Thursday, July 25, 2013

The REAL Dismal Science, IV: Democracy v. Plutocracy


By the early 19th century, it appeared that democracy had triumphed over divine right.  The French Revolution had been a misstep, of course, but you can’t make an omelet without breaking eggs, and boys will be boys.  Besides, you know . . . foreigners.  And even the French had some good in them, e.g., Alexis de Tocqueville and what many authorities consider the first great work in sociology, Democracy in America.

Appearances, however, were deceiving.  While the political theory of democracy was well-developed, it contained a serious omission.  It relied for its survival on widespread access to the ballot, not on widespread access to what made the ballot meaningful: ownership of the means of production.

Obviously, if you want to be productive, you must own the means of production.  There are, however, only two means of production available to humanity: labor and capital.  (You can include what nature provides or God drops from heaven as a separate means of production if you like, but you’d be wrong.  Even gathering manna from heaven required work — labor — and some sort of capital, such as baskets to carry it, to make it a “production” for consumption.  That’s why the Israelites were told to gather twice as much the day before the Sabbath so they wouldn’t have to break the Sabbath by working.)

The problem was that, while the political revolution was advancing democracy, the Industrial Revolution was advancing technology.  Unfortunately, few economists and (as far as we know) no politicians acknowledged the fact that the effect of technology is to displace labor from production.  Human labor that everyone owned naturally was rapidly being displaced by capital as the predominant form of production — and most people did not have access to capital credit, whether based on existing accumulations or the present value of the capital project to be financed.

A very unstable situation was being created.  People who had political power were losing economic power.  Almost everyone who was not a slave owned labor that could be productive, but fewer and fewer people owned capital other than land — and land is finite.

In the United States economic development was hampered by the love-hate relationship with banking in general, and central banking in particular.  The availability of cheap and even free land offset this to some degree, but the situation could not last.  The Civil War gave a great impetus to the rapid growth of industry and commerce, along with the construction of infrastructure, to meet the demands of the war effort.

As the goal was not to promote economic growth per se, but to win the war, ownership of the suddenly expanded industrial and commercial enterprises became concentrated in relatively few hands.  In the East, increasing numbers of workers owned nothing, not even their dwellings.  The rapid growth of commerce and industry ensured that the situation de Tocqueville had noted, that there was little difference between a factory or store owner and the workers, became a thing of the past.

Orestes Brownson characterized the Civil War as a struggle between the industrial and commercial capitalism of the North, and the agrarian capitalism of the South.  With the North triumphant, greater numbers of people began to be forced into the wage system, and socialism took root a generation after it began spreading through Europe.

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