Dan Klein's "10 Reasons You Shouldn't Call Leftists Liberal"

Daniel B. Klein has written an excellent piece in Intercollegiate Review on the 10 reasons why you shouldn't call leftists "liberal."  Klein notes that the word "liberal" has two meanings: (1) that pertaining to generosity and (2) that pertaining to a free man, as in "liberal education."  The first to use the term in its political meaning was Adam Smith, and some scholars, such as Larry Siedentop, have claimed that liberalism was the result of Christianity.*

The ideology of the Progressives was not liberal, for it places state institutions at the center of economic decision making, leaving a sphere to a market that is shaped and dominated by the state.  This approach was the product of the later German historical school led by Gustav von Schmoller, and Bismarck implemented it.

As it turned out, Schmoller and Bismarck's third way turned into Hitler's third way, which adapted aspects of Mussolini's third way: Fascism.   Like Hitler and Mussolini, Franklin D. Roosevelt proposed cartelization and intense state influence on industry.  The Supreme Court scuttled Roosevelt's National Industrial Recovery Act, but elements of it, such as the National Labor Relations Act, were enacted. 

The interest in third way economic policies flowed from the war economy of World War I. Although World War I was on every level a fiasco, the media convinced the public--modern propaganda having been an important innovation during the war--that without a powerful state the Great War could not have been fought and won.

Alas, without its having been fought and won, the world would have been much better off, but that seems to have escaped my grandfather's and parents' generation, as well as my own.

Also during the World War I era, Herbert Croly and Theodore Roosevelt aimed to paint Progressivism, as Mussolini did Fascism, as a third way in between liberalism and socialism.   Hence, Progressivism, Fascism, and Nazism are variations of the same system.  They differ from the overt socialism of the USSR and Red China, and they also differ from liberalism, which is based on natural rights and profit-seeking and which leads to optimal economic performance.  The third way systems and the twentieth century socialist systems evolved from the war economies of World War I, and they are linked to the military state.

Klein is right that the use of the word "liberal" to describe the views of the World War I-derived ideologies--the third way and social democracy--is Orewellian.  Whenever the media calls a leftist liberal, a devil gets his horns.

*I was just listening to Professor William R Cook's Great Courses lectures  The Catholic Church: A History, and it is evident that mainstream Catholicism has not been in favor of liberalism.  In  1864 Pius IX  issued  Syllabus of Errors, which opposes separation of church and state and claims the right of the Catholic Church to use force.   In 1891 the Catholic Church moved to a third way approach under Leo XIII's  Rerum Novarum, which opposes class warfare, opposes socialism,  favors natural rights (grounded in Thomistic philosophy) and favors private property, but opposes free-market wage determination and favors workplace regulation.   Hence, the Bismarckian system, which was, I believe, the product of German Protestants, can also be called Christian.  Liberalism is associated with Calvinism, but Lutheranism and Catholicism may be closer to the third way.

Has the Tea Party Been Hijacked? Or Did They Shoot Themselves in the Foot?

Aaron J. Biterman of the Republican Liberty Caucus has an excellent blog on the evolution of the Tea Party movement from a group that originated to support Ron Paul to a group that sponsored candidates who ran in opposition to Ron Paul. (Disclaimer: I also blog on the RLC site with Aaron.)  As someone who has been involved in my local (Kingston, New York) tea party and who attempted to help organize one in my small town of Olive (about one half hour outside Kingston) I would argue this:

1. The Tea Party members are generally inexperienced in politics.  They are learning how to organize.  The left is way ahead of them.  The learning curve for the Tea Party is steep.

2. Few of the Tea Party members I have met have the requisite knowledge of the nation's founding to make a convincing stand against the left.  Few realize that the American left is actually an outgrowth of the Republican Party, which in turn was an outgrowth of the Whig Party, which in turn reflected the impulses of the earlier Federalist Party.  Hence, the Republican and Democratic Parties are not very different.

The lack of understanding is not surprising because the school system engages in aggressive propagandizing in favor of big government as does the news media. Both favor the Whig/Federalist view. The Tea Party should conceptualize itself as Jeffersonian and Jacksonian, but the meanings of those two names are not clear to the Tea Party members.

Put another way, most members of the Tea Party believe that there are two philosophies, "liberal" and "conservative" and that they are fundamentally different, with "conservatives" reflecting the views of the founding fathers and "liberals" representing the views of the poor and professors who aim to revise the ideas of the founding fathers in an atheistic direction.  It is not surprising that they believe this because that is the nonsense that they have been taught in school.

The word "liberal" refers to the world view of the founding fathers.  There is no such thing as an American "conservative", and the ideas of John Locke and Baron de Montesquieu for which the American revolution was fought have nothing to do with conservatism.  Jefferson's Declaration of Independence was a radical statement for freedom. 

The ideas advocated by those incorrectly called "liberals" were advocated by the Federalists, who copied them from David Hume and other mercantilist economists.  Some of the ideas advocated by those incorrectly called "conservatives" were advocated by the anti-Federalists and to a lesser degree by Jefferson and then Andrew Jackson, who turned Jefferson's Democratic Republican Party into the Democratic Party. 

The supposed "conservative" or libertarian (truly the liberal) view was at best contemporaneous but really evolved several decades after what is mistakenly called the "liberal" or "progressive" view, which was developed several decades earlier in the 17th and 18th centuries.  Liberalism, the advocacy of liberalis, freedom, referred to the rejection of monarchy and in favor of limitation on the state.  The more extreme form of liberalism that rejected mercantilism came after mercantilism, after what is today called "progressivism," not before it.  Hamilton was the first "progressive" and Sam Adams was the first "conservative", except that Sam Adams was a radical and Hamilton was the closest thing in America to a conservative. So everything is backwards.

In America, there was no monarchy to speak of (other than loyalty to the British crown) and after the American Revolution there was at most remnants of conservatism in the breasts of the earliest "progressives," Hamilton and Adams.  It was the big government Federalists and then Whigs who served as the role model for today's "liberals." But they were the more conservative of the two American parties.  Jefferson and his group rejected all manifestations of monarchy.

The Whig Party became the Republican Party, which fought for big government in the Civil War.  The Democrats became the secondary party at the national level in the post-bellum period, the Gilded Age.  The big government Whig instincts found expression within a few decades as the Progressives rejected laissez faire, returning to their socialistic Hamiltonian roots.  The cooptation of liberalism occurred when Wilson was elected as a Democrat on a Progressive platform. As well, William Jennings Bryan had adopted populism, which rejected the liberalism of Jackson.

To integrate populism into the mainstream of American politics, Franklin D. Roosevelt combined it with the Whig Progressivism of his cousin, Theodore Roosevelt.  Much of the New Deal had already been advocated by Theodore Roosevelt and implemented by Woodrow Wilson and Herbert Hoover. The remaining elements were superficial laws like Social Security that redistributed wealth between the middle class and poor and gave the illusion of redistributing from the rich to the poor. The chief method by which Roosevelt's New Deal distributed money from the poor to the rich was Roosevelt's abolition of the gold standard and grant to the Fed of unlimited power to create money and give it to Wall Street and the money center banks in New York.  This went way beyond Hamilton's greatest fantasies about expansion of the state and the central bank in favor of the wealthy.

In combining populism with the Whig philosophy, Roosevelt played a hand that was familiar since the days of Augustus Caesar.  Give the populace bread and circus and use the state to procure benefits for the wealthy.  This was the way Rome held class warfare at bay for nearly five centuries.  To executive this strategy, control of the schools, the media and public debate were necessary.

Thus, public debate in America is between two Whig parties.  The Republicans perpetuated the Whig Progressivism of  Theodore Roosevelt while the Democrats perpetuated the Roman Whiggery of Franklin D. Roosevelt. There have been a handful of exceptions, such as Ron Paul, since World War I, but only a handful.  Both parties reflect the elitism of Hamilton.  The nation has rejected the laissez faire, democratic and competitive mindset of Jackson which generated the nation's economic success and growth.  

Unlike Rome, which relied on empire to replicate itself, the US continues to hope for technological growth to improve standards of living. But the engine of technological growth has been eviscerated by the central bank and the growth in the state.  Hence, the real hourly wage no longer increases as it did in the era of laissez faire. 

The Tea Party has been unable to conceptualize the source of the problems that anger it, namely, the loss of jobs and stagnation of standards of living as measured by the real hourly wage; the loss of younger generations' motivation to achieve; the increase in public support for destructive socialistic policies that will lead to bankruptcy; and the expansion of the entitlement  mindset that is leading to economic decline. As a result, the Tea Party lacks direction. 

The neoconservatives to whom Biterman alludes in his article are but one more manifestation of the pro bank Whigs.  The Party that fought the Civil War and that invented American Imperialism (under McKinley) is no stranger to the ideas of Fred Barnes and Bill Kristol. They are the party of economic decline, the party of big government, the party of the Fed, the party of Wall Street.  So long as the Tea Party cannot tell the difference between a Jefferson and a Palin, they will continue to shoot themselves in the foot.

Failure of Liberalism

In 1960 sociologist Daniel Bell claimed that ideology had ended. It did not. Ideology is but a set of integrated assumptions, hypotheses or theories about the world. Without integration social order would disintegrate, and without assumptions action would be pointless. In the decades following 1960 universities were imbued with a more aggressive ideological tone than that which had preceded 1960. More importantly, the dominant ideology of the post-war period, state-activist liberalism, faltered. Yet its proponents in both major political parties became increasingly shrill about their respective ideological versions. What faltered most was state-liberalism's claim of pragmatism and economic rationality. In failing to consider the outcomes of its own decisions, state-liberalism failed its chief premise of pragmatism. State-liberalism faltered because business was not efficient, rational or pragmatic, but rather was coddled (Lindblom) and benefited from the activist liberal state that acted not in the public interest but rather in firms' private interests. Coddling connotes inefficiency, and inefficiency leads to the failure of state-activist liberalism's chief premise that it can produce economic growth and that the state can ameliorate inefficiencies, the business cycle and the anxieties characteristic of laissez-faire capitalism. Although economic growth in the immediate post-war period was ample and well distributed, by 1970 the liberal-Progressive system had failed to deliver what Herbert Croly called "the promise of American life". Real wages sputtered and income inequality grew in the wake of stock market growth and plant relocations. In the following decades, the decline has been mitigated by borrowing and the increasingly widespread distribution of credit, but little more. In other words, the American economy has been living on borrowed time. A few technological breakthroughs have masked a widespread failure of innovation. As executives have seen plant relocation as the sole avenue for increasing efficiency, they transferred America's rusting infrastructure to the third world. But the activist state displaced the innovation that ought to have replaced the now-globally based manufacturing infrastructure. The result is ever-slower economic and technological progress if not outright permanent declines.

Oswald Spengler argued that the west would decline because of natural historical cycles. The decline of American liberalism is not due to an inevitable cycle but rather to the choices that the American public has made in response to the failure of the progressive ideologies and institutions that came to dominate American politics beginning in the late 19th century and have increasingly dominated liberalism--those of the activist state. The proponents of the activist state claim that it serves the poor and argue for the establishment of large edifices to do so. But they have not solved the poor's problems, and in many cases have intensified them. State activist liberals, on behalf of their altruistic claims, establish a centralized monetary system whose chief result is not just the reduction of unemployment in ever-less productive jobs, but the distribution of credit hence wealth into the hands of large corporations, their stock holders, their executives, their service firms and Wall Street. State-activist liberalism calls itself "progressive" but progress in terms of real wage growth and innovation has fizzled. Hence, while the proponents of state activist liberalism claim to have improved things, much of what they have accomplished has been destructive of the ends that they proclaim. Following more than a century of state activist liberalism, Americans are less economically secure than they were under laissez-faire because job creation has slowed and has been funneled into the kinds of jobs in the kinds of firms to which entrenched economic interests have chosen. These are not the firms and jobs that best serve the public and do not produce sustainable growth. Alternatives have been staunched by the centralized approach to credit allocation that progressivism, backed by banking and corporate interests, has favored.

State activist liberalism has faltered because it has not fulfilled the promise of pragmatism that post-war liberals proclaimed. America's large corporations have not performed, and instead have relied on the public support that efficient private organizations ought to obviate. This is not because the public cannot afford seeing large companies fall or because industry is necessarily inefficient, but because the firms' control of the media is sufficient to forestall intelligent debate about policy options.

The state-activist liberal stance was always present in American history. In the late 18th century it was called Federalism and in the early 19th century it was represented by the Whig Party. The Republicans briefly rejected the state liberal philosophy in favor of social Darwinism in the late 19th century for two or three decades, which had the effect of preempting working class Jacksonian democracy, and then reasserted it in the form of Progressivism. The Democrats under Woodrow Wilson followed. Under Franklin Roosevelt the Democrats made one major change: painting the image that their Whig philosophy was in the interest of the poor and that the redistribution of wealth that Hamilton and the Whigs had advocated was a matter of social justice. At the same time, Roosevelt intensified the power of the Fed to transfer wealth to politically connected investment banks and their client corporations.

Although both political parties are genealogically descended from Jefferson, both advocate the ideology of Hamilton. But management theory has advanced since Hamilton's death. Today's state activist liberalism fails to integrate advances in management theory, and in effect is a relic-ideology that has slowed economic growth and has increasingly crippled the American economy.

It is time to consider alternatives. The current path is one of impoverishment and the failure of the American economic system.

Rahm Emanuel's Hitler Youth Plan

Fausta Wertz of Fausta's Blog has forwarded this podcast of the Daily News's Ben Smith's interview with Rahm Emanuel about his plan to institute a mandatory, totalitarian-style (Red Guard, Hitler Youth, classical Spartan) youth camp training for all Americans aged 18-25. Rahm Emanuel went to the same college as I did (albeit a number of years later), Sarah Lawrence College in Bronxville, NY.

We see in this video the results of America's crumbled higher education system. Mr. Emanuel is ignorant of the liberal principles that underlie American history and philosophy: the principles of individual rights and freedom, of John Locke and of the dissent of Roger Williams. Louis Hartz has argued that the New Deal and subsequent liberal tradition in America reflected a deeper Lockean liberal tradition. He was wrong. If you have not read, understood and agreed with Locke's Second Treatise on Government I do not think that you can be a good American. I do not believe that today's college graduates know what the American way of life is.

It is a mistake to elect candidates who have graduated from or taught at northeastern higher educational institutions. Northeastern universities inculcate ignorance about essential American traditions. They are not critical. They are simply ignorant. With thugs like Barack Obama and Rahm Emanuel in the White House, America is on a tragic path.

Enjoy:



Fausta writes:

>This "Civil Service Plan" is right out of Castro's Cuba, where you have to go work al campo in the countryside when you're twelve years old.

The Emanuel plan is for ages 18-25, so you don't have the outcry that using minors would generate. However, ages 18-25 are prime job-hunting ages. Anyone who doesn't comply with the "Civil Service Plan" can be blackballed from any future employment.

Notice how high schools across the country already have mandatory community service as a graduation requirement. Implementing a mandatory "Civil Service Plan" in colleges, considering how academia is sympathetic to Obama, would be the easiest thing in the world.

From that, to making the "Civil Service Plan" mandatory to future employment would only take nod from Congress.

Can't happen here?

Yes it can!

Jim Crum on the Liberal Self-Deprecation

Winning does not support the liberal narrative.

Keep this simple axiom in mind:

THE ONLY TIME A LIBERAL WILL ENGAGE US MILITARY FORCES IS WHEN OUR NATIONAL INTEREST IS NOT AT STAKE.

This is because it makes our motives "pure" and not imperialistic.

For instance: Iraq vs Somalia

With all due respect to Somalia, it could vanish form the earth and it would effect our nation in what way? NONE.

Iraq, sit in the middle of our fuel supplies, and rightly or wrongly, we have a vested interest there.

--JJC

Bureaucracy and None of the Above

The Progressive movement and its social democratic system put considerable faith in bureaucracy. In part, this was because the late nineteenth and early twentieth centuries saw bureaucracy as improvement over the paternalism of the early nineteenth century, and they were right. However, by 1940 right as the New Deal reforms of 1932-7 were drawing to a close, it had become evident that bureaucracy does not work so well as its proponents thought. In the 1940s the sociologist Robert Merton wrote an article about the rigidity of bureaucracy and bureaucrats' fetishization of rules at the expense of efficiency. In the 1950s Taiicho Ohno of Toyota pioneered the principles of lean production and total quality management. Even going back so far as the 1920s, Alfred Sloan of General Motors, along with executives in other leading firms, pioneered the use of decentralization, federalized organization, realizing that large firms did not permit global or functional forms of organization. The information and flexibility requirements of large firms are too daunting for anyone to handle.

Strangely, though, the Progressive and social democratic movement continued to emphasize centralization. The result is that increasingly, American life has been dominated by unresponsive, unproductive government bureaucracies that spin regulation and do not care what the public thinks. This is the result not only of centralization but also of the increasing emphasis on expertise in the expansion of government at the expense of the spoils system.

The result is a considerable degree of dissonance between the public's experience and the "facts" it is fed in school, through the news media and through public opinion leaders who are committed to the Progressive, social democratic solution because it enforces their status as professional experts, elite business leaders and the like.

The public has become increasingly alienated from public institutions because they are distant; they do not work; and they are held forth as far superior to the processes and systems that in the public's own experience work. As a result, the public experiences what psychologists call "cognitive dissonance". On the one hand, they are taught that "experts" know better than they do. But when they interact with state government, the department of motor vehicles and the like, they experience systems that do not work so well as ones that they themselves could devise. They are taught that scientists can solve problems. But then they hear that cancer has become an industry characterized by avoidance of effective remedies, politics, waste and regulation of innovative ideas out of existence. They are told that the state equalizes inequity, then they learn that the federal government subsidization billionaire investment bankers through direct bounties and a central banking system that sees its primary role as to support stock prices.

Cognitive dissonance has unpredictable effects, but one of them is potentially withdrawal. Others include anger, attempting to intervene and correct the situation, and denial. All of these are present in today's society.

Both left and right have become increasingly strident as the remedies that they advocate, central banking, expertise in government, efficiency, a corporatist state that supports the public interest, have failed to materialize. Political correctness, left wing intolerance of dissent in universities and other institutions, reflects the left's inability to confront the failure of the mercantilist solution to which it has been wedded since the late eighteenth century. Likewise, the right wing increasingly fights within itself, unable to arrive at a coherent picture of reform. As well, much of the right is in denial about its own Progressive spirit. The split between libertarians and conservatives has permitted mercantilists of the Progressive (Republican) and social democratic (Democratic) stripe to dominate the electoral process.

The public faces declining real wages, yet has refused to confront the decline and has borrowed, consuming about six percent more each year than it creates. There is avoidance of the causes of economic decline. Firms have heavily relied on public subsidy, especially through the banking system, yet corporate executives claim prerogatives of private property in extracting ever-increasing salaries that at most weakly reflect corporate performance. Few in the news media suggest that corporations that do not see a public role ought not to be subsidized by the public, and that the Federal Reserve system is little more than a crutch for inefficient American firms.

Americans increasingly feel alienated. The reason is that the obsession with size and economies of scale has been pursued too far. The large scale of industry; the large federal government have not yielded increases in wealth. Rather, they have become vehicles by which corrupt special interests extract wealth at public expense and as the public has reacted to cognitive dissonance by increasingly withdrawing or by becoming ever more strident in its demand for "change", a noun that describes an unnamed verb.

The remedy for too much centralization is decentralization.

Social Democratic Fallacies

Social democracy, which has at various times inappropriately been called liberalism and progressivism, is a doctrine that has created problems in the name of problem solving. Among the first to recognize the pattern of social democracy's multiplying and intensifying problems was William Graham Sumner in his essay "What Social Classes Owe to Each Other", first published in 1883. Toward the end of this small book, Sumner describes the "forgotten man", not the poor man who is the beneficiary of proposed regulation, but the third party whom the reformer aims to coerce and who will pay an escalating price for the reformer's fallacious schemes.

Since Sumner wrote the essay, we have seen urban renewal programs supposedly aimed to help the poor that drove jobs and housing from cities, resulting in homelessness and escalating real estate values that destroyed the possibility of urban life for all but the wealthy. We have seen welfare programs that have institutionalized poverty. We have seen massive subsidies to failed corporations that encourage a culture of incompetence and waste in a business community that is already self indulgent. We have seen a housing code in New York City whose aim is to further inflate construction costs. We have seen housing prices rise, and when they declined slightly, a declaration of a "crisis" because bankers, whose job it is to lend intelligently, could not be bothered to screen borrowers. We have seen earmarks and bridges to nowhere. We have seen billions squandered in cancer research that has been politicized to the point where Fortune Magazine asserts that cures have been staunched by senior academic researchers who feel threatened by new theories. We have seen high schools graduate seniors who can barely read, and universities graduate semi-literate college seniors under failed, progressive education theories. We have seen one social democratic blunder after the next, and as Sumner put it, the forgotten man or woman is the one who pays.

What is this social democratic doctrine to which our nation has found itself committed? Social democratic and progressive ideologies dominate both the Republican and Democratic Parties, yet the assumptions that their advocates make deviate from the core beliefs of most Americans, core beliefs that are pragmatic and liberal in the Lockean sense. Social democracy is neither pragmatic nor liberal, yet it uses the terminology of pragmatism and Lockean liberalism to cloak fallacious underlying assumptions:

1. The fallacy of scale. Social democracy argues that bigger is better and that progress involves progressive governmentalization on ever larger scale. Since the 1950s and before, most economic progress has not required large scale, and economies of scale have not been fundamental to new economic and technological advance. Yet, social democracy subsidizes scale through financing mechanisms like the Federal Reserve Bank, political favoritism, direct grants and regulatory systems that freeze out small business.

2. The eschatological fallacy. Social democracy believes that society is headed toward a specific end or purpose related to its model of large scale production, namely enhancement of government control or socialism. The belief that the "problem of production has been solved" characterized the modernist period--until the Japanese showed American firms that they were clueless about production problems and that there will always be improvement in production. Moreover, the solutions to the problems of production require information, not scale. As well, large scale organizations are too rigid to adopt the steps needed to improve production.

3. The predictability fallacy. Social democracy believes that it can solve problems because rationality is the primary ingredient to problem solving. In fact, rationality is but one of several elements in problem solving. Because demand, technology and other conditions change, information specific to time and place is often more important to solving technological and market problems, as the Austrian economist Friedrich A. Hayek argued. Therefore, experts in large governmental bureaus are not only ill-equipped to solve problems, but are guaranteed to fail to grasp what the important problems are.

4. The infinite regress fallacy. Social democrats believe that if business is corrupt, all that is needed to correct corruption is a layer of regulation. But who is to guarantee that the regulators are less corrupt than the firm? Are regulators descended from a special race of especially honest men? Might not regulators develop economic interests in the industries that they regulate? And if so, do social democrats propose regulators of the regulators, and do they believe that this additional layer, or Congress itself, is somehow better equipped or motivated to regulate?

5. The social democratic invincibility fallacy. Social democrats imagine themselves, as Sumner points out, to be smarter, more moral and better equipped to solve problems than others. Few social democrats have solved problems competently. I can state this with assurance because few government programs work. The groupthink associated with participation in the social democratic movement is the social democratic movement's greatest obstacle to pragmatism. The readers of the New York Times imagine themselves "smarter" because they read the Times, and so on. This sort of egotistical delusion precludes intelligent thinking and guarantees a rigidity and closed mindedness among social democrats that ensures the failure of any and all of their ideas.

Louis Hartz's Liberal Tradition in America and the Locke-Step Theory of American Liberalism

Louis Hartz. The Liberal Tradition in America: A new concept of liberal community that relates American politics and political thought to the mainstream of Western history. Winner of the Woodrow Wilson Foundation Award. New York: Harcourt, Brace and World, Inc. 1955. Available from Amazon.com for $10.20, used and new $0.42.

Louis Hartz's Liberal Tradition in America is a brilliant, riveting and erudite study of the history of Lockean liberal ideology in America. Hartz argues that all of American history to his writing in the early 1950s was characterized by a commitment to Lockean liberalism. There are paradoxes to this argument, though, because in order to make this claim Hartz has to explain away elements of the New Deal that were not Lockean in nature and overlook elements of the Progressive era that were also illiberal. Hartz's argument is almost Freudian. Much as Freud claimed that frustrated sexual impulse is behind myriad behaviors, Hartz claims that frustrated liberal impulses are behind myriad behaviors. This single-factor theory fails to work for Freud, but it becomes silly despite the brilliance of Hartz's exegesis. Moreover, Hartz himself is contemptuous of what he several times calls Americans' "irrational liberalism", which in his view is psychologically sublimated whenever a non-Lockean policy is devised.

Hartz's writing is unusually facile and abstract and so susceptible to over-generalization. Moreover, he focuses on ideology as opposed to economic fact. This problem becomes acute in his discussion of the twentieth century. The chapters in the book that discuss the Federalist and Whig periods are the most interesting. He fails to anticipate the possibility that Progressivism was as much a Whiggish doctrine as was late 19th century Republicanism. Somehow, he sees the Republicans as having made a transition from the Whiggery of McKinley to the Progressivism of Theodore Roosevelt and then back to the Whiggery of Harding, Coolidge and Hoover (p. 261). He misconstrues Hoover, failing to grasp that Hoover was as much an advocate of New Deal-style solutions as Franklin D. Roosevelt was, an insight that Murray N. Rothbard develops in his and Ronald Radosh's New History of Leviathon.

Perhaps I am committing a present-orientation fallacy since the benefit of Rothbard's, Martin J. Sklar's, Ronald Radosh's and Gabriel Kolko's libertarian and New Left reinterpretation of Progressivism had yet to be written at the time that Hartz wrote. But there is little in the record to enable him to argue, as he does, that Hoover and Harding were "Whigs" as opposed to Wilson. But he repeatedly calls Hoover a Whig, contrasting him with FDR, yet Hoover was a more left-wing Progressive than was Wilson. Moreover, Wilson was not the most characteristic Progressive, and Theodore Roosevelt was to Wilson's left, which is why Roosevelt ran against Taft, facilitating Wilson's victory. Teddy Roosevelt's Progressivism was not as Lockean and individualist as Hartz argues that Wilson's was. Moreover, the practical economic effects of the four Progressive administrations, Roosevelt, Taft, Wilson and Hoover were different from the democratic effects that Hartz assumes. Nor need we interpret FDR's New Deal in anything other than Whiggish terms. Nor is there any real reason to claim, as Hartz does, that a secret Lockean impulse was beyond FDR's statist policies. Roosevelt abolished restrictions on the central bank, a policy very much in the Whiggish and Federalist tradition, and this was the most far-reaching policy of the New Deal.

As with his discussion of the Progressives, Hartz takes the assertions of Harding at face value. He claims that Progressive legislation was repealed, but this is hardly so. Workers' compensation laws exist today in all of the states, and most or all of them were established in the Progressive era. Harding made no effort to repeal the Progressive laws concerning the Federal Trade Commission and the railroad regulation, and he added a few boondoggles of his own, despite the conservative rhetoric that Hartz takes at face value. Likewise, the gulf between FDR's practical influence in abolishing the gold standard and reinforcing the privileges of Wall Street and his democratic rhetoric are not sufficiently recognized.

The book's weakness with respect to Progressivism and the New Deal is that Hartz fails to disentangle the ideological rhetoric of the Progressives and FDR from the practical economic realities underlying their reforms. Although Hartz makes the point several times that much of the Progressive and New Deal reform had the effect of shoring up business, he overlooks the Whiggish long term effects of both movements.

Today's political milieu is dominated by a separation of rhetoric from effect, and so Hartz's argument concerning the nineteenth century has important implications. He is willing to view the Whigs and their Republican descendants as manipulative and opportunistic in the nineteenth century, but somehow in the twentieth he takes the claims of the Progressives and the New Dealers at face value, adding a naive belief in central planning and government to the mix and the cliched claim that the New Deal was pragmatic.

Hartz claims that liberalism characterizes all of American ideological history, and then argues that FDR's New Deal proves this because even though its policies were pragmatic and not Lockean, it retained an underlying belief in Lockean liberalism that was "sublimated" (pp. 270-1):

"For when the moral cosmology of New Dealism sank beneath the surface, what appeared, of course, was that happy pragmatism which usually refused to concern itself with moral issues at all. And this, in turn, permitted the American democrat to go about solving his problems without the serious twinges of conscience which would surely have appeared had he felt that his Lockian Americanism was at stake...the New Dealers were themselves taken in by the process involved, being proud of their pragmatism and seeing no more clearly than the great Dewey himself the absolute moral base on which it rested."

The trouble is, there is a reality against which ideas need to be tested. Ideas result in policies. If the policies are not Lockean, the ideas cannot be said to be so. The claim that there is an underlying Lockean morality is not a falsifiable one.

For all his literary and philosophical brilliance, Hartz fails to define liberalism coherently. Thus, he contradicts himself on various occasions. Liberalism is first and foremost a philosophy involving freedom. The Latin liberalis means "of freedom". Freedom means that an individual is free from coercion. To the extent that any doctrine involves coercion, it is no longer liberal. Progressive policies like the income tax, the Federal Reserve Bank and railroad rate setting are not liberal and are not motivated by liberalism. Nor is the Red Scare, the Palmer raids or McCarthyism. They are reflections of special interest manipulation of the state on the one hand, and emotional, democratic impulse on the other, not liberalism.

Hartz's ideas make an interesting contrast to those of Reinhard Bendix in his Work and Authority in Industry. Bendix argued that the Protestant idea of a pre-ordained elect that is chosen for salvation carries forward to business, as Max von Weber argued in his Protestantism and the Spirit of Capitalism. In Hartz's scheme, the idea of an elite carries forward to Hamilton but not to Jefferson. Hamiltonian Federalism fails because it rejects democracy in favor of the elitist Federalist doctrine. The Whigs recreate the elitist Federalist doctrine, but fail to elect candidates until William Henry Harrison took a different tack in 1840, claiming a common upbringing. Lincoln too, really the fifth Whig (and of course first Republican) president after Harrison, Tyler, Taylor and Fillmore emphasized his log cabin upbringing. Thus the Whigs created a "Horatio Alger" ideology. All Americans can be capitalists and all can be landowners. This capitalist vision enabled the Whigs and their Republican descendants to win two ante-bellum elections and to dominate national politics after the Civil War. In contrast, Bendix emphasizes the transformation of managerial justification of power from the religious to the moral justification associated with the common sense philosophers of the early nineteenth century to the social Darwinism of the late nineteenth century.

Where Bendix (who wrote his book a few years after Hartz) and Hartz diverge is with respect to the scientific management and human relations school eras. Scientific management was very much an ideology of the Progressives, while the Human Relations School was dominant in management theory from the 1930s through the 1950s, what might be called the New Deal period. In contrast to Hartz, who accepts the New Deal at face value, Bendix argues that scientific management and the human relations schools were but continuations of the elitist ideologies of the late eighteenth and nineteenth centuries. While sociologists and historians criticize Progressive and New Deal managerial theories as elitist, they reserve such judgments from the political power holders such as TR, Wilson, Hoover and FDR.

Hartz argues that to understand American political ideology it is crucial to emphasize the lack of a feudal history in the United States. Without feudalism, there is no socialism, for the power of conservative feudal aristocrats forces their opponents to think in centralizing terms. (p. 5; 43) "One of the central characteristics of a non feudal society is that it lacks a genuine revolutionary tradition..." He adds (pp. 9-10):

"...it is a remarkable force: this fixed, dogmatic liberalism of a liberal way of life. It is the secret root from which have sprung may of the most puzzling of American phenomena...At bottom it is riddled with paradox. Here is a Lockian doctrine which in the West as a whole is a symbol of rationalism, yet in America the devotion to it has been so irrational that it has not even been recognized for what it is: liberalism....I believe that this is the basic ethical problem of a liberal society: not the danger of the majority which has been its conscious fear, but the danger of unanimity, which has slumbered unconsciously behind it..."

He adds (p. 12): "Do we not find here, hidden away at the base of the American mind, one of the reasons why its legalism has been so imperfect a barrier against the violent moods of its mass Lockianism?"

This question illustrates the basis for my criticisms. Locke emphasizes natural rights and liberal limitation on the state. The Palmer raids, McCarthyism and similar examples of democratic hysteria are the antithesis of Locke. Any logician worth is salt will tell you that if you say that what is not Locke is Locke, then any conclusion can be drawn. Hartz over-strains his insight. America is primarily Lockean, but it falls prey to anti-liberal, democratic patterns at times. The anti-liberal patterns such as McCarthyism are democratic, not Lockean. There is no need to claim that the Tennessee Valley Authority is liberal because of unconscious libido-like liberal impulses.

The best part of this book, and it is truly breathtaking, is in the second section on the development of the liberal idea in combination with elitism. America was the freest country in the world, much freer than it is now, before the Revolutionary War. Hence, there was no need to overturn an aristocracy (p. 39-55):

"When men have already inherited the freest society in the world, and are grateful for it, their thinking is bound to be of the soldier type. America has been a sober nation, but it has also been a comfortable one, and the two points are by no means unrelated...the revolutionaries of 1776 had inherited the freest society in the world...It gave them, in the first place, an appearance of outright conservatism. We know, of course, that most liberals of the eighteenth century, from Bentham to Quesnay, were bitter opponents of history, posing a sharp antithesis between nature and tradition. And it is an equally familiar fact that their adversaries, including Burke and Balckstone, sought to break down this antithesis by identifying natural law with the slow evolution of the past...The past had been good to the Americans, and they knew it. Instead of inspiring them to the fury of Bentham and Voltaire, it often produced a mystical sense of Providential guidance...The trouble they had with England did not alter this outlook...The result was that the traditionalism of the Americans, like a pure freak of logic, often bore amazing marks of anti historical rationalism...one of the secrets of the American character: a capacity to combine rock-ribbed traditionalism with high inventiveness, ancestor worship with ardent optimism....men began to be held together, not by the knowledge that they were different parts of a corporate whole, but by the knowledge that they were similar participants in a uniform way of life--by that pleasing uniformity of decent competence."

Thus, the liberal norm penetrates us all (p. 56). Moreover, and this is part of the excessively Freudian part of Hartz's thinking (p. 59), "American pragmatism has always been deceptive because glacierlike, it has rested on miles of submerged conviction and the conformitarian ethos which that conviction generates has always been infuriating because it has refused to pay its critics the compliment of an argument." While I think he's right and that America is conformist and there is a Lockean impulse, it is wrong to conclude that imposition of securities regulation or internment of the Japanese during the Second World War reflect liberalism. A is not not A.

Hartz's comparative methodology (he uses France, England and Germany as comparison points) is off-the-charts brilliant. Hartz's familiarity with European and American history is impressive. He compares American and European liberalism and concludes that part of the reason socialism never appealed to Americans was that there was never any feudalism here (p.78). In America, the two basic impulses are toward democracy and toward capitalism (p. 89). In early American history, the Federalists saw the needs of the capitalist in opposition to the democracy. The democratic tradition of Jackson, which was therefore able to destroy it, formulated a philosophy which seemed to deny its faith in capitalism. But rather than allow the petit-bourgeoisie, the peasant and the worker to oppose capitalism, American Whiggery transformed the peasant into the "capitalist farmer", the worker and petit bourgeoisie into the "incipient entrepreneur" (p. 92). "For" (p. 94) "if the American democrat was unconquerable, he was so only because he shared the liberal norm. Thus what (pre-1840) Whiggery should have done, instead of opposing the American democrat was to ally itself with him..." (p. 95) "In America there was no mob: the American democrat was as liberal as the Whigs who denounced him...the quick emergence of democracy was inherent in the American liberal community."

But the American democrat was liberal and the Whigs' fear of him "coincided with the American democrats' fear of himself, for he no more than they, understood the liberal world that brought him to power and hence could not see any better than they could that in such a world the majority would not want to annihilate the individualist way of life." Thus, Jacksonian democracy did not resist the establishment of the Supreme Court, the Constitution and the law as a limit on democratic power. But while the Federalists and Whigs denounced the American democrat, the people were as liberal as they were (p. 106). Whiggery could only control the democratic American "by uniting with him in a capitalist movement" (p. 108). In the "age of Harrison" the Whigs "transformed" "the egalitarian thunder of the Democrats" (p. 111) by combining Hamiltonian capitalism with Jeffersonian equality. "The result was to electrify the democratic individual with a passion for great achievement and to produce a personality type that was neither Hamiltonian nor Jeffersonian but a strange mixture of them both: the hero of Horatio Alger...A new social outlook took shape, dynamic, restless, competitive, and because it united the two great traditions of the American liberal community, its impact ultimately became enormous" (p. 112). Hartz quotes Tocqueville: "what astonishes me in the United states is not so much the marvelous grandeur of some undertakings as the innumerable multitude of small ones" (p. 115). Farmer and factory worker were absorbed into the capitalist ethos (p. 119). Thus, the American character is rooted in small entrepreneurship. Americans have "a certain smallness of entrepreneurial preoccupation which has never been glamorous in Western thought." (p. 116).

However, there is tension between the democrats' attribution of the growth of big business on the state (pp. 137-8):

"The clash between capitalist hunger and anti capitalist principle reached its climax, of course, on the banking question. Charles A. Dana, a disciple of the easy credit schemes of Proudhon, lamented that American democracy wages a 'relentless war' on the banks of discount and circulation'...But the war was more relentless in theory than in practice...The hard money dreams of Taylor and Jackson were shattered by rising entrepreneurs, Western farmers and private bankers who favored the assault on Biddle not in order to limit credit but rather to expand it at the hands of local banks. This type of pressure had been exerted even against the First Bank of the United States under Jefferson. By the time of Jackson, America's acquisitive democracy,--its millions of go getting Americans as Hammond puts it--overwhelmed the concept of credit control. The speculative boom of the thirties is an excellent commentary on the get-rich-quick compulsion of the American democrat."

The outcome is that Whigs become like Democrats and Democrats like Whigs. "Locke dominates American political thought as no thinker anywhere dominates the political thought of a nation" (p.140).

In chapters six and seven Hartz discusses how the southern slave interests such as Calhoun and Fitzhugh attempted to subvert Locke and assert feudalist, conservative or even socialistic theories in defense of slavery. The key point in this interesting discussion is that Lockean liberalism destroyed their ideologies (p. 199):

"Here surely is the final irony in the fate of the South's feudal Enlightenment. It was not even buried by an elitist liberalism; it was buried by a democratic liberalism. It was not even put to rest by a man as sympathetic as Hamilton; it was put to rest by Andrew Carnegie and Horatio Alger, the children of Lincoln's achievement. If political theorists turn in their graves, Fitzhugh has turned many times, but could anything have bothered him so much as the sight of Jed the Newsboy walking unconsciously over his corpse?"

He begins chapter eight (entitled "The New Whiggery: Democratic Capitalism", p. 203):

"Unfurling the golden banner of Horatio Alger, American Whiggery marched into the Promised Land after the Civil War and did not really leave it until the crash of 1929."

"Two moods then run through the new Whig doctrine: one rational, the other irrational; one liberal, the other Americanistic. The difference bewtween them is the difference between William Graham Sumner and the American Legion." American
"Whigs" responded to the threats of Progressive and socialism. American Whiggery (p. 215):

"had itself been largely resopnsible for the tradition of economic policy it now proceeded to bury and destroy. It had been the American democrat, with Jefferson, who in theory at least had opposed it and had developed the closest thing to a laissez faire dogma that the country had produced. The principle at work here was obvious enough: big captalism was able now, with the major exception of the tariff, to dispense with the Hamiltonian promotionalism on which it had relied in the days of its weakness, especially since the corporate technique had become established and important. And so, if in the age of Jackson the American Whigs looked like the Corn Law monopolists of England, in the age of Carnegie they were prepared to look like the John Brights who had assailed those monopolists. One can trace this process of spiritual conversion and dramatic flip-flop with a brilliant clarity within the American states where on the eve of the Civil War the Hamiltonian interests who had originally demanded many public inestments, especially in banking and transportation, proceeded to deride them, producing precedent after precedent for the laissez-faire constitutional law so famous in the later time.

"What made the matter even more complicated, however, was that when Whiggery shifed from Carey to Carnegie it proceeded to use the ancient arguments of the American democrat himself, thus gravely confounding this figure. He, of course, in assailing state action, had opposed monopoly, which meant particularly the corporate charter. Indeed, lacking any real understanding of social oppression, he had defined all nonpolitical tyranny in terms of inequitable political decisions. Now, with the corporate charter universally accepted, due in part to his own ultimate drive for general incorporation, and with a huge trust growth being built upon it, he found himself confronted in his effort to solve a real social problem with the very symbols he had used...Who was the real disciple of Jefferson, the man who wanted the Anti-Trust Act or the man who opposed it?"

Hartz goes on to argue that the Progressives (p. 229):

"advanced a version of the national Alger theme itself, based on trust busting and boss busting, which sounded as if he were smashing the national idols, but which actually meant that he was bowing before them on a different plane. Wilson, crusading Wilson, reveals even more vividly than Al Smith the pathetic enslavement of the Progressive tradition to the Americanism that Whiggery had uncovered...the Algerism of the Progressives was no more due in the last analysis to the boom of the time than was the Algerism of Whiggery...but after the crash of 1929 it would not disappear but would go underground to serve as the secret moral cosmos on the basis of which New Deal pragmatism moved."

Hartz is irritated that the Progressives were not more socialistic. They emphasized trusts because (p. 232) "If the trust were at the heart of all evil, then Locke could be kept intact simply by smashing it..." and (p.236) "The Progressives failed because, being children of the American absolutism, they could not get outside of it and so without fully seeing that Locke was involved everywhere, they built their analysis around a titanic struggle between "conservative" and "radical" which had little relevance to Western politics as a whole."

The Progressive movement's democratic impulse was, in Hartz's view, Lockean. I do not see the connection because Locke argues for natural rights and against unlimited democracy, and Herbert Croly and the Progressives argued against natural rights and for unlimited democracy. The Progressives were the democrats whom Hamilton feared, but they used the argument of democracy on behalf of underlying Hamiltonian ends: the furtherance of big business interests. Rothbard, Sklar and Radosh discuss this and I will review their book in my next blog. I don't think that Hartz is right in his claim (p. 241, bottom) that "wealth was inexorably being concentrated".

Chapter Ten concerns "The New Deal". Hartz labors under the erroneous belief of the pre-Friedman and Rothbard era that the Depression was an outcome of capitalism rather than of government and/or Federal Reserve Bank intervention. He begins by claimng that "If the Great Depression of the 'thirties suggested anything, it was that the failure of socialism in America stemmed from the ideologic power of the national irrational liberalism rather than from economic circumstance." Actually, the reverse is true. The irrational, socialistic response of the New Deal to failure of the Fed and President Herbert Hoover's interventionist, New Deal style policy program caused the Depression, and the irrational policies of the Roosevelt administration intensified it in a kind of hyper-irrational, anti-pragmatism. The divergence of narratives here suggests that American history has not been so Locke-step as Hartz claims. Moreover, Hartz's argument of the consistency of liberalism falls apart. He writes (p. 260):

"The experimental mood of Roosevelt, in which Locke goes underground while problems are solved often in a non-Lockean way, wins out persistently. And who will deny that this, even more than the isolation of socialism, is a tribute to the irrational liberal faith of America? Eaating your cake and having it too is very rare in politics."

The problem is that America did not eat its cake. The New Deal started an illiberal pattern which has not been reversed and has spawned an increasingly intensifying government by special interest group brokerage and wealth transfers. The premise of the New Deal involved several layers of deception, not the least of which was the claim that Roosevelt's experimentation was helpful to the petit bourgeoisie and the poor, which it hardly was. There was a period of about 40 years during which wages increased somewhat more quickly on average than they did prior to 1932. But since 1971 the cumulative effect of the abolition of the gold standard and the New Deal policies have resulted in declining real wages and a dissolution of the American community into two warring camps, the advocates of intensification of the New Deal pattern in a socialistic direction, and those who continue to believe in the Lockean consensus. American elites have in large part dispensed with democratic liberalism. Whiggery has become dominant, but it is Whiggery cloaked in Progressive (Republican) rhetoric concerning efficiency and in New Deal or socialistic rhetoric concerning equity, income inequality and redistribution. Neither party has any interest in democracy, in Locke or in liberalism. Republican elites advocate perpetuation of the easy credit scheme in order to further wealth redistribution to Wall Street clientele, while Democratic elites, who are also in favor of loose monetary policy for the same reason, carry forward the monetary regime in social democratic robes.

Liberalism: The Ship that Does Not Sail

The Mugwumps and Progressives emphasized management issues and execution of programs. Herbert Croly, for instance, discussed scientific management and work restructuring in his 1912 Progressive Democracy. In the late nineteenth century EL Godkin discussed the role of incentives in managing railroads. The Muckrakers discussed management problems and Ida Tarbell, as much as she contemned John D. Rockefeller, favorably discussed his management abilities. In contrast, the post World War II liberals rarely discuss management or execution of programs. Their emphasis is on program advocacy not implementation. The reason may be that in implementing the New Deal, which in part relied on partnership between state and federal government, FDR overlaid federal programs like unemployment insurance on state governments that were often corrupt. The New Deal did not attempt to reform government as Progressivism had (and often failed to do) but rather added broad federal policies to an already corrupt system. This policy of see no evil, hear no evil, speak no evil seems to have been transmitted to subsequent generations of social democrats. Yet, the problem of execution and management is not independent of programs themselves. A social security program that is not well-designed is no better and may be worse than none at all. A welfare system that motivates beneficiaries to become dependent and that motivates despondency and drug addiction may be worse than no welfare program at all. An urban renewal program that creates ugly and alienating city projects that stimulate crime and roads that destroy neighborhoods may be worse than no urban renewal program at all. Government programs that generate high costs and few benefits, that drive out business because of high taxes and yet fail to accomplish their goals are worse than no programs. Management and execution are as much a component of programming as policy ideas. Yet, how often do proponents of new programs discuss management and execution issues? Very infrequently.

According to the French industrial Fayol, management is comprised of five tasks: planning, leading, organizing, coordinating, and controlling. This model was updated in the mid twentieth century by Edward I. Deming who argued that management is the reduction in variability of an output. The Deming interpretation of management is related to that of Taiichi Ohno, Toyota's production guru who created the ideas of lean manufacturing. Ohno argued that management is the elimination of waste. In any management system there needs to be a picture of what is going to be accomplished, a process that is required to achieve that goal, and a means of controlling the process so that it remains focused. The selection of the appropriate technique is not easy and it is not incidental. It cannot be accomplished by just anyone. A political appointee appointed along party or personal loyalty lines is not likely to be able to accomplish the managerial task as well as someone who has spent a lifetime thinking about production problems. An employee who has spent a lifetime focused on a certain process or kind of problem is likely to be best equipped to implement a quality program IF the employee understands the management techniques necessary to do a good job. Without taking such considerations into account, government programs are likely to be wasteful. Without controls, there is little likelihood that they will accomplish the objectives their advocates set out for them. If liberals build a ship that cannot sail, they cannot be said to have accomplished much. When the ship sinks, have they done more good than harm? Yet, social democrats advocate programs without thinking about process or about evaluation methods.

There are a number of natural blockages to the management of government programs. First, the cost of losses is not born by any concentrated interest. Because the costs are diffused, there is limited motivation by managers to reveal losses. Managers who reveal losses risk losing their jobs, but the public is not likely to feel the costs of the losses because they are spread over the entire tax paying population. Second, there are incentives for suppliers to cheat, to exaggerate the need for their products or to overcharge. Third, the customer base is captive. Because government enjoys a monopoly, those who use its services have nowhere else to go. Fourth, there is ideological resistance to criticism of government failure and waste by social democrats. Therefore, critics are likely to be humiliated. Fifth, even if public managers do radically improve programs, they are not necessarily rewarded for doing so. Sixth, waste may create patronage opportunities for politicians who in turn are likely to harass or fire government employees who resist it. Seventh, experts and specialists in government may be self-seeking and so not be motivated to improve programs.

Politics in America became largely a debate between two groups that advocate expansion of government: the Progressives, who are Republican in party and who advocate efficiency and effectiveness in government, and the social democrats (who also call themselves liberals and progressives) who do not. But it is not clear that Americans favor expansion of the state, whether it be the social democratic welfare state or the managerial state of progressivism. Moreover, the ideas that progressivism offers with respect to rationalization of the state do not, and likely cannot, reflect the state of the art with respect to management. Hence, Americans are given the choice between the second-rate services that the Progressives have on offer and the incompetence and chaos that the social democrats and their friends in the media gleefully advocate.

John Dewey's The Public and Its Problems

John Dewey. The Public and Its Problems. Athens, Ohio: Swallow Press-Ohio University Press. Originally Published New York: H. Holt, 1927. 236 pages. Available at Amazon.com for $13.95, used and new from $5.00.

John Dewey wrote The Public and Its Problems in response to Walter Lippmann's Public Opinion, which I previously reviewed here. While Lippmann was among the first to notice cognitive limits to public deliberation especially with respect to the mass media's inability to represent issues meaningfully, and so implied a threat to the possibility of big government democracy, Dewey aims to present an argument as to why public opinion can be rationally derived. Dewey's arguments in favor of pragmatism are strong but his arguments in favor of the possibility of rational public deliberation do not resolve the barriers to deliberative mass democracy. As Dewey suggests, this weakness gives the reader pause as to whether we actually live in a democracy.

I am of two minds about The Public and Its Problems. As a pragmatist, Dewey provides an excellent basis for skepticism about political systems. His emphasis on the need for experimentation and the danger of excessive fascination with tradition suggest the need for flexibility in government. But this book contains the germs of early 21st century social democratic conservatism as well. As much as he criticizes Whigs and individualists for their commitment to liberal institutions, Dewey fetishizes state-based solutions. His Progressive ideology leads to his claim that the public can deliberate by hiring social scientists and allowing journalists free rein in painting of artistic portraits of the experts' observations for public consumption. This is not a pragmatic argument. It is nonsense. Nor is his treatment of Locke and the utilitarians pragmatic. It is precisely in the results of Lockean individualism that the individualist theory's advantages are evident. When (p. 105), Dewey emphasizes that all history involves association and that there is no such thing as a natural economy, he misses the point that such associations and transmission of culture and tools existed in primitive Middle Age and tribal economies as well as in the 19th and 20th centuries. What differentiated the latter was Lockean individualism. Hence, instead of looking for the reason that progress emanated from Lockean individualism, Dewey emphasizes institutional history. But the important difference between the modern and more primitive economies ensues not from adjustment to particular circumstances but rather from flexibility and incentives; from the ability of price to enable entrepreneurs to gauge demand; and from the ability of firms to allocate resources in response to price. As Dewey's Progressive ideas gained currency through the 20th century, the economy became less promising. Rather than revise Dewey's arguments, today's social democrats (formerly known as liberals) dug in their heels and insisted on the religious fetishization of government programs like Social Security and the Federal Reserve Bank.

On page 35 Dewey summarizes his argument that the state arises as a mechanism to deal with third parties' perceived effects (what economists call externalities) from private transactions:

"Associated action is a universal trait of the behavior of things. Such action has results. Some of the results of human collective action are perceived...Then there arise purposes, plans, measures and means to secure consequences which are liked and eliminate those which are found obnoxious. Thus perception generates a common interest; that is, those affected by the consequences are perforce concerned in conduct of all those who along with themselves share in bringing about the results...Those indirectly and seriously affected for good or for evil form a group distinctive enough to require recognition and a name. The name selected is the Public...Then and in so far, association adds to itself political organization, and something which may be government comes into being: the public is in a political state."

Thus, the public arises from the need to cope with externalities and the state, argues Dewey, is necessary to so cope. Unfortunately for Dewey, his argument is susceptible to the same criticism that he levies at other theories, namely, the exaggeration of human agency in the evolution of the state. This is true in three ways.

First, he does not make explicit how interests, perceptions and organization are actually implemented by his "Public". He assumes away the possibility of vested interests, asymmetries of information and power that are crucial to understanding the state and the inequities it causes. Dewey downplays the human agency necessary in the creation of law, and so supposes a naive public interest rationale for law (p. 57):

"the law as 'embodied reason' means a formulated generalization of means and procedures in behavior which are adapted to secure what is wanted."

Note the passive voice in this sentence. "What is wanted" by whom? For what end? Dewey describes the "primary problem of the public to achieve such recognition of itself as will give it weight in the selection of official representatives and in the definition of their responsibilities and rights" (p. 77) but this problem is but the tip of the iceberg. Which portions of the public are likely to be most successful in influencing public officials? Why do some economic interests become more powerful than others? These are questions that democracy has failed to resolve. Dewey suggests that these problems are necessary to solve in saying that public officials will always suffer conflicts, but he does not outline the structural asymmetries that skew democracy.

In chapter three, "The Democratic State", he criticizes individualist democratic theory for ignoring the effects of large scale organization and implicitly the need for labor organizations. He asks (p. 98): "Why, then, was a movement which involved so much submerging of personal action in the overflowing consequences of remote and inaccessible collective actions reflected in a philosophy of individualism?" His answer is that workers were traditionally oppressed, and the real beneficiaries of individualism were owners, who were the only ones to experience individualism first hand. But this is short sighted. While it is true immigration flooded the American labor market in the late 19th century, facilitating large scale organization and eliminating the possibility of entrepreneurship for many Americans, it is also true that the philosophy of individual contract led to a flexibility in labor markets that facilitated the evolution of the American work force. A considerable portion of the public continued to be self employed, with the jobs in large firms becoming more desirable because of administered labor markets and high wages. Thus, self-employment did not remain the first choice for many Americans because the gains from employment in a large scale firm were greater than from self-employment. Americans abandoned farms because they could not provide a standard of living that was adequate by modern standards.

Second, historically the state did not evolve in the context of a pre-existing society where economic transactions caused externalities. Rather, the state in Europe and around the world was an offshoot of traditional tribal authority. The French state, for instance, evolved through violent overthrow of the monarchy, which in turn was derived from the tribal authority of Frankish kings, who were themselves descended from Frankish tribal leaders. As well, the Roman state was tribally derived. The idea that the state evolved from externalities is a more far fetched fiction than the Lockean thought experiment that results in the state's being derived to protect life, liberty and property.

Third, the idea that there is less intentionality in forming a state to protect against externalities than there is in forming a state to protect against incursions on life, liberty and property is unfounded. Dewey's fundamental premise is a non sequitor. He emphasizes the importance of interpersonal associations in human activity and concludes that (p.27):

"all modes of associated behavior may have extensive and enduring consequences which involve others beyond those directly engaged in them...For the essence of the consequences which call a public into being is the fact that they expand beyond those directly engaged in producing them."

Dewey presents a public interest theory of government in which the state comes into being full-blown from the excrescences of the Standard Oil Corporation, and experts like Henry Carter Adams and Herbert Knox Smith bear the public good via a state whose only reason for existence is to help the public address the evils that Standard Oil has caused.

That is, Dewey argues that the state evolves as the public recognizes its own existence from the externalities that private transactions cause. The public remains "inchoate" (p. 31) because past institutions impede an awareness of the public's (i.e., which is effected by externalities) own existence. He adds (p. 31):

"the state is the organization of the public effected through officials for the protection of the interests shared by its members."

But the book makes good points as well. Despite Dewey's questionable theory of what constitutes a state, he emphasizes the need for pragmatic experimentation (p. 33):

"The formation of states must be an experimental process. The trial process may go on with diverse degrees of blindness and accident, and at the cost of unregulated procedures of cut and try, of fumbling and groping, without insight for what men are after or clear knowledge of a good state even when it is achieved. Or it may proceed more intelligently, because guided by knowledge of the conditions which must be fulfilled. But it is still experimental...The belief in political fixity, of the sanctity of some form of state consecrated by the efforts of our fathers and hallowed by tradition, is one of the stumbling-blocks in the way of orderly and directed change."

Not only does the state need to change, but as well "diversity of political forms rather than uniformity is the rule" (p. 45) so that a range of possible alternatives is possible.

It is here that social democratic liberalism has failed Dewey rather than the other way around. For the programs that social democracy has advocated in the name of pragmatism have become fixed. They have lasted as long as the laissez faire world of Jacksonian democracy lasted, since the 1910s to 1930s, and they have not worked much better than Jacksonian democracy did. But instead of rising to the pragmatic challenge and thinking about structural change, social democrats (formerly known as liberals) defend every attempt to reform or change their programs as aggressively as any conservative attempted to defend 19th century liberal society from Progressive reform. Social democrats have become today's reactionaries, and in doing so have betrayed Dewey's pragmatism.

Dewey wrote in a context where laissez faire capitalism had been only moderately regulated. Thus, Dewey anticipated a flexibility in the action of state functions that has not materialized. He concludes (p. 54) that:

"rules of law are in fact the institution of conditions under which persons make their arrangements with one another. They are structures which canalize action; they are active forces only as are banks which confine the flow of a stream and are commands only in the sense in which the banks command the current."

In this, Dewey's progressivism retains a strong taste of liberalism. He assumes that the state is one derived from classical liberal principles even as he attacks the basis of the classical liberal state, i.e., its limited nature and purpose. Dewey anticipates the the totalitarian state, but he explains it away (p. 73) by arguing that his theory is "neutral as to any general, sweeping implications as to how far state activity may extend." In a totalitarian state, law does not canalize human action but dams it up. In fact, Dewey's claim that state action primarily serves public interests was tragically contradicted in subsequent decades, and Dewey does not anticipate nor does his theory explain how the totalitarian state evolved from the Bismarckian welfare state, a state which likely served as a model for his own ideas.

In chapter III Dewey discusses the democratic state. All politicians have conflicting public and private interests and (pp. 77-82)

"the primary problem of the public (is to) achieve such recognition of itself as will give it weight in the selection of official representatives and in the definition of their responsibilities and rights...the same causes which have led men to utilize concentrated political power to serve private purposes will continue to act to induce men to employ concentrated economic power in behalf of non-public aims."

In discussing the utilitarian and individualist theory of rights Dewey quotes James Mill's (p. 93) "classic formulation of the nature of political democracy", namely, popular election, short terms of office and frequent elections and argues (p. 95) that classical liberal democracy over-rated individualism. Rather, "Today, the everyday relationships of men are largely with great impersonal concerns, with organizations not with individuals."

Yet, Dewey's emphasis on the importance of large scale organizations overstates the importance of scale and understates the importance of flexibility, a fallacy characteristic of the Progressives. They could not have known that flexibility would be more important than scale. It took the Japanese automobile industry to hammer this home in the 1950s (as well as the Austrian economists in the mid 20th century). Nor did Dewey grasp that institutionalization of special interests would lead to impediments to economic growth as the special interests pushed for regulation, licensure, taxation and other impediments to growth.

In chapter 5, "The Eclipse of the Public", Dewey notes that increasing scale and public apathy have been coupled with increasing big business power and homogenization of the American public (pp. 116-23):

"In spite of attained integration, or rather perhaps because of its nature, the Public seems to be lost; it is certainly bewildered...Those still more inclined to generalization assert that the whole apparatus of political activities is a kind of protective coloration to conceal the fact that big business rules the governmental roost...Is the public a myth?."

He further notes that (p. 126-31):

"The machine age has so enormously expanded, multiplied, identified and complicated the scope of indirect consequences, has formed such immense and consolidated unions in action, on an impersonal rather than a community basis, that the resultant public cannot identify and distinguish itself...There are too many publics and too much of public concern for our existing resources to cope with...the Great Society has invaded and partially disintegrated small communities of former times without generating a Great Community...The local face-to-face community has been invaded by forces so vast, so remote in initiation, so far-reaching in scope and so complexly indirect in operation that they are from the standpoint of the members of local social units, unknown."

Moreover:

"Aside from business corporations which have a direct interest in it and some engineers, how many citizens have the data or the ability to secure and estimate the facts involved...But the very size, heterogeneity and nobility of urban populations, the vast capital required, the technical characterization of the engineering problems involved soon tire the attention of the average voter."

And (p. 131-46)

"The increase in the number, variety and cheapness of amusements represents a powerful diversion of political concern. The members of an inchoate public have too many ways of enjoyment, as well as of work, to give much thought to organization into an effective public...Access to amusement has been rendered easy and cheap beyond anything known in the past."

In chapter 5, "Search for the Great Community", Dewey points out that the transition from family and dynastic government was the result of technology rather than ideology. Ideology has served primarily the role of "war cries" but not of hypotheses meant for experimentation. History has not borne him out. The classical liberal ideas that he deprecates have been associated with far better economic performance than socialist ones. Ideology rather than technology differentiated the American and Soviet economies. Thus, by his own pragmatism Dewey's diminution of the importance of ideology failed.

Dewey believes that the trend has been toward greater democracy (p. 146) but I do not think that history has borne out this belief. There has never been a solution to his question:

"The prime difficulty, as we have seen, is that of discovering the means by which a scattered, mobile and manifold public may so recognize itself as to define and express its interests."

Dewey suggests as a solution, enhanced participation in pluralistic groups. Democracy is the idea of community life (p. 148). Associations become communities when they are infused with morality supported by signs or symbols (p. 152). "The young have to be brought within the traditions, outlook and interests which characterize a community by means of education: by unremitting instruction and by learning in connection with the phenomena of overt association."

Meaning and communication can influence the technological and economic change that creates the "Great Society". To transform the Great Society into the Great Community social transmission of knowledge, tools and habits are needed (p. 158-9). Habit is fundamental to institutions. Mere freedom from constraint does not create intellectual freedom. The "agencies of publicity which exist in such abundance are utilized in...advertising, propaganda, invasion of private life" and therefore obstruct the "circulation of facts and ideas" (p 169). "We seem to approaching a state of government by hired promoters of opinion...Men have got used to an experimental method in physical and technical matters. They are still afraid of it in human concerns." Social knowledge is backward and people are excessively conservative and loyal to established institutions. "Only continuous inquiry, continuous in the sense of being connected as well as persistent, can provide the material of enduring opinion about public matters" (p. 178). Much of news is trivial and sensational (p. 180). Social science must be integrated with news. Instead, pecuniary interests manipulate the news. Presentation of news is "fundamentally important" (p. 188). "The freeing of the artist in literary presentation, in other words, is as much a precondition of the desirable creation of adequate opinion on public matters as is the freeing of social inquiry."

As Dewey notes in chapter 6, The Problem of Method, the reader is left with a considerable sense of denial of the possibility of these conditions occurring. Dewey goes on to argue that abstract theory is not important, but rather the consequences of theories are what should be considered (p. 193). "The problem of exercising 'social control' over individuals is in its reality that of regulating the doings and results of some individuals in order that a larger number of individuals may have a fuller and deeper experience...Even professedly empirical philosophies have assumed a certain finality and foreverness in their theories which may be expresse dby saying that they have been non-historical in character."

Subsequent generations of social democrats (formerly known as liberals) have betrayed this perspective. Dewey's Progressivism was founded on pragmatism. Today's social democrats resent any tinkering with the solutions that were put forward in Dewey's day. They are as conservative with respect to Social Security, the Federal Reserve Bank and the income tax as early twentieth century conservatives were, only in reverse. As Dewey points out (p. 202) "The person who holds the doctrine of individualism or collectivism has his program determined for him in advance." Today's liberals hold their collectivism tightly, and resent and resist any attempt to reform failure in their many programs, to include urban renewal and planning, education and monetary policy. The solution ought to be a new technology of public management, not a new ideology. As Dewey points out, ideological debates are sterile, and American politicians lack the knowledge or courage to experiment.

Social Democratic Liberalism Came to Serve Corruption

Americans' acceptance of the Keynesian ideology, often called social democracy or post-war liberalism, had its roots in Hamiltonian Federalism. Hamilton, a follower of Hume's economic ideas, had advocated federal expansion of credit and concentration of its availability to business interests. This was to be accomplished by federal assumption of the Revolutionary War debt and establishment of a central bank. Hume had argued that if credit is made available to merchants, then the merchants' smart investment decisions would allocate resources into their most productive uses. Thus, the public might become richer by the artifical creation of money, in Hume's view. Hume assumed that it is a good bet for the public to bear investment risk. But there is certainly risk. Hume believed that the risk would pay off, but this is an apriori argument, not an empirical fact. Moreover, this argument rested on particular facts that were true in the 18th century and ceased to be true by the late nineteenth, in particular merchants' personal assumption of risk.

Hume wrote at a time when corporations did not exist. Corporations did not take their present form until the late nineteenth century, as late as the 1890s. At the time that Hume wrote, merchants who assumed risk did so on their own account, and if they lost money they personally suffered. Thus, there was considerable motivation for rational, profit-maximizing behavior. When central banking was abolished, business needed alternative means to aggregate capital. Corporate organization did so, and it did so by shifting risk away from entrepreneurs and merchants onto investors. This is a more rational method for allocating risk than is central banking because it can reflect personal preferences for risk. Moreover, it permits reflection of a wide range of public preferences. Some people have considerable utility for money in the present because they prefer to consume. Consumers might prefer not to take risks with money but rather to spend it. In contrast, other people have greater utility for money in the future. Such investors can choose to invest more heavily in corporate ventures than a central bank's broad allocation of public resources to specific interests would permit.

Corporate organization might be viewed as an alternative form of capital aggregation to central banking. It is superior because the allocation of risk is explicit. Those who wish to take risks invest in the corporation, while those who do not wish to take risks do not invest. This contrasts with monetary creation by the central bank, which forces all citizens to participate in risky business decisions whether they choose to or not.

But the compounding of the corporate form with central banking might exaggerate risk taking and confound the Humean-Hamiltonian model. Merchants who are not personally at risk may not behave rationally. The result is a potential for corrpution. A corporate president who is granted dollops of credit artificially created by a central bank might be motivated to present false earnings reports, pay himself an exaggerated salary and then resign from the firm before it goes bankrupt, much as the officers of Enron and Bear Stearns did. There is no guarantee of rational behavior by corporate organizations staffed by self interested bureaurcrats. Thus, the subsequent adoption of Hamiltonian Federalism under the Keynesian moniker has gradually led to a crap shoot economy unbridled by rationality and propelled by self-seeking, incompetence and greed.

By 1830 it was evident to most workers that the Central Banking system was not beneficial to them. The Humean and Hamiltonian theory of credit had failed. In particular, banking monopolies led to depreciating currency which in turn led to resentment of the central bank, which President Andrew Jackson abolished in 1832 and 1833. Between 1833 and 1913 there was no central bank, and this was the period of greatest economic creativity in American history. It was also a period of slow business profit, which resulted in repeated complaints about "depressions". Every decade saw increasing real wages and every decade saw a "depression". By the end of the 19th century the average American was much better off, the American economy was the center of world innovation, immigrants flocked here by the millions, but business interests incessantly complained about "depression". Moreover, governmental subsidies to railroads engendered corruption and overexpansion. Post-Civil War monetary inflation facilitated speculation and created income inequality. This occurred at the same time that Jackson's spoils system led to political corruption in the cities.

Many observers felt that rationalization of the state through civil service would improve the economy. The traditional American belief that morality led to economic success was being tested by corruption associated with the railroads and political clubs in the cities. In 1883 Congress passed the Pendleton Act, which created a rudimentary civil service for the federal government. In turn, advocates of moral and limited government, to include the Mugwumps, argued for increased use of civil service, honesty in government, and the gold standard and reduced tariffs. The election of 1884, in which the Mugwumps bolted the Republican Party to support Grover Cleveland, led to Cleveland's election. At the same time, the corporate form of organization facilitated the expansion of industry.

During this period Bismarck in Germany was experimenting with social democracy. Bismarck implemented national health insurance, social security and other social programs. The German historical school of economics argued against the laissez faire economics of Charles Sumner and Adam Smith. Smith, like Hume, argued that there are general laws of economic development. In contrast, the German historical school argued that economic laws are specific to time and place and that generalization is impossible. Moreover, the German historical school assumed that it is possible to rationally guide an economy. This contrasts with Hume's belief that merchants are better equipped to assess investment opportunities than anyone else. It also contrasts with the Whiggish and Jeffersonian belief in countryside entrepreneurs as better equipped to assess investment opportunity than either central planners or elite merchants.

In the late nineteenth century young American academics such as Henry Carter Adams, Richard T. Ely and John R. Commons sought education in the German universities. This was linked to the late nineteenth century Mugwumps' interest in establishing professions. The Mugwumps not only believed in fighting corruption and establishing sound money, but they also had specific professional interests in mind. They wanted to establish standards in academia, law, medicine and other professions. These professional interests became the common thread of modern liberalism. If there is one constant theme from the Mugwumps to todays American Association of University Professors, it is the importance of a college education, professionalism and regulations to establish them. The Mugwumps did not believe in social democracy, but they did believe in rationalization. The German universities were the best in the world, and they thought that if Americans were trained in German universities that they could bring the best methods to bear on American problems. But in social science the German universities were not really so methodologically advanced. The German historical school's emphasis on state-based solutions was a form of romanticism. The Americans who studied in Germany brought some reform ideas to bear on American problems, but combined these with faith in the power the state to solve social problems.

At first the Mugwumps resented the ideas of Richard T. Ely and Henry Carter Adams. As Nancy Cohen points out, Ely, who founded the American Economics Association, was denied tenure and forced to conform to the Mugwumps' expectations. Henry Carter Adams left academia altogether. However, the long term effect was to stimulate support for Progressivism. Ely's student John R. Commons was a central figure in the reform-oriented Wisconsin school, for instance. Progressivism had a number of roots, to include Social Gospel Christianity and Populism, but it was also heavily influenced by Commons's academic theories. Progressivism should not be confused with socialism or social democracy. At times it had elements of these but it included reform ideas of varying kinds.

In 1913, Woodrow Wilson had established the Federal Reserve Bank in order to rationalize the credit markets. Wilson was a supporter of the gold standard and had voted for the Gold Democrats in 1896. He did not anticipate a return to Hamiltonian Federalism. Rather, he saw the Fed as a way to rationalize and professionalize financial management. However, by reestablishing a central bank, he reopened the door to Hamiltonian Federalism. Immediately after the Fed was founded, there was a serious inflation which in turn led to a depression. By 1920 the public had grown weary of the disruptions in economic life and elected Warren G. Harding and Calvin Coolidge. By 1920, after two decades of Progressivism, there was little memory of the laissez faire ideas of the late nineteenth century. Thus Harding and Coolidge, who succeeded Harding when he died three years into his term, nor Congress, were motivated to repeal the Progressive legislation of Roosevelt and Wilson. Part of the reason was that the more extreme socializing ideas that the Republicans under Roosevelt advocated had not come to pass. Instead, the more conservative approach of William Howard Taft and Woodrow Wilson had led to limited judicial enforcement of the Sherman Anti-trust Act, the Hepburn Act which established railroad rates, and the Federal Trade Commission Act. But these laws had limited effects. On the other hand, they turned out to be a stepping stone to a greater degree of governmental intervention in the economy within 12 years.

The compounding effect of the central bank and the corporate form of organization in generating economic inefficiency and corruption did not begin to be felt for a number of decades. This was accomplished by Franklin D. Roosevelt in the early 1930s. First, FDR abolished the gold standard in 1932. Second, he used the pretext of social democracy to strengthen the federal government, which in turn led to increased availability of credit. This was done through the expansion of the military along with the expansion of the welfare state. Government contracts became available as did increased credit. The stock market began to increase from 1937 onward, and after World War II it began an ascent from which it has never returned. In contrast, the financial markets did not increase from the 1880s until the 1930s. In effect, Roosevelt implemented the Hamiltonian system in full force, but he did so with a cloak. The cloak was that of social democracy. American politics became a debate between two statist visions, both derivative of Progressivism and Federalism. The Republican vision was one of state intervention on behalf of business and opposition to social democracy. The Democratic vision was one of state intervention to regulate business in the name of social democracy but to subsidize business through credit expansion just as Hamilton had suggested in the 1780s. Thus, modern American politics deteriorated into a debate between two Hamiltonian visions, both of which aimed to subsidize inefficient corporations at the expense of a bewildered public.

American Social Democrats and the Fallacy of Rationality

The fundamental strategy of American social democrats*, beginning with the late nineteenth century Mugwumps through today's progressives has been the introduction of experts via state planning agencies to improve fairness and encourage stability and growth. The Mugwumps were a liberal, limited government group in the late nineteenth century who believed that the boss system could be reformed by the introduction of a civil service. At the federal level the Pendleton Act that implemented a rudimentary federal civil service and was passed during Chester Alan Arthur's administration in response to the assassination of President James Garfield was one of their achievements. As Robert Wiebe argues in The Search for Order the key step in the transformation of movements like Populism and social gospel Christianity into Progressivism was the evolution of these ideas into a concept of bureaucracy. Nancy Cohen shows in her Reconstruction of American Liberalism that the origins of today's social democratic ideas were in the Mugwumps' emphasis on rationalization of municipal administration, ending the boss system and replacing the spoils system with a civil service based on merit. As well, the Mugwumps were interested in establishing academic, legal and other professions and were the first American movement to emphasize professional interests. In Europe, Max von Weber made his ideal of bureaucracy a cornerstone of his sociological system. The idea that rationality implies efficiency was fundamental to late nineteenth century progressivism and remains to this day a cornerstone of both the fossilized Progressivism of the Republican Party and the aged New Deal social democratic ideas of the Democratic Party. The bureaucratic philosophy was implemented in the Progressive era through Roosevelt's adoption of laws like the Hepburn Act which aimed to replace market processes with public decision making. This bureaucratic approach intensified in the 1930s with the social democrats' advocacy of Keynesian economics, which argues that the money supply can be manipulated to ensure full employment. This in turn led to further steps toward bureaucratization of the economy.

The intellectual reaction to the bureaucratic philosophies of the Progressives and the social democrats reveals much about the relationship of bureaucratic power to the economic interests of the professional class. Although bureaucratization claims the mantle of rationality, the reaction reveals that at root it is as much a rationale for professional privilege and power as it is an effort to improve the functioning of society. The reactions to the bureaucratic social democratic philosophy were evident by the 1940s. In sociology, Robert Merton observed that bureaucracy became an end to itself, that rules became a fetish, and so the efficiency principle was undermined by bureaucrats' obsession with rules. Also in the 1940s, Friedrich Hayek, building on the ideas of Ludwig von Mises, pointed out that information and knowledge in an economy is too complex for the mind of any cadre of experts, or super-computers for that matter. Because the information available in society is quantitatively infinite and qualitatively incomprehensible, central planners cannot grasp the most rudimentary issues confronting the economy. For instance, in recent decades the Federal Reserve Bank in the United States expanded credit, making it available to real estate developers. In turn, farmers sold their land for real estate development. The stimulus to real estate development encouraged banks to make credit available to people who could not afford to repay the loans. The farmers sold their land to developers, receiving the newly minted Fed money to people who could not afford it. The Fed could not anticipate that banks would be unable to assess credit risk intelligently and that the land being developed had economically better use than real estate development. The result was food shortages in the early 2000s, starvation in Third World countries and a "subprime" crisis whereby large numbers of home buyers and real estate speculators have been unable to repay the banks. The Fed's failure is but one example of the inability of bureaucrats to grasp the subject matter in which they claim expertise. The Fed officials have been intelligent men. Their failure is not one of policy or of ability but rather of the underlying bureaucratic principles behind the Fed.

Merton's critique of bureaucracy in the context of efficiency and Hayek's critique of the ability of bureaucrats to rationally plan the economy were joined in the late 1950s by Herbert Simon and James March, who wrote a seminal book entitled Organizations. One of the key themes in Organizations is the idea that economics excessively assumes the ability of decision makers to think rationally. They argue that decision makers face bounded rationality. The management and organization field has positioned this critique as one of the assumptions of neo-classical economics. They argue that economists assume that decision makers aim for optimal solutions (such as that firms aim to maximize profit or that consumers aim to maximize pleasure or utility) and that economic actors act rationally in the pursuit of optimal solutions. This model, March and Simon argue, is incorrect not just because decision makers are not able to obtain the information necessary to think rationally but also because time and search costs "bound" rationality and place cognitive or mental limits on rationality.

The relative fates of Hayek and March and Simon in business schools is revealing. Both make similar arguments about limits on rationality and March and Simon refer to Von Mises and Hayek in the final chapter of their book (see Nicolai Foss in the organization and marketsblog for this point). Hayek wrote prior to March and Simon. Hayek's "Use of Knowledge in Society" appeared in 1945 and Organizations appeared in 1958. If March and Simon are right about cognitive limits on rationality in organizations than Hayek must be right about rationality in the economy because the problems confronting planning for an entire economy are considerably, perhaps infinitely, more complex than problems confronting planning for a single organization. Yet while March and Simon's analysis became a fundamental cornerstone of organization theory, Hayek's analysis was hardly recognized and remains at the fringe of public policy thinking to this day. In other words, the state of today's academy and modern social thinking is that (a) it is impossible for executives to think rationally about how to market Coca Cola or how to optimize profits in doing so, that firms must satisfice, that is, act in a way that reaches only a satisfactory as opposed to an optimal level of profits, but (b) it is possible for bureaucrats to think rationally about how to optimally decide the level of interest rates, how much money to print, whether Microsoft is really a monopoly and whether tariffs should be raised. That is, when thinking about organizations, business schools have been quick to elevate a critique of executives' abilities to the center of management theory, but when thinking about the much more difficult problem of utilizing information in an entire economy business schools have ignored the parallel critic of social democratic and bureaucratic ideas.

Two additional ideas of Katz and Kahn in their Social Psychology of Organizing also lead to fundamental criticism of the bureaucratic model. First, the idea of an open system. In the Progressive and bureaucratic models of organizations, organizations are viewed as closed systems that require rational optimization of task efficiency in order to yield the best results. In contrast, Katz and Kahn argued, organizations are open systems that interact with their environment. Because organizations interact with their environment, Progressive ideas like scientific management need to be applied judiciously. Market shifts, changes in technology, and fluctuations in the quality of labor all impinge on the ability of planners to base solutions to production problems on expertise.

Second, Katz and Kahn applied the idea of Arturo Rosenbleuth and Norbert Wiener in their article Behavior, Purpose and Teleology ** concerning feedback loops to organizations. Organizations can learn only through failure. This same notion was applied by Oskar Lange to his theory of socialist economic planning. However, bureaucratic organizations have difficulty with change. This occurs for two reasons. First, as Merton pointed out in his article, the bureaucratic rules become an end into themselves. Employees become fixated on the propriety of bureaucratic rules and so resist efforts to change them even when they do not work. Second, as Mancur Olson shows in his Rise and Decline of Nations and as George Stigler shows in his article Economic Theory of Regulation, rules create economic interests which resist change. Thus, feedback loops are impeded by civil service and bureaucratic rules. This means that rationality is curtailed in public sector decision making even under Oskar Lange's claim of the ability of socialist entities to experiment to obtain optimal outcomes. Experimentation is curtailed precisely by the ritualization of bureaucratic rules, the inability of central planners to react in a timely way to change and their inability to begin to grasp the critical economic variables, and by economic interests of constituents, who will fund opposition to change because it threatens private gains that social democratic policies create.

There are additional reasons as well. The experts' training becomes institutionalized and ideological. Thomas Kuhn's Structure of Scientific Revolutions argues that scientific paradigms become ingrained for long periods of time and require significant intellectual upheaval before they are replaced. In academia, interest groups form around ideological solutions such as Keynesian economics or radical sociology and such paradigm- or ideology-driven solution sets are entrenched for economic as well as ideological reasons. A critique of social democratic rationality would need to integrate the failure of American universities to anticipate and explain important shifts in society and the economy and to remain rooted in passe solution sets that reflect the economic and intellectual interests of the professoriate.

Thus, the Progressives and social democrats both began as movements to encourage rationality through expertise. But there are contradictions inherent in the methods that they applied, namely the hiring of experts to replace market processes and the claim that central planners can experiment and act rationally. Where there has been no political or economic agenda (or an agenda that is consistent with the claim that rationality is absent) such as in the case of business corporations, academics and experts have been quick and aggressive in claiming the inability of corporate executives to act rationally. However, where the problem is most acute, public sector and governmental decision making about the economy, academics, experts and professionals have resisted introduction of basic ideas about limits on rationality and feedback loops. This resistance reflects both the intellectual baggage of paradigms to which academics and their social democratic allies are loyal as well as the professional and economic interests of the interest groups that support social democracy, namely, the professions, government employees, some big business groups, high finance, and the media.

*By social democrats I refer to the movement that began with Franklin D. Roosevelt's New Deal, integrating earlier Progressive and Mugwump ideas, and adding elements of socialism. At various points social democrats have called themselves "liberals" and at others "progressives". They also claim that they are "pragmatic". Social democrats advocate expansion of state power toward an undefined and ever-receding maximal point while claiming an ultimate global convergence to a "mixed economy". But social democrats rarely if ever advocate elimination of governmental programs that fail while they aggressively emphasize the failure of markets. The joint themes of market failure and governmental efficiency remain constant in social democratic ideology.

**Arturo Rosenblueth, Norbert Wiener and Julian Bigelow, Behavior, Purpose and Teleology, Philosophy of Science, Vol. 10, No. 1 (Jan., 1943), pp. 18-24