The Painful Truth Blog

This is not so much about Obama as it is about politics and economics in general. In order to understand what’s going on, some history is in order. This is intended as the first of two parts, building a foundation of economic ideas, and leading into the kinds of change produced by electronic technologies.

One of the great influences on economic thinking in the decades after the founders in the United States declared independence from England, was Adam Smith’s book on capitalism, entitled “Wealth of Nations…”(the title is longer, but everybody recognizes this one).

While the economic leaders praise the “invisible hand” of which Smith wrote, there are some statements he made which seem to cancel the effectiveness of that invisible hand of free competition. For example:

“…after the division of labor has once thoroughly taken place, it is with but a very small part of these with which a man’s own labor can supply him. The far greater part of them he must derive from the labor of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase”.

Smith has just pointed out that to control wealth, one must control labor. The more who work for your goals, the more you can control the degree of wealth and control over others.

“The value of any commodity, therefore, to the person who possesses it, and means not to use it or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities”.

Money, in this context, is merely the exchange medium by which all economic transactions occur. You can either produce it by working yourself, or you can extend you power by finding ways to control the process by which other produce it for you.

“Labour was the first price, the original purchase money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased, and its value, to those who possess it, and who want to exchange it for some new productions, is precisely equal to the quantity of labour which it can enable them to purchase or command”.

So, quite simply, if you wish to be wealthy, you must find a way to organize and control the wealth of others so that enough of it is directed to you, for your own pleasure. Capitalism, as Smith defined it, made it necessary to develop ideologies to support the idea of wealth, but those ideologies could not try to define ideological goals beyond the accumulation of wealth for its own sake.

Such ideas as “free competition”, “free markets”, and “Invisible hand” became the catchword of the culture, along with something that later gained ascendancy; “Social Darwinism”.

If Smith demonstrated the need for some guiding ideology, he left a vacuum by declaring that “success is succeeding”, a tautology. The religious force that gave impetus to this notion was the doctrine of Calvin, that the one who is “elect” before God can demonstrate that election by being blessed with worldly riches in his efforts. These two ideas, combining free markets and free competition with the idea that Gd blesses those who are financially successful, created what was later known as the Protestant Work Ethic.

This was a strange doctrine by which one could demonstrate that his “works” are blessed by God, even though he was already predestined to be saved in the first place, which pretty much made his “works” unnecessary. “God helps those who help themselves”.

As Richard Tawney writes in “The Rise of Capitalism”:

“What is significant, in short, is not the strength of the motive of economic self interest, which is the commonplace of all ages and demands no explanation. It is the change of moral standards which converted a natural frailty into an ornament of the spirit, and canonized as the economic virtues habits which in earlier ages had been denounced as vices. The force which produced it was the creed associated with the name of Calvin. Capitalism was the social counterpart of Calvinist theology”.

Further: “Capitalism, as an economic system, resting on the organization of legally free wage earners, for the purpose of pecuniary profit, by the owner of capital or his agent, and setting its stamp on every aspect of society, is a modern phenomenon”.

If labour is the full purchase price of all wealth, wrote Tawney, it is “not merely an economic means: it is a spiritual end….So far from there being an inevitable conflict between money-making and piety, they are natural allies, for the virtues incumbent upon the elect- diligence, thrift, sobriety, prudence-are the most reliable passport to commercial prosperity. Thus the pursuit of riches, which had once been feared as the enemy of religion, was now welcomed as its ally.”

How about “Think and Grow Rich”? Or more familiar, “The Seven Laws of Success!”? Or Norman Vincent Peale, who praised our “divinely ordered capitalist system” and “The Power of Positive Thinking”?

Tawney continues: “The true cause of industrial warfare is as simple as the true cause of international warfare. It is that if men recognize no law superior to their own desires, then they must fight when their desires collide”.

Karl Marx saw this weakness in Smith’s presentation, and realized that if money is the “universal equivalent” of all things, then every single value, of labour, of faith, of every effort, could be reduced to money. Everything, said Marx, was exchangeable for money, but a thing is exchangeable, wrote Marx, only if it is alienated from the individual, when the individual sees more value in the exchange than in the thing itself.

If everything could be transformed into money, said Marx, then the human being could be alienated from every single value he considered basic. That was Marx’s realization that the “so-called inalienable rights and the fixed property relationships corresponding to them break down before money”.

Marx then proposed “centralization of credit in the hands of the state”. A central banking system. This would create what Marx called a permanent revolution. Equality would become the passion of the masses, and the masses would never be satisfied until all barriers are broken down, and everyone is equal. Where all are equal, all are “alienated” from the basic goals and needs, such as property, that once made them individuals. Humankind becomes subject to planning and re-distribution. What was “God” if not an ancient tyrant who brought more war and hate than love and peace? Religion is the opium of the masses.

The unfolding of world events began with Adam Smith, who presented the flaw of his philosophy, which was seized by Marx, who promoted socialism and communism, the “red-headed step-child” of capitalism. Both are the creations of a mechanical era. What is now emerging is the dynamics of an electronic age, in which all events occur at near light speed, connecting us in one worldwide grid, changing all the rules.