May 1997 Vol. 47, No. 5

BOOKS

Capitalism: A Treatise on Economics

Jameson Books 1996 1,096 pages $95

Reviewed by Jim Powell

In this monumental work (8½ by 11-inch pages), Reisman offers the most comprehensive defense of capitalism ever written. He covers fundamental principles and a wide range of policy issues. He discusses controversies--especially environmentalism--which have emerged since Ludwig von Mises and Ayn Rand wrote their immortal books.

Reisman attempts something nobody else has done: combine some doctrines from classical economics, plus the free-market economics of the Austrian School and the pro-capitalist moral vision of Objectivism. He is perhaps in a unique position to pull this off, having long been a friend and intellectual compatriot of Ayn Rand, and having attended Ludwig von Mises's New York University graduate seminar for years. Reisman translated Mises's work on methodology, published as Epistemological Problems of Economics.

Reisman, now an economics professor at Pepperdine University, tells how this magazine helped him on his intellectual journey more than four decades ago. "It was in one of the early issues of The Freeman," he recalls, "that I had my first exposure to the writings of Ludwig von Mises. . . . I could see that Mises knew the history of economic thought and that he was presenting a strong, self-assured position. . . . I bought Socialism and over the coming months had one of the very greatest intellectual experiences of my life, before or since. . . . Here at last was a great articulate defender of the economic institutions of capitalism."

Although a thoroughgoing Austrian, Reisman believes that classical economists made some enduring contributions to the case for capitalism. "A leading application of the classical doctrines, of which I am especially proud, " he says, "is a radically improved critique of the Marxian exploitation theory. In my judgment, classical economics makes possible a far more fundamental and thoroughgoing critique of the exploitation theory than that provided by Böhm-Bawerk and the Austrian School . . . [and] also provides the basis for greatly strengthening the refutation of the ideas of Keynes."

From classical economics, Reisman takes "the recognition of saving and productive expenditure, rather than consumption expenditure, as the source of most spending in the economic system. Closely related to this, I have brought back the wages-fund doctrine and have made clear the meaning of John Stuart Mill's vital corollary proposition that `demand for commodities does not constitute demand for labor.' I have reinstated Adam Smith's recognition that in a division-of-labor society the concept of productive activity must incorporate the earning of money and that because of its failure to earn money, government is a consumer. . . . I have reintroduced Ricardo's insights that capital can be accumulated not only by saving but also by anything else that serves to increase wealth. . . . The main thing I have discarded in classical economics is any notion that wages are determined by the `cost of production of labor.`"

Many Austrians will surely counter that Austrian economics already builds upon what was of enduring value in classical economics, but as noted, Reisman learned economics from Mises himself, and he labored some 18 years on this book, so his views aren't offered on a whim. Capitalism will be a stimulating read even if you disagree with him on some important theoretical issues.

Rand's influence is perhaps most apparent in Reisman's discussion of individual rights, liberty, competition, monopoly, and environmentalism. Like Rand, Reisman sees progress as "a self-expanded power of human reason to serve human life." He draws on her insights when he talks about philosophical influences which are essential for capitalist civilization--and philosophical influences which threaten to destroy it.

Capitalism climaxes with a radical agenda for liberty. Again reflecting Rand's influence, he presents a powerful moral and practical case for abolishing government schooling, minimum-wage laws, compulsory unionism, Social Security, Medicare, welfare, business subsidies, rent controls, income taxes, fiat money, and other types of government intervention which cause so much misery.

For instance, after explaining his proposal for cutting off the flow of taxpayer money to government schools--thus going far beyond the de current debate over school vouchers--Reisman adds: "the public education system is inherently unsuited to teach any subject about which there is controversy. This is because teaching such a subject necessarily entails forcing at least some taxpayers to violate their convictions, by providing funds for the dissemination of ideas which they consider to be false and possibly vicious. On the basis of this principle, the public schools should be barred from teaching not only religion, but also history, economics, civics, and biology. In the nature of things, only private schools, for whose services people have the choice of paying or not paying, can teach these subjects without violating the freedom of conscience. The fact that barring the public schools from teaching these subjects would leave them with very little to teach, and place them in a position in which they may as well not exist, simply confirms the fact that public education should be abolished." Amen!

Reisman does a fine job explaining the creative genius of capitalism, and the moral dimension really makes the book compelling. He articulates a rigorous defense of individual rights, open markets, free trade, hard money, and freedom of movement. Capitalism is a classic.