IN THE FALL of 2008, Americans were confronted with frightening news. The financial world was, the experts warned, teetering on the brink of disaster. Politicians from both parties grimly intoned that what was at stake was “our American way of life” and without massive intervention the country, and perhaps the world, was heading toward an “economic apocalypse.” These events seem to have caught many off guard. Despite the regular warnings from cranks, dooms-dayers, and other pessimists, few Americans, if actions are a reliable measure, actually believed that they would be staring into the abyss of economic disaster. The price-tag necessary to steer the economy away from the precipice is breathtaking, and even with such an infusion of money into the markets, there is no guarantee that our wild careen will be abated. In short, we could find ourselves spending an incredible amount of money and still lose the game. We should be skeptical when powerful people ask for more power. We should be doubly skeptical when they do so using fear as a motivation. When the putative choice is massive government intervention and spending on a scale never before contemplated or world-wide disaster, we do well to ask how we got into such a conundrum.
We can begin with a question that plenty of people have recently raised: are some companies too big to fail? Or more precisely, are some corporations so big that their failure would devastate the economy? Billions of dollars have been spent in order to shore up some corporations and entire sectors (banks and automobiles, for example), and the reasoning is that these are so crucial to the economy that public money should be spent to resuscitate them. But this simply raises more questions: Is it a fundamental problem when a corporation or sector becomes so big that its failure is believed to threaten the entire national economy? Could it be that scale and economic security are related? Can institutions become so large that their potential harm outweighs their actual (or occasional) good?
In order to answer these questions, it is instructive to turn to Hilaire Belloc’s neglected classic, The Servile State, first published in 1913. According to Belloc, capitalism is fundamentally unstable and is therefore a transitory condition. It is important, though, to pay careful attention to his definition of capitalism. “A society in which the ownership of the means of production is confined to a body of free citizens not large enough to make up properly a general character of that society, while the rest are dispossessed of the means of production and therefore proletarian, we call capitalist.” In Belloc’s mind, there are only two resolutions to the instability of capitalism. The first is socialism and the second is what he calls “the distributist state” or “the proprietary state” in which private property, specifically the means of production, are broadly distributed through out the populace.
Why is capitalism unstable? Capitalism, as defined by Belloc tends toward centralization of economic power, but when economic power is centralized, it requires a strong political structure to manage it. Herein we see the connection between economics and politics: centralized economic power goes hand-in-hand with centralized political power. Belloc’s friend and fellow distributist, G.K. Chesterton, argued that capitalism had come to an end, and the evidence was that the capitalists appealed “for the intervention of Government like Socialists.” In light of our current situation, it is difficult not to see Chesterton’s point.
F.A. Hayek argues that consolidation of economic power in the form of monopolies will invariably lead toward socialism. “A state which allows such enormous aggregations of power to grow up cannot afford to let this power rest entirely in private control.” The blame, according to Hayek, does not fall exclusively upon the capitalist class. Instead, “the fatal development was that they have succeeded in enlisting the support of an ever increasing number of other groups and, with their help, in obtaining the support of the state.”
Economic historian Karl Polanyi notes that “laissez-faire itself was enforced by the state.” The formation of a market system required a significant government involvement. “The road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism.” This, of course, seems counterintuitive, but Polanyi’s point is that the market system that grew up in the 19th century was not a spontaneous product. It was planned. “Thus even those who wished most ardently to free the state from all unnecessary duties, and those whose philosophy demanded the restriction of state activities, could not but entrust the self-same state with the new powers, organs, and instruments required for the establishment of laissez-faire.” Of course, strictly speaking, interventionism is the opposite of laissez-faire, and if the ideal of laissez-faire could ever be established, interventionism would not be necessary. But the establishment of a laissez-faire system has proven elusive. According to Polanyi, it is a utopian dream the pursuit of which justifies temporary intervention. “For as long as that system is not established, economic liberals must and will unhesitatingly call for the intervention of the state order to establish it, and once established, in order to maintain it.” It seems clear, then, that economic centralization and political centralization feed off one another. Far from being antagonistic, they are natural allies. The massive regulatory state emerged with the explosive growth of market capitalism.
This line of argument throws the current debate about the stimulus package—and President Obama’s policies more generally—into a new light. When the Republicans object that this sort of government intervention in the economy is destructive of liberty, they are right. But thus far they have failed to see how by embracing the corporatization of the economy they have aided in the growth of government and, indeed, made it necessary. In short, Republicans continue to voice some principled support of small government (this after eight years of Bush expansion!) but their complaints come across as vacuous and often as little more than the plaintive whimpers of a group struggling desperately to be relevant. They are holding to half a principle, and that just won’t hold water.
Here we can see the curious state of affairs in our waning republic: Democrats tend to be suspicious of big business but they trust big government to rein in abuses; Republicans express suspicion of big government but no fear of economic centralization. Both are half right but half blind. Here is a principle that we would do well to grasp: concentrations of power in any form are a threat to liberty. It may be too late for this generation to see this vital truth, or if seeing, to do anything about it. But nothing is inevitable, and there are hopeful signs that people are beginning to think seriously about the importance of localism, human scale, limits, and stewardship, the very things woefully lacking in the current spending orgy. While a return to these ideals is still only in its infancy, change is afoot. This represents a glimmer of sanity in a world succumbing to the apparent security promised by centralization.
Nevertheless, we are facing the specter of a strange new phase in our nation’s history. Through massive spending we are embarking on an age of concentration, an age where economic and political power are not only allied but centralized, an age where the two will become increasingly intertwined and difficult to distinguish. The long courtship is over. The marriage has been consummated. The Wall-Street bailout and stimulus package are the grotesque progeny of this unholy union.
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