Thursday, July 19, 2012

Lies, Damned Lies, and Definitions, XVIII: Bagehot's Political Economy

As we saw in yesterday's posting, Walter Bagehot employed a Hobbesian analysis in his study of the English Constitution. This is critical in understanding his economic analysis, which was based on his (actually Hobbes's) political philosophy. (This is not unusual; to understand Adam Smith's Wealth of Nations, 1776, it is a good idea to read his Theory of Moral Sentiments, 1759.)

Bagehot's reliance on totalitarian political philosophy had the expected effect. Natural rights, the judiciary, — such things are ignored. They are unimportant because they are not "efficient," that is, they do not increase the effectiveness of government, the purpose of which is to protect the interests of the propertied classes who run the country. Weaknesses appear in government to the extent that the State administration departs from the principles of business, e.g., lack of efficient structure, unnecessary redundancy, etc. The fact that many of these structures were at least initially intended to provide accountability to the citizens is irrelevant. The capitalist of Bagehot's day — or, more accurately, the non-owning manager — was not accountable to his workforce or his customers, so the government should not be accountable to the citizens it governed.

We have seen a similar development since the 1980s in the United States with the repeal of systemic, internal control legislation such as Glass-Steagall, "the Banking Act of 1933" (Pub.L. 73_66, 48 Stat. 162, H.R. 5661), in the name of efficiency and increased competitiveness, and its replacement of sound internal controls with unenforceable government external regulation. Moulton believed that the current integration of the banking system was a grave danger to the economic and financial health of the country. Writing in 1916, Moulton stated,

"It was originally intended that the banks which created these demand obligations in exchange for short-time promises to pay would as a matter of course, and virtually of necessity, make loans for strictly commercial purposes, for unless they made commercial loans the obligations could not be liquidated within a short time. In practice, however, a large proportion of the loans made by 'commercial' banks are for investment purposes, and out of this practice have grown some of our most serious banking problems." (Moulton, Principles of Money and Banking, op. cit., II.49-50.)

Bagehot did not appear to understand that the State is not a business corporation owned by a small capitalist elite. While principles of sound business (as opposed to the structures that have grown up to support and protect capitalism and socialism) can be applied in government to great advantage, ultimately there comes a parting of the ways. A business corporation exists to make a profit and benefit the individual workers, shareholders, and customers. A government exists to keep order and care for the common good; it is not an enterprise to be run for individual benefit or profit.

By focusing solely on what was expedient ("efficient"), Bagehot dismissed the importance of personal sovereignty and the dignity of the human person, the protection and development of which is the ultimate justification for government. When a government undermines or goes against the dignity of every person, or does not respect that of various individuals or groups by securing to them their natural rights, that government dissolves the contract that binds its citizens to it. This in turn justifies a change in rulers, or even in the form of government. This was, in fact, the justification given by Thomas Jefferson in the Declaration of Independence, the basis of the U.S. Constitution . . . possibly explaining Bagehot's otherwise incomprehensible hostility toward the U.S. Constitution.

Ironically, what may have excited Bagehot's ire appears to be the very thing that led Pope Leo XIII to praise the American political system.

Leo XIII's 1899 "Apostolic Letter" to the Bishops of the United States, Testem Benevolentia. Cf. "Furthermore, the same Pope Pius IX, who supposedly was antidemocratic in his official teaching, praised the position of the Catholic Church in the United States and lauded the American Constitution as almost every pope since then has done. When the majority of the French hierarchy, according to its traditional monarchism, resisted Leo XIII's policy of ralliement to reconcile French Catholicism with the Third Republic and its democratic institutions, at the same time we hear the Apostolic Delegate, Cardinal Satolli, express the following opinion: 'The Magna Chartas of mankind are the Gospel of our Lord and the Constitution of the United States. . . . Forward on the way of progress: in one hand the book of Christian truth, the Gospels of our Lord; in the other hand the Constitution of the United States.' (Note in text: "Cf. O'Connell, 'Une idée nouvelle dans la vie du Père Hecker.' Compte rendu du 4ieme Congrès scientifique internationale des Catholiques (Fribourg, IV, 1897, 78); and Archbishop Ireland, The Church and Modern Society, I, 127.")." (Rommen, The State in Catholic Thought, op. cit., 481.)

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