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Sunday, September 23, 2012

The Face of Capitalism (Part One)

(Note: This is the first segment in a three part series.)

A certain group of citizens tends to confuse and disregard the basic principle that capitalism is an economic system.  It is not a form of government.

We begin by straightening out some facts and establishing some definitions.  In 1776 we declared our independence from Great Britain and established a large scale experiment in republican democracy.  We are a nation of laws by elected representatives.  By 1789, with the experiment at serious risk of failure and to preserve internal political stability, we held a constitutional convention.  With a perfect record of attendance by the founding fathers, we ditched our first constitution in favor of our second and present one.  It was a significant but bloodless revolution.

The form of government having been decided, George Washington was elected our first president.  This was at a happier time pre-dating politicians, partisanship and political parties.  President Washington had many important decisions to make, precedents to set, not the least of which was to decide upon a preferred economic system.  His troubles started with the knowledge that the new constitution did not espouse a particular economic theory.  In fact, the constitution said nothing at all about an economic system nor mentioned the word "bank."

To help get things moving, Alexander Hamilton, the Secretary of the Treasury, proposed a system of capitalism based on the highly successful model of the British mother country.  But Thomas Jefferson, the Secretary of State, objected.  He was sure that Hamilton’s proposed system flowed from principles adverse to liberty.  By creating an influence of his department over members of the legislature, Hamilton’s system was calculated by Jefferson to undermine and demolish the republic.  This was a most serious charge, a difference of opinion which also pointed to the birth of political parties.

President Washington sided with Hamilton, reasoning soundly that his plan would provide the greatest good for the greatest number.  Following the Civil War, the forces of capitalism coupled with the onset of the Industrial Revolution enabled our economy to take off.  By the time 1900 rolled around, our manufacturing capacity enabled us to become the #1 economic power in the world.  The rest, as they say, is history.

Capitalism puts money to work for specific, profit oriented ventures.  Through use of corporations, money can be amassed and concentrated quickly and efficiently under one roof.  Typically, investors’ downside is limited to the amount of their investment.

The early capitalists of that era featured names like Rockefeller in the oil business, Morgan in banking, Carnegie in steel, and Vanderbilt in railroads.  They were firm believers in a free, unregulated market promoted by competition.  A new consumer class was created and became a thriving force in the industrial economy.  Its name was the middle class, a new term in the vocabulary of ordinary citizens.

With the incentive to reap great profits, the leading men consolidated operations, streamlined the various systems of production, eliminated redundancies and maximized efficiencies.  While consolidation permitted them to control their industries, a primary goal was still to give the customer the best product at the lowest price.

While capitalists were champions of competition, ironically, their goal was to eliminate competition.  Specifically, they sought to accomplish this by creating and then maintaining a hierarchy with themselves at the top.  This highlighted one of capitalism’s main criticisms.  If left to its own devices, capitalism will by definition concentrate wealth into the hands of a very few.

Many had arrived at the top through superior intellect or other legitimate means.  But some used questionable or even illegal business practices.  Bribes, kickbacks and other monopolistic trade practices were all utilized to destroy competitors.  Human labor was exploited as no more than an expense item on an income statement. Stewardship of the environmental was disregarded. Short term gain trumped any long term considerations.  For this reason these early capitalists were sometimes referred to disparagingly as robber barons.

They used their vast financial resources in an unnatural alliance with the elected representatives of government to cement their place at the top.  In a final assault on equality of opportunity for all citizens, they enthroned their privilege through favorable manipulation of the laws of taxation and inheritance.  And the rout was on over the ensuing generations.

Theodore Roosevelt tried his hand at reforming this growing wealth disparity through various innovations of government.  But it wasn’t until after the 1929 Great Depression and the 1932 election of his distant cousin, Franklin D. Roosevelt, that we learned the hard lesson that capitalism needed meaningful  regulation by the government of its creation.

That government was not simply to be about condoning an economic system of capitalism and the gamesmanship that went along.  It was also about helping its citizens, especially in time of need.  In providing a social safety net, it was about restoring our faith in capitalism by making it seem more humane.

Since those dark economic times, we have ebbed and flowed, debated both in theory and practice through our national political parties the extent to which capitalism should be regulated.

In the aftermath of the Great Recession of 2008, Democrats under President Barack Obama favor sensible regulation as the last defense against unbridled individual greed.  Republicans favor less regulation as the most efficient means of achieving the American Dream.  Democrats see government and business working in partnership for the common good.  Republicans see government, especially more government, as the enemy of business and individual initiative.

(Next week’s second segment discusses how the face of capitalism goes about the business of amassing wealth in present day America.)

-Michael D'Angelo

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