THE LOST REVOLUTION?

THE LOST REVOLUTION?
By John D. Borah

It is virtually impossible to understand what is happening in the economy today, unless one understands the two economic systems. The Revolutionary War was fought in large part to annihilate the abuses, monopoly dominance, corruption and injustices perpetrated against America by the English capitalism system. Those who believe the Founders established that capitalistic system are unaware of the determination before, at and after the constitutional convention of 1787 to overthrow capitalism. The Founders wanted no part of Adam Smith’s capitalism. The thinking in the later part of the eighteenth century is as germane today as then and the current discussions are similar to those of yesteryear.

            Adam Smith, a professor in England, who described, “The Wealth of Nations,”  supported the two class system. He believed the ruling class should pay for private education for children of the working class so they would be good workers for the upper class, not allowing for upper mobility. Smith is alleged to have established the science of economics, but his work is primarily an explanation and justification for the meagerly regulated economic policies of England, while the social science of economics is not a science. However, he did encourage global free trade and, as he saw the problems of monopoly, some changes in practices.

It was Alexander Hamilton, the first Secretary of the Treasury under George Washington, who from discussions at the convention and the Constitution itself, defined and set forth our constitutional economic system. In letters to Washington, writings in the Federalist Papers, his First Report of Public Credit, 1790, and his Report on Manufactures, 1791, he set forth the principle of the freedom to engage in business. He demanded that it be regulated to ensure competition, the public interest be served and that the weaker be protected from the powerful. All men had equal rights and public education for all should edify for individual development and engender the collective ability for self-government. Upward mobility should exist as Benjamin Franklin, also, so ardently advocated. Hamilton refuted Smith’s dogmas and brilliantly dismissed them as not in accord with the intent and tenor of our Constitution.

Two schools of economic thought have evolved. One is the Adam Smith school, represented by very well paid lackeys to the corporations, such as Milton Friedman. Wages are not included in the revenues of this Market Economy. So this school by measuring only business activities reflects only the prosperity of the market and not that of the nation. This, it is known, is to deliberately justify low pay for labor which is classified as a commodity. Controlled by greed they underestimate demand. Ben Bernanke, Larry Summers, Timothy Geithner and many right wing republican economists adhere to and report on this economy.

The Keynesian school recognizing the importance of demand includes John Kenneth Galbraith, his son James, Paul Krugman, two of my professors at Indiana University, many progressives, and I accept that school. We call it the National Economy as it includes the incomes of workers as well as the incomes of business in the economy revenues. So the aggregate of those two, plus government spending, reflects the prosperity of the country.

Here is the tricky part and reasons why what is good for one system is bad for the other. The market economy is quite worried about deflation as lower prices would decrease profits, but it would be good for the National Economy because the quality of living would be enhanced for those purchasing at lower prices. Sales work. The cost of labor, classified as a commodity, is a burden to business, they say, so reducing labor costs to increase profits is an intense motivation of corporations in lobbying for a global free economy to outsource labor or move factories out of the country.

This is a failure to understand, as Henry Ford understood, the revolution of money from consumer to business to consumer to business. By lowering labor costs, incomes of American workers are deflated or jobs are lost so the National Economy, as well as people, suffers. About seventy percent of consumer spending comes from employees, so a reduction in consumer spending when jobs are lost or with smaller income means less revenue to business. At present, additional jobs or higher incomes would enhance spending for consumer goods. Business leaders have falsely argued that with increased capital they will hire workers but they are not hiring now even though many have received money from the government. The cause is insufficient demand.

In an unforgivable blunder Obama, shortly after taking office, stated that he would work through private enterprise to regenerate the economy. In a hand-me-down approach he has funneled money to banks and business rather than, as President Roosevelt did, to hire workers in federal agencies to build and repair governmental infrastructure. Their incomes through purchases stimulated the National Economy. Obama misunderstood his election mandate to overhaul a totally dysfunctional corrupt government with well functioning administrative agencies and departments that would work for the people. The American Recovery and Reinvestment Act did save some jobs, but this approach has failed to start the revival of the depressed economy that should be properly named a depression so people would understand the enormous challenge before us. Unfortunately, Obama representatives are misleading the American people by indicating the nations is moving forward. Employment is the key and he isn’t unlocking the door.
 
By accepting the definition of the economy of the Republicans, Obama has accepted Adam Smith’s capitalistic system that the nation overthrew by fighting the Revolutionary War. So in that aspect we have lost that part of the Revolution. He should endorse the National Economy by putting people to work on the infrastructure with additional tax dollars, otherwise the nation will languish in an unnecessary desperate crippled state, as under President Hoover, for a long-long time.

The number of facilities owned by governments such as roads, bridges, utilities, schools, town halls, convention centers and more in need of drastic repair and remodeling are almost mind boggling. As in World War II, the nation must go to work - to repair and build. Numerous jobs could be created by direct employment by government by spending more tax stimulus funds thereby increasing consumer purchases that could send the economy toward recovery. Shortly after taking office President Eisenhower, aware that the U. S. highway system was in a deplorable condition, coached the congress into authorizing taxes for commencing the construction of the interstate highway system. This program created a humongous amount of development all around the country and tied it together. It was a great investment  by the taxpayer. A new railroad system is now sorely needed. Even though Republicans would envision a cataclysm by the spending of money to initiate some of these projects hope, which comes from specific visions, not just generalities, could again be revived if taxes on the higher incomes would be imposed for a much needed fast modern railroad transportation system. It would be a great investment by the taxpayers.

9-2-2010
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John Borah is a good friend of mine from Port Angeles, WA. He is an excellent historian on the constitution and Supreme Court, is 90 years old and is still sharper than any tack.

William McPherson – bill.mcpherson@hotmail.com