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 FALSE PROFITS
An excerpt from "Why Bother?"

by Sam Smith
2001

One of the problems with living around powerful myths is that you can start to feel personally responsible when they don't work out. If you don't lose weight, have better sex, kick your phobia, earn 20% annually in the stock market, or get the job you want, there are few around to tell you that such outcomes are pretty normal. Instead, we are surrounded by hucksters of success and salvation constantly luring us towards illusory certainty. If we succumb to these chimeras of profit and prophesy, if we accept the idea that God rightly favors the successful, the economy justly favors the lucky, and society fairly favors the glamorous, it can ultimately leave us with a sense of failure for no greater fault than being a normal human being. It is hard in such a context to remember that nearly all people who dial the 900 number beckoning them on the cable screen continue to find hard times on easy street. And it is hard to remember a time when humans had other than monetary value.

One of the greatest of our myths is that a free market cures all ills. One would never guess listening to the commentator of NPR and PBS, for example, that if there were, in fact, a free market in this country, they would be out of work, as would be the conservative economists and other welfare intellectuals sinecured at public universities. Thousands of Washington lawyer-lobbyists would be unemployed, the defense industry would crash, and all the airports would have to close.

The truth is, as with every society that has ever existed, our economy is not only a conglomerate, but a part of, and dependent upon, a huge number of values, rules, systems, and characteristics that comprise a culture. We can no more isolate the use of money or labor from these factors than we could declare society to be henceforth based on free lunch.

Fortunately, economists discovered money as an organizing principle rather than, say, defecation. Otherwise, instead of the GDP, we would have to listen to Eleanor Clift or George Will pontificating on the latest trends in the Gross National Movement. Aside from avoiding that mishap, however, the monomaniacal obsession with the flow of money offers little in the way of insight. It is -- there is really no better word -- childish, for it simplifies reality into infantile dichotomies beyond all logic and evidence.

You need look no further than the free marketers themselves to see how false the notion of a free market is. Would a truly free market, for example, tolerate government officials with as much arbitrary power as the members of the Federal Reserve? Can one -- as a matter of logic rather than economics -- love both the Federal Reserve and a free market? Isn't monetarism really just a form of socialism that favors capitalists instead of workers?

Certainly, if one thing has not characterized the last two decades it has been any restraint on the willingness of government to inject itself into our lives. An era that has been devoted to the free market has simultaneously been the most intrusive in our history. In the name of a free market we have indentured ourselves to a government overflowing in other regards with contempt for personal liberty. In many ways, concepts such as the "market economy" and "monetarism" have actually gilded the lily of power they pretend to oppose. They provide a comfortable cover for what the government has really been about.

Peter Jay once noted that introducing the mother of new capitalism, Margaret Thatcher, to monetarism was like showing Ghenghis Kahn a map of the world. Thatcher had a mean and narrow view of life; she didn't even accept the existence of community, declaring once that "there is no such thing as society. There are individual men and women, and there are families." Thatcher wrapped herself in economic slogans that justified greed not only to accomplish economic ends but also to deal with gays and abortions and everything else she didn't like. In her paradigm, the free market and Victorian tyranny formed a civil union. By the time Reagan, Bush, and Clinton were through with the concept, they had created a gaping corporate exemption from common morality and decency. The market not only offered adequate justification for any act, it had replaced God as the highest source of law.

Until the Reagan-Bush-Clinton era it would have been next to impossible to find a culture that survived for long believing that the unfettered, rapacious flow of money and goods was the core of human existence. Elsewhere, to be sure, commerce had looked to bottom lines, but these had included those established by church, community, government, and tradition.

Of course it could be argued that the new capitalists, as single-factor fetishists, were no worse than Marxists. I know, for example, that I can usually stop an eruption of Marxist rhetoric for at least a few minutes by asking the simple question: who will run the restaurants in utopia? I find few people even on the hard left who wish to eat and drink the product of collectivism for the rest of their lives.

Marxists and capitalists share an obsession with money and a taste for clichéd mantras about it. They also share a willingness to reduce the complexity of human existence to just a couple of choices. Nonetheless, it makes more sense to devote our attention to the capitalists because they are doing far better job of making everyone go along with them. And making them suffer in the process.

One of the reasons a free market is so hard to come by is because it has never existed. In modern times the drug trade comes closer in some respects than more legal activities, but even there monopolies and murders interrupt the flow of capital goods. The form of capitalism known as "free trade" doesn't even come close, else one wouldn't need 2,000-page agreements and the World Trade Organization. And we wouldn't have laws against usury and on behalf of workplace safety.

Besides, culture keeps interfering with the economists' theories. A World Bank official once noticed that women in a certain third-world village had to row daily across a broad lake in order to reach the market. Using the efficient analysis of first-world MBAs, it was determined that what these third-world women needed were some outboard motors.

And so motors were bought and distributed. Within a month or two, however, every one of them had fallen overboard. At which point, the bank realized an important non-economic truth: the women actually liked rowing together across the lake, finding it a convivial communal activity.

The idea that such factors as social mores or religious values take precedence over efficient cash flow did not really seem odd until the 1980s. The term capitalism wasn't even invented until the middle of the 19th century and the early robber barons carried out their business without a manic need to justify their addictions publicly. Part of the earlier privilege of wealth was that no one had to know what you did with it. And it wasn't until the 1980s that the proselytizing of greed became so ubiquitous that even otherwise humble human beings began using words in ordinary conversation like entrepreneur, bottom-line, strategic vision, and market-driven.

Much of this language is not that of management, but of marketing. It is almost as if the ghost of Willy Loman had risen from the dead to exercise some supernatural vengeance on the nation. Not only is the salesman-hustler fully alive; he is all of us everywhere all the time -- from the several thousand advertising messages we confront daily; to the hour each day we spend reading, hearing, or viewing them; to the 77 distinct images in one 60-second GE commercial; to the massive shift in the work day during which the production of propaganda has often replaced the production of products.

o

But haven't we been repeatedly told that it all works out for the better in the end? Well, that isn't what Adam Smith thought. The patron saint of capitalism said in Wealth of Nations that "consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumers . . . In the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce."

The state restraints and protectionism that bothered Smith were those affecting small business. As David Korten notes, today's economic system "bears far greater resemblance to the monopolistic market system [Smith] condemned than it does to the theoretical competitive market system he hypothesized:

Adam Smith's ideal was a market comprised solely of small buyers and sellers, each too small to influence the market price of the commodities exchanged. Thus, Smith's concept of a competitive market was one in which there were no large business with monopolistic market powers . . . Smith was opposed to any kind of monopoly power . . . Adam Smith also assumed that investors have a natural preference for selling close to home. In other words, Adam Smith assumed that capital would be rooted in a particular place.

Neither can historical justification for the boomer barons be found in the history of our own country, though the "market economy" is often mentioned as though imbedded in the Constitution. It is true that the American Revolution was an economic as well as a political victory, triumphing over a system in which only the nobility and a few large merchants held economic power. But the definition of economic freedom at the time was quite different from that used by today's corporate chief executive seeking yet another tax break or a bigger bonus. Early free Americans widely believed that one was entitled to the "fruits of your labor" and no more. They opposed the concentration of property because it would allow property owners to seize political power.

There was already more than a little experience with this. Eric Foner points out that by 1770,

profits derived from slavery furnished up to a third of Britain's capital formation, and slave-grown products had became ubiquitous in England, emblems of a rising bourgeoisie and common even in the working class . . . Now, as then, commerce unrestrained by social control ends up stripping economic relations of all moral content, while the drive toward fulfilling market demands at the lowest possible price created widespread indifference to the conditions under which marketable goods are produced. Today's Chinatown sweatshops and Third World child labor factories are the functional equivalents of colonial slavery in that the demands of the consumer and the profit drive of the entrepreneur overwhelm the rights of those whose labor actually produces the salable commodity.

In America, by the time of the Civil War, slaves were the country's most valuable capital asset. In a nation with an annual federal budget of only $50 million, slaves had a market value of $2 billion, or more than twice that of all the country's railroads.

o

Further, the Constitution was written for non-slave Americans and not for corporations. Free enterprise was not mentioned in it. During the entire American colonial period only about a half dozen business corporations were chartered. In the first 20 years after the Revolution only about 150 corporations were chartered. Each of these charters required that the corporation be in the public interest. Jefferson to the end opposed liberal grants of corporate charters and argued that states should be allowed to intervene in corporate matters or take back a charter if necessary.

These early Americans were, however, deeply commercial. One reason for this was that commercial activity allowed you to break free of the social and economic restrictions of a British economy based on nobility and monopoly. Americans didn't want to work for such a system; they wanted to work for themselves. And they weren't concerned about competition because there wasn't much.

With the pressure for more commerce, and indications that corporate grants were becoming a form of patronage, states began passing free incorporation laws and before long Massachusetts had thirty times as many corporations as there were in all of Europe.

Still it wasn't until after the Civil War that economic conditions turned sharply in favor of the large corporation. These corporations, says historian James Huston:

. . . killed the republican theory of the distribution of wealth and probably ended whatever was left of the political theory of republicanism as well. . . .[The] corporation brought about a new form of dependency. Instead of industry, frugality, and initiatives producing fruits, underlings in the corporate hierarchy had to be aware of style, manners, office politics, and choice of patrons -- very reminiscent of the Old Whig corruption in England at the time of the revolution -- what is today called "corporate culture."

Concludes Huston:

The rise of big business generated the most important transformation of American life that North America has ever experienced.

It truly represented a counter-coup against the values of the American Revolution. It dramatically undermined both political and economic freedom, corrupted politicians and ransacked national assets. It replaced the feudalism of the monarchy with the feudalism of the corporation.

Perhaps the most important event occurred 110 years after the launching of the Revolution. In 1886, the Supreme Court ruled that a corporation was a person under the 14th Amendment and entitled to such constitutional protections as those of free speech.

With this fiction, the court helped to boost the corporate takeover of America. It helped personalize the corporation and depersonalize the individual, giving the former moral standing without moral responsibility, and making the human soul subservient to a soulless creation of the law.

As Morton Mintz pointed out, this case ignored the fact that "the only 'person' Congress had in mind when it adopted the 14th Amendment in 1866 was the newly freed slave." Justice Black observed in the 1930s that in the first fifty years following the adoption of the 14th Amendment, less than one-half of one percent of Supreme Court cases "invoked it in protection of the Negro race, and more than 50 percent asked that its benefits be extended to corporations." During this same period the courts moved to limit democratic power in other ways as well. For example, the Supreme Court restricted the common law right of juries to nullify a wrongful law; other courts erected barriers against third parties, such as banning fusion slates.

It was during this time that the myth of competitive virtue sprouted, helping to justify the rapaciousness of American business. It was a time when J.P. Morgan would come to own half the railroad mileage in the country -- the same J. P. Morgan who got his start during the Civil War buying defective rifles for $3.50 each from an army arsenal and then selling them to a general in the field for $22 apiece. What we now proudly call the "American free market system," was initially propelled by slavery and flowered in an era of enormous bribes, massive legislative corruption, and great anti-competitive cartels. It was a time when the government, in a precursor to modern industrial policy, gave two railroad companies 21 million acres of free land.

It was also the time that American workers, who had once used commerce to free themselves from the economic and social straitjacket of the monarchy, found themselves servants of a new rigid hierarchy, that of the modern corporation.

As persons, corporations could inject themselves fully into civic life (such as influencing campaigns and politicians) while still repelling public interference in their own affairs. They could construct barriers on civil liberties grounds against efforts to control their greed. Many of the rights that corporations secured by law came even as blacks and women were still struggling towards full enfranchisement.

The political movement of populism did battle with the new corporations but lost, as did the socialists who followed. Save during the Depression, generations of Americans would come to accept the myth of the free markets and free enterprise.

They did so in part because these companies provided higher incomes and ever-increasing jobs. But in the last quarter of the 20th century, these two conditions began to disappear. No small part of today's political tension stems from the rising power of big corporations even as their social and economic contribution to America declines.

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