political institutions necessary to carry out the task of centralized economic planning will necessarily be coercive, and thus closed rather than open. In a coercive state, dissent is not tolerated. But dissent is a form of information signaling and in many circumstances it is the best way a government has of finding out that its policies are not working.

(And that may be where I have some limited support for the Occupy protests — the understanding and proposed solutions of the Occupiers may be simplistic, but the protesters are at least managing to signal that all is not well in the economy. After all, no system is incapable of being improved upon, not even capitalism.)

Thus, although there is no perfect or necessary connection between capitalism and freedom, capitalism will tend to work best where there is open communication and openness in institutions. A country like China seemingly represents a prima facie counter-example to this trend, but I predict it will be a relatively short-lived one: China will either become more open or it will regress economically; “capitalism with Chinese characteristics” is an unstable transitional state.

Getting back to Seldon’s point about corrigibility: capitalism is corrigible because a) it tends to facilitate access to the information necessary to correct mistakes, and b) it tends to have more open and flexible institutions that can respond to the need for change. Unfortunately, if that change comes in the form of socialism, the result will likely be another historical cul-de-sac from which it will be difficult to escape.

Since 2008, we have been moving backward. We have lost hold of that triumphalist “Spirit of 1990”. We have lost that faith which Seldon strove most of his life to instill, and we are reverting to the old gods of planning, government “programs”, and the uninspiring vision of a society of social workers and their clients. Seldon did what needed to be done: a comparison of socialism as it has been to capitalism as it has been. What we need now are more capable voices that will give us inspiring visions of capitalism as it could be, as an antidote to all those voices, so prominent now, who, in focusing exclusively on the faults of capitalism, too easily forget the gifts it has given them, and all the while doing so through media which capitalism has made possible.

Bibliographic Note

The original edition of 1990 has become a little difficult to get hold of and is to my knowledge out of print, though used copies are to be found. However, a more recent and affordable edition was published in 2004 by Liberty Fund as Volume 1 of The Collected Works of Arthur Seldon. The volume is entitled “The Virtues of Capitalism” and combines Capitalism with Seldon’s earlier book Corrigible Capitalism, Incorrigible Socialism. An electronic version is made available for free through the publisher’s “Online Library of Liberty”.


  1. What a fantastic review. To me, an ideal review should be worth reading as a bit of writing in its own right and also make you want to read the book being reviewed. Well done on both counts. My only worry is that I am currently a socialist - not sure if I actually want to be converted just yet.

  2. Not to worry -- conversions have a way of happening in their own time and can't be forced. Perhaps some day. Let me know when you're ready and I'll send you my spare copy ;-)

    Thanks for the encouraging feedback, Historyscientist.