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DEMOCRACY & COMMUNISM DISCUSSIONWe sometimes forget about the rules in systems that have become such a ubiquitous part of our lives that we don’t even notice that they exist. Consider, for example, the United States economy. We all go to work, pay bills, buy food, shop for clothing, watch advertising, and interact with this very particular and specific system of trade and exchange. We do these things so regularly that we sometimes forget that it is a system. Instead, we just think of it as a fact of life—maybe even as what constitutes the experience of life itself. The rules that create the game of trade and exchange seem largely invisible.Because the rules of the game of trade and exchange look mostly invisible, we often hear political arguments about “free-market economics” and “self-regulating markets.” What politicians and television talking-heads mean by these terms is that they believe if you let trade and exchange happen all by itself, the economy will automatically organize itself in the best possible way—no rules are the best rules. In a free and unregulated economy, so the theory goes, people will implicitly vote with their dollars and we’ll end up with a system that naturally privileges what the majority of people value most.Of course, not everyone agrees with this point of view. Some people object completely. Robert Reich, who served as White House Labor Secretary from 1993-1997, wrote in his 2015 book, Saving Capitalism, that the free-market is not “free” at all, but rather a set of rules that create a space in which trade and exchange can be accomplished. Reich explains that “in order to have a ‘free market,’ decisions must be made about property: what can be owned; monopoly: what degree of market power is permissible; contract: what can be bought and sold, and on what terms; bankruptcy: what happens when purchasers can’t pay up; enforcement: how to make sure no one cheats on any of these rules.” With so many rules, it sounds like a video game. “These decisions don’t ‘intrude’ on the free market.” Reich explains, “they constitute the free market. Without them there is no market.” Likewise, without rules and boundaries there can be no game.Before you decide whether or not you agree with Reich, however, let’s look at the idea of the “free market” in more detail. Adam Smith, a moral philosopher from Scotland, often gets the credit for coming up with the idea. Smith is best-known for his 1776 book The Wealth of Nations, which is considered the first work of modern economics.
You’ve probably heard people talk about the “invisible hand of the free market economy.” Although Adam Smith actually used the metaphor of an invisible hand very sparingly, it has come to be associated with his ideas. Smith believed that even when people act only in their own self-interest, their actions can still be beneficial for society as a whole—provided you understand their actions as part of larger economic system. An individual, Smith writes, “neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” In other words, self-interest often inadvertently aligns with the collective good.
Contrary to popular belief, Smith was not the first thinker to use the image of the “invisible hand.” That honor goes to John Calvin, a protestant theologian, who, in the middle of the 16th century, emphasized the notion of god’s “providence.” In his seminal work, Institutes of the Christian Religion, he explains that the objects of the earthly world are “instruments to which God continually imparts as much effectiveness as he wills.”
Calvin, who was a lawyer by trade, is one of the first religious thinkers who accepted early forms of capitalism. Specifically, he distinguished himself from Luther because he did not object to charging interest on loans. Charging interest is traditionally called “usury,” and it is strictly condemned by all of the traditional Abrahamic religions. Calvin, however, saw usury as part of God’s “providence,” arguing that it was, therefore, “directed by God’s ever-present hand” and “governed by God’s secret plan.” No doubt you can see how, two centuries later, this way of thinking (and the image of God’s hand) would inform Adam Smith’s philosophy about economics as a whole.
So when economists or politicians advocate for a deregulated free market, they are also implicitly adhering to a Calvinist worldview. They are not arguing for the absence of rules, but rather that the hand of providence already provides all the necessary regulations. Of course, 21st century economists and politicians probably don’t frame it in terms of a divine power, but still, even the notion that market forces have dependable, rigid behaviors akin to the laws of physics or chemistry implies a belief in a higher order of sorts. Folks like Robert Reich, alternatively, believe that markets are created by governments and likewise, need to be actively managed by governments.These two perspectives, and the conflict between them, have constituted the basic economic conversation in the United States for decades. John Maynard Keynes and Milton Friedman are probably the two most influential 20th century thinkers that have shaped the conversation. Keynes believed that governments need to manage economic demand by instituting various forms of stimulus, which is just a fancy way of saying: if you make more money available to consumers, they’ll spend more. Increasing government spending—through infrastructural projects like building bridges, for example—is one very efficient way to create jobs. Another way is to lower interest rates, which encourages employers to borrow more money to grow their firms and increase jobs.According to Keynes, government spending helps to increase everyone’s income. Why? Because when unemployment is high, there are more potential workers than jobs, so wages go down. This is a simple supply and demand relationship. Keynes assumes that if people are desperate to work, they’ll take lower pay. When unemployment is low, however, workers can be choosey and employers need to pay more. When the government takes action to create more jobs, therefore, it should lead to an overall increase in the national income.Friedman disagreed. He was a critic of Keynesian fiscal policy. He thought economies ran best with very little government intervention. Government stimulus projects, according to Friedman, represented examples of unnecessary spending. Instead, it is really just the supply of money that makes the difference. He believed that the role of government should be only to control inflation—the value of the currency—by using the tools at its disposal to manipulate how many dollars are in circulation at any given time.These two schools of thought have been in conflict at least since the end of World War II. And fundamentally, Keynes’ and Friedman’s disagreement is about the relationship between individual citizens and the larger collective. Keynes idea of government intervention and regulation assumes that it is the state’s job to support and care for the collective. Friedman veers more toward the side of personal responsibility—a sort of every-man-for-himself mentality—where the state is there not to support, but rather to protect the individual’s right to act in his or her own self-interest.Figuring out how to balance the best of both of these worldviews is difficult in the United States. While there are certainly plenty of examples of big social programs, financial subsidies, and infrastructural programs that have been used to care and support for US citizens, there is also a sense of rugged individualism and independence that dates back to the beginning of the union. We read a chapter from Alexis De Tocqueville’s influential 1835 book Democracy in America. He observed, “Americans show a sort of heroism in their manner of trading.” He sees the character and independent spirit of the American culture as one of the reasons for the nation’s success. “The whole life of an American,” De Tocqueville writes, “is passed like a game of chance, a revolutionary crisis, or a battle.” In an argument that’s reminiscent of Adam Smith’s, De Tocqueville is describing the way a sense of independence over collective responsibility actually turns out to benefit the nation as a whole.That’s one way of looking at things. But Karl Marx, as you know, takes a very different approach. In the video lecture, I emphasizes only one of the key philosophical characteristics of Marx’s thinking: he sees the spirit, the character, and the beliefs of the individual as the product of the economic system he or she inhabits. And that’s a radically different way of thinking about the relationship between the individual and the collective.Marx believed that most cultural institutions like literature, leisure activities, and even religion, are products of the economic system. These things exist simply to reinforce ways of thinking that will motivate individuals to accept and participate in the particular system of trade and exchange in which they participate.As you can imagine, however, many people are resistant to Marx’s way of thinking. After all, if he’s right it means that many of our most cherished beliefs are not truths at all; instead, they are just psychological, spiritual, and intellectual propaganda that keeps us playing the game, believing that the rules are natural, proper, and pious. These beliefs, according to Marx, are what maintain the current economic structure which will inevitably lead to more and more socio-economic inequality. The gap between the rich and the poor will get wider and wider until the Proletariat finally rise-up against the Bourgeoisie and create the first ever class-less civilization.In other words, Marx would have us start from scratch: build an economy that is truly grounded in equality. Then, he figures, cultural institutions, art, sports, identity narratives, and belief systems which reinforce the economic structure will inevitably follow. In other words, give the game new rules and new players and avatars will develop accordingly.In the end, I suspect the one thing even Karl Marx and Adam Smith can agree on is the idea that everyone deserves an equal opportunity. The rules of the an economy must function in such a way as to guarantee that all the participants are on an equal playing field.
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