In 2008 and 2009 the United States encountered an economic crisis brought about by corporations “too big to fail” and government guarantees that encouraged corruption in the financial markets and banking industry.
Both the Bush and Obama administrations bought the “too big to fail” argument. Clearly, huge CEO pay and ponzi schemes are wrong. By the time the crisis occurred, Pres. Bush, already a “lame duck” president, allowed those people who caused the problem to try to correct their own mistakes (with a taxpayer bailout). The result of the bailout was further concentration of economic power. What did the banks do with their bailout? They bought other banks, so that the result was fewer and bigger banks.
President Obama, on the other hand, whose socialist biases go back to before he met Saul Alinsky in his Columbia University days, set out to have the Federal Government take over ownership of major industries–banking, auto makers, and health care. His plan not only further concentrates wealth, but commingles it with concentrated political power, creating a more totalitarian state.
Both parties, the Republican and the Democratic, missed the central problem–concentrated economic power–which is implied in the notion “too big to fail.” The problem that occurred is not the result of banking as an industry. It was not the result of private ownership of property. It was not the result of a free market. It was not the result of capitalism as a principle. It was a result of capitalism as practiced with ever greater concentrations of capital in the hands of elites.
“Capitalism” in a definitional sense, is merely the acquisition and use of money (capital) to create industries that require more money than what an average person has available through working wages. Capital is required to build large factories and install equipment necessary for production of goods like automobiles and airplanes. Capital can be privately raised, publicly raised through economic institutions like banks and stock exchanges, or it can be government-owned–“state capitalism”.
The critique of “capitalism” by Karl Marx was a critique of the exploitation of a the average laborer by those who privately held concentrations of capital. These were people who owned and ran private businesses and corporations. Marx’s solution was to have the masses appropriate the ownership of capital through the state. In Marx’s day, the state was still seen as the savior of humanity. In the language of his philosophical mentor G.W.F. Hegel, it was “the end of the march of the absolute in history.”
Marx’s solution to capitalism was attempted in Russia after the Bolshevik revolution of 1917. The results were dismal, causing a form of bureaucratic totalitarianism, in which the state basically owned all property and theoretically “gave to each according to his ability” and took “from each according to his need.” Instead of creating a “new man” and a just society, Marxism-Leninism created a “new class,” the nomenklatura, which was responsible for the management of a centralized economy in which the economic power of the nation was concentrated in the hands of a few.
Just as the “capitalists” the communists opposed had sought to maximize their personal wealth through control of their enterprises, the “communists” sought to maximize their personal wealth through control of enterprises. The fundamental qualities of being human applied to both “capitalists” and “communists.” It didn’t matter whether capitalists justified their control through the language of economic freedom, or whether the communists justified their control through the language of social justice. The end result was that people who controlled large concentrations of capital were likely to abuse that power–even though many were idealistic and used their positions for great social good.
People try to accumulate control over concentrated wealth, just like political power, either with intentions to make the world better or to exploit it for selfish reasons. In either case it becomes a temptation likely to be abused, if not by the ones who originally accumulated the power, then by those who succeed them. Even if the supposed reason is to mete out rational distribution of wealth or power, it is a form of oppression by making other people serve the leader’s ideals and denying them the right to freely pursue their own.
In rare cases, those who have controlled power and wealth have worked to decentralize it allowing others to pursue their own destiny. South Korea and the “Asian Tigers” are sometimes cited as examples in relatively recent history. But centralization seems to be the norm rather than decentralization because people tend to put themselves, their fate, and their ideas above those of others. The Bush and Obama administrations both typify the centralizing tendency of fallen human nature. They both represent what the founding fathers, particularly Thomas Jefferson, feared the most.
The U.S. founders were primarily concerned about political power, because in their day the Kings and Nobility also controlled most of the economic wealth. As the U.S. Constitution placed checks on political power, the opportunity for economic power to develop autonomously was created. Initially U.S. economic wealth was highly decentralized in family farms and businesses. Jefferson’s vision of agrarian democracy was to keep it that way. Hamilton, on the other hand, argued that banking and a stock market would allow for the accumulation of capital that could fuel a more powerful and industrial economy. Hamilton’s system won out, but today we have concentrations of unchecked economic power that roughly parallels the concentrations of political power at the time of the founding.
The solution is checks and balances on economic power, that puts less concentrated ownership of private property into more hands, bringing back the middle class that has been dissipating in the United States during the last half-century. This solution is one of the points of my book, Life, Liberty, and the Pursuit of Happiness, Version 4.0 published last year. In it I suggest several reforms:
- First, I recommend separating the functions of government and the economy so that neither institution can control the other, much like we have done with the separation of church and state. Hence, I proposed an amendment that would “prevent the government establishment of business, or the free exercise thereof.”
- Second, I recommend taxation strategies that penalize concentrations of wealth and encourage decentralization into smaller privately directed enterprises. For example, instead of giving tax breaks for mergers and acquisitions, which have frequently become hostile takeovers that dismember acquired properties, I would recommend placing sales taxes or fees on such takeovers, which in many cases are the equivalent of murder, extortion, or slavery in the economic sphere. In the civil sphere their equivalents are considered crimes and punished. The government should punish those who bring harm to others through economic activities as well.
These are just a couple of suggestions. In the end I conclude that we cannot live with either a Jeffersonian or Hamiltonian model, but need to devise a system where both can exist within limits required for adequate accumulations of capital for large-scale projects, without the excessive accumulations that come from excessive concentrations of wealth that destroy the free market on the one hand, and government intervention, that also destroys the free market, on the other.
The Tea Parties seem to be a reaction to concentrated federal power in the hands of either party. We have already seen attempts by big government Republicans to coopt this movement, however what is needed is to eliminate both the control of government by capital and the control of capital by government. Let’s put control of both back in the hands of the people.