Saturday, September 27, 2008

David Seidemann Comments on the PSC's Use of CUNY's E-mail

Dear Mitchell,

To reinforce your argument, allow me to point out two things:

1) The Second Circuit Carroll case regarding NYPIRG funding specifies that NYPIRG is an ideologic organization.

2) An internal NYPIRG memo leaked to the press in the mid 1990s shows, among many things damaging to NYPIRG, that it uses its classroom pitches as a recruitment tool.

Further, there is now a court case pending that addresses CUNY's entanglement with NYPIRG and the variety of First Amendment violations that flow from that.


The Bailout Debate: Disgraceful Failure of American Democracy

The following questions should be addressed before there is further talk of a bailout for banks and insurance companies.

1. What was the role of the Federal Reserve Bank's monetary expansion in facilitating overly aggressive lending that lead to financial loss?
2. Given that Fed policy may have caused multi-trillion dollar losses, can we continue to sustain this institution, whose sole putative purpose is to professionally manage the money supply?
3. What is the role of fractional reserve banking in causing the losses, and given the large losses, are we certain that the institution of fractional reserve banking to which we have become accustomed is economically justifiable?
4. Are we certain that federal regulation of the money supply and banking is preferable to state regulation?
5. Would re-institution of a gold standard inhibit future losses of this kind?
6. Why is Congress not discussing a gold standard, and why does the media avoid this question?

These questions have not been asked. They have not been asked by the liberal media, by the O'Reilly Spin Zone, by talk radio's right-wing Progressives like Rush Limbaugh and Sean Hannity, or by our political leaders. This failure to debate an aggressive, socialistic bailout is disgraceful. Americans have become like sheep, following the presidential shepherd leading them over a progressive cliff into the socialist pit.

Successive generations of progressives have weakened American democracy. In the 19th century, relatively limited government and a greater role for the states limited the cognitive demands on American voters. Americans did not need to pretend to be experts on banking, military, tax and industrial safety policy. Although there were issues, they were narrower in scope. Progressivism claimed that democracy was capable of managing such diverse issues through the expertise of college-trained experts. Thus, progressivism was associated with accentuated imperialism in the Spanish-American War, the income tax, workers' compensation, the Sixteenth Amendment and the Revenue Act of 1913 establishing the federal income tax, and establishment of the Federal Reserve Bank in 1913.

The issue of banking has become salient this month and it may pay to recall that, until the National Bank Acts of 1863 and 1864 and the federal tax on currency issued by state banks passed in 1865, the states were free to regulate banking, and they did so in diverse ways. Some western states did not allow fractional reserve banking at all and others limited the establishment of banks. Note that fractional reserve banking is not the only kind of banking available. Savings and Loans have traditionally lent based on their mortgage holdings rather than on a one sixth fractional reserve.

There is a thin line between fractional reserve banking and outright fraud. Bankers lend money that the bankers do not hold. They rely on the probability that enough deposits will be made the next day to cover the loans that they make. Writing a check to someone when you don't have the money is usually considered fraud, and frequent bank runs and inflation due to bank-issued currency led to economic cycles in the nineteenth century. States were subject to public opinion, and to the extent that they violated this trust there were political upheavals, as with the Loco Focos in New York in the 1830s, who took over the Democratic Party in response to banking "monopolies" or charters.

Laissez-faire principles do not require acquiescence to fraud, and at the height of laissez-faire in America there was considerable distrust of banks even though the nation depended upon them for economic growth. Because of this distrust, Andrew Jackson stopped depositing federal monies in the central bank in 1833 and the central bank lost its federal charter in 1836.

Until 1913 there was no central bank, although the Banking Act of 1864 established national charters and state and federal banks co-existed thereafter. During the Civil War, the United States issued "greenbacks" that led to a significant inflation in the post-Civil War era. Pundits of that time, such as EL Godkin, founder of the Nation magazine, frequently noted the connection between inflation and subsidization of speculation by Wall Street buccaneers such as Jay Gould.

Although there were frequent complaints of "depressions" in the late nineteenth century it is difficult to grasp their severity or the meaning of the term. Immigration considerably accelerated in the post-Civil War era as big business began to dominate the American landscape. Why did immigration accelerate at the very time that leftists argue that depression dominated the American economy and big business oppressed workers?

The fact is that real wages increased steadily during the late nineteenth century despite the "great deflation". Prices were going down and workers were mistreated but real wages were increasing and the ones who were really in trouble were the business owners, whose profit margins were squeezed by intense competition. Thus, the term "depression" may more accurately reflect a "profit depression" than unemployment.

In the 1890s, due to global monetary conditions (a shortage of precious metals) there was a slight inflation, but the public found this troubling. The inflation that Walter Weyl mentions in his New Democracy was in the range of 1% per year. Woodrow Wilson had no intention of abolishing the gold standard, and the Fed was initially viewed as a way to more professionally manage monetary policy and foreign exchange. It was related to the Progressives' interest in globalization as a way to extend the then-closed frontier. Subsequently, the FDR administration abolished the gold standard.

The question needs to be asked whether fractional reserve banking is a good idea. The Fed was established in part to rationalize the banking system and oversee foreign transactions. However, the banking system owns the Federal Reserve Bank and there is often political pressure for the Fed to permit excessive lending from politicians. Excessive lending leads to fast economic growth, but as I have previously blogged many times, the quality of the growth deteriorates as credit expands because of a diminishing marginal returns principle.

The purpose of the Fed is to more professionally manage the money supply than existed in the nineteenth century. But the economy has been choppier since the Fed was established. The Great Depression and the terrible inflation and stagflation of the 1970s were worse in many ways than any 19th century depression.

The current troubles of American lending institutions, including some banks as well as investment and insurance companies, is evidence that the costs of these institutions exceed their benefits. Normal market institutions charge what the market will bear and their existence is justified if they make a profit. If their costs are too high they close. The fact that the accumulated profits of investment banks and insurance companies are insufficient to cover losses means that the institutions have failed to provide a social service and should be closed. There would be little loss to the public.

Is the Professional Staff Congress Violating Section 501(c)(3)?

NYPIRG is an ideological advocacy group that encourages college students to advocate on behalf of causes of which Ralph Nader approves. Under Section 501(c)(3) of the Internal Revenue Code, universities receive tax exemption on the condition that they do not engage in political lobbying, engage in ideological advocacy or political activity. I just received the following message through campus e-mail from Scott Dexter, a representative of the City University of New York's faculty union, the Professional Staff Congress. I would guess that this was not authorized by the university. Is this political advocacy? You be the judge.

>From: on behalf of Professional Staff Congress (PSC) - BC Chapter
Sent: Fri 9/26/2008 11:20 AM
To: announce-l
Subject: Student voter registration with the PSC and NYPIRG

The PSC is urging its members who work in the classroom to invite a representative from NYPIRG (the New York Public Interest Research Group) to their classes to register students to vote. At Brooklyn College, NYPIRG can be reached by email at or by phone at (718) 859-7177; their office is in 0302 James.

The New York deadline for voter registration is Friday, October 10, so please get in touch with NYPIRG soon to arrange visits to your class.

Scott Dexter

Friday, September 26, 2008

Secretive Obama Campaign Files Motion to Dismiss Against Phil Berg

According to Jeff Schreiber's America's Right blog (h/t Bob Robbins):

"At approximately 3:30 p.m. today, Illinois Sen. Barack Obama and the Democratic National Committee filed a Motion to Dismiss the lawsuit filed on August 21, 2008 by lawyer and former Deputy Attorney General for Pennsylvania Philip Berg questioning Obama's constitutional eligibility to run for and hold the office of president of the United States."

America' Right links to the DNC's motion. The DNC argues that Berg's claims are "patently false" but continues to refuse to show Berg Obama's birth certificate. The substance of the motion to dismiss is that the Court lacks "subject matter jurisdiction". In turn, the claim that Berg lacks standing to sue relies on the Democrats' claim that Berg is not harmed by Senator Obama's secrecy:

"In this case, Mr. Berg fails to allege any concrete, specific injury..."


"In any event, the Complaint fails to state a claim upon which relief can be granted because it fails to establish a cause of action."

Jeff Schreiber notes:

"I told him (Berg), just as I explained in these pages, that above everything else he needed to show an INJURY IN FACT. I mentioned that simply being a taxpayer, or a voter for that matter, has not proven to be enough to show injury or prove standing."

If the Courts believe that individual Americans do not have a substantial interest in the Constitutionality of a candidate's eligibility, I say they are wrong. Moveover, I see fighting a suit over compensation for accident damages, but over showing a birth certificate? Either the DNC has lost its mind or it has something to hide.

Given Schreiber's analysis, it seems to me that the approach of writing to the regulatory agencies is what should be done. But it appears that the regulatory agencies are as unwilling to enforce the public interest as are the courts.

Sounds like an argument for laissez-faire to me. No government agency works. The courts are biased. Government is not responsive. Laissez Faire! Laissez Faire!

Thursday, September 25, 2008

Subprime Loans and Abolition of the Federal Reserve Bank

O'Reilly's bluster signifies nothing because he is not willing to discuss underlying causes. We cannot "fix it" if we do not understand the reasons for banking losses (and O'Reilly's claim that there is a CRISIS! is not true. (H/t Larwyn and Stop the ACLU for video clip.)

From the 1820s until 1913 there was no Federal Reserve or central bank. From 1913 to 1932 the Fed had restricted power to expand and contract the money supply. Even so, with that limited power, the Fed managed to create the Great Depression that began with the stock market crash of 1929. Rather than reconsider the Fed's existence, the American political establishment at that time used the high unemployment that Hoover's and Roosevelt's Progressivism caused as pretext to remove all restrictions on the Fed's money-creation power. In the twentieth century, the American economy has been considerably less innovative than it had been in the nineteenth. The Fed has allocated capital in directions that accord with the banking establishment's preferences rather than entrepreneurs'. This effect combines with high income and other taxation to squash innovation.

The Fed has the power to create money, which it does primarily through purchase of bonds from commercial banks. The banks then lend a multiple of the reserves the Fed deposits. As a result, banks profit handsomely from new money. The chief borrowers, hedge funds, large corporations and government, also benefit. As the dollars circulate, more money chases more goods, but the increase in goods is less than the money supply increase. The reason is that the next project is less productive than the last. As the money supply expands, the less valuable projects receive funding. Artificially depressed interest rates facilitate otherwise impractical projects. As the quantity of money increases, bankers become eager to invest since low returns are sufficient to cover their costs.

Similarly, as the Fed "prints money" the stock market is invigorated because lower interest rates increase the present value of future earnings. Interest rates go down because the amount of money goes up. Wall Street and hedge funds benefit from the fresh money because investors are drawn to the market as it inflates. Naive speculators are the victims, not the cause of this process. The Fed is the cause. As well, mortgage borrowers benefit as do homeowners and other real estate investors.

As the money the Fed creates circulates, prices begin to rise because low quality projects are not worth the counterfeit dollars that funded them. Sub-prime loans are an extreme example of this. Rising prices help some, such as debtors. The wealthy, the owners of stocks and hedge funds were helped when the banks lent the hedge funds money. Losses they subsequently sustain due to inflation are offsets to their gains from Fed counterfeit. The inflation losses are less than the investment gains because the fresh money was distributed in a more concentrated way among a few hedge fund managers while the price increases are diffused over all Americans.

Part of the rationale for the Fed's existence is its "expert" management. William Greider's "Secrets of the Temple" is full of naive hyperbolic awe of the Fed's abilities. Similarly, the Economist Magazine recently ran an article praising the "expertise" of the Fed's economists. However, the Fed's historical track record is dismal. The Fed has overseen a long term reduction in innovation, the Great Depression, the 1970s stagflation, and now multi-trillion dollar banking losses for which the average American is asked to further subsidize commercial banks and investment companies who have been milking them dry for decades.

The nineteenth century did just fine without the Fed. The 20th century saw several major economic disasters (there was one in the late 1910's right after the Fed was founded) and a slackening of American innovation. The late twentieth century saw an explosion of misallocation of wealth to Wall Street and real estate development funded through commercial banks. This misallocation seemed to make America richer in the last two decades because houses and cars were getting bigger, but in reality it made America poorer because we could not really afford those houses or SUVs.

The economists at the Fed are responsible for massive misallocation of resources. Their "paper economy" approach has lead to bad ethics, bad investments, less innovation and massive diseconomies of scale, as the very large financial conglomerates that have been picking Americans' pockets now come to them with hat in hand.

The debate about abolition of central banking was diffused throughout America in the 19th century, and although most Americans lacked high school degrees, they well enough understood what was at stake. As education rates increased, Americans' ability to discuss this issue declined. Americans became docile to the claims of quackish professionals who, like the good people who run the Fed, know more about less, and the less they know is irrelevant to practical reality.

The abolition of the Federal Reserve Bank would improve life for all except the economic elite. Investment bankers, real estate developers and hedge fund managers would suffer and would oppose this step. The media, from Bill O'Reilly and Rush Limbaugh on the right to to the editors of the New York Times on the left, do not merely oppose such a step. They find discussion of it threatening because their employers, Rupert Murdoch and the Ochs Sulzbergers, are direct beneficiaries of the system. For instance, O'Reilly's Spin Zone emphasizes the role of "speculators" in causing inflation (a nonsensical distortion that goes back to the days of the Roman Emperor Diocletian in fourth century Rome, which was an inflationary period due to debasement of the currency) but O'Reilly has never once mentioned the Fed. O'Reilly's spin is more vicious than MS-NBC's. At the end of each show Mr. O'Reilly says that he looks out for his viewers. A con man who claims to be honest, Mr. O'Reilly's spin is worse than Chris Matthews's and Keith Olbermann's, buffoons who openly spin the news.

The Federal Reserve Bank ought to be abolished. It is a failed institution, a Progressive Rube Goldberg device that has caused one financial debacle after the next even as it has transferred wealth from the average American to the wealthy.

Citizens' Welfare Preferable to Bankers'

Contrairimairi sent me an e-mail from TJ Birkheimer, part of which is copied below. Here's an alternative idea along the same lines as Birkheimer's. Rather than bail out failing banks and insurance companies, combine and liquidate them, spinning off the non-performing mortgages and going after all current and former officers for restitution.

Break the financial institutions' assets up into 250 parts, producing 250 smaller banks and insurance companies. Choose the CEOs of the new banks and insurance companies randomly from the Yahoo! people search page. Subsidize the 250 new banks to the degree necessary to make them solvent. Use the remainder of the $750 billion bailout money to provide unemployment insurance to any employees who lose their jobs and need to be on the dole.

This plan would have several advantages. First, by hiring new CEOs out of the phone book, more competent management would be obtained than through the firms' HR systems.

Second, instead of a few large firms that are too difficult for their present managers to run, there will be 250 smaller, more nimble firms with better leadership.

Third, rather than subsidize mismanaged businesses, citizens' welfare would be directly protected.

In addition, the public might consider whether commercial banking ought to be phased out and replaced by Savings & Loan (non-fractional reserve) style banking. The public ought to look at the root cause of this problem, the Federal Reserve Bank, and abolish it in place of a gold standard.

Progressivism is so dominant that public discussion about nonsensical cries of "depression" and "crisis" proceeds on silly assumptions.

Here is an excerpt from Birkenmeier's e-mail:

>Hi Pals,
I'm against the $85,000,000,000.00 bailout of AIG.
Instead, I'm in favor of giving $85,000,000,000 to America in a "We Deserve It Dividend".
As for AIG - liquidate it.
Sell off its parts.
Let American General go back to being American General.
Sell off the real estate.
Let the private sector bargain hunters cut it up and clean it up.

T. J. Birkenmeier, A Creative Guy & Citizen of the Republic

The Republicans Let a Corrupt Obama Win

Sadly, the Republicans are falling over themselves to let Obama win, so there's little we can do. Once John McCain decided to identify with George Bush, he ensured Obama's victory.

Contrairimairi writes:

>John Gibson just reported on Fox News, that Jim Johnson is still working with the Obama campaign. In an e-mail sent to former Hillary supporters, Tom Daschle has invited them to a breakfast given by him and Jim Johnson. Mr. Gibson made it abundantly clear that Jim Johnson is still very much involved in Obama's candidacy.

What is it going to take to prove that Obama does not now, did not then, and NEVER will have America or Americans best interests at heart? This apparent liar and "rip-off artist extraordinaire" has ALWAYS put himself first in EVERYTHING he has undertaken. It appears he was lining his pockets within MOMENTS of landing in Washington as the junior Senator from Illinois from the very companies he now "pretends" to be so "outraged" about. Not too surprising considering his contacts with Tony Rezko.

One HAS to wonder WHERE all the money from the millions "earmarked" to improve public housing in Chicago ended up..........where the millions "earmarked" to improve education in Chicago's poorest schools ended up.........WHY, despite his continuing "efforts" as a "community organizer" on Chicago's south side, NOTHING in those neighborhoods seems to have significantly improved. Probably, it would be safer to say that things have probably grown WORSE! More young people die in those neighborhoods than have been lost in similar time frames in the war. Housing in those areas remains sub-standard and dangerous. The peoples' quality of life in those areas NEVER seems to improve. I think we can tell from the trail we ARE able to pick up on, despite Obama's efforts to "hide everything from his past", that he never does ANYTHING without major benefit to himself.

I would LOVE to see one member of the MSM walk the sidewalks in the areas of Obama's "community organizing"....walk the hallways of the low income housing that SHOULD have been improved with the millions that had been earmarked for the area.......sit in a classroom with the children whose schools and education SHOULD have improved after Obama's "efforts" there.

Instead, we find out today, that one of the main contributors to the ills on Wall Street and the near financial collapse in America, is STILL on the campaign trail with Obama. I BEG Americans, do NOT listen to what this man says, watch what he does! He insults Americans at EVERY opportunity, apparently thinking we are just too stupid to get it.

This man is NOT POTUS material, and can NEVER even hope to be! We cannot ever expect the media to show the true facts that cloak this man. John Gibson stated on Fox News, the reason I am here telling you about this, is because the media will not!

This is just too truly pathetic!

John McCain Follows Jimmy Carter

In an e-mailed press release, Andy Martin asks whether George Bush's invitation to Barack Obama to "help solve the financial crisis that is supposedly threatening America" may have been "the biggest blunder in presidential politics since President Jerry Ford in 1976 said Poland was not in the Soviet sphere of influence."

I have been complaining about the Federal Reserve Bank's influence on the economy and the triumph of Keynesian economics among Republicans for the past two or three years, and my old friend Howard S. Katz has been complaining about them for nearly 40 years. The underlying problem with the current financial system is its excessive expansion of credit, which in turn stimulated overly aggressive lending and excessive real estate prices.

The response of conservatives to the crisis reflects what psychologists call perceptual distortion. Distortion occurs when someone feels threatened by information. The person does not hear it or hears it differently.

Conservatives have been reacting to the current decline in real estate prices by saying it is due to Progressive lending programs, which is only partly true. The excessive lending, like the tech bubble, would not have occurred without Republican Federal Reserve monetary policies. When Nixon said that "we are all Keynesians now" he ensured that distortions of this kind would occur over time. It took 37 years, and Howard is to be commended for fighting this fight during the upswing of the Republican Keynesian bubble.

Politicians always try to repeal the laws of economics, and we see the same kind of distortion occurring among Republicans now. One example is the belief that even more inflation, increasing the money supply by one half or $750 billion, would solve the problem. This, of course, begs the question of why the past 75 years of monetary inflation did not solve the "problem". Also, the idea that house prices must always rise was nonsensical when people were saying it in the '80s, '90s and '00s. Now that it is turning out to have been false all along, politicians and conservatives argue that there is a CRISIS.

The correction of real estate prices will causes losses among those who paid too much, just as the tech bubble of 1999 caused losses. Rather than confront the excesses and incompetence of the Federal Reserve Bank as an institution, conservatives, along with the Progressive media, frame this as a CRISIS. A CRISIS.

Martin points out that Obama has been making political hay out of Bush and McCain's naive invitation:

"Obama will have attained the last stop on his self-referential crusade by being accepted at the White House as a statesman and dealmaker. Good grief."

The invitation is symptomatic of incompetence at the apex of the Republican hierarchy that is philosophical as well as political. Lacking a truthful model of what Federal Reserve Bank monetary expansion over the past 40 years has done to the economy, the Republicans fall into the same pattern that Jimmy Carter did in the late 1970s when he listened to the Progressive economists of the Brookings Institution who claimed that inflation helps the poor and working classes because they hold more debt than the wealthy. This claim overlooked historical and dynamic realities. In particular, monetary expansion boosts the stock market, helping the wealthy. Inflation comes several years later and will not show up in cross sectional or even three-year-lagged correlations between monetary expansion and wealth. The gains that the middle class enjoys due to inflation are entirely attributable to increasing house prices and so are difficult to extract except through debt (or becoming homeless), which requires a riskier profile than many people prefer. Neverthelss, debt and inflation have become national habits, creating a stress-and-risk profile that frustrates many Americans, even as they consume on credit. Moreover, much of the gain from house prices is eroded through increasing repair, insurance and property tax costs.

Older Americans are forced to give up their homes because of such costs, and many are forced into poverty in order to continue to live in their homes. Economists treat increasing house prices as wealth gains, but such gains come at the costs of increased risk.

Equally, such gains come at the expense of other Americans. In order to gain due to house prices, Americans must ultimately sell their homes to new buyers, and those buyers must pay much higher prices. Thus, higher house prices mean that new buyers cannot afford homes equal to what they once could. My students will not share in the American dream if the current Republican administration has its way. On paper Americans seem to become wealthier, but what has occurred is a transfer of wealth from buyers to sellers, and the sellers often do not want to sell but have to because they would forced into eating cat food otherwise. Moreover, they cannot enjoy their "wealth" because doing so involves increasing stress due to borrowing or selling. Thus, inflation destroys community. It pits one generation against the other, it forces people to leave their homes and it prevents children from remaining in the communities in which they grew up.

The lag between monetary expansion and price inflation prevents economists from detecting monetary expansion's relationship to income inequality. Hedge funds have obtained capital and made profit through monetary expansion. That wealth is attributable to future inflation. Demand for resources increases prices in later periods, when average Americans foot the bill for the hedge fund managers' profits. In order to see this you need a multi-decade view. The methodologies that economists use look at single years at a time and relate same-period phenomena (inflation in this period versus house price in this period), but the process takes decades to unfold. However, left wing writers such as William Greider in his book "Secrets of the Temple" about the Fed, were happy to make the nonsense claim that inflation helps the poor. Greider can be excused because he was basing this argument on academic studies. But how wrong can academics be before we conclude that they are simply quacks and then move on?

Unfortunately, today's conservatives have bought into the Keynesian model, which is now going to turn out to be suicidal for them. They are following the path of Jimmy Carter.

I would urge a return to monetary conservatism, the gold standard, and a Great Awakening from Republicans' Keynesian slumber.

Wednesday, September 24, 2008

Walter E. Weyl's New Democracy

Walter E. Weyl. The New Democracy: An Essay on Certain Political and Economic Tendencies in the United States. Introduction by Charles B. Forcey. New York: Harper and Row, 1964 (originally published by Macmillan Company, 1912). 369 pages. Available from, used and new for $7.89.

In his 1964 introduction, Charles B. Forcey notes that Walter Weyl was a precocious student and that while he was an undergraduate at the Wharton School of Commerce and Finance (p. xiii):

"he attracted the attention of Professor Simon Nelson Patten, one of the most creative and influential American economists of the day. Patten, who had done his graduate work in Germany, was a Germanophile who hoped to transform 'American civilization from an English to a German basis...The young German-American became not an admirer of the Kultur of Kaiser Wilhelm's Germany but instead of the prosperous and prudent civilization of republican France."

To be more accurate, Weyl was the son German-Jewish immigrants, and one cannot help but wonder whether the holocaust and the French collaboration therewith would have dampened his enthusiasm for European social and moral models. Weyl died at age 46 in 1919, only seven years after this book was published, and after he co-founded the New Republic magazine along with Herbert Croly and Walter Lippmann .

The book is a blueprint for Progressive reform. It is well written and accessible. Weyl makes clear (p. 94) that he views Progressivism as a stepping stone to socialism. In this, Weyl's book seems to controvert the claim of Louis Hartz that the Progressives were not socialist enough. Weyl is an advocate of one-step-at-a-time but he certainly is an advocate of socialism. I don't think it's accurate, based on this book, that the Progressives' ideology was necessarily not socialist, for Weyl is a socialist. He argues for Progressivism that implements socialism gradually.

He writes of the trusts:

“In the past we have tried to end our plutocracy by merely “smashing” the trusts, not realizing that with all their imperfections and immoralities they represent a stage in our development from the anarchic industry of half a century ago to the completely socialized industry of half a century hence.”

Most “Progressives” argue that Progressivism is a “third way” between socialism and laissez-faire. There are probably two categories of people who believe this. First, the industrialists who wanted the advantages of private ownership with the additional advantages of state support and protection for their privileged position probably anticipated that Progressivism would be a successful strategy to secure their position in society. Second, there were a large number of ordinary people who seriously believed that Progressivism would protect their rights and that it was democratic. Weyl, however, did not share this view. As one of the foundational writers of the Progressive movement, it is revealing that he explicitly saw the tendency of Progressivism to transform into socialism (e.g., p. 268). Weyl’s fixation on the advantages of scale lead naturally into a belief in socialism, which permits the greatest possible scale. Weyl notes at one point that there are potential limits to the size of firms, but he eloquently praises the advantages scale throughout the book. Thus, he, and the Progressives, admired the captains of industry. It may be that he naively believed that big businessmen would selflessly cooperate in his socialization project. But in the end, it was Progressivism that turned out to be a tool of big business rather than the other way around.

In the first chapter, "Disenchantment of America" Weyl suggests that there was, at the time of his writing (1912), considerable disenchantment with America. He does not do a good job of explaining why France or Germany were unable to absorb millions of immigrants as was America, or why immigrants preferred to come to America rather than attempt to transform Italy or Hungary into social democracies along the French model.

In Chapter II, "The Shadow Democracy of 1776", he argues that the 18th century American republic was not really a democracy. One sixth of the population was in slavery, there were indentured servants and disenfranchised white males who did not own property. "New Hampshire limited the suffrage to Protestant taxpayers" (p. 9), etc., and the ruling class was corrupt. "By such devices the balance of power under the Revolutionary constitutions was held in the hands of the gentlemen and kept away from those whom John Adams styled the 'simple-men'." "The law fell with especial severity upon the unrepresented, voiceless, and often uneducated 'simple-men' who feared the debtor's prison as they feared the omnipresent pillory and lash."

Weyl's history is exaggerated and somewhat idiosyncratic, but he has a mission. He writes "the greatest merit--and the greatest defect--of the Constitution is that it has survived..the constitution was never fairly presented...Even many who voted for the adoption of the Constitution were opposed to its principles..." Weyl does not refer to sources when making these assertions.

He is critical of Jacksonian democracy as well: "The wave of a new democracy--intensely individualistic, intensely confident, aggressive, dogmatic--passed east over the mountains from Michigan, Ohio and Tennessee into New York, Pennsylvania and Virginia. The new crude democratic movement fed on a number of social and political reforms...With the inauguration of this popular hero in 1829 began the spoils system, the short tenure of office, the popular boss and the fresh and wholesale corruption of parties..." (p. 18) but he notes that "with all its defects, the democracy of the America of 1829 was far in advance of that of the contemporaneous world."

But, of course, (p. 20):

"Today the tables are turned. America no longer teaches democracy to an expectant world, but herself goes to school to Europe and Australia...Politically we have made progress, but we are no longer so supremely confident that the men of 1787 could adequately foresee and rightly predestine the lives of the men of 1911."

In Chapter III, "The Conquest of the Continent", Weyl argues that the continental expansion resulting from manifest destiny "made American atomic" (p. 23). Immigration westward was due to economic causes (p. 25). "The New Englander profitably ruined his land and migrated to Ohio and Illinois (actually, the Massachusetts farms that were abandoned were the least productive in the first place). Canals, waste of resources, the railroad and migration contributed to prosperity. "Against the urgent cry for transportation...peculation, speculation, force, fraud, genius and courage,--all went into the new lines" (p. 28). Immigration grew rapidly after 1820. By 1889, the frontier was over and "the fierce resistless momentum remained, but there was nothing against which to strike" (p. 32). "The railroads alone had received over a hundred million acres, which they now held at their use and pleasure" (p. 32). "The new pioneer might be a soft-handed gentleman with a taste for intrigue and percentages, and as ignorant of woodcraft as was Daniel Boone of debenture bonds." Individualism led to excessive corporate greed rather than the pioneering spirit.

In Chapter IV, "The Individualist Spirit in America", Weyl starts by noting that "The westward march of the pioneer gave to Americans a psychological twist which was to hinder the development of a socialized democracy" and notes that American individualism resulted from cultural attributes as well as the frontier and manifest destiny. "It was not that the American industrial leaders imitated the pioneer, but that they were subject to conditions similar to his" (p.39). Much of this chapter decries "individualism run riot" (p. 44) and discussion of (p. 45) "the sequence of such untrammeled individualism" resulting in "a brutally unprincipled code of business morals." Implying that individualism implies corruption, Weyl argues (p. 45) that "the apotheosis of American individualism was the rebate" and that (p. 46) "the individualism of the American led to gambling; competition was gambling." But (p. 47) "it is of the essence of gambling that the few win and the many lose. Moreover, as the American game progressed, the rules were changed to suit the big players...The individualist became bewildered when his familiar rebating became double-cross rebating..." and (p. 48) "The individualist could not longer rely upon his automatic 'unalienable rights' and his fair field and no favor." But, concludes Weyl, "the cure of individualism was not individualism".

In chapter V, "The Sovereign American and His State" Weyl starts by arguing that "The political philosophy of the 'Fathers' might have been summed up in the phrase, 'the less government the better.' The nation was born of a rebellion against King and Parliament, and, in a certain sense, against government in general.

One of the characteristics of Weyl's Progressivism, which is also characteristic of all Progressivism, is the naive belief that planners can replace markets. He writes of the 18th century (p. 53):

"In those days a strong state could not have scientifically directed the exploitation of the continent, as Japan to-day is doing so successfully in Korea. The unknown continent could not have been curbed, for no legislators could have foreseen the development which millions of uncontrolled experimenters were to force."

Weak government in America was accompanied by corrupt politicians and strong political parties. Political parties became entrenched and began to ignore the popular will. "Corruption had become subtle, pervasive" (p. 62). "As business became synthetic and integrated, as the railroads, coal mines, banks, trust companies and insurance companies drew closer together, politics, which had grown from a small to a large, independent business became in some parts of America a mere branch in a still larger, integrated business. The state, which through the party formally sold favors to the large corporations, became one of their departments."

In Chapter VI, "Plutocratic Reorganization", Weyl argues that the national spirit was born in the West (p. 64) because it was in the West that easterners lost identification with their home states “and had accustomed themselves to a common loyalty to a larger political unit." Waste and mismanagement was everywhere in America (pp. 66-7). The political system was dominated by "crude political bosses...The citizen of 1876 contentedly died of typhoid because his city drank water befouled by other cities." (p. 68) "American business, reckless and implacable, showed even more the traces of a barbaric immoderation."

Eventually business aimed to rationalize itself. "While chemists, engineers, inventors, statisticians, agriculturalists, foresters, factory organizers all contributed to the reorganization of American business, the greater contribution was that of the financiers, the trust builders...The trust, at its best, represented a more economical and more profitable form of business organization than did the former competing business . Weyl adds, “At its best, the trust tended to bring order out of chaos; to substitute prevision and a broad outlook for the taking of a chance and a narrow view of the situation…The trust could refrain, if it wished, from many foolish, short sighted and antisocial actions.”

Thus, the Progressives held trusts in high esteem in many ways, but felt that if they could socialize them then they would work for society. In Chapter VII, “Our Resplendent Plutocracy” Weyl argues that the plutocracy is a natural outgrowth of a highly efficient form of industrial organization (p. 84). He argues for the technical efficiency of big business:

“Not only are monopoly and large scale production permanent, but they are rapidly trenching upon small scale and formerly competitive industries. The businesses in which there is a visible monopoly element are already overpowering in magnitude…These great amalgamations…grow fat by indulging the right to levy an increasing toll upon an increasing number of millions. Secure from competition (sometimes even from potential competition), the trust grows in value with the birth of each child and the advent of each immigrant. It raises prices, and each increase is immediately reflected in increased earnings, and in the issue of new capital…The trust succeeds because it is a unit. Consumers, laborers and competitors, on the other hand, are many and largely unorganized.” (p. 85)

Weyl argues that corporate officials are hyper-rational and can determine optimal prices and optimal wages to the hundredth of a penny (p. 86). The large firms can defeat all competitors, but charge extortionate prices at the same time. “The trust has the overwhelming advantage of unity.”

Weyl argues for enhanced disclosure to investors, a concept that was adopted more than 30 years later. He uses the phrase “divorce between ownership and control” (p. 88) 30 years before its famous usage by Berle and Means in “Modern Corporation and Public Policy”. He argues that shareholders are duped by top management through corporate secrecy. “Thus the plutocracy, based as it is upon a strategic position in our enormous industry, consists not only in the votes and the money power of the trust builders, but in the adherence of millions of men owning billions of dollars…Without the support of the small investors and of many men who have not even the wherewithal to purchase a single share of stock, the pillars of our resplendent plutocracy would crumble…”

Weyl notes that there are limits to scale, but ultimately those limits are, in his view, defined by the socialist state.

“In the past we have tried to end our plutocracy by merely ‘smashing’ the trusts, not realizing that with all their imperfections and moralities they represent a stage in our development from the anarchic industry of half a century ago to the completely socialized industry of half a century hence…The trusts are teaching us—as we are teaching them—that the end of it all must be production on the largest scale compatible with efficiency but a production so regulated as to ownership, stock issues, dividends, prices, wages and profits as to safeguard the whole community…”

In chapter VIII, “The Plutocracy in Politics” Weyl argues that although the plutocracy is no less ethical than other classes, the rationalization of methods has caused it to become “subtle, scientific, organized” (p. 97). “The organizing skill of the business magnate in systematizing political has changed it from a local though chronic phenomenon to one which is organic and nation-wide.” (p. 99). At the root of corruption are the trust and the industrial “oligarch” (p. 100). “In many cities this corrupting leadership fell into the hands of speculators in street railway, gas, electric light, water and other franchises” (p. 100).

The “main channel through which this corruption flows is the party”. (p. 104). “The party is corruptible because largely irresponsible. In our complicated government, where responsibility has always been as diffused as the light of an Arctic spring…” Corruption is facilitated by constitutional inhibitions on reform. “The plutocracy benefits by the sharp limitations which the Constitution places upon national and State efforts for reform…Not only does the Supreme Court decide questions of far greater moment than that of war or peace, not only does it hold a constitutional veto upon the most fundamental exercise of national sovereignty, but this right is exercised by men who have never received the suffrages of their fellow citizens.”

Some of the measures that Weyl thought should be taken include (p. 111) pensions or public insurance in case of old age, accident or sickness, regulation of hours, “effective regulation of the use of urban land”, and the “use of the powers of taxation and eminent domain for the purpose of furthering schemes to provide aid for the needy classes”.

Weyl argues that democracy must overtake the plutocracy (p. 119): “Step by step the invasion of the plutocracy into politics is accompanied by an invasion of the democracy into politics…”

In Chapter IX, “The Plutocracy and Public Opinion”, Weyl argues that the plutocracy aims to influence or control public opinion by “a subtle, devious and anonymous campaign of suppression, misrepresentation and falsehood.” (p. 125) “The trend of plutocratic domination of the press has been from influence to control and from control to ownership.”

Naturally, Weyl believes that the state should be expanded and criticizes the newspapers for not being “Progressive” enough. Of course, Progressivism jibes well with the plutocracy’s control of the media, as we know today. “The plutocracy preaches individual liberty, the glorious fruits of free contract, the doctrine of the influence of good men, the survival of the fittest in business, an untrammeled individualism, a tame state with a ring through its nose. It believes that while government is wise enough to put us in jail, it is not honest enough to be intrusted with our money and our business.”

But in Weyl’s view, the popular will will prevail (p. 134): “Even were all magazines and newspapers to be controlled and muzzled…it would not be possible to hold down the popular intelligence…Truth today is a volatile gas…” “The growing wisdom of the people is the final and irrefutable answer to the plutocracy’s attempts to corner the intellectual market.” (p. 136) “To-day, public opinion is seeking to become the ruling power in America. No overt opposition can withstand it. It cannot be bribed. It cannot be stifled…”

In chapter X, “Plutocracy and Efficiency”, Weyl argues that the plutocracy is efficient. “It can cure itself of minor ills. It can outgrow youthful immoderations…The plutocracy cites many pages of statistics to prove (what is already evident) that during its domination we have been growing stupendously wealthy” (p. 139).

Weyl recites the bureaucratic efficiency argument for business power (p.140). However, he did not anticipate the situation today, whereby big business is demonstrably inefficient and sub-optimal but it continues to exercise hegemony because of Weyl’s own Progressive model.

Moreover, Weyl argues that scale leads to better business ethics (p. 140): “Not being so hard pressed as were its forerunners, the plutocracy can afford a little virtue. Or, rather, it cannot afford not to have a little virtue, for our growing business concentration has changed the incidence of certain industrial evils, so that they who cause the damage occasionally suffer from it. From considerations of policy as well as because of its acknowledged leadership of industry, the plutocracy has been obliged to accept certain industrial responsibilities, and has thus developed its own code of social morality…With increasing concentration of business control, however, it is becoming wiser to mitigate certain evils of unregulated employment, and make the additional cost a fixed charge to customers…More and more, though as yet only partially and grudgingly, the ruling plutocracy gives up its petty business corruption, as a man puts away childish things…The mere progress of big business means the worst evils of little business. Under a plutocracy, as under a democracy, we should gradually end petty adulterations, small cheatings, ‘truck stores’, ‘company houses’ and the most flagrant abuses of patent medicine fakirs…Big business is zealous to ‘reform’ little business out of the running’…The plutocracy has its own program of social reform, which aims to reconcile it to the judgment of the nation…The plutocracy believes, as does the democracy, in an increase of national productivity. It therefore recognizes the advantages of education…It usually desires peace, social security and general well being.”

But the plutocratic conception of wealth leads to conspicuous consumption (p. 148). “The more rapidly our plutocracy, acting under the stimulus of profits, introduces the cooperative element into our businesses, the sooner will the democracy be able to adapt this cooperative element to the socialization of industry. The function of the plutocracy is to reduce chaos to order. But order is the very rock upon which democratic socialization is built…where the plutocracy means the greatest wealth; the democracy means the widest range of economic satisfactions.” (p. 150).

Weyl offers a utilitarian argument for “democracy” (p. 150): “The democracy interprets utilization as such a production, distribution and consumption of wealth as will give the highest excess of economic pleasure over economic pain to the largest number of people for the longest possible time.”

The trouble, of course, is that the utilitarian objective is vacuous. Who is to define it? Weyl? JP Morgan? Henry Paulson?

Thus, Weyl conceptualizes society as a single unit, an organism, a perception which is potentially totalitarian. He differentiates (p. 150) the plutocracy, which aims to maximize profit, with the democracy, which aims to maximize “the net ultimate advantage of the whole community and whether or not it lessens production and profit”. This is fallacious on several grounds. First, net ultimate advantage is unknowable. Second, the person who defines will skew the definition in his or her own interest. Third, it ignores the possibility that workers voluntarily contract to work a number of hours and that imposition of a rule about work will reduce the utility of many workers even if it increases the utility of others. It is impossible to assess social utility with precision, or to come up with a mean utility. Hence, Weyl’s argument is logically vacuous.

In a prophetic conclusion to the chapter Weyl writes:

“Secure in the adherence of its humble millions of imitators and admirers, the plutocracy looks forward to many generations of peaceful control of the labor, votes and thoughts of the American people. It relies on its enormous wealth and its strong position in industry, politics and the machines of public expression. It believes that it still possesses a mission and it cannot conceive of the possibility of any alternative social organization. The plutocracy hopes, by a self-directed curbing of its own worst impulses, to live many years in uncontested rule of the American nation.”

In chapter XI, “The New Social Spirit”

Weyl fails to understand (p. 159) that innovation depends on individual initiative and entrepreneurship; and on economic conditions that permit entrepreneurs to find financing and to benefit from their own ideas without oppressive taxation. He writes of the political reforms that he advocates as though they are the same as the technological innovations that were commonplace in his day. He does not understand that such innovation would be stalled by the very regulatory changes that he advocates.

Weyl writes of a “new spirit” (p. 160-1): “This new spirit, which is marked by a social unrest, a new altruism, a changed patriotism, and uncomfortable sense of social guilt, was not obrn of any sudden enthusiasm or quickening revelation…In many spheres of economic life the individual began to find more profit in his undivided share of the common lot than in his chance of individual gain…We are ceasing solely to adore successful greed, and are evolving a tentative theory of the trusteeship of wealth. We are emphasizing the overlordship of the public over property and rights formerly held to be private…what is attainable by the majority—life, health, leisure, a share in our natural resources, a dignified existence in society—is contended for by the majority against the opposition of men who hold exorbitant clams upon the continent. The inner soul of our new democracy is not the unalienable rights, negatively and individualistically interpreted, but those same rights, “life, liberty and the pursuit of happiness,” extended and given a social interpretation.”

"The inner soul of our new democracy is not the unalienable rights, negatively and individualistically interpreted, but those same rights, 'life, liberty and the pursuit of happiness,' extended and given a social interpretation.

"It is this social interpretation o frights which characterizes the democracy coming into being, and makes it different in kind from the so-called individualistic democracy of Jefferson and Jackson. It is this social concept with is the common feature of many widely divergent democratic policies...

"To-day,no democracy is possible in America except a socialized democracy, which conceives of society as a whole and not as a more or less adventitious assemblage of myriads of individuals. The old individualistic system pictured the individual freely bargaining with the state...The individualist point of view halts social development at every point...'Government should rest upon the consent of the governed' is a great political truth, if by the 'governed' is meant the whole people or an effective majority of the people; but if each individual governed retains the right at all times to withhold his consent, government and social union itself become impossible...

"...the engine of taxation, like all other social engines, will be used to accomplish great social ends, among which will be the more equal distribution of wealth and income...The government of the nation, in the hands of the people will establish its unquestioned sovereignty over the industry of the nation..."

In Chapter XII, “Democracy and the Class War” Weyl rejects the notion of class warfare characterized by what he calls “absolute socialism” (p. 171), for (p. 174) “no progressive impoverishment of the working classes, no ‘increasing misery’…has taken place. The workers have become not poorer but richer…Wages during the last half century have risen faster than prices.”

Rather, argues Weyl (p. 185), “To prove that our present distribution of income is immoral, we must base the immorality inductively on the social consequences of such distribution. The whole problem of distribution ceases to be one of absolute right and becomes one of relative utility…When social utility rather than abstract right becomes the guiding force of socialism, the problem will arise, whether a given property should be taken over or merely regulated, and its profits limited…In short, the problem will become one of ways and means…Society will seek to modify and socially utilize, rather than incontinently to destroy, our machinery of industrial organization (trusts, corporations, exchange, wage system, etc.).

p. 189 “In the decades to come—during the democratic socialization of America which has already begun—we shall hear less of this doctrine of the class war. There will be wide-ranging conflicts between coalitions of classes…We shall grow into democracy.”

In chapter XIII, “Democracy and the Social Surplus”, Weyl argues for “progess through prosperity. It is the increasing wealth of America, not the growing poverty of any class, upon which the hope of a full democracy must be based.”

Weyl argues that democracy is based on economic “social surplus” but lacks a coherent economic theory as to from whence such a surplus might arise.

He claims that (p.194) “democracy means material goods and the moral goods based thereon”. However, (p. 195) he offers an incoherent, indeed destructive, model for wealth creation. He seems to think that economic progress occurred independently from the evolution of capitalism. He severs the link between the distribution and creation of wealth. He seems to think that it was a coincidence that the only time that technological and economic progress occurred was the same as the only time in history (in Great Britain) that there was the rudiment of free market capitalism. This is not stupidity. It is dinosaur stupidity. He writes (p. 195):

“The creation of a social surplus, however, does not automatically or immediately give rise to a socialized democracy. It creates merely the opportunity for such a democracy. The new wealth does not distribute itself spontaneously according to the needs of the population, and, for a time, an increase in the social product may mean an actual lessening of the share of the masses. In the beginning of the era of a great social surplus, which we may approximately date from 1760 in England and from 1789 in France, the fruits of revolutionizing discoveries were largely monopolized by acquisitive men”.

He does not seem to realize that the reason for increased wealth was the freedom to keep the gains from the discoveries. What an odd way of thinking, and how heavily the nation has paid for Weyl’s limited understanding.

Having divorced the creation of wealth from the right to property, and assuming that wealth creates itself without human agency and motivation, Weyl then goes on to argue for what today would be called positive rights (p. 197):

“Just as, during the last few millenniums, we have evolved a theory of the sanctity of human life, by which the saving of life becomes theoretically more important than even the saving of property (although the facts often contradict this assumption), so to-day we are developing a theory of the dignity of human life, by which society, because of its greater wealth, becomes morally responsible not only for the mere physical survival of the individual but equally for the provision of facilities by which the highest physical, intellectual, moral and social capacities of all citizens, born and to be born, may best be secured.”

He calls this (p. 197) “the new wealth ethics of social improvement”.

“But to-day, our surplus has made us as sensitive to misery, preventable death, sickness, hunger, and deprivation as is a photographic plate to light…The disequilibrium between social surplus and social misery colors all our thoughts”

And (p. 200):

“Out of the ever-growing disproportion between social surplus and social misery, there evolves the doctrine of exploitation, a doctrine as yet vague.”

He has such an odd belief that wealth materializes without understanding that its materialization was dependent upon the laissez-faire system (p. 203):

“Until the material problems which beset mankind are solved; until misery, disease, crime, insanity, drunkenness, degeneration, ignorance and greed—which are the offspring of poverty—are removed, humanity will not be able to essay the problems of mind and of social intercourse…Everywhere there are signs of a stupendous productiveness.”

In chapter XIV, “The Levels of Democratic Striving” Weyl argues that as Americans advance with respect to wealth they will advance with respect to democracy. But he sees this as a spontaneous phenomenon, unrelated to laissez-faire.

There are three levels of democratic striving, economic, education and intellectual

He argues that “ a diffused education, like a diffused prosperity, is necessary to democracy.”

Weyl is optimistic about the media and about the American public’s ability to “reconstitute America according to the wishes of the majority” (p. 233)

He is blissfully unaware of fundamental blockages to rationality in political decision making that Walter Lippmann pointed out. Likewise, the brokerage of special interest groups and the information blockages that inhibit public interest decision making are well known to us today. All of Progressivism is based on ignoring this phenomenon.

In Chapter XV, “The Gathering Forces of the Democracy” Weyl argues (p. 236) that “special group interests conflict with general group interests” Different ethnic groups can work together, argues Weyl. Hatred of the plutocracy unites many economic and ethnic groups I p. 249):

“Thus the plutocracy is more and more opposed by an ever larger number of social groups and individuals, not only for what it does and for what it is, but for the deepr economic tendencies which it represents.”

Weyl seems to mistakenly believe that the late nineteenth century was a period of declining real wages. One key point is the emphasis on consumerism. As well, once again, lack of information about the facts is basic to the Progressive viewpoint (p. 251):

“As prices continue to rise, however, as a result (among other causes) of our gradually entering into a monopoly period, a new insistence is laid upon the rights of the consumer, and political unity is based on him. Where formerly production seemed to be the sole governing economic fact of a man’s life, to-day many producers have no direct interest in their product…The chief offense of the trust becomes its capacity to injure the consumer.”

In chapter VXI, “The Tactics of the Democracy”, Weyl argues that American traditions, the “growing social surplus” (arising from thin air in Weyl’s view) and “the wide diversity among the groups striving for democracy” are the “primary factors” to determine “the main tactics and methods of American democracy.” (P. 256).

“As a result of all these causes, our democracy will probably not need to resort to violence.”

Sticking to the static Progressive model, Weyl argues for nationalization of the railroads, much as George W. Bush argues for nationalization of investment companies (p. 260):

“If to-day the nation were to buy up its railroads and run them efficiently, the mere accretion in value during the next generation or two would make the purchase so profitable that the collective people could well afford to pay a fair price…So generally the stupendous present values of monopolies, which the nation may in the near future be compelled to take over, will seem ridiculously small fifty or a hundred years hence...Social appropriation without confiscation, however, involves a transformation much less likely to be violently resisted”

Thus, Weyl argues for socialism through eminent domain purchase. “ By taking this least line of resistance, the democracy finds allies where a more uncompromising group would find enemies.”

Weyl argues against socialization of small farms and businesses, but socialization of big business.

More so than other writers, Weyl makes explicit the idea that gradual “Progressive” steps will lead to outright socialism (p. 268).

Weyl argues for political correctness (not in those words) among the "democratic elite and laments that the majority of the public is not politically correct (pp. 270-1):

"The democracy, in its forward march, must keep a watchful eye to the rear. It must promote a constant cohesion within its ranks...The goal of internal harmony is more easily recognized than obtained...A still heavier burden upon the democratic movement is the residual inertness of the mass. In part this is a defect of education, for knowledge is desire, and men want when they see. Outside the groups of men who are always or generally on the side of democracy, however, there is that wide fringe of indifferent men and women, who lack the leisure, the education or the social conscience to see public problems other than vaguely and intermittently, and who oppose a sluggish resistance to the realization even of their own perceived advantages.

The almost insane weakness of Weyl's argument is encapsulated on p. 273:

"We must throw over our conceptions of cost and value (which measure wealth by effort) and must accept new ideas of utility (which measure wealth byu pleasure and satisfaction). We must recognize that we have the social wealth to cure our social evils--and that until we have turned that social wealth against poverty, crime, vice, disease incapacity and ignorance, we hav enot begun to attain democracy. We must change our attitude towards government, towards business, towards reform, towards philanthropy, towards all the facts immediately or remotely affecting our industrial and political life. Such an education of its own members, present and prospective, must be a necessary part of a democratic campaign."

There is clearly a link to the concept of "social justice dispositions" in use in education schools.

In chapter XVII, "The Industrial Program of the Democracy" Weyl opens by stating frankly (p. 276):

"The industrial goal of the democracy is the socialization of industry." Socialization of industry means (p. 279) viewing business life from the standpoint of society and not solely from that of the present beneficiaries or directors of industry. It is such a coordination of business as will permanently give the greates happiness and the highest development to the largest number of individuals and to society as a whole.

"Socializaton is thus a point of view...

"In certain industries socialization may involve a government monopoly...

(p. 280) "Socialization conisders profit seeking neither as a universally beneficent regulative impulse nor as the stubborn root of all industrial evils. It regards profits and wges as contributions to a larger end to be balanced as such against other results of the industry. If a given industry creates on the whole an excess of costs over utilities, or if it affords a smaller surplus of utilities than would the same amount of capital and labor invested otherwise, then it is within the province of society to reform or even to bolish the industry

On p. 284 he argues for the nationalization of "monopolies" and adds:

"How far and how rapidly the federal govenrment will take over private business is a question which to-day cannot yet be answered..."

and on p. 291:

"In the future we shall enormously increase the extent of regulation. Not only can we pursue an active social policy by means of the regulation of industry, but we can also so direct and restrain and guide the strong economic impulses of society as to make the product of industry not only larger, but more widely and more fairly distributed."

Weyl's use of the word "we" in the above paragraph might mean:

(a) the royal "we" as in the Queen of England
(b) "we" as in a few elitist "Progressives" who get to boss everyone else around
(c) a single dictator like Adolf Hitler or Josef Stalin
(d) a beneficent democratic consensus that reflects each and every one of us
(e) all of the above
(f) none of the above because Weyl and the Progressives were confused

However, Weyl repeatedly argues for minimal amounts of regulation (pp. 292-4): "In the regulation of industry it is not necessary or deisrable to pass laws where the personal interests involved, whether of employer or employed...are capable of accomplishing the same result...To an increasing extent we are putting our trust in business publicity. It is a splendid means of unchaining public resentment or inciting public approval..."

"Complete industrial socialization does not stop short at production and sale. It does not conent itself with regulating the conditions under which articles shall be produced or the prices at which they shall be sold. it requires a reasonable and just distribution of the product of industry..."

Weyl's naivete about the creation of wealth is especially jarring in this sentence:

"There are several ways in which the continued growth of enormous fortunes may be hampered if not prevented. The social wealth to be created may be deflected to the community by a governmental acquisition of natural monopolies. During the next one hundred years American railroads, American mines, American forests and American lands are likely to increase stupendously in value...By the gradual acquisition of such properties, the community could divert to itself a large part of this probable new wealth...Theoretically there are no limits to state action along these lines. The sovereign state has a primordial, intrinsic, underlying right to all property, more valid in the final instance than the property right vested in the legal owner."

In chapter XVIII, "The Political Program of the Democracy", Weyl argues that democracy "seeks to break the power of a politically entrenched plutocracy". Again, Progressivism failed in this goal (p. 298):

"With such democratic controlof government there can be no permanent democratic control of industry...In attempting to secure political control, the democracy proceeds along five paths..."

The five paths are:

-democratic control of parties
-democratic control of elections
-democratic control of representatives
-direct legislation by the people
-increased efficiency of the democratized government

The reason that the Progressive approach to reform failed is well covered in Mancur Olson's work and George Stigler's "Theory of Economic Regulation". The referendum, the recall, direct primaries, Civil Service reform, universal suffrage (especially ending gender and racial exclusion), ending of voter fraud have failed to overcome the brokerage of special interests.

Weyl writes: "Our governmental system must be as understandable as is compatible with efficiency and with a just representation of all classes. We must have a glass-house government; a government standardized and systematized; a governmetn with double entry bookkeepping; with conspicuous heads...Obscurity works in the interest of special classes..."

Yet, after a century of progressive reform, government is as corrupt as ever.

Weyl argues that in order to implement his reforms, the Constitution must be made as elastic as possible (p. 316).

P 318: "A radical revision of the Constitution by a special constitutional convention such as was contemplated by the document itself, would be one of the greatest single steps towards establishing a political democracy in the United States. "

National health insurance was long a progressive objective: "To secure the health an dlives of the poeple we must socialize the business of health-keeping. I would pay us in the higher efficiency and better tone of the community to spend annually hundreds of millions of public money upon the prevention and cure of disease."

Weyl was not unaware of the threat of totalitarianism:

"The most diverse classes are united upon the policy of educating the whole people because upon that education depends the safety of the various groups which constitute the nation. The very possibility of misrule by a passionate, accidental majority is the saving menace of a democracy. It is this menace which crumbles our intellectual snobbery and abases our intellectual price"

He adds:

(p. 329) "Our future education must exalt social obligations above mere competitive egoisms. Our new education must expand beyond our expanding schools."

Weyl's proscriptions about consumption have a flavor of authoritarianism (pp. 330-1):

"Much of this unwise and antisocial consumption of wealth is due to ultra-individualism. In consumption, men lack the discipline and coordination which they have learned in production. Moreover, three is manifested in consumption a certain instinctive conervatism, which lies deep in all of us...To socialize our consumption we must therefore depend upon the direct or indirect action of the state and upon the gradual education of the consumers...The state can also socialize consumption by furnishing a larger number of common goods."

In the final chapter Weyl dismisses the possibility of democracy transforming into a totalitarian state.

New Democracy perfectly illustrates the key flaws of Progressivism: its naive belief in structural changes to democratic processes; its severing of the link between rewards and production; its belief that economic progress did not rely on property rights; its failure to understand creative destruction; and its misunderstanding of the role of spontaneous order in optimally allocating resources. Weyl's blind devotion to socialism is evident throughout this book. It is a revealing source of information about the goals and fallacies of what later became known as "liberalism".

University of Massachusetts Chaplain Kent Higgins Ought to Resign

Sharad Karkhanis forwarded an article from Fox which indicates that Chaplain Kent Higgins of the University of Massachusetts wanted to give college credit to students who campaigned for Barack Obama. Chaplain Higgins's actions are consistent with the generally unethical pattern associated with the Barack Obama campaign.

As I have written in Frontpagemag and elsewhere, it is a violation of the federal law that grants a tax exemption to universities for the universities to be used for political purposes. Moreover, according to a spokesman for U Mass:

"University officials disavowed the effort after inquiries Monday by The Associated Press. They said it could run afoul of state ethics laws banning on-the-job political activity, as well as university policy."

I am sure that Chaplain Higgins did not intend to violate legal and ethical standards for Barack Obama, but rather he was ignorant of them. Nevertheless, ignorance of basic legal requirements that redound to one's benefit constitutes a breach of ethical duty. Moreover, Chaplain Higgins perpetuates his unethical behavior because:

"Higgins refused to identify the history department sponsor and referred all further questions to university officials."

This additional step amounts to a cover up. Chaplain Higgins ought to resign.

Phil Orenstein Says Do Not Bolt!

Responding to my e-mail asking for opinions as to whether I should bolt the Republican Party in response to Bush socialism, Phil Orenstein writes:

"McCain has stated that he would cut off the golden parachute of the crooks who allowed their investment banks to suffer the massive failures they did, and hold the regulatory agency the SEC accountable to do its job by first firing its top exec. If the investors in the bank's stocks suffered loss, then the crooks at the top shouldn't walk away scott free. McCain, I believe has the integrity to lead, and hold the people around him accountable. A leader can give the people confidence in the soundness of the economy, to forestall a potential run on the banks or general panic, for example. While printing money is the fed's drug of choice, to stop cold turkey at this point, would cause massive suffering. We must be gradually weaned off 100 years of progressivism and socialism, and be given a solid understanding of free market principles and individual liberty while were at it, and I believe McCain/Palin understand this and are up for the job. That means we also have to start with our schools, which are not doing the job."

Unfortunately, I have not heard a plan from John McCain about how to end monetary expansion, revise current Fed policies, change the pattern of unending support for America's financial institutions that goes back to the Great Depression and has transferred immense amounts of wealth from America's producers to inept Wall Street financiers. Phil's point would be more believable if the Republicans express a strategy. But none is forthcoming.

Idiosyncracies of American Democracy

Democracy does not work so rationally as we would wish. The public knows the word "economy" and believes that there are difficulties with it. It is unlikely that many of those who believe that there are difficulties with the economy can identify the diffculties accurately. For example, real wages have been declining since the early 1970s, but the public has not generally been concerned about this trend, which ought to be of serious concern to anyone who works. However, now that the mass media has been telling people that house prices, which have increased dramatically during the same period, are too low, the public feels that there is a crisis.

When I was in college in 1974 I worked as a door man in an apartment building in Manhattan on 54th Street between 5th and 6th Avenues. It was down the street from Gucci's on 5th and across the street from the back entrance of the Museum of Modern Art. At that time I earned about $200 per week and a one bedroom apartment in that building was selling for $55,000. If you multiply $200 per week times 52 weeks and divide the result into $55,000 you get 5.3 times.

A one bedroom apartment in that same building now probably sells for over $1 million. However, wages for building workers have probably gone up about three or four fold. If you're generous to today's door men and you divide $1 million by $45,000 you get 22.2 times, and that is probably an understatement because the apartment may be selling for more than $1 million and the doorman may be making less than $45,000.

Despite apartment prices' having gone up at four times the rate of wages, the public is willing to believe that a reduction in housing prices constitutes a "crisis" and some kind of "unruliness in the markets" that requires massive government intervention.

Let real estate prices fall. Then, perhaps, I can afford a new apartment in Manhattan and move back to civilization!

Even odder than public unawareness that the average person earns less than his parents did is the belief that Barack Obama is somehow best qualified to alleviate the non-existent housing "crisis".

Andy Martin has forwarded a press release that indicates that:

"A new Washington Post poll now shows Barack Obama opening up a decisive lead based on the amazing belief that Obama is more competent to manage the economy."

The Washington Post article states that:

"Just 9 percent of those surveyed rated the economy as good or excellent, the first time that number has been in single digits since the days just before the 1992 election. Just 14 percent said the country is heading in the right direction, equaling the record low on that question in polls dating back to 1973.

"More voters trust Obama to deal with the economy, and he currently has a big edge as the candidate who is more in tune with the economic problems Americans now face. He also has a double-digit advantage on handling the current problems on Wall Street, and as a result, there has been a rise in his overall support."

This is especially odd because it is Obama who has received the lion's share of backing from Wall Street and from the pro-Wall Street media, for instance the New York Times and the media conglomerates that depend on Wall Street for financing. Given that the current "sub-prime crisis" is of Wall Street's making and Wall Street has primarily contributed to Senator Obama, current public opinion can best be described as idiosyncratic.

Part of the idiosyncratic public opinion is likely due to the media's slanted coverage of Obama and McCain. Jim Crum writes in an e-mail:

"I’ve said for months now that the main stream media need to be wearing...knee pads when dealing with Mr. Obama. It really has gotten that bad, and I doubt that there is any sin, now matter how grievous, that would escape their filters and be reported. Meanwhile, there is a near complete blackout on anything or McCain/Palin accomplishes. (Yes I have reservations about McCain & Palin, but given the alternative, there is no substantive choice)."

In an e-mailed press release Andy Martin states that McCain should break with the Bush administration and:

"speak clearly and simply and directly: he must announce in no uncertain terms his total opposition to the Wall Street bailout.

"First, over the past year I have repeatedly pointed out that the current financial crisis is a "manufactured" crisis. The urgency was created by maladroit steps to rein in sub-prime mortgages when they posed no threat to the overall economy. One bad step led to another. We have rather clumsily managed to topple our own financial dominoes. The mess is Wall Street's fault, not George Bush's responsibility."

In several e-mails about the media's reaction to the Obama's campaign lies about Senator McCain's supposed blocking of stem cell research Bob Robbins points out:

"That our media finds it all so amusing tells us just how much they value the truth as well."

The Progressives believed that a well informed democracy would be possible and that the public could fairly assert its own interests given an abundance of good information. Today's public is widely misled by the Progressives' descendants, the mass media, and is incapable of assessing even the most elementary facts about the political economy.

I have an increasing share of my assets either in hard commodities or outside the United States in foreign currency CDs. I do not believe that this country is headed for a healthy future, and it will be worse if Barack Obama, Wall Street's and the New York Times's boy wonder, is elected.

Walter E. Weyl on Social Justice

A few years ago there was a public discussion about the National Council for the Accreditation of Teacher Education's (NCATE's) requirement that education schools provide "social justice" training. Several students have been expelled from education and social work schools because they lack "social justice dispositions". NCATE eliminated its social justice disposition requirement in response to pressure from Steve Balch and the National Association of Scholars, but many education schools still require that students demonstrate "social justice dispositions". However, such a requirement is illegal if it involves ideological indoctrination. Last fall, as I was reading Herbert Croly's Progressive Democracy, I realized that the concept of "social justice disposition" is directly taken from the ideology of the Progressives, to include Croly and likely John Dewey. Walter Weyl in his Progressive classic New Democracy writes about social rights in his chapter entitled "The New Social Spirit". Note that the concept of "social rights" is fundamental to Weyl's ideology and he links it directly to socialism and opposes it to individualism. "Progressive education" has a long history and is intimately linked to John Dewey's philosophy. Dewey, like all thinkers of the early twentieth century, was well aware of Weyl's and Croly's work (pp.161-5):

"The inner soul of our new democracy is not the unalienable rights, negatively and individualistically interpreted, but those same rights, 'life, liberty and the pursuit of happiness,' extended and given a social interpretation.

"It is this social interpretation of rights which characterizes the democracy coming into being, and makes it different in kind from the so-called individualistic democracy of Jefferson and Jackson. It is this social concept which is the common feature of many widely divergent democratic policies...

"To-day, no democracy is possible in America except a socialized democracy, which conceives of society as a whole and not as a more or less adventitious assemblage of myriads of individuals. The old individualistic system pictured the individual freely bargaining with the state...The individualist point of view halts social development at every point...'Government should rest upon the consent of the governed' is a great political truth, if by the 'governed' is meant the whole people or an effective majority of the people; but if each individual governed retains the right at all times to withhold his consent, government and social union itself become impossible...

"...the engine of taxation, like all other social engines, will be used to accomplish great social ends, among which will be the more equal distribution of wealth and income...The government of the nation, in the hands of the people will establish its unquestioned sovereignty over the industry of the nation..."

"In the future we shall enormously increase the extent of regulation. Not only can we pursue an active social policy by means of the regulation of industry, but we can also so direct and restrain and guide the strong economic impulses of society as to make the product of industry not only larger, but more widely and more fairly distributed."

In the chapter "The Social Problem of the Democracy" Weyl adds:

"Our future education must exalt social obligations above mere competitive egoisms....It must be an education which will aid society in the conservation of the life and the health of the citizen and in their progressive development."

Phil Orenstein on Fahad Hashmi

Phil Orenstein's trenchant article "No Terrorist Left Behind" appears in the current issue of Frontpagemag. Orenstein traces the pro-terrorist atmosphere among leftists in universities. Orenstein writes that:

"According to the indictment filed in Manhattan federal court, he (Fahad Hashmi) was charged with providing and conspiring to send money, material support and military gear including night-vision goggles to associated al Qaeda fighters in South Waziristan, Pakistan to use against United States forces in Afghanistan. The charges carry a maximum prison sentence of 50 years. Due to a violent outburst attacking arresting officers at Heathrow Airport, and shouting that he hoped they would be killed, bail was denied at a hearing and he was placed under secure lockdown."

Yet, oddly, over 500 academics have signed a petition protesting Hashmi's arrest and treatment. These same academics include a swathe of those who supported Ward Churchill's statement that the 9/11 victims were "Little Eichmanns" and many spread nonsensical lies such as the claim that the United States and George Bush perpetrated the 9/11 disaster.

Orenstein notes that:

"According to the NYPD intelligence report (2007), Radicalization in the West: The Homegrown Threat, Hashmi became radicalized while he was a student... Those who knew him described him as a quiet, bright, and caring young man who was passionate about Islam but not overzealous. However, Hashmi as well as many young Muslims in New York City struggling with their identity, often fall victim to extremist Islamic ideologies."

As well, university 9/11-deniers have attacked the distinguished Professor Sharad Karkhanis when he attempted to bring this and similar abuses to light. Professor Karkhanis has been subjected to a frivolous, $2 million law suit. The named plaintiff, Susan O'Malley, has publicly stated her case against Karkhanis is "silly", yet she has forced him to incur legal fees to defend himself against the Professional Staff Congress, the CUNY faculty union's, surreptitious suppression of free speech.

Phil Orenstein does a public service by bringing these often secretive academic abuses to full public view.

Tuesday, September 23, 2008

The Bush Administration's French-Style Socialism is Impoverishing You

A poster on this blog linked to a Time article arguing that America is becoming more like France, and the article is right. The transformation is nothing new, though. It goes back to 1901 and the assassination of President McKinley. At that point, Theodore Roosevelt, a Republican vice-president with an experience base similar to Sarah Palin's, took office. Roosevelt advocated the socialistic ideas of Walter Weyl and Herber Croly, founders of the New Republic. These ideas were largely rooted in European models that had become increasingly attractive to the American elite because a large segment of them had been educated in Europe. Weyl was a first-generation American Jew whose parents had immigrated here from Germany. Weyl was eager to emulate European models only two decades before the holocaust wiped out European Jewry.

Theodore Roosevelt and Woodrow Wilson made tentative steps toward statism. During World War I, Wilson nationalized much of the economy. This history is well documented in Murray N. Rothbard's and Ronald Radosh's New History of Leviathan. Following the war, Wilson repealed much of his central planning and industry cartel edifice. During the 1920s, Republicans Warren G. Harding and Calvin Coolidge did not oppose the statist edifice that Theodore Roosevelt and Woodrow Wilson had otherwise established such as the Hepburn Act. Most important of these was the Federal Reserve Bank, which provided a means for government's management of credit markets, to include the stock market. Later in the 1920s, one of the most aggressive progressives, Herbert Hoover, took a number of interventionist steps to attempt to manage the economy. These included aggressive public works projects such as the Hoover Dam and intervention in the labor market.

Thus, when the stock market crashed due to Fed tightening, the Fed did not take counter measures at Hoover's insistence. Moreover, Hoover had "jaw boned" major corporations into not cutting wages. In other words, the European-style interventionism caused the chief crisis in American economic history, the Great Depression.

Subsequent to the failure of Hoover's French-style socialism, Franklin D. Roosevelt was elected on a social democratic platform that aimed to somewhat intensify Hooverite Progressivism. The steps that Roosevelt took, namely adoption of social security, the Fair Labor Standards Act, a pretense of securities regulation and an attempt to socialize the American economy (the National Industrial Recovery Act) that was declared unconstitutional, had the effect of intensifying unemployment by raising wages.

The most important of the socialist reforms that FDR implemented, the abolition of the gold standard, had the effect of providing a long term subsidy to Wall Street at the expense of American wage earners. Real wages increased during the depression even though nominal wages were falling. After World War II, however, real wage gains began to flatten.

In 1971 Richard M. Nixon took another step toward French-style socialism that also furthered the aims of big business progressives. He abolished the international gold standard that had been re-established in 1944. Since 1971, with the Fed freed from any constraint as to expanding the money supply, real wages have been declining due to the Federal Reserve. Americans have been in denial, but our standard of living has begun to sink to the level of France's. This has been made less apparent through an orgy of credit expansion that made credit cards and sub-prime mortgages available to the public. This was only possible because of French-style socialism. The French are not so cynical as the Americans, so they do not use credit in this way, but without government intervention the sub-prime crisis and credit card phenomena would not have been possible.

Corporate America has been the chief beneficiary of French-style socialism brought to America, and corporate America's apologists in academia and in the media have been eager to justify the expansion of statism, the virtues of the Federal Reserve System and Keynesian economics.

The left, unable to cognize the economic effects of this system (with exceptions such as William Appleman Williams) celebrates the expansion of the American state.

One of the tragedies of the Francification of the American economy has been the decline in substantive innovation. This tracks events in England. France was never an overly important country economically. In the 19th century, in response to increasing laissez-faire, the British economy became the most innovative in the world, and England became the wealthiest country in the world. This did not, as many historians erroneously believe, occur because of imperialism. It arose because of ongoing productivity gains due to innovation.

By the late nineteenth century, America had become the most laissez-faire country in the world. During this period, real wages increased. More importantly, breakthrough technologies changed the world. These include the telephone, AC electricity, the electric light and the mass produced automobile. The increased productivity was met with hostility despite rising real wages. In response to the public anxiety concerning the creation of large companies and naive interpretations of competition as depending upon the existence of small firms (and lack of understanding of Schumpeterian creative destruction and Hayekian coordination) the Populists and advocates of the Social Gospel as well as a range of other advocates (single taxers, socialists, etc.) pressured for increased government intervention. The Progressives, who took the Populist ideas and molded them into a French and European-style format (Weyl prferred the French Republic as a model) lacked the analytical tools to address this question. In particular, the Progressives believed that the creation of large industrial firms was a static reality; that technological and management innovation had reached its apex; and that coordination could be accomplished through "socialist calculation". All of these assumptions turned out to be untrue. However, the Progressive policies had the effect of squashing innovation. Since World War I, the pace of nineteenth century innovation has been seriously dampened. Moreover, since 1971, the unrestricted ability of the Federal Reserve Bank to expand the money supply has resulted in four things.

1. Wall Street has diverted investment capital into decreasingly productive uses, with the process leading to the sub-prime crisis
2. Inflation has reduced real wages
3. There is less innovation because of the diversion of capital away from optimal uses
4. There is increasing income inequality as workers suffer from inflation due to monetary expansion and the stock and real estate markets have been inflated by low interest rates due to the same process. Since the wealthy own stocks and the poor work, Federal Reserve Policy has been distastefully cruel. Theft is wrong. But to institute an ongoing policy of subsidizing the wealthy at the expense of workers is an especially depraved policy.

The end result of this process is the establishment of a new American feudal socialism along the lines of France's. Like the French, America has become an increasingly stratified society, with an elite that benefits from Wall Street's access to Federal Reserve counterfeit. The average productive worker no longer can hope to save to start an entrepreneurial firm because of bloated home costs and taxes, and entrepreneurship and innovation are squashed by big business's monopolization of credit and its diversion into ill conceived real estate development.

One more note--the level of American political discourse has devolved to the point where there are two Progressive Parties--the pro business socialist Progressives of George Bush and the social democratic Progressives of Barack Obama. Yet, a large percentage of Americans do not agree with either view.

James Q. Wilson at the Manhattan Institute

I attended a luncheon sponsored by the Manhattan Institute, a New York City-based institute, and James Q. Wilson was the speaker. The luncheon was at the New York Yacht Club on 44th Street between 5th and 6th Avenues. Professor Wilson described research that attributes political ideology to genetic differences. The research is based on identical twin studies. I am sure that this line of research is rigorously documented but I am not convinced of its importance. I raised this question at the end of the meeting: Did the shift from the Federalist-Democratic/Republican to a single party system in the "era of good feelings" (1800-1830) reflect a genetic shift? Did the introduction of new gene pools in the late nineteenth century cause a shift in the party system or party ideologies? Can't the near 50% votes for Democratic and Republican presidential candidates be explained by rational vote-seeking by two competitive, economically motivated parties? I would add--did the shift in Republican Party ideology from that of laissez-faire in the late nineteenth century to Progressivism in the early twentieth century reflect gene therapy on Theodore Roosevelt? In the end, I do not doubt that, as Jefferson points out somewhere in his letters, ideology is linked to temperament, and temperament is likely genetic, I am not at all convinced that ideology is important to American politics or that any genetic link has any practical importance.