Tuesday, February 25, 2014

Capitalist Socialism, I: “Private Capital for Public Works”

One of the most serious signs of decay of the more or less cohesive classical Roman Empire and its transformation into the more inchoate “Christendom” of the Middle Ages composed of increasingly nationalistic groups was the takeover of State functions by private individuals.  Mostly this was the defense of the Empire, and the responsibility for raising and equipping troops (hence the rise of feudalism), but it included maintenance of infrastructure as well.  This turned the rich into the real rulers, an aristocracy, as distinct from the nominal rulers, the emperor (when there was one), and the local senate.

Decayed Roman infrastructure
Not that private interests were all that enthusiastic about the prospect of taking over the functions of government in many instances and meeting the expenses of government out of their private purses.  Many rich people entered religious orders, giving their land and other wealth to the Church where they could, in many cases, still continue to control it, even if they didn’t officially “own” it — and priests and monks were exempt from military service and taxes. Because slaves didn’t have to pay the increasingly heavy taxes, many common people sold themselves into slavery and surrendered their land (if any) to their new masters.

The Rich turned noble
This meant that the rich who hadn’t managed to shelter their wealth somehow had to be coerced or bribed.  Government, after all, is expensive, and the rich would rather spend their wealth on themselves and their families.  The bribe usually consisted of being given use and benefit of public lands (demesne lands), which until the Reformation was considered separate from land directly owned as private property.

This led to the beliefs, as widespread as they were false, that the State owned all land, and only allowed private individuals nominal title and use of land, and that women could not own land.  The laws of the Salic Franks make it clear that women could own land as private property, but they could not have the administration of demesne land simply because one of the conditions for holding demesne land was military service.  This is also why a “Salic Law” means that a woman can neither rule, nor pass on the right to rule.
Roman Slaves

But that’s a different story.  What we’re interested in today is a proposal outlined in last Thursday’s Wall Street Journal, “Private Capital for Public Works” (02/20/14, A15).  The idea is that, since the State obviously doesn’t have the money to rebuild America’s infrastructure, the rich (who presumably have the money) should do it.

Naturally, the rich cannot be permitted to own America’s infrastructure.  That’s public property, just as demesne land in the late Roman Empire and Medieval times was public property.  We cannot risk the rich taking over any more of the government than they already control, any more than we can afford to let the rights of private property decay any more than they already have.

The idea is, in its way, almost brilliant.  Instead of financing infrastructure directly, the rich would purchase special bonds.  The proceeds of the bond sale would be put into a “national infrastructure bank” and used to bring America’s infrastructure up to par.

Instead of paying interest out of non-existent tax revenues, the bonds would provide the holders with a federal tax credit.  The proposal gives a tax break to the rich investors.  They can shelter other income with the tax credit, letting other, non-rich taxpayers pick up the tab for the taxes they don’t pay.

There does seem to be one rather large lacuna in the plan, however.  There doesn’t seem to be anything in the proposal to allow for the retirement of the bonded debt.

This makes a twisted sort of sense.  If tax revenues are already inadequate to provide for the rebuilding of infrastructure now, there is no reason to expect that they will be adequate in the future, either to repay the existing liability, or to provide for future improvements.

As it stands, then, the proposal seems to be for a permanent outstanding debt to finance infrastructure, just as we now have one to finance all the other government programs for which tax revenues have proven inadequate.  The problem is what happens when the rich decide they have better uses for their money, and want to liquidate their holdings.  Where is the government going to get the money to retire the debt?

Creating Aristocrats
One answer is to do the same thing the government did in the late Roman Empire: create an aristocracy by semi-privatizing State-owned infrastructure, giving the rich the use and benefit of the infrastructure they financed.  The rich would not be able to divest themselves of this quasi-ownership, but they could — and would — manage it to their benefit, just as the earls, counts, and barons of Medieval Europe managed the public demesne land to their benefit.  They would begin to charge fees for its use, and probably reap a good profit from doing so.

Gradually, of course, just as happened in Europe fifteen centuries ago, the rich would take over the public infrastructure and convert it to private property.  They would become the local government in name as well as in fact.  As has been evident from the increasing weakness of “official” government at the local, state, and national level, traditional government is breaking down.  The rich are ready, sometimes willing, and certainly able to fill the vacuum that will result when the overburdened system implodes, just as the imperial Roman government fell apart when too many demands were put on it.

Are we looking at a new Dark Ages?  If nothing is done to divert events from their current path, almost certainly.  All the signs are there.  It is only a matter of time.

There is, however, an alternative, one that was not available to the people of the Roman Empire, but is not only available to us, it is the optimal solution.  We will look at it in tomorrow’s posting.


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