What with the Republican potential candidates seemingly floundering around to keep from making any more mistakes, and the Democratic incumbent floundering around trying to recover from his mistakes, and the lack of response (so far) from any of the candidates or incumbents with whom we've been in touch, it's been a pretty grim week. So why are we so hopeful?
Because there are definite signs of hope, believe it or not. We don't have to wait for the system to collapse before we fix it. We can organize and start pushing for Capital Homesteading now. In keeping with that, these are this past week's highlights:
• The CESJ Core Group had a telephone conference with Chris S. this past week. He's a Notre Dame graduate who, with some associates in Albany, is working to establish a school that would, in part, incorporate the "Great Books" program for grades 7-12, and employ the latest in advanced technology. They haven't started fundraising yet, but it is definitely something to watch and, if it suits your needs and goals, support. It appears to be consistent with the Just Third Way. There's more here.
• There is a concerted effort to inform potential presidential candidates — and even the current incumbent — about the possibilities for financial and economic reform found in CESJ's "Capital Homesteading" proposal, and to suggest that candidates meet with CESJ president Norman G. Kurland to learn about the proposal. There's been a special emphasis on Rick Santorum, simply because he has less to lose and more to gain by coming out in favor of Capital Homesteading (and can be reached at info@RickSantorum.com, if you want to add your voice to those recommending that Santorum meet with Kurland), but every candidate would benefit by being made aware of the program's potential.
• Of course, there are our ongoing efforts to try and insinuate moral values into the general culture by publishing and republishing subversive (i.e., consistent with the Just Third Way) works of fiction and non-fiction. These expand our efforts to try and turn around the direction our culture is taking, from new, humorous science fiction and fantasy, to reprints of "long-lost" classics, to neglected works by renowned authors. The bottom line is that there is cause for grave concern, but not for despair. By organizing in social justice, it is possible to reform the system without destroying it or waiting for it to collapse.
• We had a meeting today with a gentleman who is looking to rebuild sections of the moribund District of Columbia using advanced prefabricated structures. The concept could work very well with the HEC concept.
• We reconnected with the people at the Chesterton Press, who have what looks like a pretty good line of "Catholic fiction," admittedly a term with as many meanings as "capitalism." It's a well-designed site and the subtle touches of humor make it well worth the visit.
• If explicitly religious fiction isn't your bag, try the offerings in the CESJ "bookshop" if you haven't already. Don't forget to scroll down the page to the link where the freebies are.
• As of this morning, we have had visitors from 59 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Australia, and Singapore. People in Croatia, Hong Kong, Australia, the United States, and the Netherlands spent the most average time on the blog. The most popular postings this past week were "Raw Judicial Power, Part IX: Scott v. Sandford," "Thomas Hobbes on Private Property," "It's the Academics v. the Politicians . . . v. Economic Reality, Part III: Finance," "Raw Judicial Power, Part VIII: Cotton is King," and "Raw Judicial Power, Part I: The Assault of Legal Positivism."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
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THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
Friday, February 10, 2012
Thursday, February 9, 2012
Raw Judicial Power XIX: The New Deal
The Crash of 1929 ushered in a new era of misunderstanding of the role of the State, especially the degree to which government can or should directly control economic and social life by infringing on the natural rights of liberty and property. The New Deal, characterized by rapid, almost explosive growth of government through manipulation of the financial, tax and monetary systems (see Harold G. Moulton, The New Philosophy of Public Debt. Washington, DC: The Brookings Institution, 1943) was the logical end of the decayed populism of the 1890s, and the derailed progressivism of 1900-1912.
The new understanding of private property embodied in the New Deal was a direct result of the distortions forced on the Constitution in the Slaughterhouse Cases, integrated into government monetary and fiscal policy largely through the work of Adolph Berle and Alvin Hansen. To a significant degree, the economic policies of the New Deal were determined by the fixed — and erroneous — belief that the only way to finance new capital formation is to cut consumption, accumulate money savings and invest.
Analysts operating within this "currency principle" framework were baffled by the causes of the Crash and the Great Depression of the 1930s. As Moulton made clear in a number of his books (most in-depth in The Recovery Problem in the United States, 1936, in which he accurately predicted the "Depression within the Depression" of 1937-1938), by assuming that the only source of financing for anything is existing accumulations of savings, the presumed experts could not understand why, at one and the same time, there was plenty of money for capital expansion and speculation on Wall Street.
Under the currency principle common to Keynesian, Monetarist and Austrian economics, the allocation of credit, presumed fixed by the Production Possibilities Curve that in turn is determined by the amount of existing savings, is an "either/or" situation, "guns or butter," as it is usually expressed. On the contrary, as Moulton pointed out, because commercial and central banks have the power to issue promissory notes in exchange for accepted bills of exchange, i.e., by discounting and rediscounting eligible paper, it is possible to create as much money as necessary to finance all feasible capital projects in the economy by the expansion of bank credit without upward pressure on the price level.
The problem in the 1920s, similar to the situation that prevailed in 1873 and 1893, was that by 1929 productive capacity had temporarily outstripped the capacity of consumers to absorb the new production. Business had more capacity to produce than consumers had the capacity (effective demand) to consume — a discontinuity that led to the non-functioning of Say's Law of Markets: that we can only consume if we produce, and that we can only obtain what others produce by offering what we produce in exchange.
Thus, as wage labor became less productive relative to advancing technology (Moulton noted that the number of jobs in direct manufacturing actually declined in the United States between 1919 and 1929), wage workers became less able to consume what was being produced. (The solution to this, as Louis Kelso explained a generation later, is to make "every worker an owner," ideally, every person, so that replacing labor with capital in the production process will no longer result in a discontinuity between production and consumption.)
If, at the same time, money is being created for speculation in secondary equity issues — as it was in the 1920s at a tremendous rate — then the prices of shares on the secondary market will reflect the influx of money and rise accordingly. Many people in the 1920s and even today failed to realize that purchasing equity shares and debt on the secondary market is not investment in new capital, but the purchase of existing capacity. When the purchaser buys and sells secondary issues in the hope of realizing a gain from a change in the value per share or the price of the bond instead of for the stream of dividends or interest to be paid in the future out of profits generated by the production of marketable goods and services, it must be classified as "speculation," not investment.
Consistent with the "banking principle," money for speculation, consumption and government expenditures must come out of existing accumulations of savings. Unfortunately, the Keynesian policies implemented in the New Deal assumed as a given that all expenditures for any purpose come out of existing accumulations of savings. Per the currency principle, increasing the money supply simply divides the savings accumulation into smaller and smaller pieces.
Issuing new money thus presumably only redistributes existing wealth, so that the amount of government debt issued is irrelevant as long as the debt is held within the domestic economy. To retire excess debt, it is only necessary to drain excess money out of the economy by taxation. If additional money is needed for consumption or investment, it is only necessary to increase outstanding government debt.
Keynesian monetary and fiscal theory — an application of Georg Friedrich Knapp's "chartalism" (now called "Modern Monetary Theory," or "MMT") — is thus based on the utterly false assumption that government debt — and thus the money supply — represents the present value of existing wealth in the economy. On the contrary, as has been graphically demonstrated by the colossal sovereign debt burdens of many countries today, the issuance of government securities to finance the modern Welfare State can rapidly outstrip the ability of the economy to be taxed and repay the debt. Many modern governments have made, and continue to make promises they cannot possibly keep.
This is because what is being monetized by the issuance of government debt is not limited to the quantifiable present value of existing wealth in an economy. To this must be added the present value of future tax collections based on the unquantified present value of marketable goods and services to be produced in the future, limited only by what politicians can spend, not what the private sector can produce. Governments are not only redistributing existing wealth through inflation by deficit spending monetized by their central banks. They are mortgaging future production that does not yet exist, and which may never exist if the capacity of the private sector to produce is destroyed or damaged beyond recovery.
To allow governments to take over money and credit and control the economy required a fundamentally different conception not only of natural rights, but of the source of those rights. The architects of the New Deal, principally Adolph Berle and Alvin Hansen, found this different conception in the devolution of natural law theory and the growth of legal positivism that began in the United States with the effective nullification of the U.S. Constitution by the Supreme Court in the Dred Scott decision, and was congealed into amorphous dogma in the opinion in the Slaughterhouse Cases. The demand for increased government control of the economy could be justified by the new conceptions of property and freedom of association (liberty) implied in Slaughterhouse, which due to the vagueness of the Court's opinion could be used to make the Constitution mean anything the government or the Court found useful or expedient.
Underlying the new conceptions of property and liberty, however, was an even more dangerous idea: that rights such as life, liberty (freedom of association/contract) and property are not inherent in the human person, but are a grant from the State. By changing the orientation of the Constitution away from natural law, the idea that every human being is by nature automatically a person having inherent or inalienable rights was utterly abolished.
Within the framework dictated by adherence to Keynesian economics, the State assumes absolute power; man becomes "a mere creature of the State." In fulfillment of Walter Bagehot's idea of "democracy" expressed in The English Constitution (1867), the transformation of the American system from the vision of the Founding Fathers to a government of the State, by the State, and for the State was complete.
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The new understanding of private property embodied in the New Deal was a direct result of the distortions forced on the Constitution in the Slaughterhouse Cases, integrated into government monetary and fiscal policy largely through the work of Adolph Berle and Alvin Hansen. To a significant degree, the economic policies of the New Deal were determined by the fixed — and erroneous — belief that the only way to finance new capital formation is to cut consumption, accumulate money savings and invest.
Analysts operating within this "currency principle" framework were baffled by the causes of the Crash and the Great Depression of the 1930s. As Moulton made clear in a number of his books (most in-depth in The Recovery Problem in the United States, 1936, in which he accurately predicted the "Depression within the Depression" of 1937-1938), by assuming that the only source of financing for anything is existing accumulations of savings, the presumed experts could not understand why, at one and the same time, there was plenty of money for capital expansion and speculation on Wall Street.
Under the currency principle common to Keynesian, Monetarist and Austrian economics, the allocation of credit, presumed fixed by the Production Possibilities Curve that in turn is determined by the amount of existing savings, is an "either/or" situation, "guns or butter," as it is usually expressed. On the contrary, as Moulton pointed out, because commercial and central banks have the power to issue promissory notes in exchange for accepted bills of exchange, i.e., by discounting and rediscounting eligible paper, it is possible to create as much money as necessary to finance all feasible capital projects in the economy by the expansion of bank credit without upward pressure on the price level.
The problem in the 1920s, similar to the situation that prevailed in 1873 and 1893, was that by 1929 productive capacity had temporarily outstripped the capacity of consumers to absorb the new production. Business had more capacity to produce than consumers had the capacity (effective demand) to consume — a discontinuity that led to the non-functioning of Say's Law of Markets: that we can only consume if we produce, and that we can only obtain what others produce by offering what we produce in exchange.
Thus, as wage labor became less productive relative to advancing technology (Moulton noted that the number of jobs in direct manufacturing actually declined in the United States between 1919 and 1929), wage workers became less able to consume what was being produced. (The solution to this, as Louis Kelso explained a generation later, is to make "every worker an owner," ideally, every person, so that replacing labor with capital in the production process will no longer result in a discontinuity between production and consumption.)
If, at the same time, money is being created for speculation in secondary equity issues — as it was in the 1920s at a tremendous rate — then the prices of shares on the secondary market will reflect the influx of money and rise accordingly. Many people in the 1920s and even today failed to realize that purchasing equity shares and debt on the secondary market is not investment in new capital, but the purchase of existing capacity. When the purchaser buys and sells secondary issues in the hope of realizing a gain from a change in the value per share or the price of the bond instead of for the stream of dividends or interest to be paid in the future out of profits generated by the production of marketable goods and services, it must be classified as "speculation," not investment.
Consistent with the "banking principle," money for speculation, consumption and government expenditures must come out of existing accumulations of savings. Unfortunately, the Keynesian policies implemented in the New Deal assumed as a given that all expenditures for any purpose come out of existing accumulations of savings. Per the currency principle, increasing the money supply simply divides the savings accumulation into smaller and smaller pieces.
Issuing new money thus presumably only redistributes existing wealth, so that the amount of government debt issued is irrelevant as long as the debt is held within the domestic economy. To retire excess debt, it is only necessary to drain excess money out of the economy by taxation. If additional money is needed for consumption or investment, it is only necessary to increase outstanding government debt.
Keynesian monetary and fiscal theory — an application of Georg Friedrich Knapp's "chartalism" (now called "Modern Monetary Theory," or "MMT") — is thus based on the utterly false assumption that government debt — and thus the money supply — represents the present value of existing wealth in the economy. On the contrary, as has been graphically demonstrated by the colossal sovereign debt burdens of many countries today, the issuance of government securities to finance the modern Welfare State can rapidly outstrip the ability of the economy to be taxed and repay the debt. Many modern governments have made, and continue to make promises they cannot possibly keep.
This is because what is being monetized by the issuance of government debt is not limited to the quantifiable present value of existing wealth in an economy. To this must be added the present value of future tax collections based on the unquantified present value of marketable goods and services to be produced in the future, limited only by what politicians can spend, not what the private sector can produce. Governments are not only redistributing existing wealth through inflation by deficit spending monetized by their central banks. They are mortgaging future production that does not yet exist, and which may never exist if the capacity of the private sector to produce is destroyed or damaged beyond recovery.
To allow governments to take over money and credit and control the economy required a fundamentally different conception not only of natural rights, but of the source of those rights. The architects of the New Deal, principally Adolph Berle and Alvin Hansen, found this different conception in the devolution of natural law theory and the growth of legal positivism that began in the United States with the effective nullification of the U.S. Constitution by the Supreme Court in the Dred Scott decision, and was congealed into amorphous dogma in the opinion in the Slaughterhouse Cases. The demand for increased government control of the economy could be justified by the new conceptions of property and freedom of association (liberty) implied in Slaughterhouse, which due to the vagueness of the Court's opinion could be used to make the Constitution mean anything the government or the Court found useful or expedient.
Underlying the new conceptions of property and liberty, however, was an even more dangerous idea: that rights such as life, liberty (freedom of association/contract) and property are not inherent in the human person, but are a grant from the State. By changing the orientation of the Constitution away from natural law, the idea that every human being is by nature automatically a person having inherent or inalienable rights was utterly abolished.
Within the framework dictated by adherence to Keynesian economics, the State assumes absolute power; man becomes "a mere creature of the State." In fulfillment of Walter Bagehot's idea of "democracy" expressed in The English Constitution (1867), the transformation of the American system from the vision of the Founding Fathers to a government of the State, by the State, and for the State was complete.
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Wednesday, February 8, 2012
Raw Judicial Power XVIII: Dodge v. Ford Motor Company
As we saw in the previous posting in this series, prior to the entry of Theodore Roosevelt into the 1912 presidential campaign on the Progressive ticket, the outlook was extraordinarily grim for the United States. The choice was between William Howard Taft, who had caved in to the reactionary Old Guard Republicans, and Woodrow Wilson, who, in defiance of the populist leanings of the Democratic Party, supported laissez-faire capitalism.
This put the American voter between a rock and a hard place as far as choice was concerned. Elect Taft and get more ineffectual progressive rhetoric as the Old Guard dismantled Roosevelt's reforms while they purged the G.O.P. of progressive elements, or elect Wilson and keep things as they were, with a stalemate between a reactionary president and a populist Congress.
By forcing both the Democrat and Republican presidential candidates to adopt a more progressive stance, Roosevelt made the election a genuine contest between Wilson and himself, instead of a landslide for Wilson. Taft was, to all intents and purposes, unelectable no matter what happened. He had lost the confidence of the progressive Republicans by caving in to the Old Guard, and all the Democrats and independents, and had never had the confidence of the populists and socialists in the first place.
Roosevelt thereby managed to turn the tide for a short time, but progressivism as a movement depended too much on him personally at that point; it had not been institutionalized, that is, become truly a part of the system. Had Taft not previously caved, or had Roosevelt been elected in 1912, the reforms could have taken root and grown, restoring the American system, but they did not, and the brief chance that reform had under the Democrats came to nothing in the end.
Still, the Democrats kept their biggest promises and instituted the Federal Reserve and the income tax. These institutions, however, necessary as they were and remain, were not integrated into a holistic approach. They were tacked on, so to speak, to a system that still embodied several flaws, notably lack of democratic access to the means of acquiring and possessing capital to replace the Homestead Act.
This became evident when, for the sake of political expedience, both the income tax and the Federal Reserve were misused to finance the entry of the United States into World War I. Rather than raise the necessary funds by the politically unpopular move of raising taxes — although taxes were raised; just not enough to defray the full cost of the war — the money creation powers of the Federal Reserve were used to monetize government deficits by purchasing the securities floated in the Second Liberty Loan and Victory Loan issues.
Bad as the misuse of these institutions was and remains, however, they can be corrected by relatively simple changes in government policy. This was not the case with the institution of private property, especially after the distortions that resulted from the decision in the Slaughterhouse Cases became embedded in constitutional law. Nowhere was the change more evident than in the decision of the Michigan Supreme Court in Dodge v. Ford Motor Company (204 Mich. 459, 170 N.W. 668. (Mich. 1919)).
As a result of the "slavery of past savings" assumption that forces an economy into capitalism, socialism, or the Servile State, the new definitions of private property that resulted from the Slaughterhouse Cases had the world economy in their grip. The Great War had accelerated the process of proletariatization and the economic disenfranchisement of small owners. The next step was to start undermining or eliminating the rights of minority owners, leaving only the richest and thus most powerful in total control. In Dodge v. Ford Motor Company the abolition of private property for the majority of the population even in a capitalist society was recognized as a legal principle.
The story is rather ugly. In the first quarter of the 20th century, Henry Ford decided to finance a plant expansion using accumulated cash instead of selling new equity or borrowing the money. The Dodge brothers, minority owners, protested. They wanted the dividends to which they were entitled under the traditional rights of private property. Ford refused to pay dividends, and the Dodge brothers sued.
In Dodge, among other issues, the court ignored the traditional definition of private property, embodied in all codes of law, as the right to control what is owned. (Louis O. Kelso, "Karl Marx: the Almost Capitalist," American Bar Association Journal, March 1957.) The court, in effect, redefined the traditional right to receive the "fruits of ownership" (i.e., income from what is owned — dividends) for minority shareholders as limited to the power to sell their shares if they were not happy with the dividend policy of the majority owner(s).
The court ruled, in effect, that minority shareholders are able to enjoy their full "fruits of ownership," including the right to receive any and all income generated by what is owned, only if the majority owner so agrees. That is, the majority owner(s) alone, through control of the Board of Directors, have the right to set dividend policy for a company, and do not need the consent of a minority owner or owners to withhold that which belongs by natural right to the minority owner(s).
Ford built his case on the "business judgment rule." That is, if the individual elected by the shareholders (who happened to be Ford, as he retained the majority block of shares) decided it was in the best interests of the company — and therefore the shareholders — to stop or reduce payment of dividends, the minority shareholders had no recourse other than to retain their shares and take whatever the majority owner(s) chose to dish out. The alternative was to exercise their "take-it-or-leave-it" right to sell their shares and wash their hands of the whole business — in other words, to exercise their property rights solely to become non-owners.
The "business judgment rule" is a concept in U.S. corporate case law in which "directors of a corporation . . . are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge." (Gimbel v. Signal Cos., 316 A. 2d 599, 608 (Del. Ch. 1974).) In order for someone to bring suit for violating the rule, the one suing must prove that there was a conflict of interest, i.e., "the burden of providing evidence that directors, in reaching their challenged decision, breached any one of the triads of their fiduciary duty — good faith, loyalty, or due care." (Cede & Co. v. Technicolor, Inc., 634 A. 2d 345, 361 (Del. 1993).)
If it cannot be shown that the Board of Directors had a self-interested motive in reaching its decision, the individual or group alleging a breach of fiduciary duty "is not entitled to any remedy unless the transaction constitutes waste . . . [that is,] the exchange was so one-sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration." (In re The Walt Disney Co. Derivative Litigation, 906 A. 2d 27 (Del. June 8, 2006).)
The suit that the Dodge brothers brought against Henry Ford was one of the earliest cases in which this rule was invoked. In a line of reasoning that appeared to advance the claim that minority owners are not owners in the same sense or manner as majority owners, the Michigan Supreme Court ruled that, "courts of equity will not interfere in the management of the directors unless it is clearly made to appear that they are guilty of fraud or misappropriation of the corporate funds, or refuse to declare a dividend when the corporation has a surplus of net profits which it can, without detriment to its business, divide among its stockholders, and when a refusal to do so would amount to such an abuse of discretion as would constitute a fraud, or breach of that good faith which they are bound to exercise towards the stockholders." (Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668 (1919).) This is simply using a rule of law — the business judgment rule — to ride roughshod over the natural right to be an owner, whether one is a minority, small, or majority owner.
It might thus be argued at some time in the future, when the rights of private property have been restored, that by deciding to deprive minority owners — shareholders — of their traditional rights of property in furtherance of what might be interpreted as vindictive or malicious acts on the part of Henry Ford to deprive the Dodge brothers of their rights as shareholders, the court in Dodge v. Ford Motor Company might not have applied the business judgment rule properly in the case that seems to have been used most often to validate the concept.
What is also frequently ignored in analyses of the case is the fact that Ford had dismissed another right of private property, that of control. He had previously blocked every effort of the minority shareholders to have input into decisions and exercise some degree of control over the business, such as design improvements and marketing strategy. This was particularly egregious with respect to the Dodge brothers, who owned the next largest block of shares (10%) after Ford, and who were increasingly unhappy with Ford's dictatorial actions.
Consequently, prior to their lawsuit over Ford's restriction of dividend payments, the Dodge brothers began setting up their own automobile manufacturing company in secret, using their Ford dividends to finance the effort. Ford got wind of this and began withholding dividends. Ford was also suspected of wanting to reduce the price of Ford automobiles as a way of justifying the proposed reduction in dividend payouts and reducing the company value per share.
After the Michigan Supreme Court ruled in his favor, Ford threatened to set up another rival automobile manufacturing company, probably to be wholly owned by Ford personally. This was apparently as a way to compel the Dodge brothers to sell their shares back to the Ford Motor Company at the reduced value per share that Ford had manipulated. In this he was successful — and thereby undermined another right of private property, that of disposal, by taking away the Dodge brothers' free choice in the matter of whether or not to sell their shares.
Thus, consistent with the redefinition of private property that came out of the Slaughterhouse Cases, Henry Ford, one of the "high priests" of capitalism, did more than almost anyone else to wreck the institutions of private property, liberty, and free markets on which capitalism is ostensibly based.
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This put the American voter between a rock and a hard place as far as choice was concerned. Elect Taft and get more ineffectual progressive rhetoric as the Old Guard dismantled Roosevelt's reforms while they purged the G.O.P. of progressive elements, or elect Wilson and keep things as they were, with a stalemate between a reactionary president and a populist Congress.
By forcing both the Democrat and Republican presidential candidates to adopt a more progressive stance, Roosevelt made the election a genuine contest between Wilson and himself, instead of a landslide for Wilson. Taft was, to all intents and purposes, unelectable no matter what happened. He had lost the confidence of the progressive Republicans by caving in to the Old Guard, and all the Democrats and independents, and had never had the confidence of the populists and socialists in the first place.
Roosevelt thereby managed to turn the tide for a short time, but progressivism as a movement depended too much on him personally at that point; it had not been institutionalized, that is, become truly a part of the system. Had Taft not previously caved, or had Roosevelt been elected in 1912, the reforms could have taken root and grown, restoring the American system, but they did not, and the brief chance that reform had under the Democrats came to nothing in the end.
Still, the Democrats kept their biggest promises and instituted the Federal Reserve and the income tax. These institutions, however, necessary as they were and remain, were not integrated into a holistic approach. They were tacked on, so to speak, to a system that still embodied several flaws, notably lack of democratic access to the means of acquiring and possessing capital to replace the Homestead Act.
This became evident when, for the sake of political expedience, both the income tax and the Federal Reserve were misused to finance the entry of the United States into World War I. Rather than raise the necessary funds by the politically unpopular move of raising taxes — although taxes were raised; just not enough to defray the full cost of the war — the money creation powers of the Federal Reserve were used to monetize government deficits by purchasing the securities floated in the Second Liberty Loan and Victory Loan issues.
Bad as the misuse of these institutions was and remains, however, they can be corrected by relatively simple changes in government policy. This was not the case with the institution of private property, especially after the distortions that resulted from the decision in the Slaughterhouse Cases became embedded in constitutional law. Nowhere was the change more evident than in the decision of the Michigan Supreme Court in Dodge v. Ford Motor Company (204 Mich. 459, 170 N.W. 668. (Mich. 1919)).
As a result of the "slavery of past savings" assumption that forces an economy into capitalism, socialism, or the Servile State, the new definitions of private property that resulted from the Slaughterhouse Cases had the world economy in their grip. The Great War had accelerated the process of proletariatization and the economic disenfranchisement of small owners. The next step was to start undermining or eliminating the rights of minority owners, leaving only the richest and thus most powerful in total control. In Dodge v. Ford Motor Company the abolition of private property for the majority of the population even in a capitalist society was recognized as a legal principle.
The story is rather ugly. In the first quarter of the 20th century, Henry Ford decided to finance a plant expansion using accumulated cash instead of selling new equity or borrowing the money. The Dodge brothers, minority owners, protested. They wanted the dividends to which they were entitled under the traditional rights of private property. Ford refused to pay dividends, and the Dodge brothers sued.
In Dodge, among other issues, the court ignored the traditional definition of private property, embodied in all codes of law, as the right to control what is owned. (Louis O. Kelso, "Karl Marx: the Almost Capitalist," American Bar Association Journal, March 1957.) The court, in effect, redefined the traditional right to receive the "fruits of ownership" (i.e., income from what is owned — dividends) for minority shareholders as limited to the power to sell their shares if they were not happy with the dividend policy of the majority owner(s).
The court ruled, in effect, that minority shareholders are able to enjoy their full "fruits of ownership," including the right to receive any and all income generated by what is owned, only if the majority owner so agrees. That is, the majority owner(s) alone, through control of the Board of Directors, have the right to set dividend policy for a company, and do not need the consent of a minority owner or owners to withhold that which belongs by natural right to the minority owner(s).
Ford built his case on the "business judgment rule." That is, if the individual elected by the shareholders (who happened to be Ford, as he retained the majority block of shares) decided it was in the best interests of the company — and therefore the shareholders — to stop or reduce payment of dividends, the minority shareholders had no recourse other than to retain their shares and take whatever the majority owner(s) chose to dish out. The alternative was to exercise their "take-it-or-leave-it" right to sell their shares and wash their hands of the whole business — in other words, to exercise their property rights solely to become non-owners.
The "business judgment rule" is a concept in U.S. corporate case law in which "directors of a corporation . . . are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge." (Gimbel v. Signal Cos., 316 A. 2d 599, 608 (Del. Ch. 1974).) In order for someone to bring suit for violating the rule, the one suing must prove that there was a conflict of interest, i.e., "the burden of providing evidence that directors, in reaching their challenged decision, breached any one of the triads of their fiduciary duty — good faith, loyalty, or due care." (Cede & Co. v. Technicolor, Inc., 634 A. 2d 345, 361 (Del. 1993).)
If it cannot be shown that the Board of Directors had a self-interested motive in reaching its decision, the individual or group alleging a breach of fiduciary duty "is not entitled to any remedy unless the transaction constitutes waste . . . [that is,] the exchange was so one-sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration." (In re The Walt Disney Co. Derivative Litigation, 906 A. 2d 27 (Del. June 8, 2006).)
The suit that the Dodge brothers brought against Henry Ford was one of the earliest cases in which this rule was invoked. In a line of reasoning that appeared to advance the claim that minority owners are not owners in the same sense or manner as majority owners, the Michigan Supreme Court ruled that, "courts of equity will not interfere in the management of the directors unless it is clearly made to appear that they are guilty of fraud or misappropriation of the corporate funds, or refuse to declare a dividend when the corporation has a surplus of net profits which it can, without detriment to its business, divide among its stockholders, and when a refusal to do so would amount to such an abuse of discretion as would constitute a fraud, or breach of that good faith which they are bound to exercise towards the stockholders." (Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668 (1919).) This is simply using a rule of law — the business judgment rule — to ride roughshod over the natural right to be an owner, whether one is a minority, small, or majority owner.
It might thus be argued at some time in the future, when the rights of private property have been restored, that by deciding to deprive minority owners — shareholders — of their traditional rights of property in furtherance of what might be interpreted as vindictive or malicious acts on the part of Henry Ford to deprive the Dodge brothers of their rights as shareholders, the court in Dodge v. Ford Motor Company might not have applied the business judgment rule properly in the case that seems to have been used most often to validate the concept.
What is also frequently ignored in analyses of the case is the fact that Ford had dismissed another right of private property, that of control. He had previously blocked every effort of the minority shareholders to have input into decisions and exercise some degree of control over the business, such as design improvements and marketing strategy. This was particularly egregious with respect to the Dodge brothers, who owned the next largest block of shares (10%) after Ford, and who were increasingly unhappy with Ford's dictatorial actions.
Consequently, prior to their lawsuit over Ford's restriction of dividend payments, the Dodge brothers began setting up their own automobile manufacturing company in secret, using their Ford dividends to finance the effort. Ford got wind of this and began withholding dividends. Ford was also suspected of wanting to reduce the price of Ford automobiles as a way of justifying the proposed reduction in dividend payouts and reducing the company value per share.
After the Michigan Supreme Court ruled in his favor, Ford threatened to set up another rival automobile manufacturing company, probably to be wholly owned by Ford personally. This was apparently as a way to compel the Dodge brothers to sell their shares back to the Ford Motor Company at the reduced value per share that Ford had manipulated. In this he was successful — and thereby undermined another right of private property, that of disposal, by taking away the Dodge brothers' free choice in the matter of whether or not to sell their shares.
Thus, consistent with the redefinition of private property that came out of the Slaughterhouse Cases, Henry Ford, one of the "high priests" of capitalism, did more than almost anyone else to wreck the institutions of private property, liberty, and free markets on which capitalism is ostensibly based.
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Tuesday, February 7, 2012
E. J. Dionne v. Citizens United
Give credit where credit is due, especially when an act by someone you had presumed to be opposed to everything you stand for appears to signal a change of heart. It was, after all, not long after the late Senator Russell Long of Louisiana opposed worker ownership along the lines proposed by Louis Kelso that Long made a complete about-face and became the champion of the Employee Stock Ownership Plan that has made more than 10 million workers in over 10 thousand companies part owners of the enterprises in which they work — and all without risking one cent of their own savings or taking any reductions in pay or benefits. As Long said, once he understood the concept, "I don't care who's right, I care what's right — and this is right."
Monday, February 6, 2012
Foreword to W. T. Thornton's "A Plea for Peasant Proprietors" (4)
Today we thought we’d start the week off right by posting the second-to-last portion of our foreword to the annotated edition of William Thomas Thornton’s A Plea for Peasant Proprietors. We should point out, however, that you can get the entire foreword in one piece, as well as all the added appendices and annotation, by purchasing the book itself. Still, to give you a taste for it, here’s the almost-final installment of the foreword:
The two and a half decades between the first and second editions of A Plea for Peasant Proprietors saw the rise and fall of the "Young Ireland" movement, the "Fenian" uprising of 1867, the "dynamite campaign" of terror, growing discontent over the continued failure of land reform and renewed agitation for the repeal of the Act of Union of 1800 and restoration of "Home Rule" to Ireland. Thornton's aim in his revision was to put before the public a "what might have been" scenario had his proposal been adopted in 1848 (1848 also saw the publication of Karl Marx's The Communist Manifesto, that advocated the abolition of private property and (unlike Thornton and Kelso and Adler) has not been ignored.) — thereby avoiding all the violence and discontent that shook Ireland in the latter half of the 19th century.
In his 1874 revision, Thornton did modify his stand somewhat. He expressed the hope that the new land legislation of the 1870s would remove legal disabilities from the Irish so that the broadening of ownership to all citizens could proceed naturally. As we note in Appendix VI on the "Irish National Land League," however, this hope proved ephemeral.
While things are not yet as bad in the world today as they were in Ireland in the 1840s, most people are as dependent on wage system jobs as the Irish were on the potato. The vast majority of today's citizens have no access to other sources of income (from, in particular, capital ownership), except government welfare. The fact is, as we explain in Appendix III, there are other barriers that inhibit or prevent universal access to the means of acquiring ownership of capital and the establishment and maintenance of a just, third way beyond both capitalism and socialism. A major barrier remains lack of democratic access to capital credit for financially feasible projects.
#30#
The two and a half decades between the first and second editions of A Plea for Peasant Proprietors saw the rise and fall of the "Young Ireland" movement, the "Fenian" uprising of 1867, the "dynamite campaign" of terror, growing discontent over the continued failure of land reform and renewed agitation for the repeal of the Act of Union of 1800 and restoration of "Home Rule" to Ireland. Thornton's aim in his revision was to put before the public a "what might have been" scenario had his proposal been adopted in 1848 (1848 also saw the publication of Karl Marx's The Communist Manifesto, that advocated the abolition of private property and (unlike Thornton and Kelso and Adler) has not been ignored.) — thereby avoiding all the violence and discontent that shook Ireland in the latter half of the 19th century.
In his 1874 revision, Thornton did modify his stand somewhat. He expressed the hope that the new land legislation of the 1870s would remove legal disabilities from the Irish so that the broadening of ownership to all citizens could proceed naturally. As we note in Appendix VI on the "Irish National Land League," however, this hope proved ephemeral.
While things are not yet as bad in the world today as they were in Ireland in the 1840s, most people are as dependent on wage system jobs as the Irish were on the potato. The vast majority of today's citizens have no access to other sources of income (from, in particular, capital ownership), except government welfare. The fact is, as we explain in Appendix III, there are other barriers that inhibit or prevent universal access to the means of acquiring ownership of capital and the establishment and maintenance of a just, third way beyond both capitalism and socialism. A major barrier remains lack of democratic access to capital credit for financially feasible projects.
#30#
Friday, February 3, 2012
News from the Network, Vol. 5, No. 5
While the media pretty much agree that the major focus in the upcoming election is the economy, few if any of the usual outlets are saying anything about the need for fundamental — and genuine — reform of the financial system. As we've been saying for years, the two areas that need to be addressed immediately are tax reform and the operation of the central bank.
We won't go into the various tax proposals here, other than to say that the current tax system violates every one of the four basic principles of taxation (efficiency, understandability, equity, and benefit), and none of the proposals do anything to correct the problem. We won't even go into the need for reform of the financial system by correcting — not ending — the operation of the Federal Reserve.
Our point today is that the problem has reached such a pitch that any piecemeal effort will necessarily fail. You can't fix the system at this point without fixing all of it; it's all in bad shape. The only solution is Capital Homesteading, and the only task is how to get word to potential prime movers:
• An outreach effort has been initiated to arrange another meeting between Norman Kurland and Senator Rick Santorum to discuss Santorum's adoption of "Capital Homesteading" as a proposed economic plan that has the capacity to turn the country — even the world — around in a way that does not violate anyone's conscience. Your e-mail to info@RickSantorum.com would help. Keep it short, and just say something to the effect that you think it would be to everyone's benefit (and the country's as well) if Mr. Santorum would meet with Norman Kurland at his earliest convenience to discuss a proposal, "Capital Homesteading," that has the potential to turn the economy around. Give Norm's phone number (available on the CESJ website near the bottom), thank him, and say that Norm looks forward to meeting with him again.
• Norman Kurland was interviewed this week on Meshorn Daniels, The Focus Show, out of Louisville, Kentucky. Meshorn is very interested in the potential of the Just Third Way, especially Capital Homesteading, as a means of helping people help themselves through true empowerment, which (in a political and economic sense) can only come from direct ownership of capital, a truism recognized by Daniel Webster when he stated that, "Power naturally and necessarily follows property" in the 1820 Massachusetts Constitutional Convention.
• A few years ago we did a crude calculation to see what percentage (approximately) of GDP was still under the control of the private sector and not government. Using figures from 2008 (the latest then available), we calculated the private/public sector "split" at 60/40, that is, 60% of the economy was private sector, while 40% was government. This was down from the 75/25 split around 1916 after the Federal Reserve was established in 1913, and the 99/1 split in the 1830s, according to Congressman George Tucker. According to yesterday's Wall Street Journal ("$5 Trillion and Change," A14), our figure for 2008 seems to have been accurate. As the Journal stated, "CBO [Congressional Budget Office] says public debt will climb this year to 72.5% of the economy from 40.3% in 2008." The 2008 figure from the Congressional Budget Office appears to corroborate our calculation — but the frightening conclusion is that the government now controls nearly three-quarters of the American economy, nearly double the control it exercised barely four years ago. The clear implication is that not only are you less well off economically than four years ago, you are only half as free.
• Another Frightening Figure is who holds the outstanding debt by means of which the government controls the economy — as opposed to the production of marketable goods and services by means of which the private sector exercises what little control remains to it. As CNBC reported yesterday, in the Number One Spot is the nominally independent Federal Reserve, with $6.328 trillion (yes, trillion) of government insecurities, around 42% of the total debt. The next single largest holder is (you guessed it) the People's Republic of China ($1.132 trillion). "Other Investors" and holders of U.S. Savings Bonds — retirement savings (and keep in mind there are no assets behind government securities, only the present value of increasingly uncertain future tax collections) hold more than a trillion, Japan comes next, then qualified pension funds . . . funded with debt-backed paper to the tune of nearly a trillion. Mutual funds and state and local governments hold another trillion, and banks and insurance companies a quarter of a trillion.
• We sent out a press release today on William Thornton's A Plea for Peasant Proprietors. If you want a copy to send around to your network, let us know and we'll e-mail you a copy.
• Universal Values Media, Inc. (which has a co-marketing arrangement with CESJ) has completely redone its website for its "99¢ Kindle Specials," a series of newly published works that we think embody some aspect of the Just Third Way — usually expanded capital ownership. The e-volumes so far are two novellas (short novels) and a short story collection. If you are an "Amazon Prime" member, you can read the books for free. If not, the first chapter or so of each book is available free using the "Look Inside the Book" feature on Amazon. At 99¢, how can you afford to pass this up?
• UVM's critically acclaimed editions of the novels of John Henry Newman are also waiting your reading pleasure. Although not available in Kindle (we're getting a round tuit), these are not only valuable additions to the usual Newman material so deservedly popular, but very entertaining — many people are not even aware Cardinal Newman wrote novels! Some people have said the covers and forewords alone are worth the price.
• UVM has asked us a favor: please pay a visit to the website for the novels of Robert Hugh Benson. You don't have to buy anything (although it would be nice if you did), but the site needs to show a burst of activity in order to maintain its status.
• As of this morning, we have had visitors from 58 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Australia, and the Philippines. People in Croatia, Hong Kong, Australia, the United States, and the Netherlands spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part III: Finance," "Raw Judicial Power, Part I: The Assault of Legal Positivism," "Raw Judicial Power, Part IX: Scott v. Sandford," "Thomas Hobbes on Private Property" and"Raw Judicial Power, Part VIII: Cotton is King."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
We won't go into the various tax proposals here, other than to say that the current tax system violates every one of the four basic principles of taxation (efficiency, understandability, equity, and benefit), and none of the proposals do anything to correct the problem. We won't even go into the need for reform of the financial system by correcting — not ending — the operation of the Federal Reserve.
Our point today is that the problem has reached such a pitch that any piecemeal effort will necessarily fail. You can't fix the system at this point without fixing all of it; it's all in bad shape. The only solution is Capital Homesteading, and the only task is how to get word to potential prime movers:
• An outreach effort has been initiated to arrange another meeting between Norman Kurland and Senator Rick Santorum to discuss Santorum's adoption of "Capital Homesteading" as a proposed economic plan that has the capacity to turn the country — even the world — around in a way that does not violate anyone's conscience. Your e-mail to info@RickSantorum.com would help. Keep it short, and just say something to the effect that you think it would be to everyone's benefit (and the country's as well) if Mr. Santorum would meet with Norman Kurland at his earliest convenience to discuss a proposal, "Capital Homesteading," that has the potential to turn the economy around. Give Norm's phone number (available on the CESJ website near the bottom), thank him, and say that Norm looks forward to meeting with him again.
• Norman Kurland was interviewed this week on Meshorn Daniels, The Focus Show, out of Louisville, Kentucky. Meshorn is very interested in the potential of the Just Third Way, especially Capital Homesteading, as a means of helping people help themselves through true empowerment, which (in a political and economic sense) can only come from direct ownership of capital, a truism recognized by Daniel Webster when he stated that, "Power naturally and necessarily follows property" in the 1820 Massachusetts Constitutional Convention.
• A few years ago we did a crude calculation to see what percentage (approximately) of GDP was still under the control of the private sector and not government. Using figures from 2008 (the latest then available), we calculated the private/public sector "split" at 60/40, that is, 60% of the economy was private sector, while 40% was government. This was down from the 75/25 split around 1916 after the Federal Reserve was established in 1913, and the 99/1 split in the 1830s, according to Congressman George Tucker. According to yesterday's Wall Street Journal ("$5 Trillion and Change," A14), our figure for 2008 seems to have been accurate. As the Journal stated, "CBO [Congressional Budget Office] says public debt will climb this year to 72.5% of the economy from 40.3% in 2008." The 2008 figure from the Congressional Budget Office appears to corroborate our calculation — but the frightening conclusion is that the government now controls nearly three-quarters of the American economy, nearly double the control it exercised barely four years ago. The clear implication is that not only are you less well off economically than four years ago, you are only half as free.
• Another Frightening Figure is who holds the outstanding debt by means of which the government controls the economy — as opposed to the production of marketable goods and services by means of which the private sector exercises what little control remains to it. As CNBC reported yesterday, in the Number One Spot is the nominally independent Federal Reserve, with $6.328 trillion (yes, trillion) of government insecurities, around 42% of the total debt. The next single largest holder is (you guessed it) the People's Republic of China ($1.132 trillion). "Other Investors" and holders of U.S. Savings Bonds — retirement savings (and keep in mind there are no assets behind government securities, only the present value of increasingly uncertain future tax collections) hold more than a trillion, Japan comes next, then qualified pension funds . . . funded with debt-backed paper to the tune of nearly a trillion. Mutual funds and state and local governments hold another trillion, and banks and insurance companies a quarter of a trillion.
• We sent out a press release today on William Thornton's A Plea for Peasant Proprietors. If you want a copy to send around to your network, let us know and we'll e-mail you a copy.
• Universal Values Media, Inc. (which has a co-marketing arrangement with CESJ) has completely redone its website for its "99¢ Kindle Specials," a series of newly published works that we think embody some aspect of the Just Third Way — usually expanded capital ownership. The e-volumes so far are two novellas (short novels) and a short story collection. If you are an "Amazon Prime" member, you can read the books for free. If not, the first chapter or so of each book is available free using the "Look Inside the Book" feature on Amazon. At 99¢, how can you afford to pass this up?
• UVM's critically acclaimed editions of the novels of John Henry Newman are also waiting your reading pleasure. Although not available in Kindle (we're getting a round tuit), these are not only valuable additions to the usual Newman material so deservedly popular, but very entertaining — many people are not even aware Cardinal Newman wrote novels! Some people have said the covers and forewords alone are worth the price.
• UVM has asked us a favor: please pay a visit to the website for the novels of Robert Hugh Benson. You don't have to buy anything (although it would be nice if you did), but the site needs to show a burst of activity in order to maintain its status.
• As of this morning, we have had visitors from 58 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Australia, and the Philippines. People in Croatia, Hong Kong, Australia, the United States, and the Netherlands spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part III: Finance," "Raw Judicial Power, Part I: The Assault of Legal Positivism," "Raw Judicial Power, Part IX: Scott v. Sandford," "Thomas Hobbes on Private Property" and"Raw Judicial Power, Part VIII: Cotton is King."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Thursday, February 2, 2012
Raw Judicial Power XVII: The Second Civil War
Theodore Roosevelt's accomplishments as president appear to be little appreciated, even by his admirers. As for those who tend to disparage everything about the first Roosevelt, what was done was — as far as they are concerned — in spite of, not because of the Rough Rider . . . a nickname that suggests a certain pugnacious attitude unacceptable these days except for politically correct causes.
Although known as the "Trust Buster," today's commentators like to point out that William Howard Taft "busted" more trusts than Roosevelt. Yes — but had Roosevelt not laid the groundwork, it is highly unlikely that Taft, who put himself under the thumb of the Old Guard Republicans almost from the first, would have done any trust busting at all — or even been president.
Roosevelt's first notable act as president was to deliver a 20,000-word speech to Congress asking them to begin curbing the power of the trusts. His aggressive action in investigating conditions and causes of the miners' strike in 1902 led to pay increases and shorter hours. Roosevelt was also responsible for the Meat Inspection Act of 1906 and the Pure Food and Drug Act.
By the end of his second term, it appeared that the danger to the country caused by the growing conflict between socialism and capitalism had been averted. This was an illusion. The radicals on both sides of the political spectrum, somehow understanding that it was Roosevelt's prestige and energy alone that had brought about the reforms, had simply been biding their time. The extreme socialists felt that Roosevelt had not gone anywhere far enough and was still a hidebound capitalist, while the Old Guard Republicans — the capitalists — claimed that he had socialized the country. Both sides felt that drastic action was necessary. Tensions were, while more subtle and hidden than a decade previously, even greater than before.
Both groups claimed to believe that Roosevelt was simply an opportunist, able and personable to be sure, but still out only for his own advantage; with his dog Spot, he could have made a fortune selling used automobiles, had there been many around. To a large degree, this is the view that has persisted down to the present day. As one commentator summed up his understanding of Roosevelt's character and motives,
"He was a shrewd opportunist with an eye on the main political chance, it is true, and the sum of his legislative accomplishments was small. Yet his constant sermonizing about the malpractices of big business and high finance, and his successful and important struggle for the conservation of natural resources, stirred millions of citizens into a high state of righteous indignation. In brief, his chief contribution to the reform cause was the publicity he gave to it." (Arthur S. Link, Woodrow Wilson and the Progressive Era. New York: Harper and Row, Publishers, 1954, 2.)
Not surprisingly, there is little understanding of the act of social justice in this analysis, and no appreciation of the immense difficulties Roosevelt faced in trying to reverse the direction in which American society was heading. He was up against the combined forces of socialism and capitalism.
Both capitalism and socialism are based on the belief that only by cutting consumption and saving can new capital formation be financed. This is the one thing on which capitalists and socialists (and to which today we add the Keynesians, Monetarists and Austrians) can all agree, and on which they can all be equally wrong.
The capitalists and socialists were thus united on the one issue by means of which they could do the most damage: the redefinition of fundamental rights presumably secured by the Constitution. While this tendency had been evident from the beginning of the republic, it accelerated dramatically following the Supreme Court's decision in the Slaughterhouse Cases.
All things considered, it is astounding that Roosevelt was able to do as much as he did. Even more astounding is the fact that what could legitimately be called his greatest achievement was yet to come — and has widely been interpreted as a failure.
In 1908 Roosevelt evidently felt safe enough to retire from the presidency. He picked William Howard Taft as his successor, slighting his vice president, Charles Fairbanks. The selection of Taft turned out to be the worst political decision of Roosevelt's career.
In Roosevelt's defense, Taft seemed the obvious choice. His honesty and integrity were unquestioned, and he had been personally groomed by Roosevelt to take over the presidency. Understanding progressivism in the sense that Roosevelt employed the term, and not how it has been redefined since 1912, Taft was, to all appearances, solidly progressive, and committed to restoring the vision of America's Founding Fathers, purged of the "original sin" of chattel slavery.
Taft, however, had a serious flaw in his character. He liked to be liked. Where Roosevelt used his personality to help persuade people to support his political efforts, Taft used his political efforts to try and get people to be his friend. There is some evidence that Taft realized his mistake and tried to make up for it. He became an exemplary Chief Justice of the Supreme Court (1921-1930), possibly inspiring to some degree the work of William Winslow Crosskey, who clerked for him in the 1920s.
As Justice Felix Frankfurter commented to Justice Louis Brandeis, he could not "understand why a man who is so good a Chief Justice . . . could have been so bad as President." Taft evidently felt such remorse at his failure to continue Roosevelt's program that he refused even to think about it, allegedly remarking once that he didn't even remember being president.
Given Taft's evident weakness, the Old Guard Republicans, led by Senator Nelson Aldrich, moved quickly to try and dismantle Roosevelt's reforms. They managed a few victories, but these came at great cost, alienating the moderate Republicans and Democrats who had been Roosevelt's power base.
As a result of the scandals that followed seemingly one after another during Taft's administration — the "Ballinger Affair" being the most notable — the socialists grew rapidly in power. In reaction, moderate Republicans began distancing themselves from the Old Guard. Moderate Democrats, disgusted with the reactionary core of the Republican Party, seemed to lump all Republicans together. They began drifting into the socialist/populist camp almost by default, evidently believing that, while socialism wasn't all that good, capitalism was definitely bad.
Outraged, Theodore Roosevelt allowed himself to be persuaded to run again for president, this time as the candidate of the newly formed Progressive Party, originally formed in 1906 in Utah as the American Party by disgruntled Republicans convinced that the Church of Jesus Christ of Latter Day Saints wielded far too much political power. Jettisoning the anti-Mormon elements, the party adopted the name "Progressive Party" and eventually persuaded a reluctant Roosevelt to run.
This is not the way either history or contemporaries recorded Roosevelt's acceptance of the Progressive Party's nomination. One cartoon depicted Roosevelt (in full "Rough Rider" garb, naturally) handing over the presidency to Taft in 1908, then in the next panel holding a gun in Taft's face in 1912 saying, "Give it back!" Granting Roosevelt the dignity of having some honesty, however, we can take him at his own words, as reported by Henry Knox Smith:
"Some time in 1911 I called upon Colonel Roosevelt at the Outlook office, on leave from Washington. I told him I was going home for a few days. He pounced down on me instantly: 'H. K., don't you dare go back to Connecticut and do anything for my nomination for the Presidency in 1912!' Then he said: 'I've had eight years of the Presidency. I know all the honor and pleasure of it and all of its sorrows and dangers. I have nothing more to gain by being President again and I have a great deal to lose. I am not going to do it!' — then he went to the window and looked out on Fourth Avenue for some moments, and turned and added with great emphasis — 'unless I get a mandate from the American people.' I know much better now than I did then what was before his far-seeing eyes as he stood there looking out over the housetops — the fierce strife ahead, the menacing issues lying within it, the far-reverberating results that would follow, the sacrifice that would be required of him." (Herbert Knox Smith, "Introduction," Social Justice and Popular Rule, Volume XVII of the Complete Works of Theodore Roosevelt. New York: Charles Scribner's Sons, 1926, xiv.)
A master-stroke at the Progressive Party convention was to include women as delegates. Both Taft and Woodrow Wilson (who got the Democratic nomination) avoided the issue of women's suffrage. Jane Addams herself gave a seconding speech for Roosevelt's nomination.
Roosevelt, however, annoyed the South by insisting on excluding Southern black Republican delegates, whom he regarded as selling out to the reactionary element in the Republican Party to gain power. That this was not an instance of racism is made evident by the fact that black delegates from other areas were welcome, and Roosevelt alienated whatever remnant of Southern support he might have possessed by publicly dining with blacks during the campaign — after the "notorious" dinner at the White House in 1901 with Booker T. Washington.
The results were almost as good as could have been expected, falling just short of what was needed to win the election — the closest the United States has ever come to a third party candidate getting elected president. While today's hardcore conservative Republicans blame Roosevelt for splitting the Party, the G.O.P. had already split over disgust with the reactionary elements.
The Democrats, too, lost people to Roosevelt, but possibly more to Eugene C. Debs, the Socialist Party candidate, than to the Progressive Party. On the whole, it was the independent voters and the moderate Republicans who went with Roosevelt over fear of the Democratic Party's increasingly socialist slant — and therein lies the real cause of the Democratic Party's victory.
In a sense, the popular history of how Roosevelt won the election for the Democrats is correct, but not because he split the Republican Party. The Democrats won because, initially coming across as extremely socialist/populist, they realized that the more effective Roosevelt and his progressivism were far more acceptable to the average American. The Democrats began to copy Roosevelt, and modify their socialist stance by adopting explicitly progressive planks — chief among which were an income tax and reform of the financial system.
This kept the moderate Democrats, who were inclined to Roosevelt, in the Party, but alienated the radical socialists, who went to Debs. It also helped the Democratic Party "sell" the cold and aloof Woodrow Wilson, a "laissez-faire Jeffersonian," to the American voter, especially the progressive elements in the Democratic Party. As one historian favorable to Wilson admitted,
"One of the most interesting developments of the campaign was the manner in which progressives reacted to Roosevelt's and Wilson's appeals. In the early weeks, before Wilson found himself and his great vital issue [i.e., economic freedom], progressives wondered whether he was a progressive after all. In contrast to Roosevelt's warm appeals for social justice, Wilson's early speeches seemed cold indeed. But as he gathered momentum, as he began to talk in glowing, if general, phrases of social righteousness and economic justice, many progressives claimed him as their new leader and hastened to his support. The significant development of the campaign was Roosevelt's failure to unite progressive Republicans and progressive Democrats." (Link, Woodrow Wilson and the Progressive Era, op. cit., 22.)
By having the free marketer Wilson as a candidate, the Democrats were at one and the same time able to paint themselves as anti-socialist, bring in the support of the socialist-populists who had supported William Jennings Bryan, accuse Roosevelt of being a socialist who desired to enslave the people (some of Wilson's speeches against Roosevelt have been described as "vicious") and promote the "New Freedom" of promised federal indifference and states' rights over Roosevelt's "New Nationalism" and an increasing regulatory role for the federal government as well as social legislation. The Democrats won, but with a relatively small margin. Roosevelt came in second, Taft — who also tried to present himself as a progressive — third, and Debs a distant fourth.
Roosevelt, however, still won in a very real sense. Had he not "forced" the Democrats to adopt the main elements in his progressive platform — and, with the unconscious assistance of William Jennings Bryan to stick with them and keep the promises — the voters would very likely have re-elected Taft. The Old Guard Republicans, using that as a mandate, would have been able to implement financial reforms in a way that favored the wealthy over the good of the country.
The Federal Reserve System, even for the few years it was allowed to operate properly (1914-1916), would have been a very different institution, one more closely resembling the creation of conspiracy theorists than anyone will admit. The financial hegemony and alliance between government and big money that has had such a devastating effect on the global economy recently would have been solidly in place by 1914. This would have caused a reaction far worse than we have so far experienced with the rioting over the European debt crisis, the Tea Party, and the Occupy movement, especially in light of the stresses on society caused by World War I.
The Progressive Party disappeared almost immediately after the election, but it's work, in a sense, had been done. Bereft of Roosevelt's leadership, progressivism would, from that time forward, follow the lead of populism and become just one more form of socialism.
Even though he did not win, Theodore Roosevelt can be credited with saving the country by running for president in 1912. It is a lesson today's candidates and potential candidates for public office would do well to keep in mind. The flexibility he was able to get built into the system by his insistence on financial reform and social justice ensured that America would emerge relatively unscathed from a global conflict that destroyed Russia and laid the foundation for World War II. It would not be until the second Roosevelt and the "New Deal" that the seeds sown by the Supreme Court in the Slaughterhouse Cases would again take root and threaten America — only this time more effectively.
#30#
Although known as the "Trust Buster," today's commentators like to point out that William Howard Taft "busted" more trusts than Roosevelt. Yes — but had Roosevelt not laid the groundwork, it is highly unlikely that Taft, who put himself under the thumb of the Old Guard Republicans almost from the first, would have done any trust busting at all — or even been president.
Roosevelt's first notable act as president was to deliver a 20,000-word speech to Congress asking them to begin curbing the power of the trusts. His aggressive action in investigating conditions and causes of the miners' strike in 1902 led to pay increases and shorter hours. Roosevelt was also responsible for the Meat Inspection Act of 1906 and the Pure Food and Drug Act.
By the end of his second term, it appeared that the danger to the country caused by the growing conflict between socialism and capitalism had been averted. This was an illusion. The radicals on both sides of the political spectrum, somehow understanding that it was Roosevelt's prestige and energy alone that had brought about the reforms, had simply been biding their time. The extreme socialists felt that Roosevelt had not gone anywhere far enough and was still a hidebound capitalist, while the Old Guard Republicans — the capitalists — claimed that he had socialized the country. Both sides felt that drastic action was necessary. Tensions were, while more subtle and hidden than a decade previously, even greater than before.
Both groups claimed to believe that Roosevelt was simply an opportunist, able and personable to be sure, but still out only for his own advantage; with his dog Spot, he could have made a fortune selling used automobiles, had there been many around. To a large degree, this is the view that has persisted down to the present day. As one commentator summed up his understanding of Roosevelt's character and motives,
"He was a shrewd opportunist with an eye on the main political chance, it is true, and the sum of his legislative accomplishments was small. Yet his constant sermonizing about the malpractices of big business and high finance, and his successful and important struggle for the conservation of natural resources, stirred millions of citizens into a high state of righteous indignation. In brief, his chief contribution to the reform cause was the publicity he gave to it." (Arthur S. Link, Woodrow Wilson and the Progressive Era. New York: Harper and Row, Publishers, 1954, 2.)
Not surprisingly, there is little understanding of the act of social justice in this analysis, and no appreciation of the immense difficulties Roosevelt faced in trying to reverse the direction in which American society was heading. He was up against the combined forces of socialism and capitalism.
Both capitalism and socialism are based on the belief that only by cutting consumption and saving can new capital formation be financed. This is the one thing on which capitalists and socialists (and to which today we add the Keynesians, Monetarists and Austrians) can all agree, and on which they can all be equally wrong.
The capitalists and socialists were thus united on the one issue by means of which they could do the most damage: the redefinition of fundamental rights presumably secured by the Constitution. While this tendency had been evident from the beginning of the republic, it accelerated dramatically following the Supreme Court's decision in the Slaughterhouse Cases.
All things considered, it is astounding that Roosevelt was able to do as much as he did. Even more astounding is the fact that what could legitimately be called his greatest achievement was yet to come — and has widely been interpreted as a failure.
In 1908 Roosevelt evidently felt safe enough to retire from the presidency. He picked William Howard Taft as his successor, slighting his vice president, Charles Fairbanks. The selection of Taft turned out to be the worst political decision of Roosevelt's career.
In Roosevelt's defense, Taft seemed the obvious choice. His honesty and integrity were unquestioned, and he had been personally groomed by Roosevelt to take over the presidency. Understanding progressivism in the sense that Roosevelt employed the term, and not how it has been redefined since 1912, Taft was, to all appearances, solidly progressive, and committed to restoring the vision of America's Founding Fathers, purged of the "original sin" of chattel slavery.
Taft, however, had a serious flaw in his character. He liked to be liked. Where Roosevelt used his personality to help persuade people to support his political efforts, Taft used his political efforts to try and get people to be his friend. There is some evidence that Taft realized his mistake and tried to make up for it. He became an exemplary Chief Justice of the Supreme Court (1921-1930), possibly inspiring to some degree the work of William Winslow Crosskey, who clerked for him in the 1920s.
As Justice Felix Frankfurter commented to Justice Louis Brandeis, he could not "understand why a man who is so good a Chief Justice . . . could have been so bad as President." Taft evidently felt such remorse at his failure to continue Roosevelt's program that he refused even to think about it, allegedly remarking once that he didn't even remember being president.
Given Taft's evident weakness, the Old Guard Republicans, led by Senator Nelson Aldrich, moved quickly to try and dismantle Roosevelt's reforms. They managed a few victories, but these came at great cost, alienating the moderate Republicans and Democrats who had been Roosevelt's power base.
As a result of the scandals that followed seemingly one after another during Taft's administration — the "Ballinger Affair" being the most notable — the socialists grew rapidly in power. In reaction, moderate Republicans began distancing themselves from the Old Guard. Moderate Democrats, disgusted with the reactionary core of the Republican Party, seemed to lump all Republicans together. They began drifting into the socialist/populist camp almost by default, evidently believing that, while socialism wasn't all that good, capitalism was definitely bad.
Outraged, Theodore Roosevelt allowed himself to be persuaded to run again for president, this time as the candidate of the newly formed Progressive Party, originally formed in 1906 in Utah as the American Party by disgruntled Republicans convinced that the Church of Jesus Christ of Latter Day Saints wielded far too much political power. Jettisoning the anti-Mormon elements, the party adopted the name "Progressive Party" and eventually persuaded a reluctant Roosevelt to run.
This is not the way either history or contemporaries recorded Roosevelt's acceptance of the Progressive Party's nomination. One cartoon depicted Roosevelt (in full "Rough Rider" garb, naturally) handing over the presidency to Taft in 1908, then in the next panel holding a gun in Taft's face in 1912 saying, "Give it back!" Granting Roosevelt the dignity of having some honesty, however, we can take him at his own words, as reported by Henry Knox Smith:
"Some time in 1911 I called upon Colonel Roosevelt at the Outlook office, on leave from Washington. I told him I was going home for a few days. He pounced down on me instantly: 'H. K., don't you dare go back to Connecticut and do anything for my nomination for the Presidency in 1912!' Then he said: 'I've had eight years of the Presidency. I know all the honor and pleasure of it and all of its sorrows and dangers. I have nothing more to gain by being President again and I have a great deal to lose. I am not going to do it!' — then he went to the window and looked out on Fourth Avenue for some moments, and turned and added with great emphasis — 'unless I get a mandate from the American people.' I know much better now than I did then what was before his far-seeing eyes as he stood there looking out over the housetops — the fierce strife ahead, the menacing issues lying within it, the far-reverberating results that would follow, the sacrifice that would be required of him." (Herbert Knox Smith, "Introduction," Social Justice and Popular Rule, Volume XVII of the Complete Works of Theodore Roosevelt. New York: Charles Scribner's Sons, 1926, xiv.)
A master-stroke at the Progressive Party convention was to include women as delegates. Both Taft and Woodrow Wilson (who got the Democratic nomination) avoided the issue of women's suffrage. Jane Addams herself gave a seconding speech for Roosevelt's nomination.
Roosevelt, however, annoyed the South by insisting on excluding Southern black Republican delegates, whom he regarded as selling out to the reactionary element in the Republican Party to gain power. That this was not an instance of racism is made evident by the fact that black delegates from other areas were welcome, and Roosevelt alienated whatever remnant of Southern support he might have possessed by publicly dining with blacks during the campaign — after the "notorious" dinner at the White House in 1901 with Booker T. Washington.
The results were almost as good as could have been expected, falling just short of what was needed to win the election — the closest the United States has ever come to a third party candidate getting elected president. While today's hardcore conservative Republicans blame Roosevelt for splitting the Party, the G.O.P. had already split over disgust with the reactionary elements.
The Democrats, too, lost people to Roosevelt, but possibly more to Eugene C. Debs, the Socialist Party candidate, than to the Progressive Party. On the whole, it was the independent voters and the moderate Republicans who went with Roosevelt over fear of the Democratic Party's increasingly socialist slant — and therein lies the real cause of the Democratic Party's victory.
In a sense, the popular history of how Roosevelt won the election for the Democrats is correct, but not because he split the Republican Party. The Democrats won because, initially coming across as extremely socialist/populist, they realized that the more effective Roosevelt and his progressivism were far more acceptable to the average American. The Democrats began to copy Roosevelt, and modify their socialist stance by adopting explicitly progressive planks — chief among which were an income tax and reform of the financial system.
This kept the moderate Democrats, who were inclined to Roosevelt, in the Party, but alienated the radical socialists, who went to Debs. It also helped the Democratic Party "sell" the cold and aloof Woodrow Wilson, a "laissez-faire Jeffersonian," to the American voter, especially the progressive elements in the Democratic Party. As one historian favorable to Wilson admitted,
"One of the most interesting developments of the campaign was the manner in which progressives reacted to Roosevelt's and Wilson's appeals. In the early weeks, before Wilson found himself and his great vital issue [i.e., economic freedom], progressives wondered whether he was a progressive after all. In contrast to Roosevelt's warm appeals for social justice, Wilson's early speeches seemed cold indeed. But as he gathered momentum, as he began to talk in glowing, if general, phrases of social righteousness and economic justice, many progressives claimed him as their new leader and hastened to his support. The significant development of the campaign was Roosevelt's failure to unite progressive Republicans and progressive Democrats." (Link, Woodrow Wilson and the Progressive Era, op. cit., 22.)
By having the free marketer Wilson as a candidate, the Democrats were at one and the same time able to paint themselves as anti-socialist, bring in the support of the socialist-populists who had supported William Jennings Bryan, accuse Roosevelt of being a socialist who desired to enslave the people (some of Wilson's speeches against Roosevelt have been described as "vicious") and promote the "New Freedom" of promised federal indifference and states' rights over Roosevelt's "New Nationalism" and an increasing regulatory role for the federal government as well as social legislation. The Democrats won, but with a relatively small margin. Roosevelt came in second, Taft — who also tried to present himself as a progressive — third, and Debs a distant fourth.
Roosevelt, however, still won in a very real sense. Had he not "forced" the Democrats to adopt the main elements in his progressive platform — and, with the unconscious assistance of William Jennings Bryan to stick with them and keep the promises — the voters would very likely have re-elected Taft. The Old Guard Republicans, using that as a mandate, would have been able to implement financial reforms in a way that favored the wealthy over the good of the country.
The Federal Reserve System, even for the few years it was allowed to operate properly (1914-1916), would have been a very different institution, one more closely resembling the creation of conspiracy theorists than anyone will admit. The financial hegemony and alliance between government and big money that has had such a devastating effect on the global economy recently would have been solidly in place by 1914. This would have caused a reaction far worse than we have so far experienced with the rioting over the European debt crisis, the Tea Party, and the Occupy movement, especially in light of the stresses on society caused by World War I.
The Progressive Party disappeared almost immediately after the election, but it's work, in a sense, had been done. Bereft of Roosevelt's leadership, progressivism would, from that time forward, follow the lead of populism and become just one more form of socialism.
Even though he did not win, Theodore Roosevelt can be credited with saving the country by running for president in 1912. It is a lesson today's candidates and potential candidates for public office would do well to keep in mind. The flexibility he was able to get built into the system by his insistence on financial reform and social justice ensured that America would emerge relatively unscathed from a global conflict that destroyed Russia and laid the foundation for World War II. It would not be until the second Roosevelt and the "New Deal" that the seeds sown by the Supreme Court in the Slaughterhouse Cases would again take root and threaten America — only this time more effectively.
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Wednesday, February 1, 2012
Raw Judicial Power XVI: The Progressive Response
At the end of the 19th century the United States was, by any measure, in serious danger. By 1900 the two camps of capitalism and socialism were stalemated. Attitudes had solidified to the point where compromise, even reaching a reasonable accommodation, seemed impossible. As Herbert Knox Smith recalled years later,
"The years from 1901 to 1909 were the prologue for 1910 to 1914. In 1900 the surface of American life was, as it were, hardening, was growing less plastic. Dangerous division lines were opening from the pressures beneath, splitting the unity of the nation. The great trust movement was in full force, sweeping into a few hands special industrial privileges, the control of natural resources, and decisive advantages in transportation. Individual opportunity and the open highways of commerce were narrowing. Great corporations were considering themselves above the law, with the cynical but increasing concurrence of the public. A sinister atmosphere was gathering, menacing to American initiative and American ideals." (Herbert Knox Smith, "Introduction," Social Justice and Popular Rule, Volume XVII of the Complete Works of Theodore Roosevelt. New York: Charles Scribner's Sons, 1926, xi.)
With the reelection of William McKinley on the wave of prosperity that followed the bumper crops of 1897-1898 that ended the Great Depression of the 1890s, the capitalists believed they had the upper hand — an opinion shared by the socialists. In McKinley, the capitalists had a "safe" man who, while not dishonest or corrupt, could be counted on to do the "right" thing . . . for the capitalists, in the sincere belief that it was best for the country.
Ever since the Pullman Strike of 1894 "Labor" had felt itself under siege, with the combined strength of the government, finance, industry and commerce ranged against the working man and woman. An uneasy alliance still existed with populism, but populism was, where not considered just another form of socialism, a spent force politically and, with the growing economic disenfranchisement caused by the decay of small ownership, economically as well. There was a definite air of desperation throughout the country.
At the same time, however, there was a wildcard in the deck. McKinley's vice president was a man with known reforming views, a "progressive Republican" by the name of Theodore Roosevelt. Roosevelt had been selected by the Old Guard Republicans as vice president in order to get him safely out of the way. The ultra-conservative Old Guard Republicans were suspicious of the young New Yorker because of his demonstrated reforming spirit. The ultra-radical socialists were suspicious of the hero of San Juan Hill because he was a Republican of a wealthy family. Both groups evidently felt that the potential problem Roosevelt represented was shelved for at least four years, possibly more, as the vice presidency was frequently the road to political oblivion.
Then came McKinley's assassination and Roosevelt's sudden ascension to the presidency. While it took a great national tragedy to bring about, Roosevelt quickly demonstrated that he was the right man in the right place at the right time. It is quite possible that no other man — or woman — in the United States combined the prestige, charisma, intelligence and sheer ability that gave Roosevelt exactly what was needed to avert what threatened to become a second, and even more vicious civil war.
Extremists on both sides were increasingly uncomfortable with Roosevelt as time went on. The accusation that "TR" stood for "Theodore Rex" came from both ends of the political spectrum. There was, nevertheless, something in his personality that resonated well with the vast American middle. This was what was called in the late 20th century "the Silent Majority," those who, ironically, make the news and keep the country going, but rarely get reported.
Roosevelt used his prestige wisely and effectively. He laid the groundwork for breaking up the trusts, and recognizing and for protecting of the rights of propertyless workers, farmers, and small businessmen. He was handicapped to a great extent by operating from within a paradigm dictated by the currency principle (although he seemed to have an inherent understanding that there was something profoundly amiss in the financial system), but — even given that debilitating constraint, he never forgot the principle that all men have rights, not just those currently popular with the government or the public. As he said a decade later when the danger from both individualists and collectivists had resurfaced,
"If I could ask but one thing of my fellow countrymen, my request would be that, whenever they go in for reform, they remember the two sides, and that they always exact justice from one side as much as from the other. I have small use for the public servant who can always see and denounce the corruption of the capitalist, but who cannot persuade himself, especially before election, to say a word about lawless mob-violence. And I have equally small use for the man, be he a judge on the bench, or editor of a great paper, or wealthy and influential private citizen, who can see clearly enough and denounce the lawlessness of mob-violence, but whose eyes are closed so that he is blind when the question is one of corruption in business on a gigantic scale. Also remember what I said about excess in reformer and reactionary alike. If the reactionary man, who thinks of nothing but the rights of property, could have his way, he would bring about a revolution; and one of my chief fears in connection with progress comes because I do not want to see our people, for lack of proper leadership, compelled to follow men whose intentions are excellent, but who eyes are a little too wild to make it really safe to trust them." (Theodore Roosevelt, "The New Nationalism," Social Justice and Popular Rule. New York: Charles Scribner and Sons, 1926, 18.)
The problem is that Roosevelt was, in common with almost everyone else since the conquest of the global financial system by the assumptions embodied in the British Bank Charter Act of 1844 and the National Bank Act of 1863, a slave to past savings. He did not see any way that new capital could be financed except by cutting consumption and accumulating money savings. Obviously this required a class of persons, necessarily small, who controlled sufficient wealth to be able to set sufficient cash aside without suffering deprivation. As technology advanced and new capital became increasingly expensive, the concentration of wealth must, it was believed, become increasingly greater.
While an orientation based on the banking principle would have solved this dilemma, Roosevelt was not an economist or a financier. Consequently, like any good leader, he went with experts he felt he could trust — and what the experts were telling him was that new capital formation requires reductions in consumption in order to accumulate sufficient financial capital to bring new productive capital on line, and thus concentration of capital ownership: "Combinations in industry are the result of an imperative economic law which cannot be repealed by political legislation." (Ibid., 12.)
Unfortunately, the natural tendency of a reliance on past savings is to force an economy into capitalism (concentrated private ownership of capital) or socialism (State ownership or control of capital). A remarkable and very strong leader can, for a time (and if he or she faces no solid opposition from special interests), hold back these tendencies by judicious use of the State's power to regulate commerce. By this means, even within a system based on past savings, the leader can ameliorate the harshness of capitalism and the false and forced equalities of socialism without succumbing to the temptation to impose direct control of the economy and establish the Servile State.
Given the reliance on past savings to finance new capital formation, however, and the consequent rise of capitalism and socialism, most people are ill-prepared to recognize the sometimes subtle difference between regulation and control. From a systemic point of view, internal controls by means of which the system regulates itself, and the enforcement of which is linked through widespread capital ownership to the public's self-interest, are most effective, and thus most socially just.
Unfortunately, with concentrated ownership of capital, whether in the private hands or the State, internal controls are, paradoxically, rejected as ineffective. In socialism, this is because the laws of economics and the self-interest of the public can operate to produce results at odds with short-term political ends. In capitalism, this is because the controls themselves interfere with maximizing short-term gains, even to the detriment of the long-term survival of a company, even an industry or an entire economy.
The "solution" in the case of both capitalism and socialism is the same — and the reason why both capitalism and socialism inevitably merge into the Servile State: imposition of external regulation by the State that is tantamount to direct control of the economy, but through the private sector. Without a strong and principled leader, however, in capitalism the external regulations are evaded in the pursuit of business-as-usual. Violations are either ignored if immaterial (which can hide serious systemic problems), or debated endlessly, usually in the courts, in an effort to avoid responsibility — and cost. To try and plug the loopholes that allow vague interpretations, the State imposes more and more regulatory requirements and, finally, direct control.
In socialism, the failure of political methods to achieve economic ends also results in imposing more and more regulatory requirements, and (ultimately) direct control. "Free market reforms" usually take the form of favoring the managerial class over workers, and of allowing private ownership within a larger framework of State control — a phantom freedom that can be taken away at any time.
In both cases what results is the Servile State, which can be understood within the context of this discussion as either capitalism with a socialist veneer, or socialism with a capitalist veneer. In both cases it is the ordinary citizen who suffers by outright elimination or re-definition of fundamental rights to life, liberty and property.
Thus, on becoming president, Roosevelt faced a crisis that had been developing since the founding of the American republic, but which had become critical with the new understanding of private property in particular, and human rights in general that became "official" with the Supreme Court's opinion in the Slaughterhouse Cases.
As both the majority and dissenting opinions made clear (and which Justice Field acknowledged as an error twenty years later), the ruling in the Slaughterhouse Cases assumed as a given that rights come from the State instead of being inherent or inalienable in the human person. This meant that instead of merely defining the exercise of rights — as required by man's political nature — the State was defining (re-defining, actually) what it means for something to be a right, and the substantial nature of specific rights.
Roosevelt, of course, as one of the last true "Lincoln Republicans," was still going on the assumption that people grant rights to the State, not the other way around. This put him at odds with both the Old Guard Republicans, who tended to be reactionary-style capitalists, and Populist/Socialist Democrats, who (as we might expect) tended to some form of socialism, but increasingly drifting from more or less benevolent Fabian socialism to radical Marxism.
Roosevelt-style progressivism, then, was based on traditional American acceptance of the un-re-defined natural law principles that guided the Framers of the Constitution — but with one, fatal flaw: reliance on the assumption that new capital formation can only be financed out of existing accumulations of savings.
Roosevelt's leadership had the potential, based on him personally, to avert the crisis that threatened the country. In this, Roosevelt can be compared to a Caesar, but not the Julius that today's critics and those of his day assumed. It was, rather, Augustus Caesar, who claimed to have restored the Roman Republic, but by keeping the outward forms of old institutions and adapting them to the needs of the Empire.
Roosevelt's job was much harder than that of Augustus Caesar, and not just because Roosevelt did not have the public and governmental support that Augustus could take for granted. Roosevelt had to restore the substance of Americans' natural rights using new institutions, not simply adapt existing institutions to serve new needs. This, as anyone who understands the social doctrine of Pope Pius XI as explained by Father William Ferree, is a much harder task.
The fact that Roosevelt succeeded at all within a paradigm dictated by the slavery of past savings could almost be described as miraculous. Augustus Caesar was able to lay the foundation of a system that survived, in one form or another, until 1918, because he was able to effect genuine institutional and systemic reforms. Roosevelt's reforms, which are little understood today, and which depended on him personally, lasted barely a decade and a half before being subsumed back into the conflict between capitalism and socialism.
#30#
"The years from 1901 to 1909 were the prologue for 1910 to 1914. In 1900 the surface of American life was, as it were, hardening, was growing less plastic. Dangerous division lines were opening from the pressures beneath, splitting the unity of the nation. The great trust movement was in full force, sweeping into a few hands special industrial privileges, the control of natural resources, and decisive advantages in transportation. Individual opportunity and the open highways of commerce were narrowing. Great corporations were considering themselves above the law, with the cynical but increasing concurrence of the public. A sinister atmosphere was gathering, menacing to American initiative and American ideals." (Herbert Knox Smith, "Introduction," Social Justice and Popular Rule, Volume XVII of the Complete Works of Theodore Roosevelt. New York: Charles Scribner's Sons, 1926, xi.)
With the reelection of William McKinley on the wave of prosperity that followed the bumper crops of 1897-1898 that ended the Great Depression of the 1890s, the capitalists believed they had the upper hand — an opinion shared by the socialists. In McKinley, the capitalists had a "safe" man who, while not dishonest or corrupt, could be counted on to do the "right" thing . . . for the capitalists, in the sincere belief that it was best for the country.
Ever since the Pullman Strike of 1894 "Labor" had felt itself under siege, with the combined strength of the government, finance, industry and commerce ranged against the working man and woman. An uneasy alliance still existed with populism, but populism was, where not considered just another form of socialism, a spent force politically and, with the growing economic disenfranchisement caused by the decay of small ownership, economically as well. There was a definite air of desperation throughout the country.
At the same time, however, there was a wildcard in the deck. McKinley's vice president was a man with known reforming views, a "progressive Republican" by the name of Theodore Roosevelt. Roosevelt had been selected by the Old Guard Republicans as vice president in order to get him safely out of the way. The ultra-conservative Old Guard Republicans were suspicious of the young New Yorker because of his demonstrated reforming spirit. The ultra-radical socialists were suspicious of the hero of San Juan Hill because he was a Republican of a wealthy family. Both groups evidently felt that the potential problem Roosevelt represented was shelved for at least four years, possibly more, as the vice presidency was frequently the road to political oblivion.
Then came McKinley's assassination and Roosevelt's sudden ascension to the presidency. While it took a great national tragedy to bring about, Roosevelt quickly demonstrated that he was the right man in the right place at the right time. It is quite possible that no other man — or woman — in the United States combined the prestige, charisma, intelligence and sheer ability that gave Roosevelt exactly what was needed to avert what threatened to become a second, and even more vicious civil war.
Extremists on both sides were increasingly uncomfortable with Roosevelt as time went on. The accusation that "TR" stood for "Theodore Rex" came from both ends of the political spectrum. There was, nevertheless, something in his personality that resonated well with the vast American middle. This was what was called in the late 20th century "the Silent Majority," those who, ironically, make the news and keep the country going, but rarely get reported.
Roosevelt used his prestige wisely and effectively. He laid the groundwork for breaking up the trusts, and recognizing and for protecting of the rights of propertyless workers, farmers, and small businessmen. He was handicapped to a great extent by operating from within a paradigm dictated by the currency principle (although he seemed to have an inherent understanding that there was something profoundly amiss in the financial system), but — even given that debilitating constraint, he never forgot the principle that all men have rights, not just those currently popular with the government or the public. As he said a decade later when the danger from both individualists and collectivists had resurfaced,
"If I could ask but one thing of my fellow countrymen, my request would be that, whenever they go in for reform, they remember the two sides, and that they always exact justice from one side as much as from the other. I have small use for the public servant who can always see and denounce the corruption of the capitalist, but who cannot persuade himself, especially before election, to say a word about lawless mob-violence. And I have equally small use for the man, be he a judge on the bench, or editor of a great paper, or wealthy and influential private citizen, who can see clearly enough and denounce the lawlessness of mob-violence, but whose eyes are closed so that he is blind when the question is one of corruption in business on a gigantic scale. Also remember what I said about excess in reformer and reactionary alike. If the reactionary man, who thinks of nothing but the rights of property, could have his way, he would bring about a revolution; and one of my chief fears in connection with progress comes because I do not want to see our people, for lack of proper leadership, compelled to follow men whose intentions are excellent, but who eyes are a little too wild to make it really safe to trust them." (Theodore Roosevelt, "The New Nationalism," Social Justice and Popular Rule. New York: Charles Scribner and Sons, 1926, 18.)
The problem is that Roosevelt was, in common with almost everyone else since the conquest of the global financial system by the assumptions embodied in the British Bank Charter Act of 1844 and the National Bank Act of 1863, a slave to past savings. He did not see any way that new capital could be financed except by cutting consumption and accumulating money savings. Obviously this required a class of persons, necessarily small, who controlled sufficient wealth to be able to set sufficient cash aside without suffering deprivation. As technology advanced and new capital became increasingly expensive, the concentration of wealth must, it was believed, become increasingly greater.
While an orientation based on the banking principle would have solved this dilemma, Roosevelt was not an economist or a financier. Consequently, like any good leader, he went with experts he felt he could trust — and what the experts were telling him was that new capital formation requires reductions in consumption in order to accumulate sufficient financial capital to bring new productive capital on line, and thus concentration of capital ownership: "Combinations in industry are the result of an imperative economic law which cannot be repealed by political legislation." (Ibid., 12.)
Unfortunately, the natural tendency of a reliance on past savings is to force an economy into capitalism (concentrated private ownership of capital) or socialism (State ownership or control of capital). A remarkable and very strong leader can, for a time (and if he or she faces no solid opposition from special interests), hold back these tendencies by judicious use of the State's power to regulate commerce. By this means, even within a system based on past savings, the leader can ameliorate the harshness of capitalism and the false and forced equalities of socialism without succumbing to the temptation to impose direct control of the economy and establish the Servile State.
Given the reliance on past savings to finance new capital formation, however, and the consequent rise of capitalism and socialism, most people are ill-prepared to recognize the sometimes subtle difference between regulation and control. From a systemic point of view, internal controls by means of which the system regulates itself, and the enforcement of which is linked through widespread capital ownership to the public's self-interest, are most effective, and thus most socially just.
Unfortunately, with concentrated ownership of capital, whether in the private hands or the State, internal controls are, paradoxically, rejected as ineffective. In socialism, this is because the laws of economics and the self-interest of the public can operate to produce results at odds with short-term political ends. In capitalism, this is because the controls themselves interfere with maximizing short-term gains, even to the detriment of the long-term survival of a company, even an industry or an entire economy.
The "solution" in the case of both capitalism and socialism is the same — and the reason why both capitalism and socialism inevitably merge into the Servile State: imposition of external regulation by the State that is tantamount to direct control of the economy, but through the private sector. Without a strong and principled leader, however, in capitalism the external regulations are evaded in the pursuit of business-as-usual. Violations are either ignored if immaterial (which can hide serious systemic problems), or debated endlessly, usually in the courts, in an effort to avoid responsibility — and cost. To try and plug the loopholes that allow vague interpretations, the State imposes more and more regulatory requirements and, finally, direct control.
In socialism, the failure of political methods to achieve economic ends also results in imposing more and more regulatory requirements, and (ultimately) direct control. "Free market reforms" usually take the form of favoring the managerial class over workers, and of allowing private ownership within a larger framework of State control — a phantom freedom that can be taken away at any time.
In both cases what results is the Servile State, which can be understood within the context of this discussion as either capitalism with a socialist veneer, or socialism with a capitalist veneer. In both cases it is the ordinary citizen who suffers by outright elimination or re-definition of fundamental rights to life, liberty and property.
Thus, on becoming president, Roosevelt faced a crisis that had been developing since the founding of the American republic, but which had become critical with the new understanding of private property in particular, and human rights in general that became "official" with the Supreme Court's opinion in the Slaughterhouse Cases.
As both the majority and dissenting opinions made clear (and which Justice Field acknowledged as an error twenty years later), the ruling in the Slaughterhouse Cases assumed as a given that rights come from the State instead of being inherent or inalienable in the human person. This meant that instead of merely defining the exercise of rights — as required by man's political nature — the State was defining (re-defining, actually) what it means for something to be a right, and the substantial nature of specific rights.
Roosevelt, of course, as one of the last true "Lincoln Republicans," was still going on the assumption that people grant rights to the State, not the other way around. This put him at odds with both the Old Guard Republicans, who tended to be reactionary-style capitalists, and Populist/Socialist Democrats, who (as we might expect) tended to some form of socialism, but increasingly drifting from more or less benevolent Fabian socialism to radical Marxism.
Roosevelt-style progressivism, then, was based on traditional American acceptance of the un-re-defined natural law principles that guided the Framers of the Constitution — but with one, fatal flaw: reliance on the assumption that new capital formation can only be financed out of existing accumulations of savings.
Roosevelt's leadership had the potential, based on him personally, to avert the crisis that threatened the country. In this, Roosevelt can be compared to a Caesar, but not the Julius that today's critics and those of his day assumed. It was, rather, Augustus Caesar, who claimed to have restored the Roman Republic, but by keeping the outward forms of old institutions and adapting them to the needs of the Empire.
Roosevelt's job was much harder than that of Augustus Caesar, and not just because Roosevelt did not have the public and governmental support that Augustus could take for granted. Roosevelt had to restore the substance of Americans' natural rights using new institutions, not simply adapt existing institutions to serve new needs. This, as anyone who understands the social doctrine of Pope Pius XI as explained by Father William Ferree, is a much harder task.
The fact that Roosevelt succeeded at all within a paradigm dictated by the slavery of past savings could almost be described as miraculous. Augustus Caesar was able to lay the foundation of a system that survived, in one form or another, until 1918, because he was able to effect genuine institutional and systemic reforms. Roosevelt's reforms, which are little understood today, and which depended on him personally, lasted barely a decade and a half before being subsumed back into the conflict between capitalism and socialism.
#30#
Tuesday, January 31, 2012
Raw Judicial Power XV: The Populist Revolt
By the mid-1890s a new idea of the role of government had taken hold in America. Not surprisingly, given the reliance of the Founding Fathers on the importance of private property and the divisive issue of slavery, the new concept of the role of the State was rooted in the decision in Scott v. Sandford that defended slavery, and the Slaughterhouse Cases that nullified the 14th Amendment that was, as William Crosskey pointed out, clearly intended to overturn Scott v. Sandford.
Also not surprisingly, the new concept of government was a direct result of the spread of propertylessness in America. Since the Civil War most Americans had been shut out of the opportunity to participate in ownership of the new commercial and industrial capital. Only the Homestead Act made it possible for ordinary citizens to acquire landed capital. By 1893, however, most of the land available under the Homestead Act had been taken, and Frederick Jackson Turner could announce the closing of the American frontier in a paper presented at the Columbian Exhibition in Chicago.
Even less surprising, by 1893 the disconnect between America's productive capacity and the country's capacity to consume had again reached a critical stage. A number of companies failed, and the country went into a depression — known as "the Great Depression" until that of the 1930s.
In previous economic downturns, the only people who suffered (by and large) were the wealthy who got caught up in whatever speculative fever had gripped the country, and the people who depended on them for wage income. This had not been a significant percentage of the population before the Civil War. "Hard Times" of the 1830s had left the small businessman and the subsistence farmers who were his customer base pretty much alone. Even the depression of the 1870s that followed the Panic of 1873 affected far fewer people than we of today might expect when cataloguing the number of business failures. A determinant number of people still relied on farming and small business, not wages, for their subsistence.
By 1893 all that had changed. The generation following the Panic of 1873 saw large numbers of people leaving farming and small business, and vast numbers of immigrants, all going to work for wages in the new commercial and industrial enterprises. The United States had shifted from a nation of owners, to a nation predominantly proletarian. Populism, that had offered such promise in the 1870s and 1880s, had now, stripped of its emphasis on private property, become just one more form of socialism.
People now began looking to the State, especially the federal government, to solve economic problems directly, rather than provide for the general welfare by ensuring a level playing field and equal access to the means to enjoy life, liberty and property. This, of course, also undermined the pursuit of happiness by inhibiting or preventing acquiring and developing virtue through the exercise of these natural rights. Nowhere was this shift more apparent than in the transformation of populism.
We can take two things as epitomizing what populism had now become, and how many people now perceived the role of the State: Coxey's Army, and the presidential campaign of William Jennings Bryan.
Coxey's Army was a protest march by unemployed workers led by the populist businessman Jacob Coxey. They marched on Washington D.C. in 1894 from all across the United States. The official name of the group was "The Army of the Commonweal in Christ," which is hardly remembered today. Among the demands of the group was inflation of the currency and more government debt to finance infrastructure jobs for the unemployed, and greater control of business by the federal government.
While Coxey was honest and sincere in his efforts, a number of people used the march for their own ends. "The Great Unknown," for example, was supposed to be an unemployed factory worker kept anonymous to represent everyman, but who turned out to be an actor hired for the purpose by one of Coxey's lieutenants. Vagrants also swelled the ranks in the hope of free food, especially in the first wave when the marchers had great sympathy from the people along the way — a sympathy that faded rapidly as successive waves of hungry marchers kept showing up for handouts of food and money.
Dissension and official suspicion of the march watered down the effect of the demonstration staged in Washington. Coxey was arrested when he tried to give a speech in front of the Capitol when he walked on the lawn after being ejected from the steps. This made "Keep Off the Grass" a populist protest slogan that persisted for many years, even, e.g., appearing in some Warner Brothers' cartoons as late as the 1940s.
The effort petered out, with contingents camping out for months around Washington until evicted by the authorities after complaints by local residents. "As ragged/dirty as Coxey's Army" and "Enough food to feed Coxey's Army" are relicts of the march.
The presidential campaign of 1896 was a much more effective effort by the populists. Under the leadership of William Jennings Bryan, the movement shifted its emphasis to "free silver." The idea was to get away from the rigidity imposed on the economy by having an inelastic currency based on gold and a fixed amount of government debt under the National Bank system, and allow unlimited coinage of cheap silver and an increase in government debt to provide sufficient money to run the economy and get out from under the burden of personal debt that plagued farmers and small businessmen.
The populists were opposed not only by conservative Republicans, but by moderate Republicans and Democrats who feared that inflation would destroy the country. The real problem with what became known as Bryan's "silver socialism," however, was that it diverted attention away from the serious need for fundamental reform of the financial system. Faced with the choice of a sound, if inelastic currency, and an inflationary and unsound elastic currency, anyone recognizing the importance of a stable and uniform currency for both political and economic stability was forced into the capitalist camp — and thus to be controlled by the financial interests in New York City, meaning the Rockefellers, the Morgans and the Aldrichs.
It also meant that the legitimate demands of the moderates in both parties for social and financial reform, as well as of the populists and socialists, were shunted aside and labeled as socialism, whether or not that was actually the case.
#30#
Also not surprisingly, the new concept of government was a direct result of the spread of propertylessness in America. Since the Civil War most Americans had been shut out of the opportunity to participate in ownership of the new commercial and industrial capital. Only the Homestead Act made it possible for ordinary citizens to acquire landed capital. By 1893, however, most of the land available under the Homestead Act had been taken, and Frederick Jackson Turner could announce the closing of the American frontier in a paper presented at the Columbian Exhibition in Chicago.
Even less surprising, by 1893 the disconnect between America's productive capacity and the country's capacity to consume had again reached a critical stage. A number of companies failed, and the country went into a depression — known as "the Great Depression" until that of the 1930s.
In previous economic downturns, the only people who suffered (by and large) were the wealthy who got caught up in whatever speculative fever had gripped the country, and the people who depended on them for wage income. This had not been a significant percentage of the population before the Civil War. "Hard Times" of the 1830s had left the small businessman and the subsistence farmers who were his customer base pretty much alone. Even the depression of the 1870s that followed the Panic of 1873 affected far fewer people than we of today might expect when cataloguing the number of business failures. A determinant number of people still relied on farming and small business, not wages, for their subsistence.
By 1893 all that had changed. The generation following the Panic of 1873 saw large numbers of people leaving farming and small business, and vast numbers of immigrants, all going to work for wages in the new commercial and industrial enterprises. The United States had shifted from a nation of owners, to a nation predominantly proletarian. Populism, that had offered such promise in the 1870s and 1880s, had now, stripped of its emphasis on private property, become just one more form of socialism.
People now began looking to the State, especially the federal government, to solve economic problems directly, rather than provide for the general welfare by ensuring a level playing field and equal access to the means to enjoy life, liberty and property. This, of course, also undermined the pursuit of happiness by inhibiting or preventing acquiring and developing virtue through the exercise of these natural rights. Nowhere was this shift more apparent than in the transformation of populism.
We can take two things as epitomizing what populism had now become, and how many people now perceived the role of the State: Coxey's Army, and the presidential campaign of William Jennings Bryan.
Coxey's Army was a protest march by unemployed workers led by the populist businessman Jacob Coxey. They marched on Washington D.C. in 1894 from all across the United States. The official name of the group was "The Army of the Commonweal in Christ," which is hardly remembered today. Among the demands of the group was inflation of the currency and more government debt to finance infrastructure jobs for the unemployed, and greater control of business by the federal government.
While Coxey was honest and sincere in his efforts, a number of people used the march for their own ends. "The Great Unknown," for example, was supposed to be an unemployed factory worker kept anonymous to represent everyman, but who turned out to be an actor hired for the purpose by one of Coxey's lieutenants. Vagrants also swelled the ranks in the hope of free food, especially in the first wave when the marchers had great sympathy from the people along the way — a sympathy that faded rapidly as successive waves of hungry marchers kept showing up for handouts of food and money.
Dissension and official suspicion of the march watered down the effect of the demonstration staged in Washington. Coxey was arrested when he tried to give a speech in front of the Capitol when he walked on the lawn after being ejected from the steps. This made "Keep Off the Grass" a populist protest slogan that persisted for many years, even, e.g., appearing in some Warner Brothers' cartoons as late as the 1940s.
The effort petered out, with contingents camping out for months around Washington until evicted by the authorities after complaints by local residents. "As ragged/dirty as Coxey's Army" and "Enough food to feed Coxey's Army" are relicts of the march.
The presidential campaign of 1896 was a much more effective effort by the populists. Under the leadership of William Jennings Bryan, the movement shifted its emphasis to "free silver." The idea was to get away from the rigidity imposed on the economy by having an inelastic currency based on gold and a fixed amount of government debt under the National Bank system, and allow unlimited coinage of cheap silver and an increase in government debt to provide sufficient money to run the economy and get out from under the burden of personal debt that plagued farmers and small businessmen.
The populists were opposed not only by conservative Republicans, but by moderate Republicans and Democrats who feared that inflation would destroy the country. The real problem with what became known as Bryan's "silver socialism," however, was that it diverted attention away from the serious need for fundamental reform of the financial system. Faced with the choice of a sound, if inelastic currency, and an inflationary and unsound elastic currency, anyone recognizing the importance of a stable and uniform currency for both political and economic stability was forced into the capitalist camp — and thus to be controlled by the financial interests in New York City, meaning the Rockefellers, the Morgans and the Aldrichs.
It also meant that the legitimate demands of the moderates in both parties for social and financial reform, as well as of the populists and socialists, were shunted aside and labeled as socialism, whether or not that was actually the case.
#30#
Monday, January 30, 2012
Raw Judicial Power XIV: The War Against Property
As Orestes Brownson made clear in The American Republic, the Union victory in the Civil War marked the end of the conflict between Northern industrial and commercial capitalism, and Southern agrarian capitalism, and the beginning of the struggle between all forms of capitalism and its reaction, socialism. The development of both capitalism and socialism, as is now generally recognized, is an inevitable consequence of the lack of capital ownership on the part of ordinary people, and both are equally disastrous for anyone in the lower income group. As Irish economist George O'Brien noted,
"The dissolution of the monasteries in England and the confiscation of ecclesiastical land was followed by consequences of the gravest character to the condition of the poorer classes; . . . . it resulted in the encouragement of an individualistic and irresponsible conception of the functions of property, or in so far as it points to a revolutionary and socialistic spirit, displaying itself in a contempt for vested and prescriptive rights." (George O'Brien, An Essay on the Economic Effects of the Reformation. Westminster, Maryland: The Newman Bookshop, 1944, 11; originally published 1923.)
The genius of Abraham Lincoln and the Homestead Act of 1862 forestalled the conflict and the effects of the conflict between capitalism and socialism for a time. By the 1870s, however, the mismanaged monetary policy implemented to finance the war effort and the equally mismanaged corrective in the form of the National Bank Act of 1863 had combined to lock the United States into the swings of the business or economic cycle.
The economic cycle had been a characteristic of the economies of Europe since the Panic of 1825. The Panic, considered the first financial downturn caused by the operation of the financial system itself, resulted from increasingly concentrated ownership of capital in fewer and fewer hands. This funneled increasing amounts of income into the hands of people who could not consume it all, and caused a decrease in overall consumer demand relative to the productive capacity of the economy.
According to popular wisdom, the savings generated in this fashion were presumably reinvested to finance additional new capital. While this is true to a degree, most savings were already invested, and were not in the form of cash. The actual use of savings was (and remains) as collateral to secure bills drawn for the financing of new capital, and discounted either with suppliers of capital, or at a mercantile or commercial bank.
Excess cash (as opposed to the vast bulk of savings already in the form of investment) began to be funneled into the speculative stock market. This was nothing new. It had happened in the "South Sea Bubble" in the early 18th century, financing speculative companies, some of which sounded particularly shady even then, such as one formed for "undisclosed purposes"! Similarly, in the 1820s, a company was founded and a stock issue floated to recover the gold lost by the Egyptians when they pursued Moses and the Israelites into the Red Sea.
What was different in the Panic of 1825 — and which should cause serious alarm today — was the new importance of "sovereign debt" in the market, particularly the new issues of the recently established republics of Central and South America. A financial panic thereby afflicted not simply the wealthy who invested their surplus income in private speculations and the presumably safe government securities, but every citizen of a country that defaulted on its securities, or was unable to raise sufficient cash to keep the new country running until it could build up the tax base. Further, the massive investments in sovereign debt diverted people away from productive investment, especially when they believed themselves bound by existing accumulations of savings, which were determined by the degree to which consumption had been restricted in the past.
Prior to the American Civil War, most of the people in the United States were engaged in small business or small agriculture. The development of agriculture, industry and commerce developed at more or less the same pace. This, along with the fact that all three were typically small enterprises, spread out capital ownership and kept productive capacity and consumption capacity more or less in equilibrium. The various financial panics, especially "Hard Times" of the 1830s, were clearly due to factors other than the economic cycle.
There were some rich people with large business interests, but they did not set the tone for either society or the economy. The Civil War spawned the birth of big business. The new National Bank system was, along with the greenbacks (United States Notes), used to finance the war effort, not new ownership of capital. Private individuals financed the new capital during the war to expand existing industry and commerce by drawing bills on the present value of the future production and collateralized them with existing capital, virtually all existing savings having been drained out of the economy by the war effort. They naturally discounted the bills for their own benefit. This concentrated ownership of the new capital.
After the war the pace of industrial and commercial development accelerated at a tremendous rate. The Homestead Act spurred agricultural development, but not at the same frantic rate at which commerce and industry developed. This was due to two factors. One, agricultural development takes more time than industry or commerce. Given the agricultural technology of the 19th century, it could take three to five years for a farming or ranching operation to become financially feasible.
At the same time, an industrial or commercial enterprise could become financially feasible in months, on occasion days, where agriculture required years. Western folklore and written history are replete with stories of someone's wagon breaking down in the morning and starting a store or a blacksmith shop by the side of the trail or a river crossing, or making a gold strike, and by nightfall a tent city springing up, complete with boarding houses, saloons, and restaurants, even theaters. "Hell on Wheels," the rolling towns consisting of gambling dens and whorehouses that accompanied the railroads as they moved west, could open for business in minutes at "End of Track," with towns built up around them in less than a week.
Consequently, productive capacity consistently outpaced consumptive capacity due to the concentrated ownership of the rapidly expanding commercial and industrial base, throwing the economy out of equilibrium. Making the situation worse, the new large commercial and industrial enterprises could obtain all the financing they wanted at the state banks and the National Banks by discounting bills, but the small farmer, homesteader and businessman were locked into the existing pool of savings for financing development.
Because the policy of the federal government was to deflate the paper currency to reestablish parity with gold and restore the "faith and credit" of the United States, there was insufficient money and credit to finance small enterprises at the same rate as the large enterprises. Making matters worse, farmers and small businessmen had taken out loans during the war when prices were high and money in the form of the inflated greenback currency was plentiful, and were now forced to repay the loans when prices were falling and money was scarce.
The result was the Panic of 1873, which began in Europe as a result of German Chancellor Prince Otto von Bismarck's financial machinations intended to weaken the Austro-Hungarian Empire (after dealing what he thought was a death blow to the French Empire in the Franco-Prussian War) and make the new German Reich the top political and financial power in Europe. The Panic spread to the United States and caused a depression that lasted until 1879.
Twenty years later many people blamed the depression and subsequent financial troubles of the country on the Coinage Act of 1873, the "Crime of '73." This explanation, while it entered conspiracy lore, fails to take into account the fact that the business failures that triggered the panic in the United States had next-to-nothing to do with the shift to the gold standard, and everything to do with the lack of consumer demand to sustain the rapidly expanding railroads and other industrial and commercial expansion.
In response, both populism and socialism got a kick start. Both originally clearly differentiated, populism was strongest in the South and the West, where you had the tradition of ownership. In the East, with its growing population of propertyless workers, socialism was strongest. As the understanding — and fact — of small property began to erode rapidly hard upon the heels of the drying up of capital credit for small development, populism began in many cases to be another form of socialism.
In order to promote socialism or save capitalism (depending on how we want to look at it), American intellectuals began using the vague decision in the Slaughterhouse Cases to redefine property. Capitalist apologists argued in favor of the absolute exercise of the previously limited exercise of property, and acted to limit ownership to (in Walter Bagehot's words) a chosen people. (Bagehot's emphasis.) Those inclined to socialism argued against private ownership or control, claiming that no one should be able to own the means of production as private property, and thereby enjoy the result of the phenomenal increase in productive capacity made possible by technological advances.
Things reached such a pitch that by 1891, when Pope Leo XIII issued his encyclical Rerum Novarum ("On Labor and Capital"), his strictures about the importance of ordinary people owning capital — based solidly on the philosophy of Aristotle and Aquinas — were taken by many people as dangerous innovations, and rejected by both capitalists and socialists! In an argument you find repeated even today, the head of the Catholic Church — an institution that bases its legitimacy in part on the claim that it has never altered the truths that have been granted to it — was accused even by faithful Catholics of inventing an entirely new truth about private property.
The tipping point, however, came in 1893, with the Panic of 1893 and the Great Depression of 1893 to 1898. Serious weaknesses were revealed in the financial system. In response to the stress resulting from the changes in the economy with the drying up of opportunities for ordinary people to own landed capital with the effective end of the "free" land available under the Homestead Act, populism completely failed to address the underlying causes of the situation. Populism's failure, even under the inspired leadership of William Jennings Bryan, led to the development of widespread acceptance of "the conspiracy" as a way of explaining things. It also led to the first widespread demands that the government take over control of the economy for the common good.
#30#
"The dissolution of the monasteries in England and the confiscation of ecclesiastical land was followed by consequences of the gravest character to the condition of the poorer classes; . . . . it resulted in the encouragement of an individualistic and irresponsible conception of the functions of property, or in so far as it points to a revolutionary and socialistic spirit, displaying itself in a contempt for vested and prescriptive rights." (George O'Brien, An Essay on the Economic Effects of the Reformation. Westminster, Maryland: The Newman Bookshop, 1944, 11; originally published 1923.)
The genius of Abraham Lincoln and the Homestead Act of 1862 forestalled the conflict and the effects of the conflict between capitalism and socialism for a time. By the 1870s, however, the mismanaged monetary policy implemented to finance the war effort and the equally mismanaged corrective in the form of the National Bank Act of 1863 had combined to lock the United States into the swings of the business or economic cycle.
The economic cycle had been a characteristic of the economies of Europe since the Panic of 1825. The Panic, considered the first financial downturn caused by the operation of the financial system itself, resulted from increasingly concentrated ownership of capital in fewer and fewer hands. This funneled increasing amounts of income into the hands of people who could not consume it all, and caused a decrease in overall consumer demand relative to the productive capacity of the economy.
According to popular wisdom, the savings generated in this fashion were presumably reinvested to finance additional new capital. While this is true to a degree, most savings were already invested, and were not in the form of cash. The actual use of savings was (and remains) as collateral to secure bills drawn for the financing of new capital, and discounted either with suppliers of capital, or at a mercantile or commercial bank.
Excess cash (as opposed to the vast bulk of savings already in the form of investment) began to be funneled into the speculative stock market. This was nothing new. It had happened in the "South Sea Bubble" in the early 18th century, financing speculative companies, some of which sounded particularly shady even then, such as one formed for "undisclosed purposes"! Similarly, in the 1820s, a company was founded and a stock issue floated to recover the gold lost by the Egyptians when they pursued Moses and the Israelites into the Red Sea.
What was different in the Panic of 1825 — and which should cause serious alarm today — was the new importance of "sovereign debt" in the market, particularly the new issues of the recently established republics of Central and South America. A financial panic thereby afflicted not simply the wealthy who invested their surplus income in private speculations and the presumably safe government securities, but every citizen of a country that defaulted on its securities, or was unable to raise sufficient cash to keep the new country running until it could build up the tax base. Further, the massive investments in sovereign debt diverted people away from productive investment, especially when they believed themselves bound by existing accumulations of savings, which were determined by the degree to which consumption had been restricted in the past.
Prior to the American Civil War, most of the people in the United States were engaged in small business or small agriculture. The development of agriculture, industry and commerce developed at more or less the same pace. This, along with the fact that all three were typically small enterprises, spread out capital ownership and kept productive capacity and consumption capacity more or less in equilibrium. The various financial panics, especially "Hard Times" of the 1830s, were clearly due to factors other than the economic cycle.
There were some rich people with large business interests, but they did not set the tone for either society or the economy. The Civil War spawned the birth of big business. The new National Bank system was, along with the greenbacks (United States Notes), used to finance the war effort, not new ownership of capital. Private individuals financed the new capital during the war to expand existing industry and commerce by drawing bills on the present value of the future production and collateralized them with existing capital, virtually all existing savings having been drained out of the economy by the war effort. They naturally discounted the bills for their own benefit. This concentrated ownership of the new capital.
After the war the pace of industrial and commercial development accelerated at a tremendous rate. The Homestead Act spurred agricultural development, but not at the same frantic rate at which commerce and industry developed. This was due to two factors. One, agricultural development takes more time than industry or commerce. Given the agricultural technology of the 19th century, it could take three to five years for a farming or ranching operation to become financially feasible.
At the same time, an industrial or commercial enterprise could become financially feasible in months, on occasion days, where agriculture required years. Western folklore and written history are replete with stories of someone's wagon breaking down in the morning and starting a store or a blacksmith shop by the side of the trail or a river crossing, or making a gold strike, and by nightfall a tent city springing up, complete with boarding houses, saloons, and restaurants, even theaters. "Hell on Wheels," the rolling towns consisting of gambling dens and whorehouses that accompanied the railroads as they moved west, could open for business in minutes at "End of Track," with towns built up around them in less than a week.
Consequently, productive capacity consistently outpaced consumptive capacity due to the concentrated ownership of the rapidly expanding commercial and industrial base, throwing the economy out of equilibrium. Making the situation worse, the new large commercial and industrial enterprises could obtain all the financing they wanted at the state banks and the National Banks by discounting bills, but the small farmer, homesteader and businessman were locked into the existing pool of savings for financing development.
Because the policy of the federal government was to deflate the paper currency to reestablish parity with gold and restore the "faith and credit" of the United States, there was insufficient money and credit to finance small enterprises at the same rate as the large enterprises. Making matters worse, farmers and small businessmen had taken out loans during the war when prices were high and money in the form of the inflated greenback currency was plentiful, and were now forced to repay the loans when prices were falling and money was scarce.
The result was the Panic of 1873, which began in Europe as a result of German Chancellor Prince Otto von Bismarck's financial machinations intended to weaken the Austro-Hungarian Empire (after dealing what he thought was a death blow to the French Empire in the Franco-Prussian War) and make the new German Reich the top political and financial power in Europe. The Panic spread to the United States and caused a depression that lasted until 1879.
Twenty years later many people blamed the depression and subsequent financial troubles of the country on the Coinage Act of 1873, the "Crime of '73." This explanation, while it entered conspiracy lore, fails to take into account the fact that the business failures that triggered the panic in the United States had next-to-nothing to do with the shift to the gold standard, and everything to do with the lack of consumer demand to sustain the rapidly expanding railroads and other industrial and commercial expansion.
In response, both populism and socialism got a kick start. Both originally clearly differentiated, populism was strongest in the South and the West, where you had the tradition of ownership. In the East, with its growing population of propertyless workers, socialism was strongest. As the understanding — and fact — of small property began to erode rapidly hard upon the heels of the drying up of capital credit for small development, populism began in many cases to be another form of socialism.
In order to promote socialism or save capitalism (depending on how we want to look at it), American intellectuals began using the vague decision in the Slaughterhouse Cases to redefine property. Capitalist apologists argued in favor of the absolute exercise of the previously limited exercise of property, and acted to limit ownership to (in Walter Bagehot's words) a chosen people. (Bagehot's emphasis.) Those inclined to socialism argued against private ownership or control, claiming that no one should be able to own the means of production as private property, and thereby enjoy the result of the phenomenal increase in productive capacity made possible by technological advances.
Things reached such a pitch that by 1891, when Pope Leo XIII issued his encyclical Rerum Novarum ("On Labor and Capital"), his strictures about the importance of ordinary people owning capital — based solidly on the philosophy of Aristotle and Aquinas — were taken by many people as dangerous innovations, and rejected by both capitalists and socialists! In an argument you find repeated even today, the head of the Catholic Church — an institution that bases its legitimacy in part on the claim that it has never altered the truths that have been granted to it — was accused even by faithful Catholics of inventing an entirely new truth about private property.
The tipping point, however, came in 1893, with the Panic of 1893 and the Great Depression of 1893 to 1898. Serious weaknesses were revealed in the financial system. In response to the stress resulting from the changes in the economy with the drying up of opportunities for ordinary people to own landed capital with the effective end of the "free" land available under the Homestead Act, populism completely failed to address the underlying causes of the situation. Populism's failure, even under the inspired leadership of William Jennings Bryan, led to the development of widespread acceptance of "the conspiracy" as a way of explaining things. It also led to the first widespread demands that the government take over control of the economy for the common good.
#30#
Friday, January 27, 2012
News from the Network, Vol. 5, No. 4
The disappointment over President Obama's State of the Union Address was almost palpable. While the response of domestic commentators was, from a Just Third Way perspective, somewhat muffled, foreign news commentators had an unvarnished and un-spun reaction: what Mr. Obama called for was "from each according to his ability, to each according to his needs." From our perspective, it will be an easier "sell" than the Republicans' "Don't tax the rich" gambit. Of course, something along the lines of Capital Homesteading would beat it all hollow, so here's what we've been doing to move things forward:
• Due to the press of business, we've not been debriefed on the Economic Justice Summit in Hartford last week, other than to say that things went well. We hope to have a full report by next week.
• Norman Kurland has been interviewed on Rick Tormala's Tuesday With Tormala show, and is stirring up a great deal of interest in the ideas of the Just Third Way, especially their conformity with the essential principles of Chesterton and Belloc's "distributism."
• Universal Values Media, Inc., one of the companies dedicated to Justice Based Management and to spreading the word about the Just Third Way, has started a new program providing e-books in Kindle, [] each of which explores in fictional form some aspect of the Just Third Way, usually expanded capital ownership. These are planned to be short "novellas" of approximately 25-30 words each, and are priced to sell at the token price of 99¢. The first three are out now, and are in the "humorous science fiction" subgenre. If you want some "lite" entertainment to take a break from the in-depth material on the CESJ website and this blog, give the e-books a try. We think you'll enjoy them — and tell your friends about them. We may not have the "pitch" down right, but we're refining it. The books themselves are fine.
• Norman Kurland had a meeting with Rob, a restaurateur in Washington, DC on Thursday. The meeting went well, and was intrigued by what he heard.
• Monica in Ohio has been working hard to get a handle on the complex monetary and financial theory of the Just Third Way, and is looking forward to applying the concepts, both in CESJ and for EEI.
• Chris O. and Michael Greaney represented CESJ at the pre-March for Life reception of the Catholic Radio Association hosted by the Columbia School of Law at the Catholic University of America. A number of brochures were distributed for Supporting Life, and a number of people seemed interested in the idea of a Pro-Life economic agenda as a way of moving things forward. A CESJ representative may be invited to participate in the Catholic Radio Association's annual "Radiothon" in April to talk about these ideas and the application of principles of social justice to the movement.
• As of this morning, we have had visitors from 54 different countries and 49 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Australia, and the Philippines. People in Croatia, Australia, the United States, the UK and the Netherlands spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part III: Finance," "Ron Paul and Creating Money," "Raw Judicial Power, Part I: The Assault of Legal Positivism," "Thomas Hobbes on Private Property" and "Raw Judicial Power, Part IX: Scott v. Sandford."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
• Due to the press of business, we've not been debriefed on the Economic Justice Summit in Hartford last week, other than to say that things went well. We hope to have a full report by next week.
• Norman Kurland has been interviewed on Rick Tormala's Tuesday With Tormala show, and is stirring up a great deal of interest in the ideas of the Just Third Way, especially their conformity with the essential principles of Chesterton and Belloc's "distributism."
• Universal Values Media, Inc., one of the companies dedicated to Justice Based Management and to spreading the word about the Just Third Way, has started a new program providing e-books in Kindle, [] each of which explores in fictional form some aspect of the Just Third Way, usually expanded capital ownership. These are planned to be short "novellas" of approximately 25-30 words each, and are priced to sell at the token price of 99¢. The first three are out now, and are in the "humorous science fiction" subgenre. If you want some "lite" entertainment to take a break from the in-depth material on the CESJ website and this blog, give the e-books a try. We think you'll enjoy them — and tell your friends about them. We may not have the "pitch" down right, but we're refining it. The books themselves are fine.
• Norman Kurland had a meeting with Rob, a restaurateur in Washington, DC on Thursday. The meeting went well, and was intrigued by what he heard.
• Monica in Ohio has been working hard to get a handle on the complex monetary and financial theory of the Just Third Way, and is looking forward to applying the concepts, both in CESJ and for EEI.
• Chris O. and Michael Greaney represented CESJ at the pre-March for Life reception of the Catholic Radio Association hosted by the Columbia School of Law at the Catholic University of America. A number of brochures were distributed for Supporting Life, and a number of people seemed interested in the idea of a Pro-Life economic agenda as a way of moving things forward. A CESJ representative may be invited to participate in the Catholic Radio Association's annual "Radiothon" in April to talk about these ideas and the application of principles of social justice to the movement.
• As of this morning, we have had visitors from 54 different countries and 49 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Australia, and the Philippines. People in Croatia, Australia, the United States, the UK and the Netherlands spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part III: Finance," "Ron Paul and Creating Money," "Raw Judicial Power, Part I: The Assault of Legal Positivism," "Thomas Hobbes on Private Property" and "Raw Judicial Power, Part IX: Scott v. Sandford."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
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Thursday, January 26, 2012
Raw Judicial Power XIII: The Effect of the Slaughterhouse Cases
As we saw in the previous postings in this series, the Supreme Court's attacks on liberty and property in Scott v. Sandford (1857) and the Slaughterhouse Cases (1873), respectively, laid the foundation for an entirely new conception of government, at least in the United States. Common as the authoritarian State was at times in Europe (although not as common as many modern pundits believe), the United States had been founded on the assumption of the sovereignty of the human person as the basis of the social order; "We, the People," was not construed as a statement of collectivism, but of an assembly representing sovereign individuals coming together as political animals to form a particular State that best served their needs in a manner compatible with essential human nature.
By undermining the natural right of liberty (freedom of association/contract), the Dred Scott case reinforced the denial of basic human rights to a specific group. The group was not simply black slaves, but all people of Sub-Saharan African birth or descent. This made the determination of whether any group could be "persons" (that is, have rights) under the Constitution no longer a matter of natural right, and thus inhering in every human being, but a matter of political expedience. Previously slavery had been admitted as an expedient, an abrogation of natural liberty for the good of the State and the economic survival of the nation. Slavery was now under Scott considered the natural order, with liberty being conferred as expedient.
Liberty — and, by implication, all other natural rights — was now dependent on the needs of the State or the desires of whoever had power. The Scott decision even expanded the concept of "slave" — legally a condition of being without rights — from those held in bondage, to all members of a class, whether slave or free: black Africans and their descendants. Man was no longer by nature to be considered free, and thus a "person," but depended on the say-so of the State.
This was directly contrary to the conception of the State and its power in the western tradition that gave birth to the United States, and, lacking the act of social justice or a more realistic framework to understand economic and social development, forced the country into civil war. It must certainly be acknowledged that the new country had integrated a fundamental flaw into its constitution by admitting, even defending chattel slavery. Some of the Founding Fathers, notably George Mason of Gunston Hall, recognized this contradiction, and worked (albeit unsuccessfully) to remove it. As Abraham Lincoln reminded everyone decades later, a nation cannot endure half-slave and half-free.
We can make the same comment today about the Welfare State that is half-capitalism and half-socialism, but with even more force. There is, after all, the possibility of a nation enduring that is all slave, and certainly all free, but no nation can survive being either capitalist or socialist, regardless of the immense efforts to make either work over the past two centuries — an effort for which we are now paying the price, with the paradox of enormous personal wealth side-by-side with immense poverty and insurmountable debt, both public and private.
The fact is, in the Dred Scott case, the Supreme Court effectively set itself up as the supreme power in creation, with the power to re-define the natural law and thus the basis of society itself. This is directly contrary both to the clear intent of the Founders, as William Crosskey demonstrated, and to the whole conception of the State in the western tradition. As the solidarist Wilhelm Schwer explained,
"As in its nature, so also in its activity the state is subject to laws that are above it. Although it is the highest power on earth, yet it is incorporated in a moral order that binds and limits it. Consequently state power finds its principal and insurmountable barrier in natural and divine law. It is also limited through the existence and realm of activity that natural law grants to the individual, the family, and, to a certain extent, to the free associations." (Wilhelm Schwer, S.T.D., Catholic Social Theory. St. Louis, Missouri: B. Herder Book Co., 1940, 270-271.)
In other words, man is not made for the State. The State is made for man. The decision of the Supreme Court in Scott v. Sandford, however, undermined, if not completely eliminated reference to the natural law from the consideration of constitutional issues. It thereby sowed the seeds of confusion that not only led to the Civil War, but to the great conflict between capitalism and socialism that continues to this day, the focus on which completely obviates consideration of a viable and just third way, to say nothing of a workable solution to the debate over legalized abortion.
Assuming that there is a necessary conflict between natural rights and the ability of the State to confer benefits on selected groups at the expense of others leads to taking positions that are both inherently contradictory and directly at odds with common sense. As one allegedly Pro-Life economist asserted in an effort to justify easing up on efforts to end legalized abortion to secure socialist welfare and redistribution without, evidently, considering what he was saying, "We need to recognize that there are Ten Commandments, not one or two. Along with the Fifth Commandment (murder of the innocent) and the Sixth Commandment (against sodomy) there is also the Seventh, about stealing (depriving the working man of his just wages), and the Eighth, about lying (a devastating war based on lying)." (Dr. Rupert J. Ederer, Letter to The Wanderer, 12/07/2006.)
Thus, in a startling paradox, the Supreme Court's decision in Scott took a "socialist" view of the State to defend the agrarian capitalism of the American South, against the industrial and commercial capitalism of the North. Perhaps even more surprising is that the South, by and large, accepted the defense. This is another paradox mirrored in the 20th century when, to defend his absolute exercise of private property over the Ford Motor Company, Henry Ford destroyed the property rights of minority owners (Dodge v. Ford Motor Company, 1919). The 14th Amendment attempted to reverse this descent into legal, social and moral positivism — which, as Heinrich Rommen commented, leads eventually into complete moral relativism and, finally, nihilism — but was in turn nullified by the Supreme Court's decision in the Slaughterhouse Cases.
To pile paradox upon paradox — all derived, evidently, from the perceived necessity of using only previously accumulated savings to finance new capital formation — both capitalism and socialism would use the new conception of the role of the State to justify their respective positions. Impartial observers could thus legitimately claim to see no real difference between the two systems, except for the critical recognition of the right to private property in capitalism — a right that socialism simply rejects outright, and that capitalism renders impossible to exercise for most people.
Thus we can justly say that where socialism is completely in the wrong, being ideologically committed to rejecting the natural law, capitalism is almost completely in the wrong, and being right in one small area for the wrong reasons!
To explain, by rejecting the natural law outright, socialism attempts to use the power of the State to coerce desired, even necessary ends. This is by the simple — if completely unworkable — expedient of changing definitions of essential rights, especially private property, but ultimately liberty and life as well. The State thereby arrogates to itself the power of God by using the principles of charity instead of justice to achieve desired ends. This, as Leo XIII reminded us, is "a duty not of justice (save in extreme cases), but of Christian charity — a duty not enforced by human law. But the laws and judgments of men must yield place to the laws and judgments of Christ the true God, who in many ways urges on His followers the practice of almsgiving." (Rerum Novarum, § 22.)
Obviously, the State's desire to "play God" and redefine basic natural rights is not something that the Catholic Church, or any other religious body adhering to the Aristotelian ideas of ethics and politics, can excuse or admit. We cannot let our frustrations overcome us and use either our own bullying or the coercive power of the State to force ends, however desirable, on others, either individually or as a group. The end result is always to use the power gained in less acceptable ways, such as to eliminate entire populations of presumed undesirables, such as the Jews, or to permit abortion for individual expedience.
Thus, Pope Pius XI could declare, "If Socialism, like all errors, contains some truth (which, moreover, the Supreme Pontiffs have never denied), it is based nevertheless on a theory of human society peculiar to itself and irreconcilable with true Christianity. Religious socialism, Christian socialism, are contradictory terms; no one can be at the same time a good Catholic and a true socialist." (Quadragesimo Anno, § 120.) The same is equally true of Judaism and Islam, as well as every other ethical or religious system based on the natural law.
Given Karl Marx's definition of socialism, "the abolition of private property," we can understand the solidarist position on ownership and the fundamental importance of the correct understanding of private property and its widespread participation for a just social order: "[A]ll theories of property that deny the justification of private ownership or try to limit it to certain categories of goods, are erroneous. Also the soil, upon which human existence and society are based, can be the rightfully and legally protected property of the individual. This view should be maintained against agrarian communism and nationalization of land and socialization of housing, and against Rousseau, who wished that a superman would destroy all boundaries." (Schwer, op. cit., 318.)
This does not, however, admit the capitalist theory that the exercise of property is to be considered as absolute as the right to be an owner, inherent in every human being, or that the exercise of property, even limited by the needs of the common good, is to be confined to a small elite. Everyone has the absolute right to be an owner, but no one has the right to exercise his or her property absolutely. As Schwer explained, "Ownership is dominion. As master of his property the individual is subordinate to God, who never renounces and never can renounce His divine right of possession. Therefore no property is without obligations and responsibilities, no power over earthly goods is absolute and unlimited." (Ibid., 319-320.)
Every human being consequently has the right by nature to be an owner, and is therefore a natural person, which status cannot be taken away or redefined by the State, however powerful, or however plausible the reason. The State, nevertheless, has the task, in accordance with the wants and needs of its citizens or for legitimate political expedience, to define in what manner property may be exercised (usually in such a way as not to harm other individuals, groups, or the common good as a whole), and even, in some cases, what may be owned.
Nevertheless, this power that the State has to define the exercise of rights necessarily falls within strict limits; the power of the State is not absolute. The State's power to define the exercise of rights must never turn into re-definition, thereby abrogating rights instead of limiting them for the optimal benefit of individuals and the functioning of the common good. As Pius XII commented in his encyclical Evangelii Praecones (1951), quoting from his Christmas Message of 1942,
"The dignity of the human person then, speaking generally, requires as a natural foundation of life the right to the use of the goods of the earth. To this right corresponds the fundamental obligation to grant private ownership of property, if possible, to all. Positive legislation, regulating private ownership may change and more or less restrict its use. But if legislation is to play its part in the pacification of the community, it must see to it that the worker, who is or will be the father of a family, is not condemned to an economic dependence and servitude which is irreconcilable with his rights as a person.
"'Whether this servitude arises from the exploitation of private capital or from state absolutism, the result is the same. Indeed, under the pressure of a State which dominates all and controls the whole field of public and private life, even going into the realm of personal opinions, projects and beliefs, the loss of liberty is so great that still more serious consequences can follow, as experience proves.'" (§§ 52-53)
In other words, while the State has a heavy responsibility to define the exercise of natural rights properly, it may never use its power to define them improperly, that is, in such a way as to nullify the underlying natural right, resulting in the loss of liberty.
The problem was that, with the Slaughterhouse Cases, the Supreme Court — as it did in Scott v. Sandford — did not simply single out an individual or group for denial of fundamental rights. That was bad enough, especially in the climate of legal positivism growing up, for it set a precedent that individuals and even entire groups could be deprived of rights without just cause, despite the due process carried out.
The real issue in the Slaughterhouse Cases, and what outraged William Crosskey, was that the Supreme Court managed to change the entire meaning and even nature of the U.S. Constitution. The effect of the Slaughterhouse Cases was to convert the Constitution from a written document embodying a clear political philosophy based on the natural law and intended to protect the rights of the individual within a social setting, to a means of seizing absolute power through the denial by redefinition of the very rights the Court was established to protect.
#30#
By undermining the natural right of liberty (freedom of association/contract), the Dred Scott case reinforced the denial of basic human rights to a specific group. The group was not simply black slaves, but all people of Sub-Saharan African birth or descent. This made the determination of whether any group could be "persons" (that is, have rights) under the Constitution no longer a matter of natural right, and thus inhering in every human being, but a matter of political expedience. Previously slavery had been admitted as an expedient, an abrogation of natural liberty for the good of the State and the economic survival of the nation. Slavery was now under Scott considered the natural order, with liberty being conferred as expedient.
Liberty — and, by implication, all other natural rights — was now dependent on the needs of the State or the desires of whoever had power. The Scott decision even expanded the concept of "slave" — legally a condition of being without rights — from those held in bondage, to all members of a class, whether slave or free: black Africans and their descendants. Man was no longer by nature to be considered free, and thus a "person," but depended on the say-so of the State.
This was directly contrary to the conception of the State and its power in the western tradition that gave birth to the United States, and, lacking the act of social justice or a more realistic framework to understand economic and social development, forced the country into civil war. It must certainly be acknowledged that the new country had integrated a fundamental flaw into its constitution by admitting, even defending chattel slavery. Some of the Founding Fathers, notably George Mason of Gunston Hall, recognized this contradiction, and worked (albeit unsuccessfully) to remove it. As Abraham Lincoln reminded everyone decades later, a nation cannot endure half-slave and half-free.
We can make the same comment today about the Welfare State that is half-capitalism and half-socialism, but with even more force. There is, after all, the possibility of a nation enduring that is all slave, and certainly all free, but no nation can survive being either capitalist or socialist, regardless of the immense efforts to make either work over the past two centuries — an effort for which we are now paying the price, with the paradox of enormous personal wealth side-by-side with immense poverty and insurmountable debt, both public and private.
The fact is, in the Dred Scott case, the Supreme Court effectively set itself up as the supreme power in creation, with the power to re-define the natural law and thus the basis of society itself. This is directly contrary both to the clear intent of the Founders, as William Crosskey demonstrated, and to the whole conception of the State in the western tradition. As the solidarist Wilhelm Schwer explained,
"As in its nature, so also in its activity the state is subject to laws that are above it. Although it is the highest power on earth, yet it is incorporated in a moral order that binds and limits it. Consequently state power finds its principal and insurmountable barrier in natural and divine law. It is also limited through the existence and realm of activity that natural law grants to the individual, the family, and, to a certain extent, to the free associations." (Wilhelm Schwer, S.T.D., Catholic Social Theory. St. Louis, Missouri: B. Herder Book Co., 1940, 270-271.)
In other words, man is not made for the State. The State is made for man. The decision of the Supreme Court in Scott v. Sandford, however, undermined, if not completely eliminated reference to the natural law from the consideration of constitutional issues. It thereby sowed the seeds of confusion that not only led to the Civil War, but to the great conflict between capitalism and socialism that continues to this day, the focus on which completely obviates consideration of a viable and just third way, to say nothing of a workable solution to the debate over legalized abortion.
Assuming that there is a necessary conflict between natural rights and the ability of the State to confer benefits on selected groups at the expense of others leads to taking positions that are both inherently contradictory and directly at odds with common sense. As one allegedly Pro-Life economist asserted in an effort to justify easing up on efforts to end legalized abortion to secure socialist welfare and redistribution without, evidently, considering what he was saying, "We need to recognize that there are Ten Commandments, not one or two. Along with the Fifth Commandment (murder of the innocent) and the Sixth Commandment (against sodomy) there is also the Seventh, about stealing (depriving the working man of his just wages), and the Eighth, about lying (a devastating war based on lying)." (Dr. Rupert J. Ederer, Letter to The Wanderer, 12/07/2006.)
Thus, in a startling paradox, the Supreme Court's decision in Scott took a "socialist" view of the State to defend the agrarian capitalism of the American South, against the industrial and commercial capitalism of the North. Perhaps even more surprising is that the South, by and large, accepted the defense. This is another paradox mirrored in the 20th century when, to defend his absolute exercise of private property over the Ford Motor Company, Henry Ford destroyed the property rights of minority owners (Dodge v. Ford Motor Company, 1919). The 14th Amendment attempted to reverse this descent into legal, social and moral positivism — which, as Heinrich Rommen commented, leads eventually into complete moral relativism and, finally, nihilism — but was in turn nullified by the Supreme Court's decision in the Slaughterhouse Cases.
To pile paradox upon paradox — all derived, evidently, from the perceived necessity of using only previously accumulated savings to finance new capital formation — both capitalism and socialism would use the new conception of the role of the State to justify their respective positions. Impartial observers could thus legitimately claim to see no real difference between the two systems, except for the critical recognition of the right to private property in capitalism — a right that socialism simply rejects outright, and that capitalism renders impossible to exercise for most people.
Thus we can justly say that where socialism is completely in the wrong, being ideologically committed to rejecting the natural law, capitalism is almost completely in the wrong, and being right in one small area for the wrong reasons!
To explain, by rejecting the natural law outright, socialism attempts to use the power of the State to coerce desired, even necessary ends. This is by the simple — if completely unworkable — expedient of changing definitions of essential rights, especially private property, but ultimately liberty and life as well. The State thereby arrogates to itself the power of God by using the principles of charity instead of justice to achieve desired ends. This, as Leo XIII reminded us, is "a duty not of justice (save in extreme cases), but of Christian charity — a duty not enforced by human law. But the laws and judgments of men must yield place to the laws and judgments of Christ the true God, who in many ways urges on His followers the practice of almsgiving." (Rerum Novarum, § 22.)
Obviously, the State's desire to "play God" and redefine basic natural rights is not something that the Catholic Church, or any other religious body adhering to the Aristotelian ideas of ethics and politics, can excuse or admit. We cannot let our frustrations overcome us and use either our own bullying or the coercive power of the State to force ends, however desirable, on others, either individually or as a group. The end result is always to use the power gained in less acceptable ways, such as to eliminate entire populations of presumed undesirables, such as the Jews, or to permit abortion for individual expedience.
Thus, Pope Pius XI could declare, "If Socialism, like all errors, contains some truth (which, moreover, the Supreme Pontiffs have never denied), it is based nevertheless on a theory of human society peculiar to itself and irreconcilable with true Christianity. Religious socialism, Christian socialism, are contradictory terms; no one can be at the same time a good Catholic and a true socialist." (Quadragesimo Anno, § 120.) The same is equally true of Judaism and Islam, as well as every other ethical or religious system based on the natural law.
Given Karl Marx's definition of socialism, "the abolition of private property," we can understand the solidarist position on ownership and the fundamental importance of the correct understanding of private property and its widespread participation for a just social order: "[A]ll theories of property that deny the justification of private ownership or try to limit it to certain categories of goods, are erroneous. Also the soil, upon which human existence and society are based, can be the rightfully and legally protected property of the individual. This view should be maintained against agrarian communism and nationalization of land and socialization of housing, and against Rousseau, who wished that a superman would destroy all boundaries." (Schwer, op. cit., 318.)
This does not, however, admit the capitalist theory that the exercise of property is to be considered as absolute as the right to be an owner, inherent in every human being, or that the exercise of property, even limited by the needs of the common good, is to be confined to a small elite. Everyone has the absolute right to be an owner, but no one has the right to exercise his or her property absolutely. As Schwer explained, "Ownership is dominion. As master of his property the individual is subordinate to God, who never renounces and never can renounce His divine right of possession. Therefore no property is without obligations and responsibilities, no power over earthly goods is absolute and unlimited." (Ibid., 319-320.)
Every human being consequently has the right by nature to be an owner, and is therefore a natural person, which status cannot be taken away or redefined by the State, however powerful, or however plausible the reason. The State, nevertheless, has the task, in accordance with the wants and needs of its citizens or for legitimate political expedience, to define in what manner property may be exercised (usually in such a way as not to harm other individuals, groups, or the common good as a whole), and even, in some cases, what may be owned.
Nevertheless, this power that the State has to define the exercise of rights necessarily falls within strict limits; the power of the State is not absolute. The State's power to define the exercise of rights must never turn into re-definition, thereby abrogating rights instead of limiting them for the optimal benefit of individuals and the functioning of the common good. As Pius XII commented in his encyclical Evangelii Praecones (1951), quoting from his Christmas Message of 1942,
"The dignity of the human person then, speaking generally, requires as a natural foundation of life the right to the use of the goods of the earth. To this right corresponds the fundamental obligation to grant private ownership of property, if possible, to all. Positive legislation, regulating private ownership may change and more or less restrict its use. But if legislation is to play its part in the pacification of the community, it must see to it that the worker, who is or will be the father of a family, is not condemned to an economic dependence and servitude which is irreconcilable with his rights as a person.
"'Whether this servitude arises from the exploitation of private capital or from state absolutism, the result is the same. Indeed, under the pressure of a State which dominates all and controls the whole field of public and private life, even going into the realm of personal opinions, projects and beliefs, the loss of liberty is so great that still more serious consequences can follow, as experience proves.'" (§§ 52-53)
In other words, while the State has a heavy responsibility to define the exercise of natural rights properly, it may never use its power to define them improperly, that is, in such a way as to nullify the underlying natural right, resulting in the loss of liberty.
The problem was that, with the Slaughterhouse Cases, the Supreme Court — as it did in Scott v. Sandford — did not simply single out an individual or group for denial of fundamental rights. That was bad enough, especially in the climate of legal positivism growing up, for it set a precedent that individuals and even entire groups could be deprived of rights without just cause, despite the due process carried out.
The real issue in the Slaughterhouse Cases, and what outraged William Crosskey, was that the Supreme Court managed to change the entire meaning and even nature of the U.S. Constitution. The effect of the Slaughterhouse Cases was to convert the Constitution from a written document embodying a clear political philosophy based on the natural law and intended to protect the rights of the individual within a social setting, to a means of seizing absolute power through the denial by redefinition of the very rights the Court was established to protect.
#30#
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