Democracy - Not
"The Free Market" - Will Save America's Middle Class
Posted March
16, 2004
thepeoplesvoice.org
By: Thom Hartmann
Here are a couple of headlines for those
who haven't had the time to study both economics and history:
1. There is no such thing as a
"free market."
2. The "middle class" is the
creation of government intervention in the marketplace, and won't exist
without it (as millions of Americans and Europeans are discovering).
The conservative belief in "free
markets" is a bit like the Catholic Church's insistence that the
Earth was at the center of the Solar System in the Twelfth Century. It's
widely believed by those in power, those who challenge it are branded
heretics and ridiculed, and it is wrong.
In actual fact, there is no such thing as a
"free market." Markets are the creation of government.
Governments provide a stable currency to
make markets possible. They provide a legal infrastructure and court
systems to enforce the contracts that make markets possible. They provide
educated workforces through public education, and those workers show up at
their places of business after traveling on public roads, rails, or
airways provided by government. Businesses that use the "free
market" are protected by police and fire departments provided by
government, and send their communications - from phone to fax to internet
- over lines that follow public rights-of-way maintained and protected by
government.
And, most important, the rules of the game
of business are defined by government. Any sports fan can tell you that
football, baseball, or hockey without rules and referees would be a mess.
Similarly, business without rules won't work.
Which explains why conservative economics
wiped out the middle class during the period from 1880 to 1932, and why,
when Reagan again began applying conservative economics, the middle class
again began to vanish in America in the 1980s - a process that has
dramatically picked up steam under George W. Bush.
The conservative mantra is "let the
market decide." But there is no market independent of government, so
what they're really saying is, "Stop corporations from defending
workers and building a middle class, and let the corporations decide how
much to pay for labor and how to trade." This is, at best,
destructive to national and international economies, and, at worst,
destructive to democracy itself.
Markets are a creation of government, just
as corporations exist only by authorization of government. Governments set
the rules of the market. And, since our government is of, by, and for We
The People, those rules have historically been set to first maximize the
public good resulting from people doing business.
If you want to play the game of business,
we've said in the US since 1784 (when Tench Coxe got the first tariffs
passed "to protect domestic industries") then you have to play
in a way that both makes you money AND serves the public interest.
Which requires us to puncture the second
balloon of popular belief. The "middle class" is not the natural
result of freeing business to do whatever it wants, of "free and open
markets," or of "free trade." The "middle class"
is not a normal result of "free markets." Those policies will
produce a small but powerful wealthy class, a small "middle"
mercantilist class, and a huge and terrified worker class which have
traditionally been called "serfs."
The middle class is a new invention of
liberal democracies, the direct result of governments defining the rules
of the game of business. It is, quite simply, an artifact of government
regulation of markets and tax laws.
When government sets the rules of the game
of business in such a way that working people must receive a living wage,
labor has the power to organize into unions just as capital can organize
into corporations, and domestic industries are protected from overseas
competition, a middle class will emerge. When government gives up these
functions, the middle class vanishes and we return to the Dickens-era
"normal" form of totally free market conservative economics
where the rich get richer while the working poor are kept in a constant
state of fear and anxiety so the cost of their labor will always be cheap.
When conservatives rail in the media of the
dangers of "returning to Smoot Hawley, which created the Great
Depression," all they do is reveal their ignorance of economics and
history. The Smoot-Hawley tariff legislation, which increased taxes on
some imported goods by a third to two-thirds to protect American
industries, was signed into law on June 17, 1930, well into the Great
Depression. In the following two years, international trade dropped from 6
percent of GNP to roughly 2 percent of GNP (between 1930 and 1932), but
most of that was the result of the depression going worldwide, not
Smoot-Hawley. The main result of Smoot-Hawley was that American businesses
now had strong financial incentives to do business with other American
companies, rather than bring in products made with cheaper foreign labor:
Americans started trading with other Americans.
Smoot-Hawley "protectionist"
legislation did not cause the Great Depression, and while it may have had
a slight short-term negative effect on the economy ("1.4 percent at
most" according to many historians) its long-term effect was to bring
American jobs back to America.
The fact that the "marketplace"
was an artifact of government activity was well known to our Founders. As
Thomas Jefferson said in an 1803 letter to David Williams, "The
greatest evils of populous society have ever appeared to me to spring from
the vicious distribution of its members among the occupations... But when,
by a blind concourse, particular occupations are ruinously overcharged and
others left in want of hands, the national authorities can do much towards
restoring the equilibrium."
And the "national authorities,"
in Jefferson's mind, should be the Congress, as he wrote in a series of
answers to the French politician de Meusnier in 1786: "The commerce
of the States cannot be regulated to the best advantage but by a single
body, and no body so proper as Congress."
Of course, there were conservatives (like
Hamilton and Adams) in Jefferson's time, too, who took exception, thinking
that the trickle-down theory that had dominated feudal Europe for ten
centuries was a stable and healthy form of governance. Jefferson took
exception, in an 1809 letter to members of his Democratic Republican Party
(now called the Democratic Party): "The care of human life and
happiness, and not their destruction, is the first and only legitimate
object of good government."
But, conservatives say, government is the
problem, not the solution.
Of course, they can't explain how it was
that the repeated series of huge tax cuts for the wealthy by the Herbert
Hoover administration brought us the Great Depression, while raising taxes
to provide for an active and interventionist government to protect the
rights of labor to organize throughout the 1930s, 1940s, and 1950s led us
to the Golden Age of the American Middle Class. (The top tax rate in 1930
under Hoover was 25 percent, and even that was only paid by about a fifth
of wealthy Americans. Thirty years later, the top tax rate was 91 percent,
and held at 70 percent until Reagan began dismantling the middle class. As
the top rate dropped, so did the middle class it helped create.)
Thomas Jefferson pointed out, in an 1816
letter to William H. Crawford, "Every society has a right to fix the
fundamental principles of its association." He also pointed out in
that letter that some people - and businesses - would prefer that
government not play referee to the game of business, not fix rules that
protect labor or provide for the protection of the commons and the public
good.
We must, Jefferson wrote to Crawford,
"...say to all [such] individuals, that if they contemplate pursuits
beyond the limits of these principles and involving dangers which the
society chooses to avoid, they must go somewhere else for their exercise;
that we want no citizens, and still less ephemeral and pseudo-citizens
[like corporations], on such terms. We may exclude them from our
territory, as we do persons infected with disease."
Most of the Founders advocated - and all
ultimately passed - tariffs to protect domestic industries and workers.
Seventy years later, Abraham Lincoln actively stood up for the right for
labor to organize, intervening in several strikes to stop corporations and
local governments from using hired goon squads to beat and murder
strikers.
But conservative economics - the return of
ancient feudalism - rose up after Lincoln's death and reigned through the
Gilded Age, creating both great wealth and a huge population of what today
we call the "working poor." American reaction to these
disparities gave birth to the Populist, Progressive, and modern Labor
movements. Two generations later, Franklin Roosevelt brought us out of
Herbert Hoover's conservative-economics-produced Great Depression and
bequeathed us with more than a half-century of prosperity.
But now the conservatives are back in the
driver's seat, and heading us back toward feudalism and serfdom (and
possibly another Great Depression).
Only a return to liberal economic policies
- a return to We The People again setting and enforcing the rules of the
game of business - will reverse this dangerous trend. We've done it
before, with tariffs, anti-trust legislation, and worker protections
ranging from enforcing the rights of organized labor to restricting
American companies' access to cheap foreign labor through visas and
tariffs. The result was the production of something never before seen in
history: a strong and vibrant middle class.
If the remnants of that modern middle class
are to survive - and grow - we must learn the lessons of the past and
return to the policies that in the 1780s and the late 1930s brought this
nation back from the brink of economic disaster.
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This
article is © copyright by Thom Hartmann, but permission is granted for
reprint in print, email, blog, or web media so long as this credit is
attached and the title is unchanged. Thom
Hartmann (thom at thomhartmann.com) is an award-winning, best-selling
author and nationally syndicated daily talk show host. www.thomhartmann.com
His newest book is "We
The People: A Call To Take Back America," an illustrated and
edited collection of his columns.
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