I: History – How Economics Came to Fail

INTRODUCTION

The Origin of Libertarianism:

How Wealthy American Fascists

Created the Libertarian Movement

And Controlled Today’s Economics

Libertarianism’s development from a failed 1934 fascist coup plot against FDR

If this historical account were a stage-play, this Introduction to it would be the stage-setting. Some people like to see the empty stage before the play begins, and that’s what this Introduction is. If you want instead to go right into the action and are satisfied with no stage before the play starts, then you’ll probably prefer to skip this background, and to go straight to the first chapter. Fascism was the stage-setting upon which libertarianism was born, and here that stage-setting will be briefly described.

Libertarianism, in fact, derived from fascism. The action of this drama was actually inseparable from the circumstances that gave rise to it. Although obviously not everything is caused by everything that preceded it, every result is produced by something that preceded it (its cause); and, in the case of libertarianism, that “something” (that cause) happens to have been fascism itself.

The time-sequence here is important, because effects follow from causes, never the other way around. In order to understand any cultural phenomenon, one must know what caused it. Libertarianism didn‘t cause fascism; fascism caused libertarianism (as this book – the “play” itself – will document). Libertarianism was produced from fascism. Furthermore: something caused fascism: feudalism did. Fascism was produced from feudalism.

Fascism cannot be understood without understanding feudalism, any more than libertarianism can be understood without understanding fascism.

The historical sequence, thus, has been: from feudalism, to fascism, to libertarianism.

Some parts of the world today still remain feudal, but none call themselves so – it’s no longer fashionable to be called “feudal”. Some parts of the world today are fascist, but none call themselves so – “fascism” has been unfashionable ever since the fascist powers were defeated in World War II. (That’s one of the reasons libertarianism was produced: in order to supplant fascism, which had become unpopular.)

After the fascist powers lost that war, some people started to call themselves “libertarian”, and the libertarian movement became publicly born under that name, though the libertarian ideology had actually first begun to be described, in detail, immediately after the fascist coup-plot against President Franklin Delano Roosevelt aborted in 1934: libertarianism was described, starting soon thereafter, by writers who had been hired for that purpose by the same plutocrats who had plotted and organized the fascist coup-plan, and these writers drew upon the thinking of neo-feudal, pro-fascist, anti-democratic, writers in their own time, and in former times. In other words: the fascist failure to overthrow FDR produced the ideology that then mushroomed after the War as “libertarianism”, when “fascism” was widely despised, and only kooks – self-professed “neo-Nazis” – still called themselves “fascist”.

Some self-declared “libertarians” consider themselves to be democrats, but others know that they are not, and that libertarianism and democracy don’t mix well (notwithstanding the “liberty” in the ideology’s name, and this ideology’s emphasis upon “freedom”, which conveniently sidesteps important aspects of what “freedom” means to them, which is very different from what “freedom” means to a democrat).

Ideologies don’t develop in a vacuum; they are outgrowths from cultures, and cultures are outgrowths from history; so, it’s important to know a little about the history of feudalism and fascism, before one even attempts to understand the history of libertarianism (which, of course, couldn’t exist without its predecessors). Here, then, is that historical background, in a nutshell:

Before the industrial era, was the agrarian era, when the chief type of property whose inheritances determined the aristocracy consisted of land. With the onset of industrialization, after around 1600, corporate stock emerged increasingly to become the chief form of property whose inheritance determined the aristocracy. No longer was the aristocracy the possessor of the landed estates, which collectively constituted the given nation; the aristocracy increasingly became instead the possessor of the vast corporations, which collectively controlled the nation’s economy. Instead of a nation consisting primarily of its land, it came to consist increasingly of its corporations.

However, just as there was an agrarian-era conflict between the masters and their serfs; that is, between the plutocrats and the public; there came now to be an industrial-era conflict between the corporate owners and their hired servers; that is, between the plutocrats and their workers.

In both eras, there has been this same conflict for control of the government, or of the “State” – the body-politic. Dictatorships during the agrarian era were kingdoms, in which the owners of the landed estates chose the king or equivalent monarch as the supreme ruler. Dictatorships during the industrial era are instead nations, in which the owners of the corporations choose the Duce, Fuehrer, Shah, or other supreme ruler.

Both during the agrarian era, and during the industrial era, there have been political movements for the public, or the demos, to control the government, via democracy – no dictatorship at all. The methods whereby the aristocracy crushes the public have changed with the transition from feudalism (agrarian-era dictatorships) to fascism (industrial-era dictatorships). Whereas formerly, the method was the simple debt-bondage of the serf to his master, backed up by the military and police, it now became the aristocracy’s lobbying industries, which purchase the votes from the supposed representatives of the people or “Volk” who elect the government, and also purchase the media and the other means to sway the outcomes in those public “elections”. Consequently, there arose with fascism the nativist concept of the “Volk” or equivalent, as the supposed basis for the authority of a fascist state, in order to control the public, and in order to organize the public as the aristocracy collectively wants them to be organized. Fascism (like feudalism before it) accepts the aristocracy’s basic principle, hereditary rights and obligations; and it extends that hereditary concept to the public itself, via a supposed hereditary superiority of one people over other peoples, or “races”, so that the public won’t notice that the real threat to their welfare – the aristocracy – is already controlling “their” government, against their interests. Thus, while this actual enemy is already in control, exploiting the public, it is the “inferior peoples” who become blamed by the majority, the “superior race”. The majority blame those minorities for the problems that plutocrats have actually caused; and those elite therefore continue to be respected, no matter how much suffering they have caused. Minorities become escape-valves for the incoherent anger of the majority. Whereas previously, the authority of the feudal state was based upon God’s having supposedly simply chosen the existing potentates as the blessed-by-birth, whose children would inherit their blessing (e.g., Popes anointed Emperors, who could then pass on to an “heir to the throne” their power); the authority of the fascist state has come to rest instead upon the Volk or “race”, whom fascist leaders claim to represent. plutocrats are hardly noticed in fascism, they are behind the scenes; whereas plutocrats were “nobility” – highly noticed and publicly honored – in feudalism.

The functions of the lobbying industries in fascism are, thus, as representatives of the aristocracy, to bribe politicians, and/or to control the public’s votes or vote-counting, so as to achieve effective control over the nominal representatives of the Volk or “the people,” whose interests the state supposedly advances, like a “Big Brother.” The news-media are controlled by the aristocracy, in order to sway the public toward voting for the people whom plutocrats want to write and enforce laws; and, so, the “free press” represent actually the aristocracy, not the public (who, after all, don’t own the press, and who mainly want to be entertained). This dual function of lobbying – buying the government, and fooling the public – is the successor to that of the feudal era’s military and clergy, which formerly retained the aristocracy’s control through the application of sheer brute force, military arms (which existed even before there was any “press” whatsoever). In that era, physical force, using violence and the threat of violence, predominated over mental force, using deception. Clergy used deception, but were always actually subordinate to the military power. During the modern era, the aristocracy’s control of the state relies more on lobbyists (deception), and less on police (violence). Force against the mind now predominates over force against the body. However, the world is still early in its transition from feudalism into fascism; and, so, there still remain many predominantly agrarian economies, in which the police retain their role as the primary means by which plutocrats control the public.

Thus, in essence, fascism is the modern form of feudalism – for the industrial era, rather than for the agrarian era. In both instances, it’s dictatorship; however, in the modern era, the means of forcing the public are chiefly the lobbying industries, and no longer chiefly the military industries – chiefly deception, instead of chiefly violence.

When lobbying is directed at either bribing or else fooling the public’s representatives in a democracy, that’s lobbying in the sense generally recognized as constituting the way mega-corporations achieve their legislative ends. “Bribing” should, however, be understood in broader than merely the unlawful sense, so as to encompass also such things as the “revolving door,” by which former government officials become legally “hired” by the corporations they had favored while in office, and thus receive delayed payments for those government-supplied favors. Such “lobbying” is a legal form, and it is routinely done by traditional “lobbying” firms. However, our usage here of the concept of “lobbying” is broader even than this, and includes also the aristocracy’s purchase or employment of the press so as to fool voters to elect political candidates who are acceptable and beholden to those plutocrats. “Lobbying,” in this broader sense, includes corruption irrespective of whether it operates directly upon politicians, or instead upon the public who vote for politicians.

Consequently, the concept of “lobbying” is broader here than it is elsewhere: it refers to any expenditure by the aristocracy to influence legislators either directly or indirectly. For examples: the Koch brothers’ Americans For Prosperity (AFP) is a “lobbying” organization in this sense; and so is Rupert Murdoch’s Fox News Channel (FNC); even though neither AFP nor FNC is considered a “lobbying” organization in the ordinary, and far narrower, sense.

When the aristocracy comes to rely more upon lobbying than upon the military, it is evolving from the feudal stage into the fascist stage, but it’s no more democratic than it formerly had been. Fascism is just as anti-democratic as is feudalism.

The United States started at a time when feudalism was declining in Europe and North America. Fascism didn’t yet even have a name, but leading thinkers were already beginning to be concerned about its early signs, which were then just starting to emerge.

A full century before the advent of fascism as a formulated ideology, Thomas Jefferson, the founder of Franklin Delano Roosevelt’s Democratic Party, already feared a fascist (or neo-feudalist) takeover of the U.S. Government from within, and he hoped that the country would crush at the outset “the aristocracy of our monied corporations” – as a letter of his put it – in order to prevent such an outcome from developing, on this side of the Atlantic, as it already had started on the other. Ultimately, the climax of this historic American struggle would await Franklin Delano Roosevelt’s entrance into the White House.

Jefferson wrote, on 12 November 1816, to his long-time friend Dr. George Logan of Philadelphia, about the “profligacy” of England’s government, wasting resources to prop up its international corporations, which Jefferson said had brought about “the ruin of its people” in order to benefit those plutocrats. He said, “This ruin [in England] will fall heaviest, as it ought to fall, on that hereditary aristocracy which has for generations been preparing the catastrophe [meaning creating the catastrophe (by corrupting the government), not meaning to prepare for the catastrophe]. I hope we shall take warning from the [English] example [e.g., the British East India Company] and crush in it’s [sic] birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.” (Regarding the British East India Company, the prominent recent history was that they had violently put down the 1806 Vellore Sepoy Revolution, after the locals there had attacked the Company’s garrison at Vellore Fort and killed 14 officers and 100 soldiers. The Company then killed between 350 and 800 Indian Sepoys in retaliation. The chief point of Jefferson’s letter was that “The man who is dishonest as a statesman would be a dishonest man in any station,” so that “moral conduct towards other nations” inevitably reflects upon the character of the people who lead a given nation. Jefferson was implying that England’s aristocracy were corrupt, and that England’s government was subsidizing their brutal expansion of the Empire; England’s citizens, and not only India’s, were paying the price for the aristocracy’s corruption, Jefferson said.)

Nor was this statement anomalous from Jefferson. On 16 January 1787, he wrote to Edward Carrington: “European governments … have divided their nations into two classes, wolves and sheep. … Man is the only animal which devours his own kind, for I can apply no milder term to the governments of Europe, and to the general prey of the rich on the poor.”

On 26 December 1827, he wrote to William B. Giles, warning that “younger recruits, who, having nothing in them of the feelings or principles of ’76, now look to a single and splendid government of an aristocracy, founded on banking institutions, and moneyed incorporations under the guise and cloak of their favored branches of manufactures, commerce and navigation, riding and ruling over the plundered ploughman and beggared yeomanry. This will be to them a next best blessing to the monarchy of their first aim, and perhaps the surest stepping-stone to it.” He was forecasting fascism, as America’s enemy.

At the pit of the First Great Depression, in the early 1930s, the incoming President FDR was quickly challenged by precisely such an “aristocracy of our monied corporations,” and he stood up against their demands for him to sap the public treasury and to fatten their wealth still further while the public was being impoverished to produce it. He answered their challenge by protecting the American people against them. He called his plan “The New Deal.” It quickly caused the conservative aristocracy to hate him. This book is about what they did with their hate, and how they ultimately produced libertarianism from it.

We shall close this Section, the “History” Section, by documenting that libertarianism dominates all microeconomic theory and all macroeconomics that are based on it – that is, all macroeconomics except the Keynesian.

The Second Section, “Theory,” will then present a new, and already amply empirically validated, economic theory, to replace the lies that the aristocracy has financed as constituting economics.

That’s the opening of Part One. Here is the opening of Part Two:

II: Theory – How Economics Gets Fixed: A New Microeconomic Theory

Economics is, and has been, a theory that was funded – and consequently developed by – the aristocracy. It can’t be fixed except by replacing it with a scientific theory of the subject. Here that is, presented in the form of a journal-article, but in terms that general readers (and not just professional economists) can understand. There will be some repetition of portions of Part One, because this is presented as a stand-alone article.

This paper was sparked when I googled simultaneously the pair of phrases, “distinction between property and people” “economic theory”, and came up with: “No results found for ‘distinction between property and people’ ‘economic theory’.” Similar results were then attained for such alternative combinations as “‘distinction between property and owner’ ‘economic theory’.” However, not until this article’s end is that failure of economic theory discussed explicitly, simply because (as those results exemplified) current economic theory provides no basis for any such discussion. The theoretical basis for discussing it is new here.

Introduction

Economics is in crisis, but the profession persists in ignoring it. Each day’s news is full of this fact, but the economic theoreticians and prognosticators just continue on with their same false assumptions and resulting false recommendations, as if their profession hadn’t already been disproven by the economic data. For example, on 11 August 2014, Gallup bannered “Little Improvement in Global Jobs Outlook,” and reported that “The jobs outlook remained about as dismal worldwide in 2013 as it was in 2012,” even those many years after the 2008 economic crash. Worldwide, 55% said that 2013 was a “Bad Time” to be looking for work; only 34% said it was a “Good Time.” This was a shade (1%) worse than in 2012. On that same day, August 11th, the U.S. Conference of Mayors issued their 2014 “Metro Economies” report, by headlining, “Wage Gap Widens From Recession,” and reporting that, “Jobs gained during the economic recovery from the Great Recession pay an average 23% less than the jobs lost during the recession. … The annual wage in sectors where jobs were lost … was $61,637, but new jobs gained through the second quarter of 2014 showed average wages of only $47,171. … The report also shows the gap between low and higher-income households is growing and will continue into the foreseeable future.” Also on that same day, Paul Craig Roberts, with Dave Kranzler and John Titus, headlined “The De-Industrialization of America,” and they noted that:

The US already looks more and more like a Third World country. America’s great cities, such as Detroit, Cleveland, and St. Louis have lost between one-fifth and one-quarter of their populations. Real median family income has been declining for years, an indication that the ladders of upward mobility that made America the ‘opportunity society’ have been dismantled. Last April, the National Employment Law Project reported that real median household income fell 10% between 2007 and 2012 …

Consider the recently released report from the Federal Reserve that two-thirds of American households are unable to raise $400 cash without selling possessions or borrowing from family and friends. Although you would never know it from the reports from the US financial press, the poor job prospects that Americans face now rival those of India 30 years ago. American university graduates are employed — if they are employed — not as software engineers and managers but as waitresses and bartenders. They do not make enough to have an independent existence and [so they] live at home with their parents. Half of those with student loans cannot service them. Eighteen percent are either in collection or behind in their payments. Another 34% have student loans in deferment or forbearance. Clearly, education was not the answer. Jobs off-shoring, by lowering labor costs and increasing corporate profits, has enriched corporate executives and large shareholders, but the loss of millions of well-paying jobs has made millions of Americans downwardly mobile. In addition, jobs off-shoring has destroyed the growth in consumer demand on which the US economy depends, with the result that the economy cannot create enough jobs to keep up with the growth of the labor force.

And this has happened after the already conclusive failure of the economics profession (except for only 28 economists) to have predicted in advance the 2008 collapse and to have provided explanations for it that were even close to the reality. From that time onward, even merely to be a member of the economics profession (other than of its purely empirical side) should have been an embarrassment, if not full cause for firing.

Economic theory is false, and must therefore be replaced. A replacement of it will here be proposed that’s based upon the same data that disprove the existing theory.

Now will come an overview lengthier than an Abstract or Summary; it’s an abbreviated version of the argument (to be supported then by the empirical sources cited in the article). (Note: The next two paragraphs are the densest in this entire paper, and are intended primarily for professional economists. The rest is for them plus the broader audience.)

In order to bust through the logical-positivist ban on “consciousness,” so that economics can finally treat “happiness” accurately, as a quantifiable phenomenon, and thus replace the Pareto Welfare Criterion (which evades cardinality of owners’ “happiness”, falsely assumes it’s merely ordinal, and thereby strips economics of its truthfully quantifiable basis, thus causing economics to be falsely focused instead on owners’ property – since that’s acknowledged to be cardinally quantifiable via currency), microeconomic “demand” is here no mere transaction, as in existing microeconomic theory, but is re-defined as the consequence of its two actual component parts: desire + ability-to-pay. Economists must acknowledge the existence of frustrated desires (desire without ability-to-pay), because, until we do this (which is only an acknowledgment of reality), Adam Smith’s “invisible hand” (of God) will continue as an unrealistically perfect world of falsehoods, such as Say’s law – a world of actually uncontrolled and unrestrained wealth-inequality that produces periodic economic crashes, no stability, much less a truthfully optimal economy.

Although economists recognize that “demand” is “constrained by income,” they fail to recognize that the portion of desires that is thereby not exhibited in transactions (e.g., that exceeds a given “income constraint”) has powerful impact upon the economy at the macro-level. Consequently, they ignore such “constrained demand,” even while they acknowledge that it exists; and they do this because they feel themselves obliged (due to their logical-positivist indoctrination against talking about “consciousness”) to avoid discussing “desire” that doesn’t display itself in transactions. Not only do they misunderstand what science is, but this misunderstanding has prohibited economics from becoming a science; and the chief purpose of the present article is to rectify that.

Two basic microeconomic concepts must be redefined in order for microeconomic theory to be truthful, not (as it now is) false:

“Demand” is redefined to correlate more with desires and with needs, and not (as now) totally with purchases – which additionally entail ability-to-pay, as much as they do desires and needs. This re-definition is necessary so as to bring economics into line with its supposed goal: enhancement or increase of people’s happiness. (The current purely transactional focus blocks this objective.) Also, clearly distinguishing desires from ability-to-pay will terminate existing economic theory’s overemphasis on serving desires and needs of rich people, and its proportionate under-emphasis on desires and needs of poor people; the result will be truer.

Furthermore, Marriner Eccles in 1951 summarily explained why current economics’ under-emphasis on the desires and needs of the poor, has helped to produce, at the macro-level, recessions and depressions, thus hurting everyone: “As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth … to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.” That is the most profound economic analysis ever. It extends a realistic implied underlying microeconomics up to the macro-level, and produces thereby a Keynesianism that includes consumer debt as a key factor. Eccles’s theory of what caused the Depression was accurate, and perfectly anticipated the 2008 crash.

In other words: mal-distribution of wealth leads to economic crashes. So, “demand” must be broken down into its two actual components: On the one side it entails desires and needs; on the other side it entails ability to pay. These are two separate and independent factors; thus, “demand” is no authentic elementary concept in microeconomic theory: it instead consists of two separate and independent factors – wants, versus ability to pay. When (at the macro-level) ability-to-pay doesn’t keep up with wants, an economy crashes. Distribution is thus key.

The other concept that must be redefined is “welfare.” Vilfredo Pareto defined it so that only mutually voluntary transactions can be optimal, irrespective of how much total happiness might actually be produced by any given possible alternative property-transfer or set of possible property-transfers. In other words: Pareto’s rejection of cardinal utility, his rejection of interpersonal comparisons of utility, produced a microeconomics that’s based purely on transactions, without any accurate utility. This reflected the then-dominant logical-positivist philosophy, which prohibited mention of consciousness, condemning it as the “ghost in the machine,” and thus outside the bounds of “science,” understood in the mechanistic way that then dominated academic philosophy. In psychology, this same logical positivism produced B.F. Skinner’s stimulus-response reductionism, “Skinner box” and radical behaviorism. Logical positivism is dead, but its ghost still haunts the machinery in some scholarly fields.

By banning interpersonal comparisons of utility, Pareto’s Welfare Criterion removed from economics any concern regarding distribution. Pareto himself wrote: “The admirer of the ‘superman’ will assign a coefficient of approximately zero to the utility of the lower classes [i.e., will endorse their enslavement to the ‘superman’], and get a point of equilibrium very close to a state where large inequalities will prevail. The lover of equality will assign a high coefficient to the utility of the lower classes and get a point of equilibrium very close to the equalitarian condition. There is no criterion save sentiment for choosing between the one and the other.” Pareto despised “sentiment,” at a time economists generally were fleeing from it.

But any economic theory that ignores wealth-distribution invites economic crashes, as Eccles described. Many economists try to deal with this by ignoring the welfare-criterion (and underlying logical-positivist philosophy) on which their discipline is actually based, which is Pareto’s. For example, Joseph Stiglitz wrote: “It is the first welfare theorem [entailing Pareto’s Welfare Criterion] that provides the intellectual foundations of our belief in market economies. Like any theorem, its conclusions depend on the validity of its assumptions. A closer look at those assumptions, however, suggests that the theorem is of little relevance to modern industrial economies.” Stiglitz was wrong: this false Criterion was, and it remains, highly relevant – and extremely harmful. Because Stiglitz failed to recognize and acknowledge this important fact, he just left it at that: something “of little relevance.” This was – and is – a big mistake economists make. It blocks crucial progress. A basic falsehood needs to be not merely complained-about (as irrelevant), but replaced by an empirically credible alternative.

Keynes’s macroeconomics doesn’t entail Pareto’s Welfare Criterion; and so Keynesianism can accept that the distribution of wealth is important, and Eccles’s version of Keynesianism is explicitly based upon that very recognition. The actual explanation of, and antidote to, massive economic crashes, is based upon a non-Pareto Welfare Criterion, one recognizing the importance not just of the amount of wealth, but also of the distribution of wealth.

Here is the replacement I am proposing for that Welfare Criterion: A given multiple of one person’s wealth (or freedom) is as valuable to that person as that same multiple of a different person’s wealth is to that other person, irrespective of how wealthy (or free) any given person is. Consequently, for example: adding $1,000 to the wealth of a person who has only $1,000 is the same as adding $1,000,000 to the wealth of a person who has $1,000,000. So, the Pareto Criterion is false, and is replaced by one that’s at least approximately true.

The radical changes that this re-definition of “welfare” entails, both in economic theory and in economic policymaking, are then described. Empirical studies are cited, confirming that the result of applying these changes is overwhelmingly likely to be not just lower inequality, but higher per-capital GDP – and not just locally, but comprehensively: globally, in all nations. Also, the discounting of the welfare of future generations is gone. That discounting is the reason why benefit-cost analyses of measures to reduce global warming underestimate by hundreds-fold the benefits. That underestimation is fundamental to the “scientific respectability” of the propaganda from the fossil fuels industries and their stooges.

A December 2013 study, by Robert J. Brulle, in Climate Change, titled “Institutionalizing Delay: foundation funding and the creation of U.S. climate change counter-movement organizations,” finds that a small number of plutocrats have collectively spent, on average, a billion dollars a year, in order to fool the public into thinking that climate change isn’t happening, and that, even if it is, it’s not caused by burning fossil fuels. These plutocrats control not just fossil fuels corporations, but “free market” foundations and think-tanks, which were analyzed in the 1 July 2013 report from Charles Lewis and others in the Investigative Reporting Workshop, titled “The Koch Club: Koch millions spread influence through nonprofits, colleges,” which tracked their expenditure of “$134 million over a recent five-year period [2007-2011],” to fool the masses to think that global-warming gases don’t need to be regulated by the government, and even that economic regulations themselves are wasteful. These same plutocrats, in turn, pay economists who apply existing false microeconomic theory in their models to evaluate costs-benefits of proposed measures to reduce global warming. That corruption is a major reason for the continuance of false microeconomic theory: the falsehood is essential to these plutocrats; it produces the enormous underestimation of the benefits of taking action against them.