Setting the Record Straight

Perverting capitalism

How right-wing mythology has helped warp our market economy

It’s one of the biggest and most destructive myths about capitalism and the “free market,” but it is also – sadly – something that most Americans of varying political stripes have come to accept as a fact in recent years. It goes like this:

“Not only is it good and moral for capitalists to maximize profit in every single transaction; it’s the essence of economic ‘freedom.’ The market economy is, by its very nature, about everyone extracting as much as he or she can out of every economic transaction. Anyone who argues otherwise is a ‘socialist’ or a ‘statist.’”

For decades now — day after day, week after week, month after month – conservative think tanks, corporate spokespeople, right-wing radio hosts and the politicians they control have repeated this myth. Over and over they have told the American people that, in the immortal words of Gordon Gekko, “greed is good.”

On the websites of groups like the John Locke Foundation and Pope Civitas Institute, such a view is an article of faith. Whether these people are extolling the virtues of price gouging during natural disasters or attacking recycling as a government plot to extract free labor from the citizens, the refrain is the same: “It is the natural order of things that all humans should premise every public decision they make on whether or not it makes them more money. This is the ‘law’ of the marketplace.”

Meanwhile, back in the real world

The only problem with this supposedly natural and moral law, of course, is this: It is neither natural, moral nor a “law.” Rather it is simply a set of human behaviors superimposed on one very important but imperfect human institution – the market.

Greed is, in fact, not necessarily a good thing – much less a good thing that can be pursued in black or white fashion in every market transaction. To the contrary, greed and self-interest are both complex phenomena that come in numerous shades of gray.

This past Labor Day weekend, the New York Times published an essay by veteran journalist Hedrick Smith entitled “When Capitalists Cared.” In it, Smith does a fabulous job of exploring this underreported and under-appreciated truth about capitalism and the market.

Here’s Smith:

“In the rancorous debate over how to get the sluggish economy moving, we have forgotten the wisdom of Henry Ford. In 1914, not long after the Ford Motor Company came out with the Model T, Ford made the startling announcement that he would pay his workers the unheard-of wage of $5 a day.

Not only was it a matter of social justice, Ford wrote, but paying high wages was also smart business. When wages are low, uncertainty dogs the marketplace and growth is weak. But when pay is high and steady, Ford asserted, business is more secure because workers earn enough to become good customers. They can afford to buy Model Ts.

This is not to suggest that Ford single-handedly created the American middle class. But he was one of the first business leaders to articulate what economists call ‘the virtuous circle of growth’: well-paid workers generating consumer demand that in turn promotes business expansion and hiring. Other executives bought his logic, and just as important, strong unions fought for rising pay and good benefits in contracts like the 1950 ‘Treaty of Detroit’ between General Motors and the United Auto Workers.”

Smith’s op-ed actually appears to represent just a small sound bite from a book that will be released next week entitled “Who Stole the American Dream?” in which he explores the theme of capitalist responsibility and its rise and fall over the last decade. As in the op-ed, a central premise seems to be this: Capitalism does not have to be rapacious to be successful. There was a time in America in which corporate leaders understood and practiced a different model of capitalism – one in which extracting the absolute maximum amount of work from workers for the lowest possible cost in order to maximize immediate profits was not necessarily the only guiding principle.

According to a description of the book on Smith’s website:

“Smith documents the transfer of $6 trillion in middle-class wealth from home- owners to banks even before the housing boom went bust, and how the U.S. policy tilt favoring the rich is stunting America’s economic growth….

Smith reveals how pivotal laws and policies were altered while the public wasn’t looking, how Congress often ignores public opinion, why moderate politicians got shoved to the sidelines, and how Wall Street often wins politically by hiring over 1,400 former government officials as lobbyists.”

Setting the record straight

Of course, one doesn’t have to read Smith’s book to understand how dog-eat-dog, survival-of-the-fittest capitalism has largely triumphed (at least for the present) in the modern economy. One need only look around at the economic landscape – a place in which corporate profits continue to soar, the incomes of average families stagnate or fall and the gap between the rich and everyone else grows wider and wider.

What would be especially helpful, of course, is a list of things we can do to counter this toxic trend – a playbook for politicians, activists, thinkers, citizens and caring capitalists who want to re-establish a new and improved version of an era that a “timeline” accompanying Smith’s book describes as follows:

Mid-1940s to Mid-1970s—Heyday of the middle class, when the U.S. economy is driven by the dynamics of “the virtuous circle.” Companies paid high wages and tens of millions of families had steady income to spend, generating high consumer demand. Robust consumer demand propels businesses to invest in new plants and technology and to hire more employees, fueling the ‘virtuous circle of growth’ to another round of expansion and higher living standards.”

Forty-one years ago, a corporate lawyer and future U.S. Supreme Court Justice named Lewis Powell penned a memo for the U.S. Chamber of Commerce (now famous or infamous, depending upon your point of view) in which he spelled out, as one insightful observer described it, “a strategy for the corporate takeover of the dominant public institutions of American society.”

Regardless of how one feels about that memo or its content, it’s hard to argue that it hasn’t been enormously successful in spurring its intended results. Indeed, it’s easy to trace an almost direct genealogical line between the memo and the bevy of right-wing think tanks and corporate front groups that now crowd the political landscape and so poison the common understanding of freedom and the market economy.

Let’s hope that Hedrick Smith’s book contains the beginnings of such a “to do” list for modern progressives or, at least, that it spurs some creative Powell-like figure on the left to construct it. Facts and common sense may reveal that capitalism doesn’t always have to be an exploitative affair, but we need a heck of a lot more people to say it out loud in a lot different ways and places if we’re going to bust the myth the right has manufactured.