Friday, July 18, 2014

Millennials: Business is More Than Domination

In the last post we looked at the two remaining mega-fauna on Earth: big government and big business.  Both are monstrous systems and the purpose of systems, the German neo-Marxists tell us, is domination.

But business seems to be something more, because in the last two centuries, the age of business, the per-capita income of humans within the boundaries of capitalism has gone up by 20 times.  There has been nothing like it in human history, ever.  Remember those Robber Barons?  Steel magnate Andrew Carnegie made a fortune -- by cutting steel prices by two-thirds.  Oil monopolist John D. Rockefeller made billions by cutting the price of illuminating oil, the stuff they used in those cute oil lamps in Hollywood westerns, by 90 percent.  Today the Bill Gates and Steve Jobs are doing the same thing with computers and devices.

But what is it?  Matt Ridley in The Rational Optimist calls it the collective mind.  Humans, unlike chimpanzees understand barter and exchange.  This means that humans can specialize and get really good at one thing, exchanging for the other things of life.  And that creates wealth, enormous wealth.

David Graeber in Debt: The First 5,000 Years confirms this idea.  There's an idea that the modern economy is founded upon money, he writes.  But really it's founded upon debt, and debt is founded upon the exchange of favors.  If I do you a favor then you owe me one in return.  People keep a rough balance of favors given and received, and it eventually gets formalized in debt and credit and money.  Credit, of course, means belief, the belief that the other guy will return the favor.  In The Righteous Mind, Jonathan Haidt calls this "equality matching" that gets formalized into "market pricing."

And that's the point.  Big business may be monstrous and terrifying, but it is based on the exchange of favors and trust.  Nobody forces me to go to Walmart; it's the low prices that attract me.  Nobody forces me to buy at Whole Foods, but if I believe in buying local and organic food and sustainability and Fair Trade it makes me feel better to pay a little more to John Mackey.

But what about banksters and insurance companies and overpaid CEOs?  What about the hard-hearted private equity guy Mitt Romney that laid off steelworker Joe Soptic?  There's a chicken-and-egg problem to ponder here.  Who dances to whose tune: are bankers the dupes of the political ruling class or are politicians the bribed apologists of the corporate plutocrats.

It comes down to this: Does Warren Buffett call the tune for the Obama administration or does wily Warren contribute money and support (for tax increases) in order to curry favor with the Obamis in the hope that they will leave him and his trains alone?  Obviously it is important to get it right.  Because if you get it wrong then you have completely misunderstood the economic and political reality of the modern era.

Here's my take on this.  My take is that modern political power is founded upon a strong and vibrant economy. A politician cannot cut a dash on the world stage unless he is backed by a vast economy that can yield vast revenues with which the politician can project national power.  On this view businessmen are pets to be encouraged and fed so they will dutifully generate huge wealth.  But it is the political ruling class that calls the shots.  Of course, if the politicians come down too hard on the businessmen and loot the productive sector so badly that they wreck the economy -- hey, it happens -- then they lose everything.  And so do you and I.

I have developed a simple notion to illustrate what I mean.  It's the difference between Dutch Finance and French Finance.  In the 16th century the Dutch developed, for the first time, a national debt, money that they borrowed from the Amsterdam merchants, and they used that debt in a rebellion to free the Dutch people from the empire of Spain.  The Dutch debt was a "funded" debt meaning that taxes were specifically earmarked to service the debt.  The British were impressed by the results, so when they invited Dutch stadtholder William of Orange to come over in 1688 and run things as King William III, they set up the Bank of England and started a funded national debt of their own.  It worked so well that in a century later the Brits defeated the French in the Battle of Waterloo at the end of the Second Hundred Years War and the French have never amounted to much in the world since.  The Brits defeated the French because French national finance was all screwed up.  They used the state's power to exploit the economy; they spent more money than the economy could afford; they defaulted on their national debt several times.  The French Revolution, after all, began with a mess in the French government finances.  My point is that the government has the power to encourage business and grow the economy; it also has the power to wreck the economy.  The banksters and Matthew Josephson's Robber Barons are all hostages to the government's economic policy.

The US started out with the economic policy of Alexander Hamilton.  As a kid, Hamilton had run a merchant's office in the West Indies.  As the nation's first Secretary of the Treasury he set up a funded national debt just like the Brits and the Dutch.  America's economy took off like a rocket.

Of course, if a businessman is smart he can make a fortune out of the government's mismanagement.  I am thinking of John Paulson who made billions betting against sub-prime mortgage securities in the run-up to the Great Crash of 2008.  But does John Paulson have political power?

Of course, I don't expect you to believe all this crazy stuff right off the bat.  But suppose it's true.  Suppose the politicians are in charge and the banksters are just their dupes.  What does it mean?  What does it tell us about the proper relationship between government and business, not to mention government and people?  That's what we'll look at in the next post.

No comments:

Post a Comment