capitalism

General Introduction
xxxv
the later 19th century was the appearance of a new
kind of conservatism, founded on an alliance between
government and big business. It was that alliance,
forged in the United States by Republican “fixer”
Mark Hanna, that lay behind much of the move
toward a more collectivist and interventionist state.
The Progressive Era saw further significant moves in
the direction of statism in 1913, with the ratification
of the 16th and 17th Amendments, which introduced
a federal income tax and the direct election of senators.
In Britain and Europe, the defeat of classical liberalism
cannot be so clearly dated, but there is no
doubt that by the 1890s, a definite movement away
from its ideas and programs occurred.
The last 3 decades of the 19th century saw a sudden
upsurge of a wide range of antiliberal ideas.
Socialism, formerly a minor doctrine with limited
support, suddenly became a major political force.
Imperialism was revived on a massive scale; militarism
grew and gave rise to an unprecedented arms
race that turned Europe by 1900 into an armed camp of
mutually hostile states. Other ideas that gained ground
at the time were eugenics and racism. Socialism,
nationalism, racism, and imperialism were all closely
connected and frequently supported by the same
people. There also was a marked growth in movements
for the use of compulsion to reform people’s behavior,
particularly sexual activity and drinking. The leaders
in those campaigns for social purity and prohibition
were often leaders of feminist movements, which had
moved away from their earlier libertarianism.
The most significant change, however, was in the
economic and social policies of governments. The
pacesetter here was Germany. In 1879, Bismarck
abandoned free trade and instituted a policy of economic
nationalism based on the ideas of the German
economist, Friedrich List. This program involved
large-scale government support for and encouragement
of industrialization, a pattern soon imitated
throughout the world, notably in Russia. The United
States, which had already pursued a policy of protection
before the Civil War, also adopted it wholesale
after 1860, abandoning the argument that tariffs were
merely a revenue-raising device. Government support
for the railroads led to the Interstate Commerce Act of
1887, the first significant piece of regulatory legislation,
passed under the guise of protecting consumers.
Imperial Germany led the way in social policy as well
with the adoption by Bismarck of the policy of
sozialpolitik, or state welfare, in 1883, providing yet
another model that was to be emulated throughout
Europe and, ultimately, America. The protectionist
policies of the major states, together with a mistaken
monetary policy, caused the Panic of 1893, but, as so
often happens, that actually redounded to the benefit of
interventionists. More serious was the impact of the
changed economic policies of major states on international
relations. The growing economic and fiscal
problems of imperial Germany led the German elite to
adopt increasingly risky policies until, in 1914, they
took the insane gamble of fighting a war on two fronts.
The Great War of 1914–1918 destroyed the liberal
civilization that had been built in the previous century.
Among its consequences were not only 10 million
dead, but the collapse of the international monetary
system, a communist revolution in Russia, and, a
short while later, a national socialist revolution in
Germany, and ultimately a Second World War that
saw even greater and more terrible suffering. The
totalitarian regimes that grew out of the world war
killed millions of their own subjects and millions of
others who fell under their yoke. The years between
1914 and 1945 were truly the dark night of liberalism
in all its forms. There were some brave individuals
who continued to argue for liberty, toleration, free
trade, limited government, and peace, but in one
country after another, they were defeated by the advocates
of collectivism and statism. In Britain, the decisive
turning point was the move toward a welfare state
by the liberal government in 1909, followed by the
massive restrictions on civil liberties contained in the
Defense of the Realm Act of 1914. In 1931, Britain
finally abandoned free trade. In the United States,
there was a sharp move toward statism under
President Herbert Hoover, a move that accelerated
after 1932 with the introduction of President Franklin
D. Roosevelt’s New Deal.
These two examples demonstrate that, although
liberalism faced a mortal challenge from radical
socialism, fascism, Nazism, and communism, the
political agenda in the surviving democracies was
increasingly set by collectivist new liberals and social
democrats. Political scientists and economists came
increasingly to demand widespread action by government
to guide the economy, with the result that liberalism
underwent a change of meaning. By the 1950s,
liberalism had come to refer almost exclusively to its
collectivist variant. Following the defeat of fascism in
World War II, the challenge from communism, radical
socialism, and fascism was successfully contained in