“How bosses are (literally) like dictators,” Elizabeth Anderson, Vox, 17 July 2017:
The earliest champions of free markets envisioned a world of self-employment
Why do we talk like [businesses aren’t dictatorships]? The answer takes us back to free market ideas developed before the Industrial Revolution. In 17th- and 18th-century Britain, big merchants got the state to grant them monopolies over trade in particular goods, forcing small craftsmen to submit to their regulations. A handful of aristocratic families enjoyed a monopoly on land, due to primogeniture and entail, which barred the breakup and sale of any part of large estates. Farmers could rent their land only on short-term leases, which forced them to bow and scrape before their landlords, in a condition of subordination not much different from servants, who lived in their masters’ households and had to obey their rules.
The problem was that the state had rigged the rules of the market in favor of the rich. Confronted with this economic situation, many people argued that free markets would promote equality and workers’ interests by enabling them to go into business for themselves and thereby escape subordination to the owners of capital.
No wonder some of the early advocates of free markets in 17th-century England were called “Levellers.” These radicals, who emerged during the English civil war, wanted to abolish the monopolies held by the big merchants and aristocrats. They saw the prospects of greater equality that might come from opening up to ordinary workers opportunities for manufacture, trade, and farming one’s own land.
In the 18th century, Adam Smith was the greatest advocate for the view that replacing monopolies, primogeniture, entail, and involuntary servitude with free markets would enable laborers to work on their own behalf. His key assumption was that incentives were more powerful than economies of scale. When workers get to keep all of the fruits of their labor, as they do when self-employed, they will work much harder and more efficiently than if they are employed by a master, who takes a cut of what they produce. Indolent aristocratic landowners can’t compete with yeoman farmers without laws preventing land sales. Free markets in land, labor, and commerce will therefore lead to the triumph of the most efficient producer, the self-employed worker, and the demise of the idle, stupid, rent-seeking rentier.
Smith and his contemporaries looked across the Atlantic and saw that America appeared to be realizing these hopes — although only for white men. The great majority of the free population in the Revolutionary period was self-employed, as either a yeoman farmer or an independent artisan or merchant.
In the United States, Thomas Paine was the great promoter of this vision… Paine argued that individuals can solve nearly all of their problems on their own, without state meddling. A good government does nothing more than secure individuals in “peace and safety” in the free pursuit of their occupations, with the lowest possible tax burden… Paine was a lifelong advocate of commerce, free trade, and free markets. He called for hard money and fiscal responsibility.
Paine was the hero of labor radicals for decades after his death in 1809, because they shared his hope that free markets would yield an economy almost entirely composed of small proprietors. An economy of small proprietors offers a plausible model of a free society of equals: each individual personally independent, none taking orders from anyone else, everyone middle class.
Abraham Lincoln built on the vision of Smith and Paine, which helped to shape the two key planks of the Republican Party platform: opposition to the extension of slavery in the territories, and the Homestead Act. Slavery, after all, enabled masters to accumulate vast tracts of land, squeezing out small farmers and forcing them into wage labor. Prohibiting the extension of slavery into the territories and giving away small plots of land to anyone who would work it would realize a society of equals in which no one is ever consigned to wage labor for life. Lincoln, who helped create the political party that now defends the interests of business, never wavered from the proposition that true free labor meant freedom from wage labor.
The Industrial Revolution, however — well underway by Lincoln’s time — ultimately dashed the hopes of joining free markets with independent labor in a society of equals. Smith’s prediction — that economies of scale would be less important than the incentive effects of enabling workers to reap all the fruits of their labor — was defeated by industrial technologies that required massive accumulations of capital. The US, with its access to territories seized from Native Americans, was able to stave off the bankruptcy of self-employed farmers and other small proprietors for far longer than Europe. But industrialization, population growth, the closure of the frontier, and railroad monopolies doomed the sole proprietorship to the margins of the economy, even in North America.
The Industrial Revolution gave employers new powers over workers, but economists failed to adjust their vocabulary — or their analyses
The Smith-Paine-Lincoln libertarian vision was rendered largely irrelevant by industrialization, which created a new model of wage labor, with large companies taking the place of large landowners. Yet strangely, many people persist in using Smith’s and Paine’s rhetoric to describe the world we live in today. We are told that our choice is between free markets and state control — but most adults live their working lives under a third thing entirely: private government. A vision of what egalitarians hoped market society would deliver before the Industrial Revolution — a world without private workplace government, with producers interacting only through markets and the state — has been blindly carried over to the modern economy by libertarians and their pro-business fellow travelers.
There is a condition called hemiagnosia, whose sufferers cannot perceive one half of their bodies. A large class of libertarian-leaning thinkers and politicians, with considerable public following, resemble patients with this condition: They cannot perceive half of the economy — the half that takes place beyond the market, after the employment contract is accepted, where workers are subject to private, arbitrary, unaccountable government.