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The Obama administration as “managed democracy"

Tony Wikrent's picture
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[I'm leaving this sticky for another day. Veblen is cool! --lambert]

Financial reform has passed, but it is a botched job. Health care reform has been signed into law, but it is also a botched job that does nothing for actual health care and which actually makes health care insurance an even riskier proposition for the middle class. Despite hopes for fundamental change, the Obama administration is quietly continuing to defend much of the executive overreach of the Bush regime. How can this be? Why is it so difficult to actually get the public interest served by public servants? Why is there no sense of urgency about unemployment, especially unemployment among the lowest income brackets, which are being ravaged by combined unemployment and underemployment rates of over fifty percent? Why is there no interest in the types massive infrastructure program that would create millions of new jobs while propelling the United States into a sustainable future? Why are political, media, and business elites mystified and terrified about the growing voters’ revolt against political incumbents?


In his important 2008 book, Democracy Inc.: Managed Democracy and the Specter of Inverted Totalitarianism, Princeton professor emeritus of politics Sheldon S. Wolin has identified and dissected the emergence of a new type of authoritarian political system in the United States.

The new constitution conceives politics and governance as a strategy based upon the powers that technology and science (including psychology and the social sciences) have made possible. Exploitation of those powers enables their owners to redefine the citizenry as respondents rather than actors, as objects of manipulation rather than as autonomous.

This new political type has arisen as the revolving door between government and the private sector as spun faster and faster, infusing the government with the morals and social customs of the American managerial class, while suffocating the older, more noble idea of civic virtue. In short, American politics has been “managerialized.” To fully understand this, Wolin first recounts the history of the concept of civic virtue and the emergence of the polis:

Over the centuries politicians and political theorists-starting with
Plato's Republic have emphasized disinterestedness, not personal advantage, as the fundamental virtue required of those entrusted with state power. In recognition of the temptations of power and self-interest a variety of constraints -- legal, religious, customary, and moral -- were invoked or appealed to in the hope of limiting rulers or at least inhibiting them from doing harmful or evil acts. At the same time rulers were exhorted to protect and promote the common good of society and the well-being of all of their subjects. With the emergence of democratic ideas during the seventeenth and eighteenth centuries, it fell to the citizen to assume responsibility for taking care of political and social arrangements, not only operating institutions but "cultivating" them, caring for them, improving them, and, ultimately, defending them. Democracy presumed the presence of a "popular culture," not in the contemporary sense of packaged pleasures for a perpetually adolescent consumer, but culture in its original meaning: from the Latin cultus = tilling, cultivating, tending. The ideal of a democratic political culture was about cooperating in the care of common arrangements, of practices in which, potentially, all could share in deciding the uses of power while bearing responsibility for their consequences. The assumption was that if decision-making institutions of a community were left untended, all or most might suffer.

Wolin does not get into enough details to actually name names, but the basic trajectory of America’s descent is clear enough. In the era immediately after World War Two, the U.S. political establishment -- or at least, the foreign policy arm of it -- was dominated by an easily identfied group of patricians, beginning with Walter Isaacson’s The Wise Men (Dean Acheson, Averell Harriman, George Kennan, John McCloy Jr., Charles Bohlen, and Robert Lovett) who hand-crafted the post-war posture of the Cold War, and ending with David Halberstam’s The Best and the Brightest (Dean Rusk, Robert McNamara, Clark Clifford, George Ball, McGeorge Bundy, Walt Rostow, William Bundy and others), who muddied the U.S. political establishment in the rice paddies of Vietnam.

Of these latter, Ford Motor Co. CEO McNamara stands out, for bringing modern business management theories and practices, including cost-benefit analysis, into the Pentagon, and the government generally. However, Wolin does not mention McNamara and his Whiz Kids (including Charlie “Tex” Thornton, founder of Litton Industries, America's first major corporate conglomerate since the Morgan trusts of the late 1800s and General Motors of the 1920s). Instead, Wolin fingers the Reagan administration as the first major example of business managers transforming American politics.

The examples of McNamara and Lovett show there have always been businessmen present in top levels of the U.S. government. This particular point -- of exactly when a business mentality gained ascendance in U.S. government -- is more than an interesting academic question. It brings us to an subject that Wolin fails to consider: just how American capitalism itself has been transformed. Simply stated, there has been a fundamental shift from industrial capitalism to financial capitalism, and it has huge implications for cultural and political norms of behavior, not just in government, but in the entire society. Basically, while it has become the dominant type of culture in the United States, business culture, as foreseen and explained by Thorstein Veblen, has degenerated to lower forms of barbarism, dragging the rest of society down with it. Veblen’s understanding of the politico-sociological, as well as economic, differences between industrial producers, as distinct from financial predators, gives us a far more powerful means of socio-economic analysis than Marxism does, which fails to distinguish between productive and predatory economic and social behaviors. Marxism’s obsession with ownership of the means of production blinds Marxists to the crucial differences and deadly conflict between real industry and predatory financial and monetary systems.

According to Wolin,

Corporate culture might be defined as the norms and practices operative at various levels of the corporate hierarchy that shape or influence the beliefs and behavior of those who work in a particular institutional context. Today corporate culture is not confined to the corporation. Managed democracy depends upon managers, and managers are the product and creators of corporate culture. The question is this: what are the characteristics of the culture that corporate managers bring to government? How are the corporatists likely to approach power and governance, and how does that approach differ from political conceptions?

Wolin’s approach here is basically that of Veblen’s institutional analysis. Wolin compares corporate culture to the civic culture he discussed above.

In contrast, the ethos of the twenty-first-century corporation is an antipolitical culture of competition rather than cooperation, of aggrandizement, of besting rivals, and of leaving behind disrupted careers and damaged communities. It is a culture for increase that cannot rest (= "stagnation") but must continuously innovate and expand. It accepts as axiomatic that top executives have to be, first and foremost, competition-oriented and profit-driven: the profitability of the corporate entity is more important than any commonality with the larger society. "The competitor is our friend," according to an Archer Daniels Midland internal memo," and the customer is our enemy." Enron had "visions and values" cubes on display; its chief financial officer's cube read, "When Enron says it will rip your face off, it will rip your face off."

The ADM internal memo exactly defines the political culture in the U.S. Congress, and its uneasy relationship with its citizen constituents. Remember how Joe Lieberman was welcomed back by his fellow Senators after running as an “independent” to beat back Ned Lamont’s challenge. And “the customer is our enemy" mentality goes a long way in explaining Rahm Emanuel’s notorious antipathy to political progressives.

A little later, Wolin writes,

The essential skill that a corporate executive brings to his firm and to a top-level governmental position is the skill of devising and implementing strategies of aggrandizement. . .

Here, Wolin’s work would be made vastly more powerful if he incorporated Veblen’s insight about the essential difference between “industry” and “business.” As economist Douglas W. MacKenzie explains in a November 2007 paper, Veblen examined the functional and cultural differences between financial and industrial institutions, contrasting the profit-driven process of financial capitalism, to the workmanship and science-driven machine process of industry. In general, once an industrial firm falls under the sway of “business managers” and financiers, its focus becomes one “of acquisition, not of production; of exploitation, not of serviceability”.

Moreover, unlike industrialists, business managers and financiers dislike the uncertainty and unpredictability created by technological innovation. American folklore is rife with stories and myths of breakthrough technologies that were suppressed by corporate behemoths. Rather than creating wealth through increased and less imperfect production (here, think of the Japanese concept of kaizen), business managers and financiers instead seek to acquire wealth “by a shrewd restriction of output,” causing privation and unemployment. This actually establishes and perpetuates a process of financial sabotage of industry. In the first chapter of Veblen’s 1921 book, The Engineers and the Price System, he writes:

Without some salutary restraint in the way of sabotage on the productive use of the available industrial plant and workmen it is altogether unlikely that prices could be maintained at a reasonably profitable figure for any appreciable time. A businesslike control of the rate and volume of output is indispensable for keeping up a profitable market and a profitable market is the first and unremitting condition of prosperity in any community whose industry is owned and managed by business men. And the ways and means of this necessary control of the output of industry are always and necessarily something in the nature of sabotage: something in the way of retardation, restriction, withdrawal, unemployment of plant and workmen, whereby production is kept short of productive capacity. The mechanical industry of the new order is inordinately productive. So the rate and volume of output have to be regulated with a view to what the traffic will bear; that is to say, what will yield the largest net return in terms of price to the business men who manage the country's industrial system.

(To see how mainstream economics today veers far and violently away from Veblen’s ideas, pick up any introductory economics textbook and read the first two or three paragraphs, which invariably describe economics as the study of “how society allocates scarce resources.” Such a definition immediately launches the student away from any serious consideration of modern industry and its near-miraculous productive potentials, into pastures more congenial to the ever status-conscious “leisure class.”)

The reality and effects of industrial sabotage by financiers and business managers is all too familiar to anyone who has examined the effects of the leveraged buy-out binge and corporate raiding of the 1980s, which mainstream economists have strived to hide from public view behind academic arguments that these predatory financial practices actually represented a “more efficient use of capital” that “increased shareholder value” – a crime of active misinformation that the economics profession has yet to answer for. (Two excellent books that rip the economists’ pretty façade to shreds are the 1992 series of investigative reports by Philadelphia Inquirer Pulitzer Prize-winning reporters Donald L. Barlett and James B. Steele, America: What Went Wrong?; and the 1990 history by Max Holland of how one of America’s largest machine tool companies was destroyed in a series of buyouts, When the Machine Stopped : A Cautionary Tale from Industrial America, which has been republished under the new title, From Industry to Alchemy: Burgmaster, A Machine Tool Company.)

In short, Veblen saw finance as an acquisitive process similar to the barbaric practices of leisure classes in earlier civilizations. (For further discussion of Veblen’s views on this point, see this diary and its thread on EuroTrib: The Credit Bubble theory of the Business Cycle (I: Veblen) especially this comment.)

It is worth peering even deeper into the business manager’s mindset, since it has come, since the 1980s, to so completely dominate America’s political elites, and because it has absolutely crucial implications for the making and practice of national economic policies. James Crotty, a heterodox economist at the Political Economy Research Institute (PERI), has a July 2003 paper, The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era in which he examines a number of negative effects on general economic performance by large U.S. non-financial corporations (NFCs) (not exactly industrial firms, but as close as we can hope to get, as we shall see as Crotty’s analysis unfolds). Crotty stresses

two aspects of the changing relation between financial markets and large NFCs. The first is a shift in the beliefs of financial agents, from an implicit acceptance of the Chandlerian view of the large NFC as an integrated combination of illiquid real assets – that is, physical and organizational assets that cannot be sold for cash quickly and without a major loss in value – assembled to pursue long-term growth and innovation, to a “financial” conception in which the NFC is seen as a ‘portfolio’ of liquid subunits that home-office management must continually restructure to maximize the stock price at every point in time. The second is a fundamental change in management’s reward structure, from one that linked pay to the long-term success of the firm, to one that links it to short-term stock price movements.

The 1960s conglomerate merger movement initiated a change in the perception of the proper role of top management, from one in which managers were expected to be experts in the main business of the firm, to an evolving view of top executives as generalists who knew how to buy and sell subsidiaries as business conditions changed. This shift remained incomplete, however, until the hostile takeover movement of the 1980s, which forced NFC insiders to either divest units whose stock price fell below the level demanded by Wall Street or yield control of the firm to corporate raiders. Raiders relied primarily on debt to finance takeovers, while managers of targeted firms often defended their turf by loading the firm with debt-financed stock buybacks and special cash dividends to deter potential raiders. These developments pushed NFC debt burdens to historic highs. They also forced a change in managerial goals, from concern with the long-term success of the firm to a short-term obsession with keeping the stock price high enough to deter a hostile takeover.

NFC payments to financial markets.jpg

Crotty’s phrase, “the Chandlerian view of the large NFC as an integrated combination of illiquid real assets” is extremely important because it points to something that very few economists ever consider: the immense difficulty and length of time required to assemble a well-functioning industrial enterprise. Consider that it takes at least ten years to train a competent tool-and-die maker. Or how long it takes to train a competent airline pilot. Why would any industrial enterprise want to invest in years of educating someone, if that industrial enterprise is likely to be sold off like a commodity in a few years?

In fact, as an industrial enterprise grows and matures, its trained and skilled employees make the surrounding community a pool of technical talent that is highly conducive to the creation of other industrial enterprises that use the same or similar skills. That’s why certain towns and cities become known as centers for specific industrial products. Sheffield in England was known for its highly specialized alloy irons and steels. Delft in Holland is known world-wide for its blue pottery. The Hocking River valley in southern Ohio became known in the 1800s as a center of brick manufacture. The Connecticut River valley was known for almost a century as “Precision Valley” because it was a center of designing and making high-precision metal-working machine tools. Detroit became known for making automobiles. Today, almost every high-speed, high-volume printing press in the world comes from Heidelberg, Germany. The southern part of the San Francisco Bay area became known as Silicon Valley.

How much is it worth to have a locale or city renowned for the technical excellence of its local enterprises and workers? What value can be assigned to having a few hundred wizened old men around who can train entire generations of new, highly-skilled workers? Or who have a few different ideas than their boss, and decide to start up their own company? The value must be very high, because thousands of national, regional, and local governments around the world have spent hundreds of billions of dollars over the past two decades trying to create “incubators” of new technologies, new companies, and new “employment opportunities.” Such a great irony: finance capitalism is unleashed and destroys the social organizations of industrial enterprises in which technical excellence is revered and rewarded, and the public worldwide has been forced to pay billions of dollars to fund a poor replacement.

How is it possible that political elites would allow financiers and business managers to pillage and destroy industry, and then spend billions trying to repair the damage that could have been prevented in the first place by simply preserving the regulatory legacy of Franklin Roosevelt’s New Deal? Why did the Democratic Party turn its back on organized labor in the 1970s and 1980s, and embrace instead Friedman / Thatcher / Reagan policies of “free trade” and “free markets” that have destroyed the American working class?

“Destroyed the American working class” is not hyperbole. It is now widely known that Americans’ earnings have stagnated for the past four decades. The December 2007 report Economic Mobility: Is the American Dream Alive and Well?, by the Economic Mobility Project of The Pew Charitable Trusts showed conclusively that American men now have less income than their fathers’ generation did at the same age. Even more troubling is that income mobility has been falling over the same period – meaning that it is less and less likely that a person born into a poor family will ever earn enough to also avoid being poor. (Trends in U.S. Family Income Mobility, 1967–2004, Federal Reserve Bank of Boston Working Paper No. 09-7, September 2009.) Why is it that American political elites, including President Obama and his economics team, seem so unresponsive to this national calamity?

Here again, we can turn to Veblen for answers. Political elites are members of the Leisure Class or Predatory Class, along with financiers and business managers, according to Veblen. The Leisure Class sets themselves apart from the unwashed masses with a refusal to get their hands dirty doing the actual work of procuring and producing the necessities of everyday life.

The institution of a leisure class is found in its best development at the higher stages of the barbarian  culture; as, for instance, in feudal Europe or feudal Japan. In such communities the distinction between classes is very rigorously observed; and the feature of most striking economic significance in these class differences is the distinction maintained between the employments proper to the several classes. The upper classes are by custom exempt or excluded from industrial occupations. . . .

. . . . A distinction is still habitually made between industrial and non-industrial occupations; and this modern distinction is a transmuted form of the barbarian distinction between exploit and drudgery. . . .

During the predatory culture labour comes to be associated in men's habits of thought with weakness and subjection to a master. It is therefore a mark of inferiority, and therefore comes to be accounted unworthy of man in his best estate. By virtue of this tradition labour is felt to be debasing, and this tradition has never died out. On the contrary, with the advance of social differentiation it has acquired the axiomatic force due to ancient and unquestioned prescription.

--The Theory of the Leisure Class, Chapter One – "Introductory." (The text of the book in full has been made available online by Project Gutenberg at www.gutenberg.org.)

What makes Veblen far superior to Marx is that Veblen recognizes that the essential characteristic of modern industrial societies is a culture of tools, workmanship, and machine processes.

In more than one respect the industrial system of today is notably different from anything that has gone before. It is eminently a system, self balanced and comprehensive; and it is a system of interlocking mechanical processes, rather than of skilful manipulation. It is mechanical rather than manual. It is an organization of mechanical powers and material resources, rather than of skilled craftsmen and tools; although the skilled workmen and tools, are also an indispensable part of its comprehensive mechanism. It is of an impersonal nature, after the fashion of the material sciences, on which it constantly draws. It runs to "quantity production" of specialized and standardized goods and services. For all these reasons it lends itself to systematic control under the direction of industrial experts, skilled technologists, who may be called " production engineers," for want of a better term.

This industrial system runs on as an inclusive organization of many and diverse interlocking mechanical processes, interdependent and balanced among themselves in such a way that the due working of any part of it is conditioned on the due working of all the rest. Therefore it will work at its best only on condition that these industrial experts, production engineers, will work together on a common understanding; and more particularly on condition that they must not work at cross purposes. These technological specialists whose constant supervision is indispensable to the due working of the industrial system constitute the general staff of industry, whose work it is to control the strategy of production at large and to keep an oversight of the tactics of production in detail.

Such is the nature of this industrial system on whose due working depends the material welfare of all the civilized peoples.

--The Engineers and the Price System, pp 52-53.

In his 1993 book Elegant Technology: Economic Prosperity from an Environmental Blueprint, Veblen scholar Jonathan Larson zeros in on the exact point of interface between human beings and the modern industrial system of mechanical processes:

Nothing can be manufactured without the use of tools. Hand-made is only a term to describe goods that are made with primitive tools. Some items, like sweaters and furniture, can be made with primitive tooling and still compete in the marketplace.

Most items can only be manufactured with advanced tooling. There are no primitive options for making a color picture tube . . . Understanding the levels of sophistication in tools is to comprehend a very great deal about industrialization.

. . . . Sophisticated products can only be made with sophisticated tools. A computer cannot be made with a stone axe. The primary producer motivation for increased sophistication in tools is to permit the production of sophisticated products. Peoples who can fabricate sophisticated tools usually dominate peoples who cannot.

. . . . The most interesting fact about tools is that it takes tools to make tools. Making primitive tools with sophisticated tools is a simple proposition. Making a pair of pliers is easy if there is a steel mill and a drop forge. Making sophisticated tools with simple tools is an extremely difficult proposition. The ability to go up the ladder of tool sophistication is the essential story of industrial development.

As we noted earlier, Veblen draws a distinct line between business and industry. So, a curious thing happens as societies progess industrially. In his 1904 book, The Theory of the Business Enterprise, Veblen observes

Conversely as regards the men in the pecuniary occupations, the business men. Their exemption from taking thought of mechanical facts and processes is likewise only relative. Even those business men whose business is in a peculiar degree remote from the handling of tools or goods and from the oversight of mechanical processes as for example bankers, lawyers, brokers, and the like have still at the best to take some cognizance of the mechanical apparatus of everyday life they are at least compelled to take some thought of what may be called the mechanics of consumption. . . Their exemption from mechanical thinking from thinking in terms of cause and effect is therefore materially qualified. But after all qualifications have been made the fact still is apparent that the everyday life of those classes which are engaged in business differs materially in the respect cited from the life of the classes engaged in industry proper. There is an appreciable and widening difference between the habits of life of the two classes and this carries with it a widening difference in the discipline to which the two classes are subjected. It induces a difference in the habits of thought and the habitual grounds and methods of reasoning resorted to by each class. There results a difference in the point of view in the facts dwelt upon in the methods of argument, in the grounds of validity appealed to, and this difference gains in magnitude and consistency as the differentiation of occupations goes on. So that the two classes come to have an increasing difficulty in understanding one another and appreciating one another's convictions ideals capacities and shortcomings. (pp 316-18)

Now, if Veblen is correct about 1) how the Predator Class abhors actually having to do real work, and in fact does not even like to think about it, and 2) political elites are part of the Predator Class and embody that class’s ways of thinking and understanding the world, what would be the results as manifested in national economic policies? Would we expect to find any sympathy for the plea of industrialists to prevent Wall Street from forcing them to focus on quarterly and annual earnings gains? Would we expect to find any understanding of the opposition of industrialists to short selling of stocks or floating exchange rates and currency futures trading? Would we expect to find any consideration for industrialists’ desire for low, fixed interest rates below the natural usury point? Would we expect to find any serious consideration of a coherent national industrial plan that would revive the nation’s manufacturing base? How much weight would we expect political elites to actually give to the views and concerns of trade unions of machinists, steelworkers, assembly line workers, maids, and bus drivers? Would we expect to find any real concern for a national employment picture where the unemployment rate in the working class is five times higher than in the Leisure Class?
unemployment by income

Earlier, I quoted Veblen on the origins of the Leisure Class. Veblen’s reference to "barbarian" is crucial, because the more advanced a society becomes industrially, the more removed from real industry the elites become. In a very real sense, the elites become more barbaric. This devolution of business culture is clearly seen in how the meme of "ripping their faces off" has spread from the trading floors of Wall Street in the 1980s (as captured in Michael Lewis's first book, Liar's Poker: Rising Through the Wreckage on Wall Street), to the rest of the business world. As the elites drive the culture downward into ever more primitive barbarism (think of what modern art and modern architecture have become), the very idea of civic virtue comes under explicit attack. We see this in the assaults by "conservatives" on the idea of the common good being a "liberal codeword" for nazism or socialism, i.e., Glen Beck's recent warning to his followers about the dangers of their churches preaching the gospel of social justice.

Which brings us back to the theme Sheldon Wolin develops in Democracy Inc.: Managed Democracy and the Specter of Inverted Totalitarianism. Whether or not President Obama is a sell-out is not the real question we must face. The real question is: what are we going to do about the corporate culture that has come to dominate our politics?

Cross posted from Real Economics.

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Submitted by lambert on

I especially like the focus on Veblen.

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

letsgetitdone's picture
Submitted by letsgetitdone on

I, too think this is a great piece. And I don't know the answer to your question, unfortunately. Perhaps people just have to learn to distinguish politicians who are predators from politicians who are not, and then elect the non-predators. It's really hard though.

For example, Jimmy Carter was never exactly predatory in his approach to politics, and he certainly has never been shy about labor and physical work himself. However, Jimmy Carter's economic policies hastened the decline of the working and middle classes with his emphasis on attempting to balance the budget, and reliance on Paul Volcker in assisting the evolution toward the primacy of monetary policy over fiscal policy.

That is, we can elect people like Obama who appear to be predators and we can also elect people like Carter who don't know what they're doing. Both mistakes are very dangerous. We have to elect people who both will serve and us and who will understand. A tall order.

dr sardonicus's picture
Submitted by dr sardonicus on

Thanks for the review of some of my college reading. Veblen would be a good one for me to sit down and read again, if I only had the time...

Remember, though, that managed capitalism is nothing new - Veblen was writing about events happening in his own time. Frederick Taylor, the granddaddy of the technocrats, was a contemporary of Veblen's, as was Walter Lippmann, who advanced the idea that public opinion needed to be managed as well. Woodrow Wilson was Barack Obama's ideological predecessor; this would have been more obvious if Wilson hadn't had to abandon his domestic agenda in order to fight a war. The reason there are no magic bullets is that what we are seeing is nothing new. Obama is no radical; he is simply the latest installment in a story that has been going on for over a century.

Jimmy Carter is indeed a good example; so is Al Gore, a man of conscience whose environmentalist credentials are impeccable, who nevertheless toed the corporate line while in elective office. I still believe that Gore did not seek the Presidency after his 2000 run because he knows he has more freedom as a private citizen. We need to start giveing more consideration to the proposition that our politics cannot be reformed, not because there isn't a desire for reform, but because the political demands of industrial capitalism are too great to be overcome.

Don't no don't now try to get yourself elected
If you do you had better cut your hair

propertius's picture
Submitted by propertius on

As long as you're mentioning Lippman, let's also not forget that Eddie Bernays (the father of Public Relations) also emerged late in Veblen's life. I think it's virtually impossible to state the influence Bernays had on both modern politics and "consumer culture".

basement angel's picture
Submitted by basement angel on

I think that there is a sociopathic drive at work in America and sociopaths never recognize the damage that they are doing.

I've been thinking about one of the psychology professors who backed Obama and worked as one of the behavioral scientists his campaign relied on to finesse his message but who is now objecting to his agenda. I know that man recognizes Obama as a narcissistic sociopath but he's okay with that. He won't admit knowing it and that says to me that his own moral judgment is impaired.

That's the drive I'm talking about. The people who think they can use it to get ahead are doing so, and leaving the rest of us behind.

"Someone needs to point out that elephants produce infinitely more shit than donkeys." Brad Mays

S Brennan's picture
Submitted by S Brennan on

The difference between wealth creation and extraction, exploration and arbitrage is unknown to those who came after Friedman's great potemkin production of "Freedom to Lose" in 1978.

That 12 hour masterpiece of unmitigated propaganda has never been effectively countered. Friedman through the use of government owned airways, using public funds, from taxes and 'tax free" donations created a never never land that any pedophile would be proud of. Yes...yes, Friedman [so far as we know] didn't sexually molest children, but he did abuse undeveloped minds.

Thank you for taking up the sword against these vile people.

Submitted by regulararmyfool on

The kleptocracy rules. Until every one who is not a member of the oligarchy is reduced to the status of peasant or bond servant, they will not be satisfied.

Self exile

techno's picture
Submitted by techno on

Because we need some theory these days. The neoliberal / Libertarian / Austrian-moneterist-whatever wing of economics lies in ruins. The economic profession has not been merely discredited, it has been disgraced.

But what to replace it with? Certainly NOT Marxism--because it has also been disgraced. Fortunately, we have a wealth of interesting ideas to use as a starting point. Remember, Marxism became the dominant lefty paradigm because it was to most violent--NOT because it offered the best ways to organize a society.

One of those Progressive alternatives emerged in Wisconsin in the person of Robert LaFollette. Yes Virginian, there WERE Progressive Republicans. And Veblen spent time with them in Madison after he had gotten his Ph.D. from Yale. Progressive Republicans also gave us the People's Party, the Non-Partisan League in North Dakota, and the Farmer-Labor Party in Minnesota. I believe it is most accurate to think of Veblen as a prime example of a 19th century Progressive Republican.

Veblen is especially interesting because he is one of the few thinkers in history who doesn't like the idea of intellectual "permanence." Religions and philosophers have labored long to establish their various orthodoxies. Veblen claimed the big insight was that there were no orthodoxies--there is only heterodoxy. There is no permanence--there is only change. And yet these changes were predictable because continuity of habits will ensure that change happens within known constraints. These insights make Veblen the most modern and relevant of the political economists.

So if we are out shopping for political and economic ideas to help us make sense of the current dilemmas, we could do FAR worse than to start with Veblen. Yet the whole point is use Veblen as a start--he himself was quite concerned that would would think of him as an authority rather than the teacher he was. He wanted us to be informed by the material facts.

And that's what Tony has done here. He agrees with Veblen because he describe that reality of American de-industrialization that Tony followed so closely in the 1980s. As the great Veblenian scholar Rick Tilman would put it, Tony had become a Veblenian long before he had ever heard of the man.

Thanks Tony

Linda J's picture
Submitted by Linda J on

A commenter above says: "Remember, Marxism became the dominant lefty paradigm because it was to most violent--NOT because it offered the best ways to organize a society."

Can you cite some authority for the above claim? I cannot take this ridiculous charge at face value.

techno's picture
Submitted by techno on

The Marxists in USSR and China murdered millions of people. The Progressives in Wisconsin murdered--anyone?? Oh yes, those non-partisan folks in North Dakota were some real butchers...NOT.

I have NO idea what you find "ridiculous" about my sentence. But the facts are overwhelmingly on my side. Whether Marxism was less murderous than Capitalism is an interesting question. Whether Marxism was much MORE violent than all of the progressive alternatives of the 19th century is not.

Submitted by lambert on

... wasn't violent. Just the people and institutions that took it up. The power of ideas, and all that.

That said, the history of the 20th C ought to make anybody skeptical of Marxism as anything other than a (partial) analytical toolset, and deeply skeptical of Marxists in power.*

Has anybody totalled the body count for Marxist vs. Capitalism systems? On the one side we've got Russia and China (and various other Asian countries) and on the other... Well, I would think that under Capitalism, mass death is treated as an externality, so interesting methodological questions are posed.

NOTE * In fact, deeply skeptical of humans in power. That's why I keep returning over and over again to the central insights of the Federalist Papers on tyranny. No human is fit to hold power over another. And yet, for society to function, humans must hold power over other humans. How do we square that circle? (And, as this chart shows, the humans in the United States who hold power over other humans are killing a whole bunch of 'em).

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

Tony Wikrent's picture
Submitted by Tony Wikrent on

Goodwyn makes clear, especially in his book, that the economic thinking and policies of the American populists (whom are included in techno’s reference to “Progressive Republicans”) were rooted in the “greenback” monetary ideas following the Civil War. Here again, another important and highly heuristic chapter of American history has been, I think, deliberately withheld from widespread public dissemination. Lincoln’s victory in the Civil War was manifold; the aspect we are all most familiar with is the military defeat of the armed forces marshaled by the Southern oligarchy. The sociological aspect of defeating that Southern oligarchy is not given nearly as much attention, though to do so, I think, would greatly limit the effectiveness and freedom of movement of American conservatives today (who are, in fact, already openly defending secession). Even less attention is given to the aspect of Lincoln’s victory that has to do with his successful blocking of direct intervention by the European oligarchs, particularly those in London (do not forget the vast material assistance the Confederacy was given by certain European powers, especially the United Kingdom. A story that has yet to be researched and told is that of British intelligence operations leading up to, and during, the American Civil War; I suspect that a proper and truthful telling of the story would damage U.S.-British relations beyond repair for several generations). And one last aspect of Lincoln’s victory, and the one that receives virtually zero attention (and can therefore be suspected to be the most important) is Lincoln’s issuance of “greenbacks” which created the basic undercurrent of U.S. monetary and economic policies for the next half century, until the creation of the U.S. Federal Reserve. As I mention in the first sentence, Goodwyn deals - quite well, in my opinion - with the issue of greenbackism and its crucial impact on the rise of the American populists at the end of the 19th century. I am not aware of anyone else who deals with greenbackism so openly and so usefully.

Tony Wikrent's picture
Submitted by Tony Wikrent on

and hopefully Jonathan (techno) will add his thoughts as well. Hopefully letsgetitdone will have a few words on these matters as well.

First, we should note that Benjamin Franklin wrote Enquiry into the Nature and Necessity of a Paper Currency in 1729, almost an entire half century before the Revolution. John Kenneth Galbraith, in his book money, argues that the greatest American contribution to the subject was paper money, or a fiat currency (the greatest contribution by the British was central banking; it's more than interesting that the Bank of England was a private company up until, I believe, World War 2; and that the U.S. Federal Reserve is actually also privately owned, which, I suppose, is how Bernanke and the Fed have been able to refuse to answer Congress's questions about who got how much in assistance in the banking bailout). So, I don't think "first use of a modern fiat currency is accurate." In fact, Frank Bourgin, in his very important book,
The Great Challenge: The Myth of Laissez-Faire in the Early Republic, makes the point that no small part of the impetus for the Constitutional Convention came from the wild instability of the paper currencies of Massachusetts and a number of the other original States.

My understanding of the importance of Lincoln's greenbacks is that the greenbacks are the first actual exercise of Congress's constitutional power to create and regulate money (Article 1 Section 8) since Jackson's veto of the Second National Bank in the 1830s. As such, it directly threatened the power of the private bankers, who were quite happy to float paper money themselves. That's why we have the insane situation today of the federal government paying interest on the money it allows the Fed to create on behalf of the money center banks, which then turn around and lend it to the government! Instead, the government could just create the money itself, and cut out the bankster middlemen. (And just watch the wrong-wing screech "socialism" when that happens - it's not a matter of if, but when, I think.)

As for the gold standard, here's part of my summary I was writing two months ago based on Goodwyn's book:

To finance the Civil War, Lincoln had first turned to the money center banks in New York, Philadelphia, and Boston. The bankers had responded by offering loans at interest rates of over twenty percent, from which Lincoln recoiled in horror. Into this situation seeped the 1840-50s ideas of Edward Kellogg, a wealthy self-made merchant who had been ruined in the crash of 1837 and had begun to ponder the financial and monetary arrangements that Americans took for granted, but which formed the basic patterns for the course and conditions of their lives. The full title of Kellogg’s first book, published in 1849, gives a good idea of Kellogg’s line of thought: Labor and Other Capital: The Rights Of Each Secured and the Wrongs of Both Eradicated. Or, an exposition of the cause why few are wealthy and many poor, and the delineation of a system, which, without infringing the rights of property, will give to labor its just reward.
(A revised 1861 edition, entitled A New Monetary System The Only Means of Securing the Respective Rights of Labor and Property, and of Protecting the Public from Financial Revulsions is available in its entirety on the web as a pdf file.)

Kellogg’s idea was straightforward: the federal government should create money, not private bankers, who tended to charge as high an interest rate as possible for the service. This government money would be lent out at no more than two percent interest. Among Kellogg’s supporters was Horace Greeley, editor of the highly influential New York Tribune.

Lincoln seized on Kellogg’s idea, and during the war, some $447 million in “greenbacks” were issued, in denominations from one dollar to one thousand dollars. The bankers, of course, generally hated greenbacks, since they destroyed the bankers’ stranglehold on financial and monetary arrangements, making it more difficult to extract “profits” – in reality, usury and economic rents. But the greenbacks quickly became popular with the producer classes (farmers and labor), since the greenbacks prevented the bankers and trusts from monopolizing the monetary and financial systems. More to the point, the greenbacks prevented the bankers and trusts from having the means to drive down the prices of the goods and services the farmers and labors produced. There was even a political party created, the Greenback Party, which was active between 1874 and 1884.

It is crucial to understand the issue of the Greenbacks, because it becomes the foundation for the schooling in economics of the populist upsurge. It is this issue of who controls the creation of money that lies at the base of the debt peonage farmers and working people found themselves trapped in. It is the creation and control of money and the flow of credit that establishes the basic parameters for the conditions of life for everyone in a society, except those at the very top. It determines which economic potentials the society will pursue and bring into existence, and which will be excluded and ignored.

Once the Civil War ended, the bankers and trusts began arguing for an end to the “corrupt” greenbacks, and the resumption of a monetary system based strictly on gold, which, they argued, was incorruptible and therefore the only proper base for a monetary system. Goodwyn writes

In orthodox financial circles favoring "gold monometallism" the postwar problem was one of ending "suspension" and achieving "resumption" by retiring the greenbacks and returning to a redeemable currency of hard money. The currency "contraction" that necessarily would follow might be painful for various members of the society, especially debtors, but only as the painful cleaning of a wound was essential to ultimate health. At the heart of the banker's approach was an understanding of gold and silver money not as a medium of exchange, but as a commodity that had "intrinsic value." In the language of orthodox "goldbugs," money "was only as good as the gold which is in it." Gold was orderly and civilized; money not backed by hard metal was "fiat money," which failed the measure of intrinsic value. It was money only because legislators, by arbitrary fiat, said it was. Such currency was essentially corrupt, and its continued use constituted a morally corrupt method of running a society. (p 10)

Here we find one of the oldest charades used by concentrated economic power: that opposing policies and principles are “corrupt.”

And the greenbacks were, without doubt, fiat money. More to the point, the end of the greenbacks and the consequent resumption of species payment would mean that bond holders and creditors – which of course meant basically Wall Street and the large banks of Boston and Philadelphia – would reap immense profits by exchanging their debt instruments for gold -provided that the exchange took place at the same rate as before the war. The reason was simple: inflation had caused the value of the debt instruments to decline in real terms. It was the age-old bugbear of creditors through all human history: money in the future would buy less than the same money could buy now. Goodwyn explains it in one clear hypothetical example; as you read it, keep in mind the greenbacker’s hostility to letting bankers have the means and power to determine the prices paid for goods and services in the economy:

To the nation's farmers, contraction was a mass tragedy which eventually led to the Populist revolt. Although the economic relationships sound quite complex, they can be spelled out in fairly simple terms through an arbitrary numerical example. Letting ten farmers symbolize the entire population, and ten dollars the entire money supply, and ten bushels of wheat the entire production of the economy, it is at once evident that a bushel of wheat would sell for one dollar. Should the population, production, and money supply increase to twenty over a period of, say, two generations, the farmers' return would still be one dollar per bushel. But should population and production double to twenty while the money supply was held at ten-currency contraction - the price of wheat would drop to fifty cents. The farmers of the nation would get no more for twenty bushels of wheat than they had previously received for ten. Moreover, money being more scarce, interest rates would have risen considerably. A person who borrowed $1000 to buy a farm in 1868 would not only have to grow twice as much wheat in 1888 to earn the same mortgage payment he made earlier, he would be repaying his loan in dollars that had twice as much purchasing power as the depreciated currency he had originally borrowed. Thus, while contraction was a blessing to banker-creditors, it placed a cruel and exploitive burden on the nation's producer-debtors. (p 12)

SNIP

Beyond its ideological difficulties, the political failure of the greenback cause is even easier to explain. The doctrine of a fiat currency fell victim, simply and forcefully, to sectionalism. The soft-money creed had nothing to offer in the way of sectional appeal; it offered instead an idea about economic relationships and then tried to prevail by explaining the idea to major party constituencies that still had emotional and cultural needs related to war-rooted loyalties. Against the sectional politics of the bloody shirt and the Lost Cause, the politics of a fiat currency recruited comparatively few regiments. Ideologically innovative, culturally embattled, and irrelevant in terms of sectional loyalties, the soft-money creed endured a fragile political life within a national party system geared to non-economic memories.

Rather effortlessly, then. Congress was able to defend the nation's honor, resuming the payments of gold for wartime bonds and gradually contracting the currency by consciously declining to increase volume in step with population growth and commercial expansion. After a measure of government hesitancy traceable to agitation by business and labor greenbackers, the amount of currency in circulation was held at a stable level through the decade of the 1870's while expanded population and production reduced price levels and spread severe economic hardship throughout the nation's agricultural districts. Hard-hit farmers were brusquely told they were guilty of "overproduction." The economic depression was both protracted and severe.
Business was badly hurt and unemployment rose, but by the end of the decade the goal was reached: the United States went back on the gold standard on January 2, 1879.

And the severity of the economic crisis that followed is what forced those Americans who became populists and Republican Progressives, to begin questioning the received wisdom of economic thinking, falling back on greenbackism to develop their own economic theories.

Tony Wikrent's picture
Submitted by Tony Wikrent on

I think someone needs to synthesize all this material and history with Stirling's "three poles" of American politics. I've given it some thought, but have not come up with anything definitive yet except to break each pole into at least two sub-groups based upon their thinking on the industry versus business idea of Veblen.

Submitted by lambert on

I quote:

He's wrong about paying interest on reserve balances. Those balances have been created by the Fed's loans to the non-govt sector or purchases of securities. The interest the Fed makes is far greater than the interest it pays out. The Fed's making record profits on the deal, and returning them to the Tsy (as it is required to do).

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

Walter Wit Man's picture
Submitted by Walter Wit Man on

I've been wanting to learn more about the American history of money and banks and you are pointing me in the right direction. Thanks.

I had forgotten about Ben Franklin's contribution re money. Btw, a really good book on Franklin and his son William and describes the split in American society at the time.

Submitted by lambert on

and also tie in very well, as SisterKenney points out, to the MMT concern with "fiat money."

Everybody says "Weimar" and "Zimbabwe," but nobody says "CSA." Oddly, or not. Why?

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

Walter Wit Man's picture
Submitted by Walter Wit Man on

Thanks for introducing and reintroducing me to these subjects.

1. Veblen. Even though I studied law and economics in law school and took history and some economics in undergrad I haven't really been exposed to Veblen (except for maybe a general class, "Leisure . . . " something or rather that everyone took as a blow-off class). Interesting to see he's from Wisconsin. The upper Midwest has a strong "progressive" tradition (in the classical sense) that I fear is fading. Also, that looks like an interesting article on Coase, Hayek and Veblen and I will read it after commenting. Of course, I was taught in the Chicago School manner and was pretty much only aware of Coase.

2. I like the Kuntsler link. I saw him give a presentation at UNC planning department in the late 90s that was hilarious. He had a slide show presentation that was more like a comedy routine.

3. Liars Poker does do a good job of describing Wall Street culture.

4. Thanks for linking to my post on Obamacare. I hope to add some more specific numbers and different scenarios for different types of people later.

5. The discussion on NFCs is interesting. I was recently reading this book, written in 1949, and I was struck by the way he described the companies financial situation. He really focused on book value as opposed to a more forward looking profit model [the website contrary investor also has some good long-term charts that show this change in focus--it's really apparent just by looking at P/E ratios over the years].

Tony Wikrent's picture
Submitted by Tony Wikrent on

which was a reply to Linda J. So, to preserve the context of my other two comments. here's the original (without doing the HTML over again):

Linda J simply made the assumption that the only alternative to Marxism is capitalism. In fact, there are variants of capitalism, though it must be admitted that the argument has been made, not unconvincingly, that capitalism leads inevitably to violence of various sorts, against nature as well as against people, especially in terms of various levels of exploitation, as well as out right violence and genocide such as what was done to various indigenous peoples.

What techno is pointing out is that there are some variants of capitalism, as exemplified by the populist movements in the United States he mentions, that were explicitly formulated to solve the problems of violence and exploitation in capitalism. It is another subject entirely – and one well worth pursuing – to inquire into how it is that the populist movements mentioned have been largely, and I think quote deliberately, written out of standard American history.

I will note here that it was techno who pointed me to Veblen as well as to the histories of the 1880s Farmers Alliances and the 1910s Non-Populist League, and the work of Congressman Charles Lindberg Sr. (the father of the avaiator, NOT the aviator), most especially the work of Lawrence Goodwyn, who I have quoted extensively the past few months here

http://www.correntewire.com/true_or_fals...

, here,

http://www.correntewire.com/just_make_it...

and, here
http://www.correntewire.com/blog/how_do_...

In fact, Goodwyn argues that socialism also develops au authoritarian hierarchical social structure that is ever bit as bad as capitalism

. . . . Over the last eight generations, increasingly sophis-
ticated systems of economic organization have developed
throughout the western world, spawning factories and factory
towns and new forms of corporate centralization and corporate
politics. Through these generations of the modern era, millions
have been levered off the land and into cities to provide the
human components of the age of machinery. Meanwhile, own-
ership of both industrial and agricultural land has been increas-
ingly centralized. Yet, though these events have caused massive
dislocations of family, habitat, and work, creating mass suffering
in many societies and anxiety in all of them, mass movements
of protest have rarely materialized. This historical constant
points to a deeper reality of the modern world: industrial
societies have not only become centralized, they have devised
rules of conduct that are intimidating to their populations as a
whole. Though varying in intensity in important ways from
nation to nation, this has now happened everywhere-whether
a particular society regards itself as "socialist" or "capitalist."

In fact, in the last link, I include the entire speech Goodwyn gave in St. Louis in December 1989 to commemorate the 100th anniversary of the Populist Sub-Treasury Plan for financial reform, Democratic Money: A Populist Perspective
http://www.ratical.com/corporations/demo...

It is well worth reading now, if you haven’t before.

Goodwyn makes clear, especially in his book, that the economic thinking and policies of the American populists (whom are included in techno’s reference to “Progressive Republicans”) were rooted in the “greenback” monetary ideas following the Civil War. Here again, another important and highly heuristic chapter of American history has been, I think, deliberately withheld from widespread public dissemination. Lincoln’s victory in the Civil War was manifold; the aspect we are all most familiar with is the military defeat of the armed forces marshaled by the Southern oligarchy. The sociological aspect of defeating that Southern oligarchy is not given nearly as much attention, though to do so, I think, would greatly limit the effectiveness and freedom of movement of American conservatives today (who are, in fact, already openly defending secession). Even less attention is given to the aspect of Lincoln’s victory that has to do with his successful blocking of direct intervention by the European oligarchs, particularly those in London (do not forget the vast material assistance the Confederacy was given by certain European powers, especially the United Kingdom. A story that has yet to be researched and be told is that of British intelligence operations leading up to, and during, the American Civil War; I suspect that a proper and truthful telling of the story would damage U.S.-British relations beyond repair for several generations). And one last aspect of Lincoln’s victory, and the one that receives virtually zero attention (and can therefore be suspected to be the most important) is Lincoln’s issuance of “greenbacks” which created the basic undercurrent of U.S. monetary and economic policies for the next half century, until the creation of the U.S. Federal Reserve.

But the important point to make here, I think, is that all three scholars – Veblen, Goodwyn, and Wolin – go far beyond the mainstream treatment of economics phenomena, to also look at the sociological aspects and how those affect the political culture. Which is exactly why I was drawn into their work – the election of Barack Obama as President, and the subsequent realization that he is unwilling or unable to bring about fundamental change of an economic system that is so clearly not sustainable and so damaging to the individual dignity and material well-being of the vast majority of citizens, demands that we uncover the reasons why. Marxism and socialism are clearly discredited by the historical record. Anyone who fails to accept that verdict of history regarding Marxism and socialism is probably as blind an ideologue as Rush Limbaugh, Newt Gingrich, and Grover Norquist are in regards to conservatism.

Which is not to say that all elements of socialism ought be suspect and resisted. The historical record is clear – and Wolin makes this point elsewhere in his book – that the highest development of the American polity in terms of an equitable sharing of material and cultural well-being was achieved by the implementation of the New Deal reforms, which created a “mixed economy” of capitalism and socialism, something approaching social democracy in Europe.

And another, related, important point to make, regarding sociological aspects of how society is organized economically, and how it affects political culture, is how vitally important it is to save and defend the concepts of common good, general welfare, and civic virtue that led to the emergence of the New Deal structure in the United States. What is especially troubling today is that these concepts are under direct, explicit attack by movement conservatism, and that attack is about to be greatly intensified by the results of the recent Supreme Court decision giving “free speech” rights to corporations: Rove Rides Again
http://www.rollingstone.com/politics/new...

warren mosler's picture
Submitted by warren mosler on

So with agriculture maybe 1% of the US work force, and manufacturing maybe 12% of the US economy, and both more than large enough to make enough stuff to keep the department stores full of goods even if it was all offered for free, the rest is going to be services or leisure time.

But filling in the void with a massive financial sector that's responsible for the largest brain drain from the real sectors in the history of the world was something that early on took on a life of its own, as a by product of institutional structure set up for other purposes, and was not a product of specific design for furthering public purpose.

And the only way the financial sector can be dismantled is to take a step back and look at what we are doing through the lens of public purpose.

The problem is no one has an incentive to do this until things get bad enough.

The financial reform bill certainly does not come anywhere near doing this. Instead it's focused on 'protecting tax payer money' rather than taking a clean sheet of paper approach as to what the public purpose is behind banking in all its aspects.

If they did this the results would look a lot like my proposals:

http://www.moslereconomics.com/?p=8968

also, the lead post on www.moslereconomics.com is a 4 part talk i gave to the ct. independent party of Milford a couple of days ago that i think outlines the MMT approach
for a non technical audience.

my last bit of shameless self promotion is a suggestion to review my address to the Dallas Tea Party where the context was it was a mistake for the administration to believe that they needed to first fix the financial sector to get a sustainable recovery, when in fact the financial sector follows and preys on the real sectors:

http://moslereconomics.com/2010/02/04/da...

There is also more content on www.moslerforsenate.com regarding my specific proposals.