Colonialism is under attack again -- criticised all too often not by by the mercantilist* motivations of most empire builders, but because ( it is claimed all too frequently) it is inspired by and a ruthless example of laissez-faire capitalism. Yet as Hans Sennholz writes in this guest post based on his 1956 article 'The Myth of Capitalist Colonialism: "The exploitation of colonial possessions is inconsistent with the concepts of competitive private enterprise and voluntary exchange."
"The adherent of capitalism [therefore] 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 [the] mercantilist international relations [that inspired colonialism]."
The exploitation of colonial possessions is inconsistent with the concepts of competitive private enterprise and voluntary exchange.... [Yet in the past few decades, academics and politicians across the spectrum] have attacked the political and economic position of the West [and what they frequently describe as "colonial expoitation."]
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 labour market, exploitation is impossible. Only where the mobility of labour is impeded through government decrees and regulations can labour 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.
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 recognised 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.
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 classical liberalism. But such a step in almost all cases would have brought about anarchy, civil war, and famine in the colonies evacuated.... [Yet clearly the indigenous populations] themselves ... 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 [continues to reap criticism] 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 [justified] grievance on the part of hundreds of millions of Asians undoubtedly contributed to the dissolution of the British Empire in Asia.
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... [and] 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.... 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... Neither the Czar nor the Mikado was a stooge of his subject bankers and merchants....
During this period of nationalist and interventionist colonisation 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.... 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.... 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 [however] 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 labour. Occupation by any other colonial power would have meant further destruction of world trade and aggravation of international relations through more trade barriers.
The Myth of Capitalist Colonialism
Guest post by Hans SennholzThe exploitation of colonial possessions is inconsistent with the concepts of competitive private enterprise and voluntary exchange.... [Yet in the past few decades, academics and politicians across the spectrum] have attacked the political and economic position of the West [and what they frequently describe as "colonial expoitation."]
Classical Liberal sympathy for undeveloped nations
[Classical liberal] 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....
[Marxian sympathisers and fellow travellers] 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... 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.
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....
[Marxian sympathisers and fellow travellers] 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... 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.
The Marxian Interpretation of 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 labour market, exploitation is impossible. Only where the mobility of labour is impeded through government decrees and regulations can labour 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 recognised 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 classical liberalism. But such a step in almost all cases would have brought about anarchy, civil war, and famine in the colonies evacuated.... [Yet clearly the indigenous populations] themselves ... 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 [continues to reap criticism] 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 [justified] 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 [and advance the prospect of plunging the world into war. None of these adventures either advanced or were inspired by capitalism].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... [and] 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.... 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... Neither the Czar nor the Mikado was a stooge of his subject bankers and merchants....
During this period of nationalist and interventionist colonisation 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.... 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.... 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 [however] 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 labour. Occupation by any other colonial power would have meant further destruction of world trade and aggravation of international relations through more trade barriers.
Britain Unfortunately Follows Suit
But toward the end of the nineteenth century the spirit of interventionist colonisation 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 classical 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....
NOTES
NOTES
* In The Logic of Action II, Murray Rothbard defined mercantilism as "a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state."
** In his Wealth of Nations Adam Smith characterises colonialism as a costly monopoly:
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. His full article first appeared in the November 1956 edition of 'The Freeman.' [pdf]
** In his Wealth of Nations Adam Smith characterises colonialism as 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 . . .
* * * *
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. His full article first appeared in the November 1956 edition of 'The Freeman.' [pdf]
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