Capitalist Democracy, Classical Liberalism, and the State-Paced Economy

The Contradiction Between Capitalism and Democracy

• There is an inherent contradiction between capitalism and democracy, suggesting that one cannot truly have a "capitalist democracy."

• Proponents of market-based systems, such as Milton Friedman and other "Apostles of so-called libertarianism," often do not call for democracy, but rather for what they define as "Freedom."

• Traditional libertarianism in the United States is characterized as a restrictive concept of freedom. It is defined as follows:

  • It is not the freedom of a working person to control their own work and life.
  • It is the freedom to "submit themselves to control by a higher authority."

• The speaker argues that United States "libertarianism" is an extreme example of anti-libertarianism because it favors "private tyranny," which is the tyranny exerted by unaccountable, private concentrations of wealth (corporations).

• When these groups argue against "government interference in the market," their goal is often to block the only mechanism that could check the unconstrained tyranny of totally unaccountable private entities.

Misinterpretations of Adam Smith and Classical Liberalism

• Modern proponents of capitalism often invoke Adam Smith and Classical Liberalism, which the speaker argues is a concocted history radically opposed to original principles.

• Contrary to popular belief, Adam Smith was not unconditionally opposed to government regulation. His stance was specific:

  • He favored regulation when it was intended to benefit "The Working Man."
  • He was against interference when it benefited "the Masters."

• In his own time, Smith was considered a dangerous radical and was essentially anti-capitalist, condemning what he called the "vile maxim of the Masters of mankind": "all for ourselves and nothing for anyone else."

• The concept of the "Invisible Hand" is widely misunderstood and rarely used in Smith's major works:

  • In Wealth of Nations: The term is used exactly once. The context is an argument against what is now called neoliberal globalization. Smith argued that if English merchants were to invest abroad, it would be profitable for them but harmful to England. However, because of a "home bias," they would keep their capital in England, and thus, as if by an "invisible hand," England would be saved from the ravages of globalization.
  • In The Theory of Moral Sentiments: The term is also used once. In the context of an agricultural society, Smith argued that a landlord who accumulates vast amounts of land would be motivated by "natural sympathy" for others. Consequently, he would distribute the necessities of life and goods equitably among those on his lands, resulting in a just distribution of wealth as if by an "invisible hand."

The Critique of the Division of Labor

• While many learn only about the benefits of the division of labor (e.g., the butcher and the baker) from the early paragraphs of Wealth of Nations, a deeper reading reveals Smith's bitter attack on the concept.

• Smith argued that the division of labor leads to deskilling. He stated that:

  • People would be directed to actions where they repeat the same mechanical operations over and over.
  • This would turn human beings into creatures "as stupid and ignorant as a human being can possibly be."

• Smith concluded that in any civilized society, the government must intervene to prevent the development of the division of labor to this extreme.

• The speaker notes a discrepancy in scholarly record-keeping: the scholarly edition of Wealth of Nations produced by the University of Chicago Press (on the Bicentennial) does not reference this specific attack on the division of labor in its index, despite its significance.

Historical Development and Laissez-Faire Principles

• The speaker argues that capitalism and "Laissez-Faire" economics would self-destruct if fully implemented, which is why they haven't been truly instituted globally.

• History shows that the countries that successfully developed did so by violating the principles of "sound economics" (Laissez-Faire):

  • United States, England, Germany, France, and the Netherlands: These countries developed because they rejected the rules of sound economics and utilized state intervention.
  • Japan: The only country in the South to develop successfully because it was the only one that was not colonized and was therefore free to pursue the same interventionist course as the rich Western nations.

• Conversely, countries forced to adopt "sound economics" suffered "de-development":

  • Egypt and India: India was once a commercial/industrial center exceeding England. Egypt was a rich agrarian society with cotton (the "oil" of that time) and a developmental government poised for an industrial revolution. However, British force compelled them to accept Laissez-Faire principles, leading to their economic stagnation.

• In $1846$, Britain briefly moved toward free trade because it was so far ahead industrially that it believed it would benefit. However, when British capitalists realized they could no longer compete (specifically with Japanese production by the $1920s$), they "called the game off" and closed the Empire to Japanese exports.

• This closing of Imperial systems (by the British, Dutch in Indonesia, and US in the Philippines) prevented Japan from accessing markets and resources, providing the background for the Pacific War in the $1940s$.

The US State-Paced Economy and Modern High-Tech

• Following World War II in $1945$, the United States promoted market principles abroad while practicing state-led industrial policy at home.

• The Economic Charter for the Americas (Mexico, February 1945): This conference compelled the Western Hemisphere to ban interference with market principles. The goal was to oppose "New Nationalism" in Latin America—the idea that people should benefit from their own country's resources—in favor of US and Western investors.

• US Industrial Policy: The modern high-tech economy was created through massive public funding of research and development (R&D):

  • The 1950s and 1960s: The economy was electronics-based. The public was motivated through Cold War fears ("screaming Russians") to pay high taxes to the Pentagon. The Pentagon then funded R&D in electronics at institutions like MIT.
  • MIT Transition: In the $1950s$, MIT was surrounded by high-tech firms like Raytheon and Itek. Today, those have been replaced by firms like Novartis and Pfizer.
  • Shift to Biology: Since the $1970s$, the cutting edge of the economy has shifted toward biology. Consequently, funding from the Pentagon is declining while funding from the National Institutes of Health (NIH) and other health-related government institutions is increasing.

• Private corporations (described as "vultures") wait to pick up the research funded by the public to market it for private profit once it becomes viable.

Public Policy vs. Public Opinion: Plutocracy

• Mainstream political science research consistently shows a disconnect between what the public wants and what policy is implemented.

• Statistical findings on income and influence:

  • Roughly $70\%$ of the population (the lowest $70\%$ on the income scale) are effectively disenfranchised. Their opinions have no statistical effect on policy.
  • As income increases, influence on policy slightly increases.
  • Policy is primarily set by the top $1/10$ of $1\%$, where massive concentrations of wealth are located.

• The speaker defines the current US system as a Plutocracy rather than a Democracy.

• However, the speaker concludes that the system is changeable because it is not controlled primarily by force. Past victories (such as the inability of corporations to utilize the same tactics as Andrew Carnegie did in $1890$) indicate that the public has options to influence change if they make use of them.