Is Capitalism Incompatible with Libertarianism?

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Steel magnate Hank Rearden is one of the main fictional characters in Atlas Shrugged. A self-made man, he risked his savings and worked exceedingly hard to build a steel company that provided employment to scores of workers and that developed a new, stronger steel that would revolutionize the railroad industry.  His character represents the social and economic benefits of industrial capitalism.

Rearden is eventually driven to walk away from his business and from society by a petty, arrogant academic/bureaucrat, who had never created one job and who embodied the envy at the root of socialism.

Although author Ayn Rand was an objectivist and not a libertarian per se, libertarians treat Atlas Shrugged as holy scripture.  The book is on my bookshelf along with Rand’s other books and the books of other libertarian thinkers, such as Isabel Paterson.  In my college days, long before academia made a hard left turn, Atlas Shrugged was a best-selling book on college campuses.

Since then, a heretical question has come to mind:  Is capitalism incompatible with libertarianism?

To answer the question, let’s begin with the core beliefs of libertarians.

Libertarians believe that government should be limited to protecting life, liberty, and property; that trade should be unrestricted; that humans own themselves and thus the fruits of their labor; that people should be allowed to associate with whomever they want; that force should not be used against others except to defend life, liberty, and property; and that the individual is more important than the collective.

Many conservatives share many of these beliefs.

Given these beliefs, libertarians are opposed to all forms of socialism, especially communism.  They’re also against imperialism, mercantilism, colonialism, slavery, serfdom, police states, and welfare states.

In terms of an economic system, most libertarians are in favor of capitalism (as are most conservatives).

But what is capitalism?  Definitions vary, but I prefer this one:  Capitalism is a mode of production that is based on the private ownership of the means of production (land, raw materials, factories, equipment, money, and credit).  Industrial capitalism is a variant with roots in the Industrial Revolution and with the organization of production based on the division of labor and specialization.

There is nothing here that is incompatible with libertarianism.

But capitalism does not exist in a vacuum or pure state.  It exists in the context of history, it operates within and between nation states, it is connected to the banking and monetary systems of those nation states, and it changes form based on the influences of geography, social norms, and legal constructs, especially the state-sanctioned advent of the corporation.

When these realities are considered, capitalism is indeed incompatible with libertarianism.

To understand why, let’s go back to the late eighteenth and early nineteenth century to a section of the fledgling nation where libertarianism thrived.  Let’s go back to the mountainsides, hollows, creeks, and woods of Appalachia.  And then let’s see how libertarianism was eventually supplanted by capitalism. It’s a story that would be repeated in other parts of the country, especially farther west in the prairies, where the political movement of prairie populism was born, which would eventually morph into the Progressive movement.

This history of Appalachia is covered in detail in the book, Ramp Hollow, on which some of this commentary is based.  Although the word “libertarianism” is not used in the book to describe the social and political system extant at the time among those who settled in Appalachia, it was indeed libertarianism.

Primarily agrarians, the Appalachian settlers were highly independent, self-sufficient, and self-organizing.  They had vegetable gardens, grew some crops, hunted and foraged for additional food, and traded any surplus for other food or tools.  It could be called a “subsistence” existence, except the word implies living on the edge of starvation, which wasn’t the case.  For sure, the populace was poor, but they didn’t see themselves as living in poverty, because the concept of poverty did not exist.

In today’s terms, they’d be considered “off the grid,” but there wasn’t a grid back then in most of the country.  And government was so distant that it may as well not have existed.

Some of the settlers had deeds to their plots of land, but deeds were often in conflict, with multiple people claiming the same land and with much of the land not being accurately surveyed.  Many others were squatters; that is, they occupied land that was owned by someone else, typically by an absentee owner who lived along the eastern seaboard and never set foot beyond the Appalachian or Blue Ridge mountains.

Some of the absentee owners were speculators, and some had been granted extensive landholdings by the federal government after the Revolutionary War.  They included George Washington, whose landholdings extended from the Potomac River to the confluence of the Allegheny and Monongahela rivers at Pittsburgh.  Another was Robert Morris, a signer of the Declaration of Independence, who acquired an estimated eight million acres through government grants and purchases.  Morris would later be sentenced to debtor’s prison, because the land didn’t generate enough revenue to cover his debts.

It’s not very libertarian to squat on someone else’s land or on land taken by force from Native Americans, as this runs counter to the libertarian (and conservative) belief in property rights.  On the other hand, virtually all land in the world has been taken by force at some point in human history, so it’s nearly impossible to purchase land that has never been stolen, or to go back in time and make amends to the rightful owner.

The custom in Appalachia at the time was that unoccupied and undeveloped land could be used as common land for hunting, fishing, and foraging.  Another custom was that if someone established a homestead on unoccupied and undeveloped land, the title to the plot could convert to the homesteader—a custom that was codified by law in some jurisdictions.

Federalists in the new federal government did not like this situation of an agrarian economy and small, untaxed homesteads that had limited tradable surpluses and little connection to the nation.

Alexander Hamilton liked it less than just about anyone.  He and his allies felt that a great nation used its natural resources to the fullest to grow trade, industry and population.  A great nation also had a banking and credit system that facilitated expansion and development, that accelerated the velocity of money, and that created capital for investment.  And finally, a great nation had a large tax base to grow government revenue, so that the power and reach of government could expand and facilitate economic growth while subsuming individuals to the common good.

In other words, Hamilton was a capitalist.  As such, he was instrumental in setting in motion a series of events that would conflict with the independence of the libertarians of Appalachia.

One event was a federal tax on whiskey, an event that would lead to the Whiskey Rebellion of western Pennsylvania.  To the authorities, it was a just a tax; but to those taxed, it was an assault on their way of life.  The government had a wide range of taxes to choose from but chose to tax one of the few commodities that Appalachians could store, transport long distances and trade for other goods or hard money.  Not only that, but the tax was administered in a ham-handed way that made King George’s tax collection look benevolent in retrospect.

Those who distilled whiskey had to paint the words “DISTILLER OF SPIRITS” on their houses, had to give written notice at a central office three days before distilling, had to allow government agents to enter their premises to inspect the stills while the liquor was percolating, had to have each cask stamped with a serial number, and had to pay the required tax before liquor left the premises.  Agents who discovered untaxed liquor in transit had the authority to seize not only the casks but also horses, cattle, carriages, harnesses, tackling, and other cargo—as well as levying a fine that could be so high that the miscreant could not afford to pay it.  A similar practice continues today, whereby the police can confiscate a car carrying illegal drugs.

Hamilton personally participated in ending the Whiskey Rebellion.  Troops seized suspected rebels from their beds and marched them barefoot through the cold of November to Pittsburgh, where they were detained for two days without heat or food while Hamilton interrogated them.  None of the detainees would snitch on fellow rebels, and one died in captivity.  The ten men arrested by Hamilton would be found not guilty by juries, with the exception of two of them.  Washington pardoned both of them.

The Whiskey Rebellion wasn’t the only rebellion by independent-minded agrarians who wanted to protect their way of life from intrusions by a central government.  To quote from Ramp Hollow, other rebellions in colonial and revolutionary times included “Bacon”s Rebellion (1676), Virginia’s Plant-Cutter Riots (1681-1683), the Conojocular War (1732-1737), the Jersey Land Riots (1745-1755), the colonial New York anti-rent riots (1753-1766), the Paxton Riots surgency (1770-1775), Shay’s Rebellion (1786-1787), and John Fries’ Rebellion (1799).”

These proved to be losing battles.

To fast forward, the libertarians of Appalachia would eventually lose their independence and way of life.  The forces of industrialization, centralization, taxation, and land purchases by politically-connected corporations were too powerful to stop.  In other words, the inevitable nexus between government and capitalism won out over individualism.

Two other forces came into play:  First, as population density increased in Appalachia, it became more difficult to live off the shrinking per-capita amount of land.  Second, in a process known as “enclosure,” what had been commons used by all inhabitants for grazing, hunting and foraging was fenced off by the distant landowners.

In the face of rising taxes and difficulty in producing food, the populace went into debt to survive, which in turn made them dependent on decisions made by distant bankers, corporations and politicians.  Eventually, they had no choice but to become wage earners.  They went to work for lumber mills and coal companies and saw their beloved woods clear cut by timber companies, their pristine creeks polluted with mine wastes, and their families relocated to company towns.

In Marxist terms, they became alienated.  Previously, what they had produced in whole through their labor had been linked directly to the means of production, which were almost entirely under their control.  Moreover, their production was family- and community-based.  As industrial workers by contrast, their labor became separated from the means of production, which were controlled from afar by faceless financial and industrial capitalists.  Equally upsetting, instead of being responsible for an entire production process, such as planting, growing and harvesting a crop, the workers performed one monotonous task in a production process, such as shoveling coal or operating a power saw, because work was organized on the principles of specialization and division of labor.

In short, the workers lost their independence and moved from a libertarian system to a capitalist system.

This is not to suggest that there is a better economic system than capitalism.  Clearly, capitalism has brought prosperity, health and longevity to more people than any other system.  Just as clearly, the offspring of the former Appalachian settlers have a better life now under capitalism than their forebears had under libertarianism, at least in terms of comfort, medical care, medicine, diet, and consumer goods.  Of course, the rough edges of capitalism have been softened during the intervening years by the welfare state, by the environmental movement, and by the regulatory state—all of which have gone way overboard in the process.

Now there is a backlash against global capitalism, as seen by Trump being elected president.  But In spite of electing Trump, those affected negatively by global capitalism have even less power than the early Appalachians had over domestic capitalism, for the capitalists aren’t even in the same country.

Enough of that.  The purpose of this commentary was not to debate the pros and cons of capitalism.  Rather, it was to answer the question:  Is capitalism incompatible with libertarianism?  As I’ve tried to show, the answer is yes.

Let me close by returning to Atlas Shrugged.  It didn’t tell the whole story.  For example, it didn’t say where Hank Rearden got the coal for his steel mill.  Perhaps it came from Appalachia and had been mined by former libertarians.

Nor did the book say how Rearden and his fellow dropouts from industry and society survived after they had escaped to Galt’s Gulch in the Rocky Mountains.  Did they live off the land like the Appalachian settlers did?  If so, how did they produce enough food in the much harsher environment of the Rockies?  And finally, how did they keep capitalists from upending their libertarian enclave?

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  1. The article presents the question whether “libertarianism is compatible with capitalism?” After giving fair definitions of libertarianism and capitalism, the article states: “There is nothing here that is incompatible with libertarianism.” But the article concludes by saying capitalism is incompatible with libertarianism.

    In between those assertive bookends lies a wide ranging series of descriptions of various market conditions, market forces, and governmental taxation and intervention, extending over an indeterminate period starting in the 1600s and moving into the present, from rural Appalachia to something called “global capitalism.”

    Although I’m acquainted with economic reasoning, I did not follow any thread of reasoning in the article. What fascinates me is that someone cross posted this article to another web spot. So many of Mr. Cantoni’s pieces are powerful and clear, yet not cross posted. This piece, which doesn’t really follow any thread, nevertheless was honored with a cross post. That suggests the other blog’s contributors found snips of things that resonated with their views, and are using this piece as a source for the snips. That’s unfortunate, because the libertarian, conservative, and other free market advocates need clarity of thought, not sound bites.

    (I’m a loyal fan of Mr. Cantoni’s work, so my feedback here does not signal a loss of admiration for his insights and overall body of work.)

  2. “Capitalism” has a variety of meanings. Lots of people think it is synonymous with corporatism. Others think it always becomes crony capitalism. Most libertarians define capitalism as a private property system that more or less accords with Ayn Rand’s ideals.

    Not many people look to the word’s origin in economic thought. It originated with Marx, who essentially defined capitalism as a mode of production whereby the bourgeoisie exploit workers to derive the surplus product from their labors. Under such a system, Marx taught that government is an instrument under the exclusive control of the bourgeoisie to secure and expand their privileged position as exploiters of the working class.

    I suppose that, using Marx’s definition of capitalism, capitalism is incompatible with libertarianism.

    On the other hand, using Rand’s definition, capitalism is all about free markets, private ownership, and limited government, and these are indeed compatible with libertarianism.