This past Friday night, Dec 12, 2008, Air America radio host and progressive author Thom Hartmann appeared on Countdown, hosted by David Shuster, to discuss the rescue of the U.S. auto industry. Hartmann eloquently defended American workers from the numerous anti-labor themes being spun by Republican and wrong-wing think tanks. But the most important thing Hartmann did was point Barack Obama and the American people back to the too-long forgotten roots of the U.S. economy and financial system, Alexander Hamilton.
Shuster: How do we return to a country that’s based on actually making things [what I call "wealth-creating jobs"]? I mean, what does President-Elect Obama need to do when he gets in office to wean our economy off of these made up financial games and get back to real manufacturing?
Hartmann: David, what he needs to do immediately is read Alexander Hamilton’s 1791 report to Congress on manufacturers. Hamilton laid out this six-step plan to build an industrial economy in the United States. And, we followed it. Congress actually put it into place in 1792 and it stood until Ronald Reagan came along and started deconstructing this, followed by George Herbert Walker Bush, Bill Clinton and George Bush, now, and the legislatures, mostly pushed by the Republicans, taking this thing apart. I mean, you could argue that some it started with Taft-Hartley. But, basically, the Founders laid this thing out; they had it figured out. And, it worked. We built the biggest industrial infrastructure, industrial economy in the world. We have gone—when Reagan came into office we were the largest exporter of manufacturing goods and the largest importer of raw materials on the planet. And, the largest creditor—more people owed us money than anybody else in the world. Now, just 28 years later, we’re the largest importer of finished goods, manufactured goods; the largest exporter of raw materials—which is kind of the definition of a third-world nation—and we’re the most in-debt of any country in the world. This is the absolute consequence of Reaganomics.
To truly understand the importance of what Hartmann if referring to, you have to locate the unique role of the United States in the broad sweep of human history.
(A note of warning at the outset: The U.S. does have a unique role, and it is this fact that gives rise to the problem of American exceptionalism. The perfect example is Dubya, who has no idea whatsoever of real American history, except for the one fact he does know: that the U.S. is "special." So special, in Dubya’s truncated thinking, that the U.S. is superior to all other countries, and thus can do what ever the eff it wants. Why the U.S. is special, Dubya has no real idea; all he can do is mumble platitudes about freedom and liberty.)
What the United States represents in world history is the first successful experiment in self-government. The very idea of commoners having enough wits about them to govern themselves was treated by the English ruling class as either a joke or an atrocity. They certainly treated it as treason against the crown.
As Thomas Jefferson wrote, in his very last letter, less than two weeks before his death, concerning the mere fact that the United States still existed:
May it be to the world, what I believe it will be, (to some parts sooner, to others later, but finally to all,) the signal of arousing men to burst the chains under which monkish ignorance and superstition had persuaded them to bind themselves, and to assume the blessings and security of self-government. That form which we have substituted, restores the free right to the unbounded exercise of reason and freedom of opinion. All eyes are opened, or opening, to the rights of man. The general spread of the light of science has already laid open to every view the palpable truth, that the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of God.
Let us leave aside for now the very real and very bitter fight that occurred between Jefferson and Hamilton (which is very ably recounted by Ron Chernow in his massive biography of Hamilton). Jefferson’s statement points to the basic conflict that has existed in all of human history – there are some few who believe themselves to be better than the rest of humanity, and, moreover, that by virtue of their supposed superiority, the rest of humanity exists to serve them. (1) This is exactly the sense of entitlement that annoys us so about the bastards of Wall Street that have wrecked our economy, and the insiders in Washington who think bipartisanship is a fine idea because they share drinks with wrong-wingers at fancy think tank parties.
What America represents in the world is the first time that an entire nation rose up and told the would-be rulers that those rulers actually had no right to rule – no divine right, and certainly no right based on any supposed hereditary superiority. (Unfortunately, the point that neither was there any right based on landed entitlement was not pushed as far as it could have been, which fact, along with the obvious contradiction of slavery, would make inevitable a civil war somewhere down the road.)
OK, so you have the oligarchs, who were given the heave-ho, and you have the people. Now, what are the economic implications of the existence of these two antagonistic groups? To see that, we need only examine the means of livelihood of these two groups. The people more or less have to produce for themselves what they need. The oligarchs? Well, actual work is below them. Whence then do they draw the means to exist? Well, there’s outright looting. And then there’s usury, rent, and speculation.
(I am referring here to economic rent, which is rather unsatisfactorily explained in Wikipedia. Also note that besides usury, rent, and speculation, there is one other means, which I will discuss below.)
The genius of Hamilton is that he devised an economic and financial system that allowed free enterprise – people producing what they needed - to flourish by greatly limiting the freedom of action of usurers, rentiers, and speculators. It was not perfect, of course, but it worked better than any other economic and financial arrangements ever created. What imperfections there were arise mainly from the impossibility - and undesirability - of choking off entirely usury, rent, speculation, which has the unwelcome effect of dragging down enterprise as well.
You can go to the Federalist Papers, and find precious little there about the economic and financial arrangements planned and intended for the young republic. There is, however, one favorite quote of mine, from Number 15, where Hamilton lays it all out in one stunningly short and concise sentence:
Is private credit the friend and patron of industry?
That’s it. That’s what it all boils down to. Hamilton’s Reports to Congress – one on Credit, one on Banking, and one on Manufacturing – which form the basis of the American government and the American financial system, are only detailed elaborations of making sure that the credit system of the nation would be used to fund the development of real industry – which in those days meant solely manufacturing, lumbering, mining, and fishing. Talking of something like a "banking industry" or an "entertainment industry" would have been met with puzzlement or derision.
Which bring us back to Hartmann’s magnificant concise one-paragraph summary of American economic history.. What the Reagan Revolution did was mistakenly equate usury, rent, and speculation with enterprise. Even worse, the Reaganuts embraced what essentially amount to the imperial economic theories of the British East India Company that the American Revolution was largely fought against, and discarded what remained of the philosophical framework of political economy established by Hamilton while leaving in place the useless structural façade (the government, in the form of the agencies like (such as the SEC, the Fed, the CFTC, the Treasury Dept., etc.).
It was not so much that the Reaganuts hated industry in quite the same was as oligarchs think work is beneath them. (Although it is of more than passing interest that at least one Harvard professor has noted being contacted by a panicked former student working on Wall Street, who asked "Am I going to have do real work now?")
The problem was – and still is – that the Reaganuts failed to recognize that actual industry is morally superior to usury, rent, and speculation. And here is where I want to explain that there is a fourth way an oligarch that loathes work can make a living – management. If you think about it, many of the problems in the U.S. economy – the deterioration of quality, the lack of customer service, the 30-year decline of working class wages, the amazing and enraging unaccountability of top executives - arise from the peculiar fact that American MBA programs do not really turn out industrial managers, so much as they train plantation overseers and work gang bosses.
Go back and look at how the English oligarchy adapted to the Industrial Revolution: the ruling families that survived and prospered did so by seizing control of manufacturing companies and imposing themselves as a new management class. This long, multi-generational process of replacing industrial entrepreneurs with managers from the oligarchy had the highly visible effect of retarding British industrial development and quality, especially as compared to other countries. A similar effect has occurred in the United States since the Reagan Revolution, with the U.S. losing the technological lead in industry after industry, and often losing some industries, such as shoe making or textiles, almost entirely.
It is that national failure over the past three decades to differentiate real economic activity from usury, rent, and speculation that has led to the present crisis. It is thatfailure that has allowed American manufacturing industry, over the past three decades, to be subjected to the whims and caprices of corporate raiders, megalomaniacal empire builders, and Wall Street analysts and traders insisting that the next quarter be better than the last.
It is that failure that has led to the creation of an American ruling class that believes it is, above all, entitled to rule, just because it is.
UPDATE. Thanks for the rare trip to the rec list. I am horrified that I neglected to link to the original diary by Liberal Thinking, Hartmann Eloquently Defends American Workers, which inspired me to write a comment that is the basis for this diary. There are links to Hartmann in that diary, and down thread in this diary, and for convenience I will add them here – youtube video - as well.
For those who would like to read Hamilton’s Report on Manufactures, a word of warning. I read it over 20 years ago, and went back to it after Liberal Thinking's diary. I was shocked at how abbreviated my attention span had become. Our news blurb culture has exacted a toll, I fear. It is NOT an easy read, so be prepared to sit down and concentrate for a few hours. Hamilton will take pages recounting in excruciating detail some economic idea or theory that he is criticizing, so it's extremely easy to take entire pages of the Report out of context.