The Myth of Crony Capitalism

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darbikrash
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The Myth of Crony Capitalism

.........."Once a pickle, never a cucumber again"....

Thrown about with much authority these days is the claim that our predicament is the result of certain anomalies, aberrant behavior, and a collection of lapses in moral principle and out of character profit seeking. Collectively, this is branded with the pejorative term "crony capitalism".
I hope to suggest that this term is meaningless and a fabrication of the times- intended to provide some means of explanation to describe what is an obviously something quite different.

Crony Capitalism is a phrase of excuse, and a thin one at that.

Born of the need to acknowledge that in fact something rather large and onerous has occurred in the years since the collapse of 2008 and the present, both conservatives and liberals have been forced to concoct some type of story line that sacrifices some element of our economic system, without going too far and allowing the (much needed) larger discussion to begin which might look seriously at cause and effect.

Like a No Limit Hold'em player looking upwards to the skies, beseeching the poker gods ("Just one time!") to allow play to continue during a risky all-in wager, the American populace finds solace in blaming "Crony Capitalism" as the singular determination in what's gone wrong.

And this is an absolute fiction.

The inference in this phrase, and the reasoning behind this superficial blame game, is the notion that we have seen only a temporary and relatively minor glitch in our belief system. By accepting and allocating crony capitalism as the cause, we can easily construct a storyline that implies that the job in front of us is simply to remove and punish the "cronies". Then it's back to the wholesome business of rampant consumerism, and predictable, metered, and "healthy" growth, underscoring all that is expected of being an American.

If we could just get those cheats out of the way, those sneaky socialists who are tainting our society, those Wall Street barons of greed, that out-of-control government, fill in the villain of choice, we can get back to solid honest citizens innovating and reinvigorating our world with breakthrough technologies and a rising standard of living for all, rekindling the fires of American Exceptionalism.

By there is another explanation for this, and it does not include the term crony capitalist. This explanation considers what we can observe as not an aberrant symptom, but rather, as a normal consequence of a system that is at it's most basic level is constructed as a system that requires exploitation to function. Exploitation of natural resources, exploitation of class structure, and of course, exploitation of labor. Which is just great I suppose given unlimited resources and a populace which refuses to take exploitation as anything but a competitive advantage and a subject to valorize as well as celebrate.

Going back hundreds of years, to the very beginning, in the way Pareto diagrams are used to chart maximizing individual utility without infringing on others rights, the focus is on just this-maximizing utility for personal benefit. Getting the most for yourself as you can is considered a divine right, and virtually the entire ensuing means of governance and political thought then takes this principle as foundational, and over the course of 300 years, twists and turns and focuses on encouraging each person to maximize their utility while attempting to insure that in so doing, others rights and liberties are not violated. This pretty much sums up the entire subject of American political economy, and again note the underpinning assumption-maximizing personal utility.

And yet we're surprised when examples of this 300 year old philosophy cause great societal damage when writ large?

Again, with unlimited resources, this would seem to make pretty good sense. But we're running out of resources and we have to question this basic assumption and what it means.

To go on with this debunking of Crony Capitalism we can examine another factor that knocks a hole in this thesis, and that is the restorative notion behind using Crony Capitalism as an excuse. The belief system suggests that once we are rid of the villainous culprits we can be restored back to the good old days of lemonade stands and virtuous entrepreneurs. If only we could get the government (Federal Reserve, Wall Street, Bernie Madeoff, you choose) out of the way of hard working Americans, why, we could be back on track to unlimited American prosperity. Just like the good old days.

Here's the thing- it's never coming back.

Capitalism is not a thing, it's a process. At it's best explained state, it is a system of social relations, rules, conventions and practices that govern how things are made, how things are financed, how things (goods and profits) are distributed, and how class structures interact.

The main point here is that the interactions between these seemingly disparate functions are overdetermined, which is just another way of saying that they influence each other, and perhaps most importantly, when they interact they change each other in a perverse, symbiotic and irreversible way.

When high finance interacts with industrial capitalists, after time, the process of high finance is influenced by industry and changes, and likewise, the process of industrial capitalism is influenced by the practices and preferences of finance, and it also changes. If you were to separate them after many years of interactions, you would find their respective internal processes have changed, and their organizational structures are barely recognizable from whence they first began. In the same way, big business interacts with government and both organizations adapt to each other and after a point, neither is recognizable as what they were once intended to do.

This phenomena is evolutionary in nature and not reversible, at least not in a time scale relevant to solving current problems.

We see this tendency to blame government, Wall Street, swindlers and con artists at every turn, but these complaints are sadly misdirected, and will never result in any sustainable corrective action because they are attempting to use single variable determinism to allocate blame to a very complex series of social relations.

Removing or punishing any miscreants is of course always a good idea, but as we can see, the social relations of end stage Capitalism have already advanced to the point where such prosecutions are stonewalled by the intertwining of adjacent entities, the left hand protecting the right hand so to speak. This signals the final and profound metamorphism- the chrysalis has morphed into the butterfly- and it turns out not to be very pretty at all.

Meaningful corrective action means going all the way back to first principles, revisiting the concept of pursuit of maximum personal utility in a world of declining resources, on a planet that can no longer abide billions chasing a fixed set of resources. Next, we must also find a system of social relations that does not rely on class exploitation to function, as our current system does.

Because, I'm afraid to report, even if you remove the "Crony" from Crony Capitalism, you're still left with Capitalism.

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 If we can just find and hit the magic reset button

If we just find and hit some magical reset button, we could start the whole process over again, virgin fresh and free of cronyism. How often would we have to hit that reset button? Once a month? 

'Crony capitalism' is just capitalism

4-11-2012

“Crony capitalism” will be a buzzword in the 2012 election. Sarah Palin has cited General Electric paying no taxes as an example of crony capitalism, Mitt Romney has called President Barack Obama a crony capitalist and New York Times columnist Nicholas Kristof devoted an entire column to “sav[ing] capitalism from crony capitalists.”

Basically, the argument goes that big businesses are corrupting the free-market system by getting special breaks from government like bailouts — according to conventional wisdom, that’s “crony capitalism.”

It’s actually just capitalism.

Normal, everyday free-market capitalism incentivizes collusion, monopolies, fraud and corruption because these practices undeniably lead to higher profits for those who practice them. They are not distortions of the system; they are logical outcomes of the system. Laws preventing these behaviors are the distortions of the free-market system.

Banks and mortgage lenders practiced widespread fraud in the lead-up to the financial crisis. When the law allows media and telecommunications companies to merge and concentrate, they do, and doing so makes them very wealthy. This is because capitalism doesn’t reward companies that do the best job of competing on a level playing field. It rewards companies that avoid having to compete at all by tilting the playing field in their favor.

These problems are exacerbated when money is considered political speech. Huge, rich corporations can outbid others for favorable treatment from government — skewing the law in their favor becomes a legitimate, legally protected investment strategy. A ridiculously profitable one, too: A study done last year found that the “return on investment” for lobbying by multinational corporations was 22,000 percent.

This is not some deformation of capitalism; it’s the free market at work. And it’s the system Romney and others like him are defending.

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A puzzle for you

Darbikrash

I always find your posts insightful and thought provoking. Your perspective is at odds with the view most of us have been taught, but your arguments are well constructed.

Your point about using the label “crony capitalism” to hide fundamental problems with the system are valid, but I think it does help us recognize that the problems are getting worse, and causes a growing number of people to question the fundamentals of our system as well. 

As I review all of US history I am amazed at how economically unstable it has always been. To my knowledge, from about 1850 to the present the economy was just one problem after another. I’m sure it was earlier too, but my knowledge is weaker for that period.

1946 to 1965 was the golden age that laid the foundation for what we now consider “normal”. But that was an aberration. At the end of World War II we had the world’s only intact industrial plant, which had been maximized for war production. We produced 50% of Gross World Product and the dollar had just become the reserve currency. The Axis powers had been smashed and Great Britain was flat broke. We sailed into the vacuum at full speed. But president Johnson’s guns and butter policy during the Vietnam war started large deficit spending, inflation, massive entitlements, and other ills that plague us to this day.

Here is a thought for you to ponder. The problems today remind me of the period of roughly 1880-1910. That included the Gilded Age, Robber Barons, large scale industrialization, choking monopolies, brutal labor exploitation, etc. Political corruption was so bad there were supposedly price lists for bribes, with fixed amounts for local, state, and federal officials. It was said that an honest politician was one that stayed bought. Yet by the end of that period we saw much improvement through the political process to rein in the excesses of rampant capitalism, to tame it so it would not self destruct. This trend continued through following decades and seemed to work reasonably well for a long time.

As this example appears to run counter to your thesis, I would be very interested in your explanation for why it happened. I hope you can be concrete and specific and try to avoid grand theory. We might pick up something helpful from this.

Travlin

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darbikrash
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Progressive Era

I think your post brings up some good points. Firstly, I would agree with your assessment of serial instability of the US economy, and to add to your observations, I think you will find this extends well past the mid 1800's, back into the late 1700's, starting with the Panic of 1785.

In fact, you can almost set your watch by the crashes instigated by laissez faire Capitalism, from the signing of the Constitution to the Great Depression of 1929.

http://www.answers.com/topic/financial-panics

This is one of the first clues that things are not adding up with respect to the contemporary narrative- but not the only clue.

Underpinning the historical observations of consistent, cyclic economic collapse are the predictive theories of the mid 19th century (Das Capital, et.al) that do a pretty good job explaining why these events are intrinsic to laissez faire Capitalism, and why they will continue to recur with ever increasingly severity. So we have a case where the observable events match with theory- to a point. To be thorough, it must be said that the contemporary narrative seeks to explain these events by blaming government intervention, but these claims fall apart when we extend the historical timeline to the era before the 1913 Federal Reserve Act and the initiation of federal income tax. Many historians will tell you that the government was simply too small to impart any influence on commerce in the pre-Civil War years, yet this was a particularly active time for economic crises.

And most economists will add the final nails to the coffin of the interventionists, which is that government intervention was specifically needed to try and stabilize a vastly unstable system, and was required, (and demonstrably still is) time and time again, to prevent a complete and total collapse at many intervals over the last 200 or so years.

But to your larger point highlighting periods during this timeline that showed improvement in social relations, yes, there definitely are, but I will make the case that these occurrences underscore my point, not contradict it.

At the risk of introducing more boring and obtuse explanations regarding class theory, I want to loop back to the comments regarding overdetermination, which is an essential concept to making sense of all this.

Some attributes of overdetermination:

1.) In complex systems such as a Capitalist economy, any attempt at singular definition of cause and effect is almost certainly wrong.

2.) The function of Capitalism is inherently overdetermined. Here are a few examples: a. Availability and access to natural resources. b. Availability and access to finance capital. c. Social attitudes towards labor and Capitalists. d. Availability and access to labor resources. e. Technology.

Overdetermination means these attributes interact dynamically, in real time, in the context of a Capitalist class structure to result in a Capitalist economy. But most importantly it means that if there is a change in one attribute, for example, a change in technology, the other factors also change, and adapt to consider the new technology. You can make the same observation using any of the listed attributes, and see the same effect. Another key consideration is that these adaptations intrinsically and irreversibly change the individual processes.

As a concrete example, we can use the technology attribute and illustrate how a smart phone, (or ATM machine, etc) changes not only the social relations (changing how we interact personally) but irreversibly changes how we interact with finance and banking as well. And as these attributes continue to evolve and interact, the boundaries between them become harder and harder to differentiate.

The technology example is pretty easy to follow, and self evident. Less easy to illustrate is the attribute of social relations, and it's interaction with the other factors. Nevertheless, let's use this framework and move directly to your question of the era of 1890-1910.

Of course, this coincides nearly perfectly with the Progressive Era, which was largely a period of socially inspired change. On the heels of the Depression of 1893, people were disenfranchised with the damaging effects of laissez-faire Capitalism and their robber baron overlords. There was widespread agreement that the government must intervene to correct social inequities of the day, not only by the general populace, but by the farming community as well as small businesses, which were a much more powerful force in those days.

The upshot of all this was a marked change in social relations, which worked against the dominant Capitalists and acted as a powerful countervailing force to the intrinsic tendencies towards exploitation- which had wreaked havoc among the populace.

Perhaps it is useful to look at the previous list of contributing attributes and overlay these with some of the accomplishments during the Progressive Era:

a. Availability and access to natural resources. i. Railroads enhanced access to natural resources, distributing these resources efficiently to far flung production centers.

b. Availability and access to finance capital.

i. Establishment of the Federal Reserve Act in 1913 adding a "lender of last resort" capability to the remarkably unstable American banking system.

c. Social attitudes towards labor and Capitalists. i. Widespread disapproval of the robber barons. ii. Implementation of women's voting rights. iii. Focus on the family as a means of combating Capitalist exploitation. iv. Introduction of legislation (Interstate Commerce Act, Sherman Anti-trust Act) to bring Capitalist forces in check. v. Introduction of federal agencies to focus specifically on keeping Capitalist forces in check (Interstate Commerce Commission, Federal Trade Commission, Food and Drug Agency)

d. Availability and access to labor resources. i. Introduction of the moving assembly line (Ford, 1912) commodifies and discretizes labor-grossly simplifying production tasks and opening up the labor pool.

e. Technology. i. Railroads. ii. Gas powered automobiles iii. Farm automation. iv. Factory automation and assembly lines.

All of these attributes and accomplishments occurred during Progressive Era, and the overdetermination of these factors greatly impacted the Capitalism of the day- and most would argue for the better.

So this overdetermination of the Progressive Era resulted in a strain of Capitalism that was more socially acceptable than what was previously realized at the end of the Guilded Age.

But it must be said that in a odd and somewhat perverse symmetry, the achievements of that day are now being challenged once more, and by the very same forces. The Interstate Commerce Act, the FDA, the FTC, the Federal Reserve system, and moving to a slightly later era (Post Depression) Social Security, etc, are all now being vigorously disputed once again after nearly a century of extremely tough lessons learned.

Anything smell funny yet?

As a interesting aside, which current political ("free market") candidate is the most vocal at excising these exact entities?

All of this good will and positive social change was to come to an end with the arrival of the First World War, the end of which coincided with another era of rampant and runaway Capitalism, that despite the social advances made by the Progressives would finally culminate in the Great Depression of 1929.

Because you see we have in this tale a very similar version of the Crony Capitalist story of our current day, this time though, the conclusion can be seen through the spectacles of history, and despite the momentous advances of the Progressive Era, (they did in fact de-legitimize the "Cronies") after all that, they were still left with Capitalism.

All of this which would come into sharp relief in the Crash of 1929.

So again I would add that once you remove the "Crony" from Crony Capitalism, you're still left with Capitalism.

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The Myth of the Federal Reserve

Embedded along the road to debunking falsehoods such as Crony Capitalism,  and other single variable deterministic excuses, are some glimmers of hope- and some may even argue a few solutions. In order to better understand what these solutions might be, it is necessary to thoroughly examine how we got here, and in so doing, highlighting how the contemporary narrative is doomed to repeating mistakes of the past.

It is necessary to discard the platitudes of our day, to see through these shallow excuses that encourage us to continue with belief systems that benefit a small number while disadvantaging the many.

These platitudes center around two main systemic themes, class structure and economics.

Few are more accomplished in challenging the economic platitudes of the day than Professor Steve Keen. Keen has recently been involved in an imbroglio with Paul Krugman arguing the role of the banks in the current economy, with Krugman representing the supposedly enlightened and “liberal” neo-Keynesian point of view, and Keen (effectively) playing the spoiler in tearing the down the neoclassical underpinnings of modern economic thought. Krugman pretty much got his head handed to him, and you’ll see a residual of this debate in the presentation below. Keen is even less kind to the Austrians, but perhaps most remarkably, his focus on Minsky and endogenous money creation tears down one of the most popular and pervasive of the current crop of mainstream platitudes- that the Federal Reserve Bank has a central responsibility for the crash of 2008.

His work is dense and packed with equations and references to obscure economists, but what he is saying, and demonstrating (powerfully) with mathematics, in plain English is that references to dismantling the Fed, and the associated platitudes (such as a return to the gold standard) are not only woefully misdirected- but completely wrong.

I’ve been following Keen’s work for quite some time, and now after several years of slogging away at creating mathematical models of how the economics of Capitalism really works, he has reached that point where, confident he understand the causality, he is now starting to reach for solutions. And he has a few to ponder:

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crony capitalism

I don't find much to argue with in your thesis that "crony capitalism" is not the bad guy, "capitalism" is.  (at least I think that's your point)  I'm not even sure it's a bold thesis.  "Crony" and any economic regime are inextricably linked as far back as you wish to trace history in any system.  The latest example is, of course, the revolving door between private finance and the the seats of economic regulation in the gov't, not to mention Congress itself.

Further, I'm agnostic on whether getting rid of the Fed would significantly improve financial oversight.  That said, the competence of its chairmen and Treasury secretaries in the past few decades (excluding Volcker) seems highly questionable.  How could so many people in such lofty positions of power simply not seen the 2008 crash coming when so many others did?  My guess is that their ideologies blinded them to reality.  Keynesianism or neo-classical economics, as its come to be known, surely blinded them to what was actually happening in the economy.  Also, how could they have missed the corrosive effects of the "boiler room" aspects of proprietary trading divisions of the big banks?  And, why haven't they been separated yet?  Also, why hasn't anyone in those banks been prosecuted?

I'm not sure we can blame our predicament on Capitalism.  What happened, it seems to me, is the natural outgrowth of a system that encourages wealth production to the exclusion of most other values.  They have created a criminal class, of which they are all members.  That is a logical outcome of a Capitalist system, but we've had that system long enough that the regulators should have recognized it.  They failed abyssmally.  

Capitalism has one shining virtue that I believe we need to protect.  That is that those who are truly innovative and inventive should be allowed to become filthy rich from their inventions and innovations.  That doesn't mean, of course, that they 'earn' all that money.  It's just an incentive system that has bred the greatest wealth creation in history.  The frequently heard assertion that vastly rich people somehow 'earned' their money is laughable.  I think if smart people sat around and thought about it for a while, they could come up with an objective standard for how much an individual could conceivably 'earn.'  How can it be said that a skilled tradesman actually 'earns' less than a twit with computer skills sitting in a proprietary trading boiler room?  The tradesman has actual value to society, the trader is just good at shifting money around.

I seem to have strayed a bit far afield, but I've been following Keens a bit myself.  I have his book, but unfortunately its in a Kindle that appears to be broken at the moment.  An argument for low tech, as my wife asserts gleefully.  Anyhow, I am not sophisticated enough in economic theory to expound knowledgeably on its finer points, but I do enjoy seeing Krugman get bashed.  He's so deserving.

Doug

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Agree.

Watever one calls it. Capitalism is capitalism.

I think these quotes sums it up pretty well.

"The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries."

Winston Churchill

"Don't you know the difference between the two economic systems? Under capitalism man exploits man. But, under communism, it's just the other way around."

Emil Vrabie

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What is capitalism?

A few months ago I met a fellow with attitudes toward capitalism and capitalists similar to those expressed in Darbikrash's opening statement.  He is the owner of an office cleaning business which employed people to empty the trash cans and clean the coffee break rooms at various professional offices in town.  He started this business himself, including financing the business with his and his wife's savings, and did not hide his pride in having done so.  I will say right here that I have the utmost respect for what this man has accomplished.

To my way of thinking, this man is a capitalist and an entrepreneur.   He is an entrepreneur because he is creating an ongoing and successful business out of the raw materiels provided by our economy, in the form of land, labor, capital and management.   He is a capitalist because he used his own and his wife's money to finance the business.  If his uncle or brother in law had provided the financing, then that person would have been the capitalist.  When I said this to him, he became incensed that "he was no damn capitalist".    He said he treated his employees well and would not stand to be called a capitalist.

Perhaps my definition of capitalist is incorrect.  Maybe I fell asleep during that part of the Econ 101 lecture.  Or perhaps there is another source of financing of economic activity that exists aside from that provided by those who have saved and consumed less than they earned or produced.  (I will agree that there is a governmental form of business financing, where money is expropriated from the taxpayer and provided to entrepreneurs, or cronies, but that isn't capitalism.) 

I find it interesting that Darbikrash writes eloquently and lengthily about the inaccuracies of laying our problems at the feet of "Crony" capitalism.  His thesis holds plain old capitalism at fault, not "crony" capitalism.  Then, toward the end of his thesis, he states "Capitalism has already advanced to the point where such prosecutions are stonwalled by the intertwining of adjacent entities, the left hand protecting the right hand, so to speak."  That is a really good definition of crony capitalism in my book

I believe that the failures we are experiencing extend directly from our inability to keep the political process free of corruption, influence peddling, expansionary government intrusion, and the erosion of individual liberties.  This has had the effect of removing barriers and controls which should be in place to protect society from aberrant overreaching by some, but not all, business leaders, entrepreneurs and capitalists.  This loss of barriers and controls has allowed those particular players to garner most of the marbles into their corner.

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Crony capitalism is real, and it's part of the real problem.

I disagree wholeheartedly with Darbikrash... I think capitalism, restrained by laws applied equally to all, has many beneficial aspects.  If it were not for the crony capitalism and our captured legislators, maybe we could be going through the deflationary period of creative destruction that our system so needs.. rather than heading full speed toward a much bigger cliff.

Jesse says it best I think in a recent post;

"I cannot say it more simply or more emphatically, that the gaming of the system by the monied interests, marked by but not wholly due to the repeal of Glass-Steagall, the trade agreement with China without a floating exchange rate, and the Bush tax cuts for the wealthy while initiating aggressive war on multiple fronts, have set the American economy on a spiral of demise and eventual self-destruction.

What has institutionalized this demise and made it pernicious is the corruption of American power and distortion of thought by big money, and the short term selfishness and self-interest of the status quo. That is what I call the credibility trap."

source:  http://jessescrossroadscafe.blogspot.com/2012/04/why-has-american-econom...

and see this related post;

"Unequal enforcement of the law will distort and destroy any capitalist society, and we may be witnessing just such a downward spiral in the financial sector.

Capitalism is not an abstract idea. It is an economic system with a distinct set of underlying principles that must exist in order for the system to work. One of these principles is equal justice. In its absence, parties will stop entering into transactions that create overall wealth for our society. Justice must be blind so that both parties — whether weak or powerful — can assume that an agreement between them will be equally enforced by the courts.

There is a second, perhaps even more fundamental, reason that equal justice is essential for capitalism to work. When unequal justice prevails, the party that does not need to follow the law has a distinct competitive advantage. A corporation that knowingly breaks the law will find ways to profit through illegal means that are not available to competitors. As a consequence, the competitive playing field is biased toward the company that does not need to follow the rules.

The net result of unequal justice is likely to be the destruction of the overall wealth of our society. I don’t mean the wealth of individuals; I mean the total wealth of goods and services that are the benefits of healthy competition. To the extent that unequal justice prevails, entities that are exempt from the laws will, in all likelihood, be more profitable than law abiding competitors. Then they use their profits to further weaken competitors by using their illegal profits to further build their businesses at the expense of competitors. All of this business building activity is based on a foundation of sand, and ultimately the entire industry — or even the larger economy — becomes distorted. The “rogue” company gains power, changes markets, and destroys direct and indirect competitors because it is playing by different rules."

see the rest at the link.. a great piece in my opinion. 

source:  http://www.nextnewdeal.net/capitalism-survive-crime-must-not-pay

 

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And monetarily...

I want to be clear that I am not defending our debt-based fiat money system along with Capitalism.  Darbikrash has this to say about the pre-FED era of non-intervention; 

"To be thorough, it must be said that the contemporary narrative seeks to explain these events by blaming government intervention, but these claims fall apart when we extend the historical timeline to the era before the 1913 Federal Reserve Act and the initiation of federal income tax. Many historians will tell you that the government was simply too small to impart any influence on commerce in the pre-Civil War years, yet this was a particularly active time for economic crises. "

But my own personal hero, James Grant, has this to say, speaking of the Gold standard in his recent criticism of the hyper-interventionist FED - see how the highlighted comment directly contradicts Darbi's premise above;

"Notice, I do not say the perfect monetary system or best monetary system ever dreamt up by a theoretical economist. The classical gold standard, 1879-1914, “with all its anomalies and exceptions . . . ‘worked.’” The quoted words I draw from a book entitled, “The Rules of the Game: Reform and Evolution in the International Monetary System,” by Kenneth W. Dam, a law professor and former provost of the University of Chicago. Dam’s was a grudging  admiration, a  little like that of the New York Fed’s own Arthur Bloomfield, whose 1959 monograph, “Monetary Policy under the International Gold Standard,” was published by yourselves. No, Bloomfield points out, as does Dam, the classical gold standard was not quite automatic. But it was synchronous, it was self-correcting and it did deliver both national solvency and, over the long run, uncanny price stability. The banks were solvent, too, even the central banks, which, as Bloomfield noted, monetized no government debt.

The visible hallmark of the classical gold standard was, of course, gold—to every currency holder was given the option of exchanging metal for paper, or paper for metal, at a fixed, statutory rate. Exchange rates were fixed, and I mean fixed. “It is quite remarkable,” Dam writes, “that from 1879 to 1914, in a period considerably longer than from 1945 to the demise of Bretton Woods in 1971, there were no changes of parities between the United States, Britain, France, Germany—not to speak of a number of smaller European countries.” The fruits of this fixedness were many and sweet. Among them, again to quote Dam, “a flow of private foreign investment on a scale the world had never seen, and, relative to other economic aggregates, was never to see again.”

Source:  http://www.zerohedge.com/news/must-read-jim-grant-crucifies-fed-explains-why-gold-standard-best-option 

 

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A better idea?

osb272646 wrote:

I find it interesting that Darbikrash writes eloquently and lengthily about the inaccuracies of laying our problems at the feet of "Crony" capitalism.  His thesis holds plain old capitalism at fault, not "crony" capitalism.  Then, toward the end of his thesis, he states "Capitalism has already advanced to the point where such prosecutions are stonwalled by the intertwining of adjacent entities, the left hand protecting the right hand, so to speak."  That is a really good definition of crony capitalism in my book

I believe that the failures we are experiencing extend directly from our inability to keep the political process free of corruption, influence peddling, expansionary government intrusion, and the erosion of individual liberties.  This has had the effect of removing barriers and controls which should be in place to protect society from aberrant overreaching by some, but not all, business leaders, entrepreneurs and capitalists.  This loss of barriers and controls has allowed those particular players to garner most of the marbles into their corner.

Darbikrash

Thanks for your reply. Your knowledge of history is impressive. 

The quote above highlights why I brought up the example of the reforms of the progressive period (1890-1910) in my prior post. The worst excesses of capitalism and political corruption were curbed, and this trend continued until the 1980s in many respects. Since it was done before, then in theory it can be done again. If things get bad enough that might happen.

I understand your argument about the inherent flaws of capitalism. As I see it, capitalism is like fire; a great benefit if properly controlled, but a disaster if it gets out of hand. However, I don’t see any alternatives that have worked out better overall. What would you propose to correct or replace it?

Travlin

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darbikrash
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Jim H- thanks for your

Jim H- thanks for your reply. I read Jesse's blog everyday, I think he has some of the most insightful commentary of virtually anyone I read- but he is a trader. And I have noticed a general blindness of those that are involved in the equities trading business to have any type of robust understanding of class structure, and as such, they are overly defensive, and dare I say blind, to the key principles of Capitalism.

I find that most of the traders, at least those that author the "doomer" type of web sites are almost universally gold bugs, and are usually staunch believers in the "free market" economy for what I hope are obvious reasons. The markets, at least as far as the traders are exposed to them are simply a means of exchange, and efficient ones at that. It is somewhat natural then to conflate the free market as defined by a means of exchange, to map to the current vernacular with laissez faire Capitalism, the interruption of which might be considered an impediment to what the trader sees and experiences every day.

Capitalism is a very different subject than the means of exchange as embodied by a market.

Capitalism most certainly is an abstract concept, the Wikipedia definition is little more than a place holder. It's not about money lending, it's not about monetary systems, and above all, it most certainly is not about equal justice. Capitalism is a system of social relations, and it is characterized by several key attributes, I'll mention two, Exploitation, and Accumulation. At it's very essence, if there is no exploitation, there is no capitalism, but you won't find the traders making those claims. You can valorize this foundational aspect all you want, (and to be sure there are many good aspects to capitalism) but the intractable bottom line is that the worker is paid less than the Capitalist gets.

Not at all sure how you get equal justice from that calculus.

It's disingenuous to suggest that parties in the form of worker and employer always enter into voluntary agreements, sometimes they do, sometimes the agreements are not at all voluntary, as there is another key foundational concept, and that is the compulsion for all wage earners to sell their labor power to exist. All of them. And when opportunities abound, it works out pretty well, but when necessary natural resources decline, when the job opportunities disappear, jobs are therefore taken- contracts are entered- which are survival based and voluntary at only a superficial level.

There is no equal justice when you have such a relationship, there is clearly a dominant and favored party in such a contract.

You have presented a very good point here, (regarding corporate law breaking )and I make the case that such bias and disadvantage need not be illegal to have the same destabilizing effect. You have described the coercive laws of competition, which dictate at a benign level, that any corporation that invents or evolves a technology which lowers his cost of goods, enjoys a (temporary) competitive advantage (as he should). This lasts until the competitors also adopt the same or equivalent technology, which they must do to remain viable. So far so good. But what about when the same corporation offshores their labor force to China, their competitors must do the same, or risk going out of business

I think you can see that this extends to many elements of modern business, from employee benefits, to working conditions to wages and sets up a declining spiral or race to the bottom. And nothing about this is illegal, nor should it be. Corporations consolidate to gain size advantage, displacing smaller firms in the process and trend toward monopoly and monosopy. They accumulate vast amounts of wealth, and convert this wealth to social power, allowing them to capture legislators, regulators, and the seats of power defining their own laws, tax structures and rule systems to substantially benefit their own interests at the expense of the rest of us. Not "Cronies", but systemic, inevitable, accumulation of wealth and power, remove the offenders and new ones appear, changing, adapting, revising laws and power structure until finally the capture is so complete they don't bother with prosecutions anymore.

They do this until their wealth extraction exceeds the capacity of the system, and the system crashes. With greater frequency and magnitude each time, with every crash.

And then the State steps in with a new wrinkle, the even more destructive wrinkle of State Capitalism. So damaged and in need of bailouts that large scale industries,(such as the auto industry- embodied by GM, once the most powerful corporation in the world) are reduced to a shambles and can be "saved" only by the State. And laughably, using the same aforementioned class blindness, now this is called Socialism with seemingly no clue that the exploitation and accumulation are still present in full force, with just a different paymaster. The penultimate destination is grim, either collapse via revolution to another class structure, or, gradual evolution into the final realization of uninterrupted State Capitalism- which is Fascism.

If anything can be said of the lessons of the 20th century, it was the profound and destructive oscillations between private and State Capitalism, world wars were fought, empires sank and revolutions failed as superpowers vacillated between private Capitalism and State Capitalism - and back again.

Which way will it go this time, ladies and gentleman, place your bets.

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Suggestions

 

Travlin wrote:

Darbikrash

Thanks for your reply. Your knowledge of history is impressive. 

The quote above highlights why I brought up the example of the reforms of the progressive period (1890-1910) in my prior post. The worst excesses of capitalism and political corruption were curbed, and this trend continued until the 1980s in many respects. Since it was done before, then in theory it can be done again. If things get bad enough that might happen.

I understand your argument about the inherent flaws of capitalism. As I see it, capitalism is like fire; a great benefit if properly controlled, but a disaster if it gets out of hand. However, I don’t see any alternatives that have worked out better overall. What would you propose to correct or replace it?

Travlin

I do not necessarily have any solutions, but I have some observations of different business structures here in the US that seem to be springing up which, at least at face value, appear to address at least some of the issues of exploitation. I hope to describe some of these observations in future posts, but I want to lay some groundwork around class history and class structure before delving into those.

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Corporate Fascist Capitalism is a Formitable Force

darbikrash wrote:

If anything can be said of the lessons of the 20th century, it was the profound and destructive oscillations between private and State Capitalism, world wars were fought, empires sank and revolutions failed as superpowers vacillated between private Capitalism and State Capitalism - and back again.

Which way will it go this time, ladies and gentleman, place your bets.

It's pretty obvious where we are headed. The two remaining candidates in the current POTUS election are a testament to our corporatized political system, closed to anyone without the requisite $ millions $ in a campaign war chest. The latest contender, Romney, proves the point that the one with the biggest bankroll wins the slot. The difference between Bush and Obama has not even been recognizable. They are beholden to the entrenched interests of the Military-Media-Financial Complex. When you couple that with a population that has no clue of what is in their best interest and form all their spoon-fed opinions from the pervasive MSM, the future looks pretty dystopic. You may have pockets of alternative thought/action springing up here and there, but it quickly gets tamped down. Now with the hi-tech security apparatus the U.S. continues to construct, the powers of the State are being used to openly monitor and spy on all its citizens, extinguishing critics, dissenters, and whistleblowers here and abroad.

Welcome to the future -- Corporate Fascist Capitalism. Corporations have control of the MSM and all levers of the government and have the power to bend/warp public opinion with relative ease. 

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timely discussion of crony capitalism by CHS...

http://www.oftwominds.com/blog.html

published today;

"Crony Capitalism flourishes in an economy dominated and controlled by a Central State.

Crony capitalism arises when an expansive Central State dominates the economy. The Central State can then protect crony-capitalist perquisites, cartels, quasi-monopolies and financialization skimming operations of the sort which now dominate the U.S. economy's primary profit centers......"

Whether this progression from a better functioning free market capitalism ---> crony capitalism is always inevitable, or not, is open to discussion.  How the nature of the monetary system, and who controls it, plays into this progression is also open to discussion I think.   

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Fascism = Marriage between Big Business and Government

Jim H wrote:

http://www.oftwominds.com/blog.html

published today;

"Crony Capitalism flourishes in an economy dominated and controlled by a Central State.

Crony capitalism arises when an expansive Central State dominates the economy. The Central State can then protect crony-capitalist perquisites, cartels, quasi-monopolies and financialization skimming operations of the sort which now dominate the U.S. economy's primary profit centers......"

Whether this progression from a better functioning free market capitalism ---> crony capitalism is always inevitable, or not, is open to discussion. How the nature of the monetary system, and who controls it, plays into this progression is also open to discussion I think.

In that brief essay CHS acknowledges the necessity of the State's existence to "protect its citizens from foreign and domestic predation and exploitation." He goes on to say that the State's concentration of power/wealth makes it a target for takeover by capitalist forces:

This concentration of wealth and power makes the State the primary attractor in the economy for those seeking to increase their private gain. What better way to enforce a monopoly than to persuade the State to limit your competition? What better way to lower the risk of enterprise than to persuade the State to grant its own contracts to your company? What better way to amass a fortune than to harness the coercive powers of the State to your own self-interest?

The State is thus the ultimate lever within the ecosystem. While $1 million buys little influence within the market, if spent to influence State policy then it will buy more power than $10 million spent in the marketplace.

So when you embolden the quote, "Crony capitalism arises when an expansive Central State dominates the economy," that is really misleading and implies that the State is at the root of Capitalism's problems. In fact, a government usurped by corporate interests looking to gain competitive advantage is what is at the root of the gross inequality and Middle Class decay. Whether a government is small or large is not the central issue. The central issue is whether or not that government is free from the corrupting influence of money and the corrosive forces of capitalism. Rather than labeling our present situation as 'crony capitalism', the more appropriate term for this marriage between government and big business is Fascism or Corporate Fascist Capitalism.

As John Whitehead aptly said today:

...

the next time you turn on C-SPAN in an effort to observe Congress in action, keep in mind that the spectacle playing out before you is not so much democracy in action as it is a meeting in the boardroom of the corporate-state. And when next you see the president on television talking about his latest policy, what you are really seeing is the CEO of the corporate-state making his case for more government control over our lives.

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Labels

If consumers are being harmed via poor quality, limited choices and higher prices because of laws employed to benefit a few connected players, does it really matter what we label it?     Tariff protection, subsidies and bail-outs acomes to mind.

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More liberty through better shopping...

If we are at the point of conceding the entire State is compromised by “cronyism” than the term is inappropriate and has outlived its usefulness. More blood has spilled and more poor decisions made by misinterpreting labels than perhaps any other cause.

The road signs evident to even the casual observer point towards the obsolescence of the word “crony”, as the inevitable segue into the next phase of descent has already superceded the archaic and wholly inaccurate explanation suggested by the term. An argument could be made that last relevant sighting of “cronyism” was the Savings and Loan crisis of the early ‘80’s, where a relatively small cohort of miscreants cooked the books on a massive scale, got caught, was prosecuted and imprisoned amid much jawboning and saber rattling that this ”would never happen again”. But it did, at a much larger scale, because that’s what things with systemic baked in failure modes do, over and over again.

This time however, we are well past a small cohort, we are looking at wholesale extraction of wealth from the economy by actors that have no intention, nor any contributory skill sets in support of adding any value. It’s all about extraction and accumulation.

At this scale, we have moved into the next phase, which is State Capitalism. The boom and bust cycles are now so large, the ramifications so devastating, that collateral damage from unintended collapses of Capitalist schemes gone bust now damage non participants, observers who find large sums of money or benefits or assets plundered, pillaged and otherwise extracted from their purview- and done at a scale that requires State intervention to try and mitigate the contagion.

This phenomena is difficult to reconcile given the political lexicon of our time.

The right is preoccupied with reducing government and introducing austerity at precisely the time that massive restructuring at the societal level is required, and the left is caught flat footed, unable to explain the intrusive expansion of government in areas of personal liberty (Patriot Act, large scale data mining and surveillance) by the only entity large enough to counteract the destructive forces of unchecked Capitalism.

Both sides miss the point, and neither will not be able to effect any meaningful change, as neither ideology passes muster with an omnibus explanation of what we can observe, and part of this stems from misunderstanding labels. Both (right and left) explanations have areas of lucidity, but both fail badly when asked to reconcile and integrate the larger picture.

The explanation that integrates both aforementioned factions is the explanation of State Capitalism, which allows for the encouragement of privately owned entities to be managed by an overarching, totalitarian State. We can cite a current and prominent example today of such a system in the People’s Republic of China. We can tie this to our own country by looking at the “bailout” events of 2007-2009, namely the financial bailouts and notably, the bailout of General Motors and Chrysler, but particularly GM. Taken in the context of the encroachment of State Capitalism these events make perfect sense, while at the same time are poorly explained by the left vs. right paradigm.

The early and mid 20th century contained fertile ground for misapplying labels, with respect to ideological terms. And in this period we can find perhaps the most famous example in Russia- with the Bolshevik Revolution.

Perhaps best chronicled in John Reed’s famous book “Ten Days that Shook the World” this tectonic event is to this day not mentioned in polite company. To focus on March of 1917, when 500,000 workers showed up at their jobs on a Friday afternoon and informed their managers and factory owners that come Monday morning their services would no longer be required, and they (factory owners) would be well advised to leave the keys on their desks and vacate the premises post haste.

Which they did.

Unfortunately, as attractive a story line as this is, this tale had a most unpleasant ending. If not in days, then certainly in weeks, the nearly 500 year reign of the Tsarist Empire, one of the largest in the history of the world, imploded and kicked off the bloody Russian Civil War which was to last more than 4 years and kill hundreds of thousands of Russians.

Entire careers have been spent documenting a passable post mortem of these events and the Stalinist regime that would follow, so one must consider it folly to attempt in offering a reductionist explanation of an extremely complex sequence of events. But one concept rises head and shoulders above the many contributory factors, and that is the concept of surplus value, who got it and what did they do with it.

It could be argued that misunderstanding and misappropriation of surplus value is responsible for more armed conflict in the history of the world than any other singular topic, and it rears its ugly head even in (and especially in) modern times. The Bolshevik Revolution was certainly no exception. Despite the well meaning attempt of recompense by exploited workers striking and taking over the means of production, in the final analysis control and distribution of the surplus value simply shifted away from the Capitalist factory owners (yes, capitalism was rampant in Tsarist Russia-and not very popular) and was redirected to the party Commissars with little structural change in the status quo, and a whole lot of dead peasants in the process.

The process was to repeat yet again in the late 20th century collapse of the Soviet Union, with yet another reversal of the failed political and economic policies active in Russia at the time- this time in the opposite direction- toward private Capitalism once again, this time the surplus value going to Oligarchs. 

Deciphering causality in the demise of this regime as earmarked by the symbolic fall of the Berlin Wall in 1989 is not so easy. Much of the historical record and any accurate sequencing of events was compromised by decades of Soviet propaganda which was largely in place until the Glasnost era of 1990 allowed scholars access to files and history of this time. Much of the explanation of the day defines this period ideologically as Communism, although some conceded that is was more Socialist than Communist.

In any event, the analytical focus was on the Soviets’ capture of private property by force, and additionally, on the well known central planning component of Soviet governance in this time. In short, the focus was on the machinations of power, and it turns out this misses a crucial element- the surplus value- who gets it and who appropriates it.

If you consider this critical element, you are left with the conclusion that what happened in 1917 was not Communism (or Socialism) at all, but rather, the onset of State Capitalism, with the rather unwise addendum to confiscate private property.

Consider this excerpt from a definitive book of this period “ Class Theory and History – Capitalism and Communism in the USSR”

………This socialism was and is a form of State capitalism. The last century’s intense struggles articulated as epic battles between capitalism and socialism, were conflicts between private and state forms of capitalism. For the enemies of state capitalism (quo socialism), capitalism’s violent birth out of feudalism, articulated out of the liberatory surge of individual freedom against absolute state power, has been endlessly replayed. The hallowed contest of individual and state had been made familiar and anchored deeply in the (people’s) consciousness. It provided them with ready made words, phrases, moralities and certainties to wield for private and against state forms of capitalism- renamed as capitalism versus socialism/communism. Thus, “freedom”, “liberty” “democracy”, and “individualism” have opposed “dictatorship”, “totalitarianism”, and “collectivism”. The old concepts and battle cries of capitalism’s birth resurfaced to understand and fight the battles between private and state capitalism (quo socialism).

I think this explanation makes much more sense than trivializing these events as mere “cronyism”, an inaccurate and obsolete term if there ever was one. The important point here, and is it ever important, is that all the focus on power distribution and property ownership is all well and good, but to those can see through the smoke and haze the vantage point of class theory, the image of surplus labor and surplus value distribution looms large.

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xraymike79
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less Life and Liberty through the Corporate State

darbikrash wrote:

...

This time however, we are well past a small cohort, we are looking at wholesale extraction of wealth from the economy by actors that have no intention, nor any contributory skill sets in support of adding any value. It’s all about extraction and accumulation.

At this scale, we have moved into the next phase, which is State Capitalism. The boom and bust cycles are now so large, the ramifications so devastating, that collateral damage from unintended collapses of Capitalist schemes gone bust now damage non participants, observers who find large sums of money or benefits or assets plundered, pillaged and otherwise extracted from their purview- and done at a scale that requires State intervention to try and mitigate the contagion.

This phenomena is difficult to reconcile given the political lexicon of our time.

The right is preoccupied with reducing government and introducing austerity at precisely the time that massive restructuring at the societal level is required, and the left is caught flat footed, unable to explain the intrusive expansion of government in areas of personal liberty (Patriot Act, large scale data mining and surveillance) by the only entity large enough to counteract the destructive forces of unchecked Capitalism.

Both sides miss the point, and neither will not be able to effect any meaningful change, as neither ideology passes muster with an omnibus explanation of what we can observe, and part of this stems from misunderstanding labels. Both (right and left) explanations have areas of lucidity, but both fail badly when asked to reconcile and integrate the larger picture.

The explanation that integrates both aforementioned factions is the explanation of State Capitalism, which allows for the encouragement of privately owned entities to be managed by an overarching, totalitarian State. We can cite a current and prominent example today of such a system in the People’s Republic of China. We can tie this to our own country by looking at the “bailout” events of 2007-2009, namely the financial bailouts and notably, the bailout of General Motors and Chrysler, but particularly GM. Taken in the context of the encroachment of State Capitalism these events make perfect sense, while at the same time are poorly explained by the left vs. right paradigm.

...

I take State Capitalism to mean the same thing as Corporate Fascist Capitalism. And you have really hit on the crux of the problem, i.e. the requirement of massive societal restructuring. That restructuring of society you allude to will have to take into account anthropogenic effects on the biosphere(the global sum of all ecosystems) and living within the means of the earth's natural capital. Anything excluding those aspects will just produce another failed economic and social system.

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darbikrash
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State Capitalism

xraymike79 wrote:

I take State Capitalism to mean the same thing as Corporate Fascist Capitalism. And you have really hit on the crux of the problem, i.e. the requirement of massive societal restructuring.

Yes, I agree with this, as you have chronicled in your many excellent posts on this topic. The coarse schematic is something like this; Private Capitalism Þ State Capitalism Þ Fascism. I view these as somewhat of a continuum, or as the various transformational changes along a pre-ordained route.

What I think is a little different, and perhaps interesting about the example of the Bolsheviks as compared to our current predicament is that the Bolshevik Revolution set out with the express purpose to make a deliberate change- and ended up with State Capitalism anyway. In our case, I think to some extent we find ourselves (currently) embroiled in State Capitalism inadvertently, as no specific social change agenda is apparent. Now to be sure, the corporate self-serving influence on legislature and regulatory capture is in effect full force, and this may be considered a de-facto agenda of the profit seekers, and many in (government) positions of power are certainly just taking the payoffs. But some are not, and are placed in the position of trying to dig out of an irreconcilable economic mess caused by the excesses of Capitalism.

And to these folks, it would seem they have no other option but to commit the State to massive interventions to stave off wholesale failures of Capitalist excess- as a response not as a cause. And the sum between these two is truly bad news for the rest of us.

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The Ancients

Two novels can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.”.

So if it all really reduces to class theory and surplus value, what exactly does that mean?

These types of questions are not socially acceptable to ask, this line of inquiry is frowned upon as it gets just a little too close to some rather uncomfortable explanations. Fox News often displays a little blue box in the lower right hand corner off the screen (opposite the “fair and balanced” moniker) that says “Class Warfare” during certain segments of programming. This is the cue that O’Reilly or <he with the plastic hair> Hannity will implore the faithful to not ask, but to accuse when such subjects arise.

A decided aura of discomfort arises amongst the well heeled when the words class theory and surplus value are uttered. For such are the passwords to understanding.

Economics professor Richard Wolff proffers a very good explanation of the meaning of surplus value as he separates the highly charged political definition into one of sociology and anthropology, by describing surplus value in the context of a pre-Capitalist society, maybe thousands of years old.

In his outline, he describes an early hunter/gatherer society that is above all dependent on the availability of natural resources for survival. He relates the societal iteration by the nature of how each member realizes substinence. For the infant, it cannot get it’s own food, clothing or shelter and is totally reliant on others to supply these needs. In order to survive, someone else must perform these functions, not only for themselves, but also must have sufficient food, shelter, clothing left over to provide for the infant. A surplus. Surplus food, food to feed more than one, surplus shelter, to house more than one, and surplus clothing to provide clothing for more than one.

All societies that hope to survive must succeed at this most basic of transactions, first, there must be sufficient natural resources to provide for the community, and once this primary condition is satisfied, there just be a system formally in place to determines how surplus is distributed. Who creates the surplus (the hunter/gatherers). Who make the clothing surplus. Who create the surplus shelter. And most importantly who appropriates this surplus, and who gets it.

The time honored and traditional answer centers around the concept of who best to decide what happens to any surplus is determined by those that got it in the first place. And who gets the surplus (traditionally) is the immediate and extended family of those that acquired the surplus.

And this works out pretty well.

In many pre-capitalist societies, the infant, children up to a certain age, and the elderly are not able to provide for their own welfare, so others gain surplus and distribute to those who cannot fend for themselves, which of course as it turns out, at one time or another is every single community member.

You come into the society unable to provide for yourself, and that’s the way you leave it.

Then, there are cases. Cases where the hunter in the family is injured, or killed. Who then provides? The community does. There are cases where a community cannot provide, as it may have lost too many providers during a sickness or war. These requirements feed uphill into the society to take up the slack. As the number of infants rises and falls, so changes the obligations of the surplus providers. As the number of the elderly waxes and wanes, so changes the obligations of the surplus providers.

All societies must come to terms with this unequal distribution in some form, some agreement, a social contract must be made that accounts for this, and along the way hope that the natural resources hold out allowing the society to grow and flourish.

It can be easily seen that there are finite relationships between those that provide the surplus, and those that receive it. Too many receivers, not enough givers, we have a problem and the society cannot sustain.

So let’s move away from the pre-capitalist society and examine the same circumstance in the context of a functioning capitalist society. Firstly, we have a condition where each eligible member is forced to sell his or her labor power to exist. We of course still have infants and elderly, and these cannot provide for themselves as they cannot sell their labor power, but for the most part, the impetus is to advance the children as fast as possible into wage earners, and to assign accountability to the elderly to provide financial self sufficiency. Fair enough.

But we have a system that requires exploitation to function. The very definition of capitalism, in the sense being discussed here, means for every salary paid, someone makes a surplus from this labor power, and they keep and accumulate this surplus. The wage earner does not get it. The Capitalist does get it. In many cases, from many workers, often as many as possible. And so we have a system that relies fundamentally on extraction, accumulation, and exploitation as first principles.

Now we can then revisit the concept of limits and proportionality. In the previous example, we had limits to how many receivers of surplus value there could be relative to providers. In this new case, we have to also consider how many extractors can the society support? A multiplication that no one wants you to make. How many members of the rentier class can we have before there are not enough renters? How many yogurt parlors can we have before we are all selling each other yogurt?

How many Ipad apps can be created before no one cares anymore? If there are limits to the welfare state, are there not also limits to the number of extractors that can be supported by surplus labor, or are these to be valorized and the implications ignored?

Wolff’s thesis, having demonstrated the necessity for equitable distribution of surplus value in any (and every) given society, he goes on to frame the conclusions by describing the nexus of class structure as falling into 5 easily understood categories. He suggests that there are exactly five possible class structures available to any given society:

1.)  Slavery.

2.)  Feudalism, with serfs, lords, and nobility.

3.)  Capitalism

4.)  The Ancient. (a term cribbed from Marxist theory that effectively means the self employed/small businessman.)

5.)  Communism

That’s it, just five. And as it turns out, there are only two of the five that do not require exploitation of surplus labor to function. The last two are the only ones that do not.

These are for the most part self explanatory. The exception might be #4, the Ancient class structure. Many of those not familiar with class theory tend to assume the self employed small businessman is a capitalist- this is incorrect. This term (ancient) initially referred to tradesman, blacksmiths, carpenters, master craftsmen of any and all types, those who made their living with their hand and their skills. The Journeyman, an evolutionary end point of a skilled worker who had sufficient skill and social reckoning that they could “journey” from  village to village, and earn a living wherever they might go was the penultimate achievement. This class structure although heavily involved in commerce and trade (of their own skill) they do not appropriate the surplus labor of others, and therefore are not Capitalists

A critical distinction which will be developed in later posts.

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Darbikrash...

As far as I am concerned ... you are pulling an "Erik T" here with your use of the word, "exploitation" in describing capitalism.  This is a highly charged word, with negative connotations, much like Erik's use of the word, "charlatans" to describe some fairly beloved PM bloggers in the now epic and still ongoing Harvey Organ interview thread.  I realize that the Marxists have taken this word as their own in this war of words;

http://en.wikipedia.org/wiki/Exploitation   

But that only happens in Wikipedia land, where words can and do get highjacked.. elsewhere the word means something else more sinister;

ex·ploi·ta·tion  (ksploi-tshn)

n.
1. The act of employing to the greatest possible advantage: exploitation of copper deposits.
2. Utilization of another person or group for selfish purposes: exploitation of unwary consumers.
3. An advertising or a publicity program.
 

You said, "But we have a system that requires exploitation to function. The very definition of capitalism, in the sense being discussed here, means for every salary paid, someone makes a surplus from this labor power, and they keep and accumulate this surplus." 

Now I certainly would not argue that there is not a range of "exploitability" within the workforce...there is ... but I dare say that only those at the bottom of the ladder ever actually feel exploited... and I am also quite sure that there are many folks without jobs right now that would be pretty happy to get an opportunity to be "re-exploited" for a salary close to the current US median of ~$50K yearly.

Our system does not require exploitation to function, because anyone can strike out on their own and start a business, however small.  Instead of flipping burgers at the bottom, you can get a kettle and a gas stove and make Kettle corn for $5 a bag at the fair.  One always has options... microloans are becoming more available, etc.  I recently learned that getting one's house powerwashed in my town costs a minimum of $375... so a guy can basically buy a powerwasher and some soap, and be making free and clear profit after 2-3 houses... I may be in the wrong business!   

As a professional working in semiconductors... since I don't have the $5B to build my own fabrication plant, and Obama's attempts to use our tax dollars to "buy" some solar manufacturing plants in the US shows exactly how good an allocator of capital Gov't is... I will say that I have always been quite happy to be, "exploited" by my capitalist employer.        

I think capitalism without so much cronyism would be a grand thing... but instead we have terminal, stage 5 crony capitalism.  When we get done with the catastrophe, I will choose (non-crony) capitalism over Marxism....    

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xraymike79
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Micro loans to the rescue

Jim H wrote:

...

Our system does not require exploitation to function, because anyone can strike out on their own and start a business, however small.  Instead of flipping burgers at the bottom, you can get a kettle and a gas stove and make Kettle corn for $5 a bag at the fair.  One always has options... microloans are becoming more available, etc.  I recently learned that getting one's house powerwashed in my town costs a minimum of $375... so a guy can basically buy a powerwasher and some soap, and be making free and clear profit after 2-3 houses... I may be in the wrong business!   

...

Huh? Yeah... anyone can strike out and survive in today's economy? OK, thanks for the advice. We just need to pull ourselves up by our bootstraps.

Profits in capitalism are always made through exploitation (be it the exploitation of workers for their surplus value, of third world countries for cheap natural resources and cheap markets for goods, etc.) and the institutions of capitalism were designed this way. See the beginning Life Inc by Douglas Rushkoff for a brief explanation of how, why, and by whom the institutions of capitalism were designed. In short, they were designed by the ruling class in the late Middle Ages to keep power over the rising independence of the peasants (and a rising peasant merchant class) by extracting the wealth from the communities and bringing them into the centres of power in the form of profits.

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darbikrash
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Jim H wrote:    I think

Jim H wrote:
   

I think capitalism without so much cronyism would be a grand thing... but instead we have terminal, stage 5 crony capitalism.  When we get done with the catastrophe, I will choose (non-crony) capitalism over Marxism....    

Well I think you’ve effectively illustrated the very essence of this thread, the misguided notion that once the “cronies” are out of the way we can get back to the bidness of growing, expanding, consuming resources and pointing incredulously at the maldistribution of income.

But increasingly, the vernacular of the day is now mentioning the crisis in terms of structural change to the economy, and not cyclical. The housing market is forever changed, those jobs are not coming back. And as I point out, we may be at a place where there are simply too many people selling too many things to too few people to support any further economic expansion-at all.

I won’t be apologizing for the definition of exploitation, it is a legitimate use of the word and has been so for nearly 200 years. The reason why it is charged and offensive is simply because it is not intended as a pejorative, it is a clinical description of a situation wherein your surplus labor is appropriated and consumed by someone else, for their benefit and not yours.

This is a numerical quantity, not an emotive quantity. Irrespective if your salary is $7.25/hr or $250,000/yr, in a Capitalist society someone is taking out more than you are putting in, and in this context, you are being exploited. How you “feel” about this is simply a reflection of class consciousness (or lack thereof). And when in the aggregate this exploitation rolls up to differential accumulation, and this accumulation is then converted to social power, we have circumstances as we have now.

This cycle will repeat ad nauseum

While it may be true at the “bottom” that there is a more visceral sensation of exploitation, the notion of class consciousness demands that at the very least, no matter how uncomfortable the realization is, one must have at the very least an awareness of the plain physics that says if you are making a salary someone else is benefiting –from your surplus labor- as well.

And while it is all well and good to mention that we have options, let’s move out of the world of theory into the practicum, and that is one has to exist, which is to say pay bills and raise a family. So all these options at the end of the day must provide substinence, whether you are a passive investor, a small businessman, a Kettle Corn salesman or a panhandler.

As a side note in the theme of class consciousness, none of the options you propose are considered part of the Capitalist class structure.

This quip aside, the statistics for small business success are alarming. Something like 85% of small businesses fail within the first 5 years. According to the IRS tax records, 75% of all corporations in America have zero employees, and account for about .0004% of the total receipts (revenue) in the US. Inversely, about 75% of the total (corporate) receipts in the US come from corporations with 500 or more employees. And rest assured, this cohort is most certainly part of the capitalist class structure.

So while you may be perfectly content with a salary and benefits package, as you point out, you are unlikely to achieve the financial and logistical goals of starting your own semiconductor factory. The level of salary and combined benefits seeks to assuage the loss of the workmanship ideal, to some extent, but much class theory these days focuses on alienation, manifesting as deep dissatisfaction, and a general diffuse malaise. We see workplace shootings, mass murder really, which barely makes front page news anymore, does anybody really think there is no connection?

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Jim H
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XRAY and Darbikrash

You two have created your own playground here ... a place where somehow capitalism can't co-exist with the tenets of the crash course (Darbi asserts above that by defending capitalism I am somehow professing my lack of awareness or appreciation of basic crash course principles - as if there can't be a regulatory overlay that at least attemps to protect resources within capitalism - last I checked we still had not drill, drill, drilled all of Alaska for instance).  Capitalism would do much better were it not saddled these days with a monetary system that demands continuous, exponential growth of debt.

Darbi defines crony capitalism perfectly;

And when in the aggregate this exploitation rolls up to differential accumulation, and this accumulation is then converted to social power, we have circumstances as we have now.    

When the checks and balances, application of rule of law, etc, breakdown.. then indeed we have exactly what you have described.  While capitalism may never be completely free of this.. I am not a utopian like you... it sure works better when this tendency is kept in check.  

Between crony capitalism and the God-like FED, we have no chance.  

My own thoughts align with those of David Stockman;

"DS: There are two kinds of front-running. First is market-based front-running. You try to figure out what the Fed is doing by reading its smoke signals and looking at how it slices and dices its meeting statements. People invest or speculate against the Fed's next incremental move.

Second, there is illicit front-running, where you have a friend who works for the Federal Reserve Board who tells you what happened in its meetings. This is obviously illegal.

But frankly, there is also just plain crony capitalism that is not that different in character and it's what Wall Street does every day. Bill Dudley, who runs the New York Fed, was formerly chief economist for Goldman Sachs and he pretends to solicit an opinion about financial conditions from the current Goldman economist, who then pretends to opine as to what the economy and Fed might do next for the benefit of Goldman's traders, and possibly its clients. So then it links in the ECB, Bank of Canada, etc. Is there any monetary post in the world not run by Goldman Sachs?

The point is, this is not the free market at work. This is central bank money printers and their Wall Street cronies perverting what used to be a capitalist market."

Link:  http://www.theaureport.com/pub/na/13278

I would ask anyone to describe a successful implementation of some form of Marxism, or whatever it is you are suggesting would be better than (reasonably non-cronyfied) capitalism, so that we can think about how such a system would work, free of any motivations to better one's self and one's monetary standing (due to perfect, utopian distribution of ... what?), free of any tendency to want to "bootstrap" one's self, free of any tendency to want to invent or create something that could better one's monetary standing (because that would probably not be allowed.. but of course everyone would still be super motivated to invent and innovate, even without self-interest at work, right?)

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xraymike79
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Default Argument: There's no viable alternative to Capitalism

Jim H wrote:

...

I would ask anyone to describe a successful implementation of some form of Marxism, or whatever it is you are suggesting would be better than (reasonably non-cronyfied) capitalism, so that we can think about how such a system would work, free of any motivations to better one's self and one's monetary standing (due to perfect, utopian distribution of ... what?), free of any tendency to want to "bootstrap" one's self, free of any tendency to want to invent or create something that could better one's monetary standing (because that would probably not be allowed.. but of course everyone would still be super motivated to invent and innovate, even without self-interest at work, right?)

...       

Perhaps this question should be directed to the numerous countries of the world whom we have steadfastly intervened in and prevented the formation of any alternative to our present system. Studying what we have destroyed could provide some answers.

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ao
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American trinity

xraymike79 wrote:

Jim H wrote:

...

I would ask anyone to describe a successful implementation of some form of Marxism, or whatever it is you are suggesting would be better than (reasonably non-cronyfied) capitalism, so that we can think about how such a system would work, free of any motivations to better one's self and one's monetary standing (due to perfect, utopian distribution of ... what?), free of any tendency to want to "bootstrap" one's self, free of any tendency to want to invent or create something that could better one's monetary standing (because that would probably not be allowed.. but of course everyone would still be super motivated to invent and innovate, even without self-interest at work, right?)

...       

Perhaps this question should be directed to the numerous countries of the world whom we have steadfastly intervened in and prevented the formation of any alternative to our present system. Studying what we have destroyed could provide some answers.

Sorry but that's a cop-out, not an answer.  If you or darbikrash wish to take down a system and put something else in its place, you better be very sure that your proposed replacement has a better track record than what we had or, even presently, have.  In truth, the socialist systems that have been advocated have the worst track record on the planet earth.  People, like capital, flow to where they are treated best.  And they came to America for a reason.  And they didn't flock to Cuba, the Soviet Union, Maoist China, Pol Pot's Cambodia, Nazi Germany, etc. for the same reason.  Every time, throughout history, that a utopian existence has been proposed with the thought that 'this time it's different", it's turned out the be the same ... a nightmare.

The missing dimension is a moral dimension.  That's why In God We Trust, liberty, and E Pluribus Unum, the trinity of the American way of life, is so essential to our well being.  And the fact that we are increasingly heading in the exact opposite direction of this trinity is a major factor contributing to the deterioration of this country.

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xraymike79
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Capitalism does not recognize Morals; Corporations are Amoral

ao wrote:

xraymike79 wrote:

Jim H wrote:

...

I would ask anyone to describe a successful implementation of some form of Marxism, or whatever it is you are suggesting would be better than (reasonably non-cronyfied) capitalism, so that we can think about how such a system would work, free of any motivations to better one's self and one's monetary standing (due to perfect, utopian distribution of ... what?), free of any tendency to want to "bootstrap" one's self, free of any tendency to want to invent or create something that could better one's monetary standing (because that would probably not be allowed.. but of course everyone would still be super motivated to invent and innovate, even without self-interest at work, right?)

...       

Perhaps this question should be directed to the numerous countries of the world whom we have steadfastly intervened in and prevented the formation of any alternative to our present system. Studying what we have destroyed could provide some answers.

Sorry but that's a cop-out, not an answer.  If you or darbikrash wish to take down a system and put something else in its place, you better be very sure that your proposed replacement has a better track record than what we had or, even presently, have.  In truth, the socialist systems that have been advocated have the worst track record on the planet earth.  People, like capital, flow to where they are treated best.  And they came to America for a reason.  And they didn't flock to Cuba, the Soviet Union, Maoist China, Pol Pot's Cambodia, Nazi Germany, etc. for the same reason.  Every time, throughout history, that a utopian existence has been proposed with the thought that 'this time it's different", it's turned out the be the same ... a nightmare.

The missing dimension is a moral dimension.  That's why In God We Trust, liberty, and E Pluribus Unum, the trinity of the American way of life, is so essential to our well being.  And the fact that we are increasingly heading in the exact opposite direction of this trinity is a major factor contributing to the deterioration of this country.

Unfortunately what is being protected and propagated, via an increasingly authoritarian U.S. government, is more of the same --- Globalized Corporate Capitalism. Money and Wall Street have thoroughly corrupted government and dismantled any shred of capitalist restraints, i.e. regulation and the social contract. To think that this situation can be changed at this late stage is really utopian thinking. But to humor the idea, I'll proclaim that we should have a society in which the democratic will of the people should prevail, as quaint an idea as that may be, rather than Capital dictating everything in life, which is the essence of capitalism.  Creating such an environment would require such things as getting money out of politics, dismantling the corporate state, and defanging the military-media-finance complex. Doing such aforementioned things is tantamount to crossing the line for what is acceptable public discourse and would, not surprisingly, gain yourself the label of enemy of the state or terrorist. 

Since our situation is not sustainable, I like to think into the future of where we are headed with our Corporate Fascist Security and Surveillance State. From the information I have gathered thus far, I don't yet see another alternative other than this dark, dystopic future. The creaking gun turrets of Capitalism have slowly turned themselves inward on America, aiming directly at such outbursts as the OWS movement.

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Jim H
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Xray...

You said,

Unfortunately what is being protected and propagated, via an increasingly authoritarian U.S. government, is more of the same --- Globalized Corporate Capitalism. Money and Wall Street have thoroughly corrupted government and dismantled any shred of capitalist restraints, i.e. regulation and the social contract. To think that this situation can be changed at this late stage is really utopian thinking. But to humor the idea, I'll proclaim that we should have a society in which the democratic will of the people should prevail, as quaint an idea as that may be, rather than Capital dictating everything in life, which is the essence of capitalism.  Creating such an environment would require such things as getting money out of politics, dismantling the corporate state, and defanging the military-media-finance complex. Doing such aforementioned things is tantamount to crossing the line for what is acceptable public discourse and would, not surprisingly, gain yourself the label of enemy of the state or terrorist. 

Since our situation is not sustainable, I like to think into the future of where we are headed with our Corporate Fascist Security and Surveillance State. From the information I have gathered thus far, I don't yet see another alternative other than this dark, dystopic future. The creaking gun turrets of Capitalism have slowly turned themselves inward on America, aiming directly at such outbursts as the OWS movement.

I agree with almost everything you are saying, except for the idea that the current outcome is the always and necessary fate of capitalism.  Your description of where we are today is right on... I for one am disgusted by the way peaceful OWS protesters were jackbooted out of existence by the security forces of my own country.  

I will leave you with this;

Checkpoint USA 

TSA motto - “Dominate. Intimidate. Control.”  

The Transportation Security Administration’s (TSA) 25 Visible Intermodal Prevention and Response (VIPR) teams have run more than 9,300 unannounced checkpoints and other search operations in the last year. 

Department of Homeland Security officials have asked Congress for funding to add 12 more teams to the federal agency’s 25 VIPR units that are already scattered across the country. 

“Uncontrolled search and seizure is one of the first and most effective weapons in the arsenal of every arbitrary government…Among deprivations of rights, none is so effective in cowing a population, crushing the spirit of the individual and putting terror in every heart.” Justice Robert Jackson, chief U.S. prosecutor at the Nuremberg Trials 

The $24 million in funding (in addition to the $110 million spent in fiscal year 2011) is in addition to the TSA’s role in airports which costs taxpayers $5 billion a year.

Link:  http://aheadoftheherd.com/Newsletter/2012/Stormtrooping-USA.html

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darbikrash
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Duck and Cover

Jim H wrote:

You two have created your own playground here ... a place where somehow capitalism can't co-exist with the tenets of the crash course (Darbi asserts above that by defending capitalism I am somehow professing my lack of awareness or appreciation of basic crash course principles - as if there can't be a regulatory overlay that at least attemps to protect resources within capitalism - last I checked we still had not drill, drill, drilled all of Alaska for instance).  Capitalism would do much better were it not saddled these days with a monetary system that demands continuous, exponential growth of debt.

Not a playground Jim H, but it is a thread that is by design intended to explore different thoughts and theories that may better explain our predicament. It is not my goal to try and convince you or anyone else to take the “sleigh ride to Sweden” and turn socialist, (certainly as a business owner I’m not) but rather to present provocative ideas that have some reasonable basis for discussion and exploration.

Your comments and editorial are welcome here.

That said, I do not find hair splitting definitions and pivoting to monetary explanations (gold standard et. al) to be a convincing rebuttal to the extremely serious charges being leveled against Capitalism. Nor do I find that stating truculently (paraphrasing) “ for all it’s flaws it’s the best system we have- so unless you’ve got some thing better, shut up” to be particularly compelling or useful.

In the past, this <look the other way> philosophy has served Americans well, as for hundreds of years with a rising standard of living for most, intersecting with dramatic technology advances (most subsidized by cheap energy) the rising tide has floated most every boat. That is over now, and somewhat obliquely , has been over for around 30 years. Now we are faced with end stage Capitalism, fortified with Neoliberalist policies and globalized trade. Heady words, but what this means is that the 200+ year labor shortage allowing the middle class to achieve some semblance of parity with the Capitalist class has been burst by a chronic oversupply of globalized labor at below market prices.

Offshoring manufacturing and other technology jobs has destroyed the mechanism of social mobility which is critical to maintaining a standard of living for the middle class, this allows oneself to elevate his or her earning power via exposure to increasingly higher value occupational tasks. Not acknowledging or misunderstanding this notion is one of the most serious structural problems in our country today, and this was predicted to occur many, many years ago……

Couple these (and other) phenomena with diminishing availability of natural resources such as oil, and the we have a clear directive to stop thinking that uses old paradigms and start using new ones, post haste.

As such I do not find this at all in opposition to the tenets of the Crash Course, in fact I find it totally consistent. I have posted before I think this type of analysis simply extends the work of the Crash Course, and addresses areas that are not examined by this material.

ao wrote:

Sorry but that's a cop-out, not an answer.  If you or darbikrash wish to take down a system and put something else in its place, you better be very sure that your proposed replacement has a better track record than what we had or, even presently, have.  In truth, the socialist systems that have been advocated have the worst track record on the planet earth.  People, like capital, flow to where they are treated best.  And they came to America for a reason.  And they didn't flock to Cuba, the Soviet Union, Maoist China, Pol Pot's Cambodia, Nazi Germany, etc. for the same reason.  Every time, throughout history, that a utopian existence has been proposed with the thought that 'this time it's different", it's turned out the be the same ... a nightmare.

The missing dimension is a moral dimension.  That's why In God We Trust, liberty, and E Pluribus Unum, the trinity of the American way of life, is so essential to our well being.  And the fact that we are increasingly heading in the exact opposite direction of this trinity is a major factor contributing to the deterioration of this country. 

These comments are typical of the de facto defense mechanism for Capitalism as already mentioned, as in whatya got that’s better- a defense that I don’t take very seriously. Intrinsic to this defense is the conflation of authoritarian and totalitarian power grabs with the type of political economy which is in my view, faulty logic.

So of course we are left with powerful imagery of Stalinist Red Purges, peasants sent to the limits of Siberia, chronic supply shortages caused by a centrally planned economy gone wild. Best stay with the devil we know than the devil we don’t know eh?

Taken to it’s full extent, this conflation you propose has us cowering under our 2nd grade desks on the first Friday of every month as the air raid sirens wail and when asked, the teachers tell us “The Commies are coming”. Remember those days? I do.

Is it reasonable to conflate the American system of a Constitutional Republic with the death and horrendous social costs of the Civil War? How about the uncountable deaths caused by religious persecution through the millennia, is this reasonable to say “I wouldn’t want to part of any system like that” by ascribing these untold tragedies to the message and culture of organized religion? No it is not, and reasonable people do not make these types of word game associations and neither should we.

I think it’s time to put this trope to rest, mindful of our history, yet cognizant that continued thinking and apologizing for systems that demonstrably rely on exploitation to function need to be revisited.

As for moral degradation being a significant contributor to the current situation- I must disagree- at least in the context of how you present it. I don’t discount the idea that there are indeed moral lapses, this is obvious, but as to the cause of this being somehow related to a spiritual deficiency that can be corrected by just attending the right church or abiding by the right moralistic laws, no. This moral malaise extends from the alienation born of subliminal knowledge that you don’t own what you earn and that someone else is exploiting you to accumulate at your expense, and then using this accumulation to enact laws and construct a society to put you and your children at permanent, perpetual and increasing disadvantage.

It’s not second grade anymore and it’s time to get out from under the desks.

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Travlin
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For the record

Darbi's video uses the soundtrack from the 1951 training film shown to kids in school.  The visuals are a modern parody.  Here is the original.

Travlin 

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