The American Family Gazette
Volume II, 1002
In The Gathering of the Clan we speak at some length of the tension between capitalism and democracy. They have very different theoretical beliefs about the proper distribution of power. One believes in a completely equal distribution of power (one man, one vote); the other believes in the accumulation and restriction of power. Survival of the fittest is not a bad description of how capitalism views its system. How is it then that these two oddly at issue systems seem to have not only managed to get along together, but have benefited each other and made America great? The inescapable answer is government; like it or not, it’s government. But in spite of this claim, the truth is that neither capitalism nor democracy is overly happy with this arrangement. One side believes there is too much governmental interference; the other side feels there is not enough. Just what is the answer here? As we discuss in the Book, the answer is a matter of Balance— with a capital “B”.
For those who haven’t yet read the book, presumably waiting for the movie to come out (Good luck!), let me quote you the concept of Balance used there:
In our country, Balance exists when (1) the private capitalistic economic sector (business) feels it’s able to pursue its aims with a minimum amount of outside interference; (2) when government, in its role as representative of the people, feels that the results of capitalism, in the broadest sense, are distributed equitably enough among the people, and (3) the people, through their voice at the ballot box concur with the government’s assessment. When all this happens, America is a healthy, happy, prosperous nation. America is in an acceptable necessary and rightful balance.
Now this sounds nice, but is such equilibrium, such a Balance of interests, ever reached and sustained for any period of time? Probably not. But that’s not the key issue. It’s the goal, the better tomorrow we strive for. And so long as this Balance is generally perceived as acceptable for the moment and that we as a country are moving in the right direction—which is towards it—most of us are inclined to go-with-the-flow and continue working toward this perfect if unreachable goal. Why? Largely because of self-interest. Because we’ve been led to believe that in so doing we stand to see our personal, social and economic fortunes improve and our country prosper: prosperity we should all be entitled to share—some more than others, certainly, but generally enough to go around.
Where are we in this issue of Balance currently? We appear to be headed in the wrong direction.
An essay by Carl J. Schramm in a recent issue of the Claremont Review of Books (Fall 2009) discusses several books that tangentially deal with this issue and asks the question, “Can Democracy Survive Capitalism?” One might as fairly pose the question, can capitalism survive democracy? Why? Because the ability of these two antagonistic systems to coexist successfully is the issue; the way you pose it possibly says something about which one you champion. In this particular case, my
exegesis suggests Mr. Schramm’s agenda—despite his title— is giving priority to, or defending, capitalism’s position in such a debate. His presentation is by no means one sided, but somewhat covertly disproportionate. To this end, there are significant reasons for capitalism to wish to see our democracy continue as it appears headed today: increasingly open to corporate influence in our electoral process.
Schramm begins his examination of the issue with Joseph Schumpeter’s prophesy that as capitalism succeeded, democracies in time would come to expect its end (wealth) but reject its means (free market competition). He worried that because of the inequality and creative destruction it brings, capitalism would provoke a kind of adverse reaction. A popular call would arise for government to plan market outcomes according to some utopian view of society’s good, and this democratically guided central planning would inevitably slow economic growth and impact individual liberty.
Mr. Schramm’s presentation of Schumpeter’s view in this matter may be somewhat selective, in my understanding, but none the less, in principle, Schumpeter’s speculation merits serious consideration. But I believe this speculation needs be taken with some reserve. He is, of course, not around to defend, expand on, qualify or refute the manner in which some quote his late first-half twentieth century remarks. F.A. Hayek on the other hand was still around when his then contemporary book, The Road to Serfdom (1944), was either misquoted or taken out of context by many. Unfortunately, there still seems to be some who would quote Hayek in defense of their political/social arguments without full knowledge or disclosure of his actual position.
While this may or may not be the situation with Schramm’s use of Schumpeter to make a point, the context of his remarks needs consideration. Schumpeter, an economics professor of the rather starkly conservative “Austrian School”, authored these remarks as the world was emerging from the Great Depression. The lure of socialism in both the U.K. (where Hayek wrote) and the U.S. was not insignificant in some circles. And, in fact, many of the New Deal policies and programs of the 1930’s—including unionism— were seen by some as tilting in the direction of government patriarchy over economic affairs. The need for central economic planning during WW II lent further support to such fears. But as history has demonstrated, such fears were unfounded, or at least mostly unfounded. Since that era, there is no doubt that American business has felt the presence of government much more that prior to the 1930’s.
Experience has taught us that totally “free markets” are as potentially dangerous to society’s well being as at least potentially are “centrally planned markets.” And in actuality, Schumpeter argued with the prevailing view that “perfect” competition was the way to maximize economic well-being. But today what we have, basically, is two opposing sides to the argument: those who favor less government intervention in how capitalism pursues its aims, and those who favor more government intervention in how it does. Politically, one should not have to draw a picture here. But, if we undress Schumpeter’s concern here, it seems clear that his philosophy is more nuanced than that.
Schumpeter’s theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism. Why? According to him, because of its very success. And who will foster these hostile values? Intellectuals (who in Hayek’s opinion were the same people to fear in the U.K.). And what form will this “hostility” take? Capitalism will be replaced by socialism in some form [my italics]. How? Not by revolution, but by merely a political trend to elect social democratic parties, of one stripe or another. These parties (assumed majorities) will vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalistic structure. Note that as per above, by this time, capitalism has already evolved into a form of “corporatism” (which I understand as big business). So, under this scenario, and as presented by Mr. Schramm, capitalism is threatened by democracy. Has this happened? Is this happening, or will it happen?
If we look at it from the perspective of about 1940 and that of 2010, many might argue that if it hasn’t happened yet, there are signs of it occurring. In America, capitalism is generally defined as big business. And the big just seem to keep getting bigger. American business has a lot more governmental regulations, restrictions and oversight than existed sixty years ago. But has all this brought about a decline in capitalism, the end of entrepreneurship or a surge in socialism that would make Schumpeter a successful prophet? If we can isolate the events of the past year for purposes of analysis here—where our government has become a significant stockholder or “Person of influence” in a number of large capitalistic institutions on hopefully a temporary emergency basis—questionably; but it is still an open question. Why? Because it is, really, a political question, and as pointed out, what we have for now is two opposing sides, politically, each attempting to realize its particular agenda here: more government influence in the economic sphere, less government influence in the economic sphere.
In my view, neither side in this very real struggle—capitalism nor the American people generally— are properly or consistently represented by government. And over time, as the political fortunes of the two sides ebb and flow, government policies towards this problem can swing like a pendulum. Both sides appeal to the electorate for support to run government in their own fashion, and for their own agenda. And make no mistake, each has an agenda and they differ in material ways. Both may claim the same ends—a better, more prosperous, safer, freer, happier society, but both have different views of what this society would/should look like. And both aim to govern in such a way as to bring about their particular “ends.” Today we see this as ever increasing ideological positions towards just about all issues, economic or other.
The problem with this approach is that it is totally “unbalanced” as we have defined a necessary and rightful Balance in America: Capitalism feels it is unduly interfered with in pursuing its aims; government in its two-sided political approach can’t decide if the results of capitalism are equitably enough distributed among the people or not, and the people generally—if you believe the polls— are not happy with either the politics or results of government. Under these conditions, neither present political party can produce government that moves us towards Balance. We simply continue in a status quo where the vast majority of Americans are less well-off overall than they could /should be at this point in our history, and capitalism continues at risk under a Schumpeter analysis.
Under this scenario, both capitalism and democracy are going to be losers in the long run. Is it inevitable? No, but it certainly looks possible, and parallel to the argument that Schumpeter offered. Only in this scenario the democratic process under the (unbalanced) ability of capitalism to significantly influence our elections will promote, and we will, by default, elect governments more concerned with unfettering markets and capitalism from restraints than in moving toward an increasingly welfare state. The result for society will be the same.
This scenario is as equally unacceptable for our society as is the one projected by Schumpeter, and is possibly more inflammatory of society in general. It implies an increasing degree of inequality in society; a less representative government in Washington. We will have, in effect, a corporatocracy, or as one source has put it: “. . . a corporate oligarchy that merely wears the trappings of democracy.” The January five-four vote decision by our Supreme Court that frees further corporate influence in our elections favors this forecast. How is it that in the real world, non-citizen artificial persons are awarded the same civil/political rights as citizen real persons? There can be no Balance under these conditions.
Is this social, economic and political outcome inevitable? Questionably, even if it appears the stars seem to be lining up along its axis, so to speak. I go back to F.A. Hayek who, when faced with this question of inevitability, wrote in the 1976 Preface to his book “It has frequently been alleged that I have contended that any movement in the direction of socialism is bound to lead to totalitarianism. Even though this danger exists, this is not what the book says. What it contains is a warning that unless we mend the principles of our policy, some very unpleasant consequences will follow which most of those who advocate these policies do not want.”
I believe we can apply this to Schumpeter’s concern and Mr. Schramm’s perceived agenda as well. It may well happen, but it isn’t inevitable. If not, how do we see that it won’t? While there may be several roads to consider, the solution will be political. My considered opinion is we (absolutely) have to move away from the pro and con political approach to this issue. That is the only way Balance, as defined, can be pursued while keeping our republic effectively democratic and preserving and fostering capitalism as a productive, profitable and dynamic servant of society as opposed to a domineering (malevolent or benevolent) master.
As a booster of capitalism, I support the marketplace. But I am no more an advocate of totally free-market policies than a supporter of direct or totally unregulated electoral democracy. I support our two-party political system; but like the growing plurality of Independent voters, I have no confidence today in either party to faithfully represent “my” interests in America today, or as importantly, tomorrow. Given this, I support a movement that is neither pro nor con when it comes to capitalism, or welfare socialism, or any other matter of importance to society.
I sum up this approach to achieving Balance as follows:
The only way to govern with justice and fairness resulting in Balance is with a philosophy of producing the greatest good for the greatest number, manifest in a policy of governing for (at least) most of the people all of the time and for all of the people most of the time.
This somewhat utilitarian approach sounds populist in its appeal, and it is in the sense that everybody needs to be considered. But it does not champion one sector of society over another, or at the expense of another. I am in favor of a “trickle-down” economic theory. It both makes sense and recognizes the source of wealth, the need for wealth and the pursuit of it. But “trickle-down” implies that a reasonable “flow” is released to reach the lower economic rungs that, historically, in their own manner are in fact responsible for much of the success of capitalism, or business over-all. Think of it as a form of resource management; of the flow released from a reservoir. It’s government’s responsibility to see that this happens. I am in favor of new business formations. It is the responsibility of government to see that the climate for this is positive. I am a believer that working Americans contribute a limited amount to support government that supports them. I believe if the results of capitalism are equitable enough distributed via the policies of government that is restrained in its demands on such contributions, most Americans can be economically self sufficient. For those who can’t be (not won’t be) some provision seems reasonable.
I believe in freedom for all, individually and as a community, and this implies a healthy respect for law and order. But there can be no freedom without responsibility, the flip-side of rights. I endorse Mahatma Gandhi’s philosophy that what is important is human responsibility, not necessarily human rights. Gandhi counsels us that any group that demands its rights does so at the loss of the rights of some other group or social structure. Soon, an organization or society will be torn apart and destroyed as each person fights for their rights. Whatever rights we enjoy should be the result of the responsibilities we’ve committed to. Lamentably, I sense we have gotten away from such a civilized and civil approach some time ago. It’s time we readopted it.
I began this exposition with the conclusion that it has been democratically elected government that has enabled these two oddly at issue ideological systems—capitalism and democracy— to coexist for the benefit of all. Not always (hardly ever) perfectly, but so far, it’s held pretty well together. So far, so good, you might say. This function of regulation, or control, of refereeing, as well as of supporting, protecting and promoting capitalism is a basic responsibility government has implicitly accepted. It is the flip-side of the right accorded by the voters to the political elite to govern. But continued success here under present conditions is by no means certain, and if you accept my argument regarding Balance, problematic over the long run, at best.
It’s in all of our best interests to try to convert this antipathy between capitalism and democracy into a more mutual supporting relationship. At base, it’s today’s manifestation of a long standing battle between property & wealth and the rest of society. It’s a politically and socially sensitive and rather complicated issue, but it’s doable. Politically, it’s doable, and through the political process the issue must be resolved. But not with the players we now are forced to depend upon to represent the interests of all of the people at least most of the time. By inclination, all of us are either conservative, liberal or some combination of these human natures. While recognizing this fact of life, we need a more clearly non-partisan (Independent) political solution to this problem we face. This is not a popular notion in the halls of the Democratic and Republican parties. Nonetheless, the growing plurality of political Independents continue to be the unacknowledged, or at best slightly acknowledged, elephant in the political arena; they represent the evidence for the failure of these two dominant parties. This can’t, or at least shouldn’t, continue if anything is to change. And unless you reject everything said above, change—real change within the existing political system— is what is called for.
Thomas Richard Harry
February 2010.
