Hindsight is 20/20. Actually not. In fact, the vast majority still require corrective lenses even to see what happened four, eight, twenty or even forty years ago. This is because most of us still believe, or hope, that capitalism and democracy reinforce one another. They do not. Moreover, this is not the opinion of militant Marxist-Leninists. Until very recently it was the received wisdom among even the most conservative of economists. Opinion actually did not begin to shift until the 1930s when Friedrich von Hayek arrived at LSE and began to impose a metaphysical compass on what until then had been a science governed by rigorous mathematical modeling. When von Hayek arrived at the University of Chicago, he could not even buy his way into the Department of Economics, which, ironically, sported two communists (Oskar Lange and Don Patinkin) among its faculty. And when in the early 1960s Gary Becker authored two articles proving that democracy and markets were incompatible, only Becker’s colleague (and recent von Hayek convert) demurred. Capitalism and democracy are not compatible.
So why did so many democrats come to believe that they were? The answer lies in the $4.7T the US spent to defeat Germany and Japan. This money ended up fueling the largest and longest industrial expansion in history, all at public, tax-payer expense. Nevertheless, even though it was Congress itself that approved this unprecedented public appropriations package, it was convenient in the immediate cold-war aftermath of WWII to claim that the post-war boom was built on private enterprise and American know-how and can-do. Of course, it was all a huge lie. Which means that when the $4.7T began to run out (the multiplier had run its course), rather than put another $4.7M of public moneys into the pot, democrats found it more convenient to defend the lie at the expense of working families; to be sure, with republicans applauding the democrats’ conversion to “liberal democracy.” This death bed conversion came no later than 1976, which is to say forty-five years ago.
Hindsight is 20/20? I don’t think so. Canvass any economics department not in Atlanta or Iowa and you will hear this same story. It is not a left-wing fantasy. It is sound mainstream economic history. This is what happened. And here is why.
Economic expansion rests on ensuring that a quantity is increasing at a greater pace than the change in value of either the capital or labor driving that increase. And, as any economist — left, right, or center — will tell you, unless an allocation of public money aims specifically at increasing efficiency, it will increase the denominator, the cost, of generating efficiency. There is nothing devious or underhanded in this. It is simply economic reality under capitalism. So, unless a public investment aims explicitly at increasing marginal efficiency — say, by improving human capital beyond the margin, or improving health beyond the margin — it wall draw down the efficiencies capital earns when invested in other asset classes. Regulation can change this. Regulation does change this. Tax oil. Subsidize wind and solar. Investments shift. But — and this is the critical point — none of this is democratic; not one way or the other.
That is because democracy asks an entirely different set of questions. It locates value not in the marginal product, but in the common weal. This, actually, is what the neoliberal Nobel Prize winner Gary Becker pointed out, again and again in the 1960s, when he showed why markets were far preferable to democracy (therein undermining his colleague Milton Friedman’s argument that the two were the same).
All of a sudden? No. Fascism has been a long time coming to Amerika. The moment it committed itself to capitalism over democracy, it committed itself to the marginal product over the public weal. Win or lose next Tuesday, this will still hold true.