In the last post I said that if anyone wants to refute my premise that our culture’s fundamental beliefs are flawed, all they have to do is make the system work. The main problem with this statement is the large number of conflicting ideas about what a working system would look like. Another problem has to do with who, exactly, I thought I was talking to. I suppose I was thinking mainly of those whose first response to social turmoil is to attack fellow citizens who happen to be women. They may not realize it, but if they defend the privilege and control they derive from society, they become responsible for its success. I’ve blamed the Greek philosophers for this tendency, although I think the Greeks used misogyny differently than it is used today. They used it for political and economic reasons while today men of all backgrounds and classes defend it as a traditional, sacred entitlement. However, in this post I want to dispense with the historical connections and the placing of blame, as it doesn’t help to clarify the issues.
The most troubling thing about the current crisis of capitalism is the large number of people who deny there is a problem. It’s especially shocking to see Catholics who object to Pope Francis’s condemnation of the economy. They hint that he doesn’t understand capitalism and suggest that they themselves possess a deeper knowledge of economic theory. Unfortunately, this is standard practice for those whose job it is to head off criticism about the economy. This is explained in The Global Political Economy of Israel, by Jonathan Nitzan and Shimshon Bichler.((Jonathan Nitzan and Shimshon Bichler, The Global Political Economy of Israel. Pluto Press London and Sterling Virginia, 2002))
Neoclassical ideology was created to support the aims of dominant capital. It functions as a smokescreen for the abuses of capitalist economics. Its development was financed by dominant capital together with tax money, countless minions work as its apologists and repairmen, state organs implement it, and the media sells it to the public. Unfortunately, most outsiders have trouble deciphering it, not because it can’t be learned as easily as the other social sciences, but because it’s deliberately made to look difficult. Further, by depicting the economy as if it were a natural phenomenon subject to scientific study, economists can not only stifle public discussion, they can make discussion unnecessary in the first place. After all, while laws of nature can be discovered they can’t be changed! The application of this logic to society represents one of the greatest powers of capitalism—the power to control the minds of its subjects.
This book deals mainly with Israel, but obviously its critique of economic theory isn’t specific to Israel. The United States has a similar economic story. ((A Short History of American Capitalism, Weinberg, Meyer, New History Press, 2003)) Between 1865 and 1920, in order for the U.S. to become the world’s leading industrial capitalist nation, dominant capitalists had to find a way to overcome two major factors: the demands of the working class; and competition among existing firms. They accomplished this through monopoly in manufacturing, which produced a system of corporate capitalism. The process was driven by a ruling class with designs on power, and assured through control of the financial system. The resulting merger movement was a movement of financial experts who commanded either capital itself or the avenues for gathering it.
According to Thorstein Veblen, the essentials of the system were as follows: ‘The banking community took over the strategic regulation of the key industries, and…also the control of the industrial system at large.’ Key industries were controlled by the investment bankers who made up a sort of General Staff of financial strategy and who commanded the country’s credit resources. During the first years of the 20th century, ‘higher financial circles’ decided that the banking system should be the headquarters of an investment system based on cooperation among large firms. Their relation with insurance companies is one example.
“In the years 1885 and 1905, the annual income of life insurance companies in the United States was $525 million and 2.9 billion, respectively. These funds were derived from premiums paid by holders of the insurance policies, and needed to be invested promptly so as to yield in income for the companies to pay for the deaths of their insured persons. Five firms owned two-thirds of the assets of all life insurance companies: Metropolitan, Prudential, Mutual, Equitable, and New York Life. The last three owned fully one-half the assets of all life insurance companies. In 1870 less than three percent of these assets were stocks and bonds; by 1900, that figure had risen to nearly 38 percent. Five years later, securities held by New York Life constituted 74 percent of its total assets; of Equitable 57 percent; and of Mutual, 54 percent. Which securities did the insurance companies buy? Primarily, those sold (i.e., underwritten) by six dominant New York investment banks, led by J.P. Morgan and Company. Such securities were issued by industrial corporations and others which had close relations with the dominant investment banks. According to Douglass North, ‘It was clearly a one-sided arrangement in which the great bulk of the advantages accrued to the investment banker rather than to the insurance company.’
“Crucial to this entire arrangement was the requirement that the insurance companies control their own back yard. This was accomplished by deep company involvement in political and governmental affairs. ‘The three big insurance companies occupied key positions in financing the [New York State] Republican machine (and to some extent the Democratic one also) and guaranteed not only friendly legislators burt cooperative [state] insurance departments as well.’ Between 1895 and 1905, a New York Life lobbyist was paid at least $1,312,197.18 to guard against passage of hostile legislation. The New York State Department of Insurance functioned as a subdivision of the industry…”
The New York Department of Insurance was a creature of the dominant capital machine. Its ‘regulations’ enabled the large companies to evade regulations when necessary, and to insure continuous dominance by the large companies. The Big Three insurance companies ruled their industry very much like U.S. Steel, a Morgan firm.
The late 19th and early 20th centuries are frequently referred to by economic historians as the age of Big Business, but according to W.E.B. Du Bois, this is misleading. It wasn’t so much about the size of the firms as it was about an ‘organic super-government of mankind in matters of work and wages, directed with science and skill for the private profit of individuals.’
“When Woodrow Wilson first ran for president in 1912, he declared that ‘the masters of the government of the United States are the combined capitalists and manufacturers of the United States.’ At the center of this process lay control of the principal political parties and the political machines, organized under the direction of party bosses. ‘Living to a great extent on the corporations, bossism burst into full bloom in the States where big capitalist interests were concentrated, where [railroad] companies were most numerous, such as New York, New Jersey, Pennsylvania…’”
The bosses didn’t run everything however. Often company officials sat in on important party committees and pulled the strings from them, equipped and kept up political organization for their own use, and ran them as they pleased. When the Sherman Anti-Trust Act was finally passed in 1890, an amendment was offered to assure it would not be applied against the unions. Senator Sherman led a successful fight against the amendment arguing it was not necessary. Within 5 years it was indeed used against the unions. The entire Anti-Trust Act was soon judged to be a charade because so much of it was ignored whenever it suited dominant capital.
It might not seem like it but this post was motivated by hope. I’ve enjoyed watching the Democratic Party’s effort to position itself for the 2016 elections. The question is how far the party is willing to go with the financial reforms proposed by Elizabeth Warren and Bernie Sanders.
And there are hopeful signs outside of party politics. The FCC was recently forced to back down on the fast lane for the Internet; the Republican House failed to roll back implementation of Dodd-Frank; and of course there is Pope Francis, who has been willing to weather the criticism of conservative Catholics to implement his vision of social justice. What I’m not clear about is how much reform is possible given the control wielded by the corporations. Clearly the system’s abuses have to be addressed. Otherwise the next election will be a joke, not to mention the entire American experiment.