The Disadvantages of Trade Are Due to Federal Intervention

The federal government, not trade, is the source of social losses from the exit of manufacturing firms. Trade always results in making the parties to the trade better off. It may result in one party's being made better off to a greater degree than the other, but without both parties' being made better off they wouldn't trade.

The declining automobile industry and Chinese manufacturing illustrate separate issues. With respect to the US auto industry in the 1960s and into the 1970s, when I was in high school and after, consumer advocates talked in terms of "planned obsolescence"--that American car makers deliberately produced badly made cars so that consumers would be forced to buy new ones within a few years. That was probably an exaggeration of the Big Three's competence: They produced bad cars because their management systems were crummy, not because they consciously made bad cars. The 1979 book by John Z. DeLorean and Patrick Wright "On a Clear Day You Can See General Motors" covers GM's often laughable incompetence.

Thus, global competition has been a boon to Americans. It increased the quality of cars because of the Toyota production system invented by Taiichi Ohno and the Toyoda family. The result is that cars that once had to be junked at 100,000 miles or less now frequently last 300,000 miles.

That means every American who buys a car enjoys three times the value. Although American auto workers lost their jobs (a plight amply illustrated in Michael Moore's best work, "Roger and Me"), Americans have on balance been made better off by trade.

With respect to China, there is a combination of issues. First, labor costs are lower in China, and there is a reason to move labor-intensive plants there and to other low-wage countries. Low labor costs mean lower prices to Americans. One of the reasons we have sustained a relatively high standard of living is the inexpensive merchandise at big box stores due to low labor costs in China.

At the same time, plant relocation requires capital investment, and when capital is at its market rate, there is an impediment to making risky and costly moves. The costs of relocation have been suppressed by the federal government and the Federal Reserve Bank. By keeping interest rates artificially low, firms have been able to invest in plant relocation and make other labor-cutting capital investment at subsidized cost. There likely has been overinvestment in labor-saving technology as well as plant relocation because of suppressed capital costs.

Hence, the relocations and the loss of blue collar jobs are not entirely due to free trade. They are in part due to the federal government's subsidization of capital investment.

That's not the only way, though, that big government interventionists have hurt blue collar workers. During the same period that it subsidized plant relocations, the federal government increased all kinds of regulation, from human resources and employee benefits to OSHA, to environmental regulation, to Sarbanes-Oxley, to product liability. In addition, it raised corporate tax rates. The Democratic Party's policy mix seems designed to force manufacturing to move overseas.

Moreover, and most importantly, the federal government through its protected monopoly, the Federal Reserve Bank, has inflated the money supply while the dollar is used as the world's reserve currency. Foreign holdings of dollars limit the inflationary effect of historically low interest rates. The dollar remains relatively strong despite massive increases in the number of dollars.

In a free market trade regime, if many manufacturers exit a home country and sell their goods back to the home country, the value of the home currency will decline. That has not occurred. Rather, the dollar has retained its relative value despite the exodus of manufacturing to China. The reserve currency status of the dollar allows the Fed to subsidize privileged industries in services, government, education, and health care while it drives productive industry to China.

It is not surprising that President Trump's often-blue collar supporters have been skeptical of trade, for the managed version of it has harmed their interests. In contrast, the well-to-do beneficiaries of Fed policies, stock market investors, Wall Street, government employees, beneficiaries of government welfare plans, real estate developers, professionals like psychologists who benefit from state programs, are key constituencies of the big government economy. Notice that none of these produce much of value. America's has increasingly become a vampire economy.

Shining Light on the Shadows of Power: An Interview with James Perloff

I just submitted this piece to The Lincoln Eagle in Kingston, NY. 

Shining Light on the Shadows of Power: An Interview with James Perlofff

 Mitchell Langbert, Ph.D.

James Perloff has written four books on the elite governing America, on Darwinism, and on the relationships among institutions that dominate American politics from behind the scenes. In The Shadows of Power Perloff traces the history of the Council on Foreign Relations. In his most recent book, Truth Is a Lonely Warrior, Perloff analyzes how history and current events are leading us toward a world government dictatorship. Perloff’s website is http://jamesperloff.com/. The Lincoln Eagle (TLE) interviewed Perloff by email.

TLE: In your work you refer to the Establishment. What does that mean? Who controls America?

Perloff: In America’s Sixty Families Ferdinand Lundberg wrote: “The United States is owned and dominated by a hierarchy of its sixty richest families…” He was talking about names like the Rockefellers, Morgans, Mellons, Vanderbilts, Du Ponts, Astors and Warburgs, and he showed their control was such that they preselected the presidential candidates before the nominating conventions took place. Things haven’t changed today. Voting gives us the illusion that power belongs to the people, but it really belongs to the rich and the few.

TLE: The media contributes to that process. Whose views does the media reflect?
 
Perloff: That of the media’s ownership. Lundberg documented in 1937 that a plutocracy owned nearly all of the major media organs. We have diverse outlets but not diverse ownership. Today, Time Warner owns CNN, AOL, Time magazine, People, Money, Fortune, Sports Illustrated, New Line Cinema – the list goes on and on. Similar with News Corp. You have maybe a dozen giant multinationals owning all the major media.

TLE: How can Americans obtain information about current events given that their media, such as ABC, MSNBC, The New York Times, and Time are controlled by banking-and-corporate interests?

Perloff: People should investigate alternative media: magazines like The New American, radio shows like Deanna Spingola’s, websites like henrymakow.com, and books like my own Truth Is a Lonely Warrior, published in Kindle and paperbound last year.

TLE: What is the biggest problem facing Americans today?

Perloff: Of course the problems are innumerable: political, economic, and social. If they were boiled down to one, I would say it is a self-serving shadow government that runs the country from behind the scenes of our democratic trappings.

TLE: A related issue is that of education, which works in tandem with the media to indoctrinate rather than inform or educate. How can parents eliminate indoctrination from their children’s education?

Perloff: The best alternative is home schooling; if not home schooling, private religious schooling; where these alternatives are not possible, give them information resources as an antidote to media indoctrination. Truth is more powerful than lies.

TLE: Why is there a trend toward increasing centralization and government authority?

Perloff: That is a means of consolidating power. The Founding Fathers understood that centralized power leads to tyranny, which is why they gave us limited government with numerous checks and balances.

TLE: What is the link between the Federal Reserve Bank and the money center banking interests, the Rockefellers, Morgans, and Warburgs, and more recently Henry Paulson, Goldman Sachs, George Soros, and other bailout beneficiaries?

Perloff: The Rockefeller, Morgan and Warburg interests were all represented at the secret 1910 meeting on Jekyll Island where the Fed was planned. Paul Warburg was the Fed’s first vice chairman. Henry Paulson was CEO of Goldman Sachs immediately before he became treasury secretary and then oversaw, with Bernanke, the 2008 $700 billion bailout of Wall Street, which included billions for Goldman Sachs. The Fed is a golden goose for the private banks.

TLE: What has been the role of the Council on Foreign Relations with respect to the relationships in the prior question?

Perloff: The role of the Council is to formulate foreign policy, but that policy is cohesive with the wishes of bankers and the Fed. The Council was founded by the very same people who founded the Fed; the Council’s first president was J. P. Morgan’s personal attorney; David Rockefeller was the Council’s chairman for many years.

TLE: What has been the link between the Council and the presidents?

Perloff: The Council dominates the cabinets of presidents whether Democratic or Republican. When my book went to press last year, the count was 21 Secretaries of Defense, 19 Treasury Secretaries, 18 Secretaries of State, and 16 CIA directors have been members of the Council. This is why foreign policy changes very little, if at all, from one president to the next. In the meantime, how many Americans have even heard of the Council?

TLE: Do the Council and the Establishment favor one-world government? Why?

Perloff: The Council on Foreign Relations was founded in 1921 for the express purpose of creating a one-world government. In the immediate context, it was founded as a reaction to the U.S. Senate’s rejection of the 1919 Versailles Treaty, which would have entangled us with the League of Nations. The plans for the UN were drawn up by Council members. The EU and NAFTA are regional stepping stones. World government would be the consolidation of all power on the planet and thus invoke tyranny on a global scale. This is predicted in the Bible, by the way, in the book of Revelation.

TLE: What is the link, if any, among Agenda 21 and the trends that you describe in your books?

Perloff: Environmentalism, as expressed in Agenda 21 and other programs, is a pretext for controlling people. Up until the 1960s, war was considered the best means of controlling populations, but with the advent of nuclear weapons, the Establishment was concerned that war might no longer be a viable option, so the environment was chosen to succeed war as the new primary threat to survival. Global warming and other false scares have been dreamed up and promoted in order give government the excuse to micro-regulate our lives. Now they’re even talking about giving the government remote control of home thermostats. 

TLE: What has been the role of the US government in financing its own enemies, including Stalin, Mao, al Qaeda, and the Ayatollah Khomeini?

Perloff: It is well documented that Stalin’s predecessors, Lenin and Trotsky, were financed by the Rothschilds and US banking firms like Kuhn, Loeb. During World War II, When Stalin was threatened with destruction by the Axis powers, he was rescued with billions of dollars’ worth of American Lend-Lease. Mao would not have risen to power without the help of the U.S. State Department: Google my article “China Betrayed.” Regarding the Ayatollah, google my article “Iran and the Shah: What Really Happened.” Of course, there’s quite a bit on the Internet on al Qaeda being a creation of Western intelligence services.

TLE: Will the future bring a one-world government with a violent dictator at its head?

Perloff: From the Bible, from Orwell, from the trend of events and from the internal documents of the plutocracy we are talking about, that appears to be the case, but for the sake of righteousness, which is obedience to God, we should resolutely oppose it.

Thank you, Mr. Perloff. I hope that readers will buy your books and wean themselves from the mass media.

How Limousine Liberals Support the Rich

I just sent this letter to the editor of my local newspaper, the Olive Press. I have been writing to them each month:

A number of Olive residents have questioned my claim that limousine liberals favor the wealthy, i.e., themselves. The financial elite has often been called the military industrial complex (MIC) but is more accurately a nexus of real estate, Wall Street and commercial banking with the MIC and so I will refer to it as the banking elite.

Gabriel Kolko in his Triumph of Conservatism shows that the establishment of the Federal Reserve Bank was part of a larger movement, Progressivism, that reflected the banking elite's interests. This followed three decades of cumulative politicization of the economy by the Mugwumps and Populists of the 1880s and 1890s. One fruit of these movements, the 1890 Sherman Anti-trust Act, supported increasing concentration of industry. Martin J. Sklar provides detailed documentation in his Corporate Reconstruction of American Capitalism 1890-1916. The Federal Reserve Act in 1913 further enhanced the banking elite's domination, which was accelerated in 1932 when Franklin D. Roosevelt abolished the gold standard and confiscated all privately held gold.

The way that the Federal Reserve Bank helps the banking elite at the expense of the average American is that it increases the number of dollars in circulation, distributing them to the banking system. The banking system takes the reserves that the Fed gives it and expands the reserves further through fractional reserve banking. Briefly, when the fractional reserve banking system receives a Federal Reserve deposit (created out of thin air) of one dollar, it can expand the number of dollars by ten. Thus, the Federal Reserve Bank, which the banking system legally owns, can create deposits (reserves) out of thin air and then the banks can lend up to ten times the reserves also out of thin air. In other words, the Fed and the banking system cheapen the dollars that you own.

Economists, who are on the banking elite's payroll through consultancies, endowed chairs, and appointments to the Federal Reserve Bank staff, serve as an important propaganda source. They claim that the reserves are distributed evenly throughout the economy. Of course, this claim is absurd. Limousine liberals like William Greider (author of Secrets of the Temple) claim: (a) the Federal Reserve Bank helps the middle class but (b) the Federal Reserve Bank gives hundreds of billions of dollars to Bunker Hunt, Wall Street speculators and recipients of foreign investment. Limousine liberals never question how it might be possible to give hundreds of billions to Wall Street banks and at the same time help the average American.

Thus, at the foundation of big government is big subsidy to the banking elite. But that's the least of big government's subsidy to limousine liberals. A bigger way is the Fed's bloating of the stock market. The way the Fed's monetary expansion bloats the stock market is by reducing interest rates. Low interest rates mean higher stock prices. The present value of future dividend payments are higher at a lower interest rate. Since stocks are present value indicators of a firm's future profits, lower interest rates reduce the discount factor and raise stock prices.

The income inequality about which limousine liberals shed crocodile tears is due to the system which they put in place: by keeping interest rates low, stock prices are buoyed and wealthy limousine liberals like George Soros and Warren Buffett become richer. The way that interest rates are kept low is by the Fed's and the banking system's increasing the amount of money. The increasing amount of money leads to higher prices (inflation). Higher prices mean the average American becomes poorer. Thus, the inflation adjusted wages of workers are reduced while stock prices are increased and the wealthy become wealthier. No source has advocated this system more aggressively or for longer than the New York Times.

The period of the Fed's greatest power began in 1971 and continues today. During this 39 year history, American workers' wages began to stagnate in the early to mid 1970s. They continue to stagnate today. American workers today earn per hour what they earned in 1971. Prior to 1971, real hourly wages increased 2% per year. The post 1971 period saw massive increases in stock prices and increasing income inequality. All of this is due to the policies of limousine liberals, beginning with Franklin D. Roosevelt, who abolished the gold standard, and Richard M. Nixon, who declared "We are all Keynesians now."

Sincerely,


Mitchell Langbert

Herbert Croly's Progressive Democracy: A Roadmap for Social Justice Educators

Herbert Croly. Progressive Democracy with a new introduction by Sidney A Pearson, Jr. Transaction Publishers, New Brunswick, NJ. 1998. Originally published in 1914 by the Macmillan Company.

Herbert Croly's 94-year-old Progressive Democracy is slow going because its English is as thick as Turkish coffee. A contemporary reader needs patience to imbibe its grounds, but the gulping is worth it. Many of Croly's ideas are outdated, but the degree to which current progressive-liberals continue to advocate them is remarkable given their persistent failure.

At times, Croly uses the term progressive-liberal. Those who called themselves liberal, dropping the progressive in the post-war period, have reverted to calling themselves progressive, dropping the liberal part, in the post-Clinton era. Perhaps the term progressive-liberal, which is a term Croly sometimes uses, instead of either progressive or liberal is best. Game playing with nomenclature distracts attention from content. Given the outcomes of the progressive-liberals' ideas, game playing might serve their purposes well.

The progressive-liberals' game-playing with nomenclature follows Croly. Croly's use of the term conservatives versus progressive-liberals is an example. In various places (p. 148) he contrasts individual justice with social justice but he does not refer to advocates of individual justice as say individualist-liberals versus progressive-liberals, which would have been more neutral. Instead, he uses the terms progressive-liberals versus conservatives, which suggests that progress requires adoption of progressive-liberals' ideas. Although Croly's ideas were adopted through the 1980s, their adoption stalled rather than furthered progress.

Croly's emphasis on democracy at the expense of limited government remains a mainstay of progressive-liberal ideology. Many of Croly's ideas about governmental reforms, such as the executive's proposing the budget to the legislature, are taken for granted today. His vision that vaguely defined law will be implemented through regulation is what exists today. Those who advocated government reform in the early twentieth century, such as Theodore Roosevelt, were Croly's friends and admirers.

As I have previously blogged, Croly emphasizes social justice education and the role of education in the inculcation of his social justice ideology. Democracy and education overlap. The book's final chapter (p. 406) on social education is a precursor to post-1960s political correctness:

"The need of imposing more exacting standards of behavior upon the citizens of an industrial democratic state applies to the citizen as citizen no less than the citizen as worker...The being of better men and women will involve, as it always has involved, the subordination, to a very considerable extent, of individual interests and desires to the requirements of social welfare."

Ayn Rand termed Croly's view altruism. It explains why progressive-liberals are eager to advocate policies that common sense rejects. One can subordinate oneself to an infinite set of incompetent or harmful policies. Although progressive-liberalism has consistently advocated these, progressive-liberals remain convinced because they believe in altruism. In their view, self-sacrifice is virtue so their advocacy of harmful policies is moral. There is no end to the ways that progressive-liberals can encourage altruistic virtue, especially when applied to others.

The progressive-liberals base their ideology on the pragmatists of the late nineteenth and early twentieth centuries, who argued that the best course is found empirically through trial and error. However, at least since the New Deal, progressive-liberalism has been rigidly attached to government solutions and has rejected the possibility of error in government-based solutions. The government solution, once adopted, has been written in stone tablets and cannot be abridged. Even when programs fail, and private sector solutions might work better, progressive-liberals irrationally adhere to them. The progressive-liberals have betrayed William James and Charles Sanders Pierce.

In Progressive Democracy Croly argues that the 19th century American system of government, which combined legal limits that restrained political power with legal review, needed to be revised. The American democracy had been "timid" (p. 26) and needed to be "aroused to take a searching look at its own meaning and responsibilities". In his advocacy of the Americanism of reform Croly was not far from Jefferson, who in a famous letter to William S. Smith wrote:

"The tree of liberty must be refreshed from time to time, with the blood of patriots and tyrants. It is its natural manure."

Croly argues that "the way to rationalize political power" is not to limit it but (p. 38) to "accept the danger of violence" and to develop reasonable thinking from within. Croly was of course no Jeffersonian. Rather, he was more favorable to Hamilton and the Whigs, and admired the pro-business policies of the Republicans, although he considered them to have failed.

Education

In Croly's view, "reasonable thinking" was to be inculcated through education. He discusses the threat to social values and social cohesion of the various suffrage, labor and similar movements of the early twentieth century (p. 407) and argues that (p. 408)"social cohesion cannot be made effective without some measure of social compulsion." Thus, Croly's progressive-liberal ideology is a violent one, an argument more explicitly expressed in Croly's other famous book, Promise of American Life. Croly aims to contain the danger of democratic violence with compulsion through education:

" the creation of an adequate system of educating men and women for disinterested service is a necessary condition both of social amelioration and social conservation."

Thus, progressive-liberalism is in part a program for social control through education. Croly's view of national purpose as necessary to bind the democracy and create human excellence suggests compulsion as well. Croly argues against "moral coercion" or the inculcation of the habit of self-restraint in education (p. 413), which he saw as part of the maintenance of the old social order in favor of (p. 417) "a liberal education" which opposes "traditional culture" (p. 417):

"The social education appropriate to a democracy must be, above all, a liberal education. It must accomplish for the mass of the people a work of intellectual and moral emancipation similar to that which the traditional system of human culture has been supposed to accomplish for a minority. This traditional culture could never become really liberating, because of the narrowness and sterility of its human interests...(Traditional liberal education) was intended to emancipate only a few privileged people..."

Croly disagrees that education ought to encourage "self-control, moderation and circumspection". He argues that the rule of "live and let live" favors the rich, who engage in conspicuous consumption, and ought to be replaced with a philosophy of "live and help live" (p. 426), a philosophy of social justice education. He links social justice education to labor issues, and the restructuring of work.

In this, Croly anticipates modern management theory, specifically the ideas of Elton Mayo's human relations school, and the job redesign theories of Frederick Herzberg and Abraham Maslow. He writes (p. 422):

"The masses need, of course, a larger share of material welfare, but they need most of all an increased opportunity of wholesome and stimulating social labor. Their work must be made interesting to them, not merely because of its compensation, but because its performance calls for the development of more eager and more responsible human beings."

Like Herzberg, Croly advocates redistribution of dull and interesting work, which Herzberg, 45 years later, called vertical downloading. This idea saw its fulfillment in the 1980s downsizing of corporations, where managerial work was assigned to rank-and-file workers along with the rote work. In contrast, Croly advocated the socialization of dull work by distributing it among all citizens. However, this view is naive because it ignores the specialization of labor on which modern economies rest.

Rather than discipline, Croly argues that education should involve active involvement in social behavior, which relates to the issue of social justice dispositions or competencies. He argues that "the only way to prepare for social life is to engage in social life" (p. 423). He emphasizes faith in the belief in the "invincible interdependence between individual and social fulfillment" (p. 425). "Live and help live" suggests, in Croly's view "the ultimate collectivism" (p. 426-7):

"The obligation of mutual assistance is fundamental...Every victorious selfish impulse, every perverse and cowardly thought, every petty action, every irresponsibility and infirmity of the will helps to impoverish the lives of other people as well as our own lives. We cannot liberate ourselves without seeking to liberate them..."

Croly's book leaves little doubt about the ideological foundation of the concept of social justice disposition that the National Council on Teacher Education has permitted in education schools and, according to George Will, has been prevalent in social work schools.

Croly's faith in the perfectibility of humanity is the same faith that has been at the root of the worst crimes of the twentieth century, from the 25 points of Adolf Hitler's Nazi Party program and Marx's Communist Manifesto to the mass killings in Germany, the USSR and Cuba. While Croly suggests the importance of moderation and self-restraint (that is, focusing on others rather than ourselves requires self-restraint), it is precisely the inculcation of moderation and self-restraint that Croly attacks in his discussion about education.

The followers of Croly and John Dewey have inevitably focused on developing habits of self-esteem, experiential educational and the unimportance of basic skills and knowledge, coupled with an ideology that assumes a tremendous degree of human self-restraint. Thus, progressive-liberal education sets up students for failure on moral as well as academic grounds.

Summary

Croly bases his argument on the idea that limited government, what he considers the legalistic Constitutionalism of nineteenth century America, was a way for the founding fathers, 18th century republican liberals, to permit the government to escape "popular control" (p. 46). Excessive emphasis or "deification" of the Constitution resulted from lack of respect for the "popular will". The American system perpetuated the English "political and legal tradition" (p. 57) and focused on individual liberty and property. The Jeffersonian Democrats opposed federalism, which amounted to the legalistic system that Croly decries, but Jefferson allied himself with the Constitutional system, to the Democrats' political advantage (p. 59). Croly repeatedly expresses frustration with American democracy's unwillingness to change the underlying Constitutional system. In his view, American government was government by law and the courts while the two political parties reflected direct popular control, and the purpose of the parties was to "humanize and control government by Law" (p. 67).

Croly's frustration with the Constitutionalism of nineteenth century American democracy relates to its limits on the power and scope of government:

"Good administration consists in the adoption of the most efficient available methods for the accomplishment of an accepted policy."

But while the state was hamstrung, the 19th century political parties were effective. But the political parties are self-interested and so did not care about efficient administration.

Croly is relatively fond of the pro-business Whigs. He describes them (p. 75) as

"a national party whose life depended upon its ability to unite on an enterprising positive assertion of the public interest...Its National Bank was abolished. Its protective tariff was reduced to almost a revenue basis. A national plan of internal improvements was never adopted. Thus the Whigs were beaten all along the line."

Despite the Whigs' defeat, the expansion of markets led to a recognition of the need for a national economic policy and (pp. 86-7):

"Stephen Douglas was the first conspicuous political leader who proposed national grants of land in aid of railroad corporations...Public assistance was bestowed upon almost every essential economic interest...The Republican Party...almost immediately became the victim of special economic interests and devoted its power to the establishment of a privileged and undemocratic economic system..."

In turn (p. 93), "both the capitalist and the agricultural had come to depend for the satisfaction of their interests not merely on the vigorous stimulation afforded by the Constitution, but on the vigorous stimulation provided by the government." This government subsidy to industry was being made based on the belief that "every economic class was benefiting equally from the stimulation" but this was not, in Croly's view, true (p.95):

"In point of fact the stimulation of productive economic energy no longer contributed necessarily to the public welfare; and the two partisan organizations were no longer instruments of democratic rule."

Croly (p. 88) approves of the Republicans' emphasis on "accelerating the production of wealth" although he does not believe that their individualist, laissez faire philosophy was successful.

This ultimately becomes an empirical question: do the policies that the nineteenth century Republicans advocated have a better long term effect on increasing wealth than the policies that Croly advocates or not? Given that Croly's policies have been adopted, and the twentieth century has not seen the economic progress of the nineteenth, it seems that Croly was wrong. Indeed, Croly contradicts himself when he is making different points. On p. 92 he writes of the post Civil War period:

"Wealth was created and accumulated more quickly than ever before...The American people were enjoying much prosperity and were mad for more..."

But it does not occur to him that this is impossible without major technological advance because Croly assumes a distributive economic process (p. 97). Again we see the basic Progressive-liberal pattern, where a fallacy that Croly enunciated in 1914 (along with socialists, such as Marx) remains a foundation of progressive-liberal views today. Because, in Croly's view, pioneers used up resources, their individual actions did not necessarily serve social interests. The wealth creation of the late nineteenth century was exploitative in his view. But it was not. In a distributive economic process, one side's gain is the other side's loss. In an integrative process, one side's gain is the other side's gain as well. Market transactions are inevitably integrative because otherwise they would not occur. Even the most exploited third world worker has the right to refuse to work in a factory. The same was true of capitalist industrial expansion in the nineteenth century. It enabled an enormous influx of immigrants, who were poorer than Croly would have liked. But if the wealth creation of the nineteenth century had been distributive, there would have been a downturn because of the immigration. But there was not. Rather, real wages rose throughout the late nineteenth century and until the establishment of the Federal Reserve Bank.

Croly's points about government support of business are good, but, and this is in keeping with the progressive-liberal viewpoint of today, the remedy for the failure of government is not necessarily more government. The remedy might be to shrink or eliminate government because its programs are poorly conceived and executed. Yet, Croly does not consider this to be a realistic possibility. Better to address the problem of failed government support for railroads by having government regulate the railroads and support them even more.

Croly argues that as industry expanded more people became employees and so could not benefit from government subsidies to business (p. 98):

"A system which had intended to scatter the benefits of special economic privileges over the whole surface of society had resulted in the piling up of these benefits on certain limited areas...Mere stimulation of the production of wealth, which was being distributed in so unequal a manner, was no longer a nationalizing and socializing economic policy..."

Thus, the capitalist class, in Croly's view, gained the chief advantage from Republican support for business, while the growing working class was ignored. Ironically, policies that Croly advocated, notably various regulations, ended up serving the same ends. It remains a puzzle to me why, given the inability of government to avoid special interest capture, the progressive-liberals have not concluded that government opposes the ends that they seek.

Private Property

Croly (p. 112) also argues for a modification to, but not elimination of, the institution of private property in order to "socialize human nature" and that private property inevitably leads to privilege (p. 113):

"The recognition of a necessary inequality and injustice in the operation of the existing institution of private property, coupled with the recognition that the immediate abolition of private property would be both unjust and impracticable, constitutes the foundation of any really national and progressive economic policy."

Instead, Croly argues for the "socialization" (p. 115) of privilege. People should be permitted to keep the privileges they have, but be gradually taught that they must earn the privileges. Society must require that those who benefit from wealth earn the spoils. The Republicans had failed to require that privileges be passed around. Society should make privileges available to the "disenfranchised" (p. 116) and, in somewhat odd terminology that almost sounds like compulsory labor(p.116):

"create a system of special discipline, coextensive with the system of special privilege, the object of which will be assurance, as the result of its operation, of socially desirable fruits."

In other words, Croly argues that wage earners had been excluded from opportunity, and the American capitalist system could not make property ownership accessible to them because the frontier was used up. A new system of privilege involving social legislation would thus be focused on wage earners. This regulation was subsequently passed in the Progressive era and the New Deal, to include health and safety regulation (passed in the 1970s), labor regulation (passed during the New Deal) and expansion of higher education, a post World War II phenomenon. What is most noteworthy today about these proposals is that although they have been in place for decades, social stratification is today greater than ever. Hence, Croly's policies have failed to eliminate social stratification. Today, we have universities that graduate semi-literates; labor legislation that is irrelevant to workers' interests; health and safety regulation that at most marginally protects workers but significantly raises costs to small firms; and inflationary credit policies that have concentrated wealth among connected hedge fund operators, Wall Street executives and commercial bankers. Croly's vision of democratized privilege has failed. Yet, today's progressive-liberals are not pragmatists who urge experimentation and new approaches, say abolition of the Federal Reserve Bank. Should anyone suggest that the poor cost/benefit ratio that Social Security provides requires an alternative approach, our reactionary progressive-liberals howl.

Croly's belief (p.123) that "responsible" American political organizataion must be coextensive with the new system of "privilege" has also fared poorly. Although open bribery no longer exists, as it did in Croly's day and earlier, the extent of corruption is probably greater in absolute dollars. Hence, Croly's vision of a responsible government coupled with a new system of privilege has merely served to cloak more privilege and more corruption than ever before. This results directly from the failure of the Croly's method, a strong state and an emphasis on popular deliberation, that has become fundamental to today's progressive-liberalism.

Popular Political Education

Croly (p. 144) argues that American Constitutional democracy succeeded and that the American public had been educated as to how to function democratically, so that the safeguards against tyranny that limited government and the Constitution promulgated were no longer needed. Likewise, progressive-liberals must emphasize popular political education (p. 145):

"The great object of progressives must always be to create a vital relation between progressivism and popular political education. If such a relation cannot be brought about, progressive democracy becomes a snare and an illusion..."

Faith and Progressive-liberalism

The difference (p. 148) between the progressive-liberal political education and the 19th century classical liberal education is that:

"The ideal of individual justice is being supplemented by the ideal of social justice...Now the tendency is to conceive the social welfare not as an end which cannot be left to the happy harmonizing of individual interests, but as an end which must be consciously willed by society and efficiently realized. Society has become a moral ideal not independent of the individual but supplementary to him, an ideal which must be pursued less by regulating individual excesses than by active encouragement of socializing tendencies and purposes."

Democracy can be furthered only by popular good will. But laissez faire republicanism limited the popular will. The founders intended to (p. 153):

"create a system which would make for liberty and justice in spite of he want of character of the American people"

while progressive-liberals believe that increasing democracy will enhance the "collective enlightenment of the people". Laissez faire resulted in cynicism and business opportunism. Progressivism is an expression of and form of faith (p. 168):

"A democracy becomes courageous, progressive and ascendant just in so far as it dares to have faith...Faith in things unseen and unknown is as indispensible to a progressive democracy as it is to an individual Christian..."

Croly (p. 168) compares the progressive-liberals' rejection of the Constitution with the early Christians' replacement of the Jewish law with faith. The progressive-liberals' faith is in social justice and in social justice education (p. 211-12):

"The socially righteous expression of the popular will is to be brought about by frank and complete confidence in (popular democracy). This faith is in itself educational in the deepest and most fruitful meaning of that word...The value of the social structure is commensurate with the value of the accompanying educational discipline and enlightenment...The idea of social justice is so exacting and so comprehensive that it cannot be progressively attained by any agency save by the loyal and intelligent devotion of popular will...The people are made whole by virtue of the consecration of their collective efforts to the realization of an ideal of social justice."

Croly also argues for pragmatism in the pursuit of social justice and democracy (p. 217):

"The immediate program is only the temporary instrument which must be continually reformed and readjusted as a result of the experience gained by its experimental application..."

In practice, of course, progressive-liberalism has turned out to be extremely conservative. I doubt that even one in one thousand progressive-liberal programs and ideas has ever been terminated from the federal government once adopted. In contrast, private firms kill ideas all the time, and the ratio is reversed for new product introductions or business start ups.

Restructuring of Government

Several of Croly's ideas about restructuring government were subsequently adopted. Croly favored increased government power but was only lukewarm toward the ideas of "direct democracy" that have been adopted in the west---the referendum, the recall and the initiative. In his view, the importance of strengthening democracy was that it permits pursuit of "a vigorous social program" (p. 270), and in turn the need for a vigorous social program results from changes in society and political organization. Positive social policies require "strong responsible governments" (p. 271) and (p. 274) "a thoroughly representative government is essentially government by men rather than by Law". In order to accomplish unlimited government, the (p. 272) administrative and legislative branches of government needed to be enhanced (p. 270):

"Direct democracy, that is, has little meaning except in a community which is resolutely pursuing a vigorous social program. It must become one of a group of political institutions whose object is fundamentally to invigorate and socialize the action of American public opinion..."

More important, in Croly's view would be a new organization to (p. 283) "promote political education." This is accomplished by increasing both state government and popular control together (p. 286). I got the feeling in reading these recommendations that Croly was anticipating George Orwell's 1984. He says that both government agencies that function beyond the cognitive domain of the public ought to have increased authority and popular control of the same organizations ought to be increased. But you cannot have both. Perhaps Croly believed that you could, but there are cognitive limits on rational decision making even in private enterprises. How on earth could the general public evaluate the actions of specialized regulators, who may well be doing things that would meet with public disapproval if the public understood what they were doing?

Croly (p. 287) speaks glowingly of municipal commissions that combine "a simple, strong and efficient government with a thoroughly popular government." It seems to me that the history of Robert Moses in New York is very much an outgrowth of this kind of self-contradictory mental gymnastics. Moses started out doing things that met with popular approval, but carried his activities to the point of doing things that threw tens of thousands of people out of their homes in order to provide transportation outlets to suburbanites. Ultimately, Moses's work became corrupt in areas like urban renewal and public housing. Moses's corruption and the hatchet job Moses did on the Upper East Side's coastline is the fruition of Croly's ideas.

Croly (p. 292) uses a proposal of the People's Power Leaguge for the government of Oregon as an example of progressive-liberal reform. The governor and legislature would be elected on the same day. The governor would have extensive appointment authority. The governor could be recalled. The governor could recommend legislation and also vote in the legislature. He would have no veto power. He would introduce the budget. The state legislature would counterbalance a stronger executive. Voters could cast their ballots for legislative candidates of other districts. If any one sixtieth of all voters vote for a candidate, the candidate would be elected to the legislature. No bill could pass unless the number of legislators voting for it reflected a majority of the voting citizens. Defeated candidates for governor would be members of the legislature representing voters who voted for unsuccessful candidates. By allowing voters to vote for candidates in other districts, voting might be more along the lines of class and interest groups such as labor unions and farmers.

Thus (p. 303) in Croly's view the governor ought to be responsible for proposing legislation and executing law, which is the basic approach that many states have adopted although not in such extreme ways. In Croly's view (p. 304) executive leadership best reflects majority opinion. Initiatives and referendums are not really democratic because (p. 306) only a minority of people vote. Referendums place power in a knowledgable minority (p. 308):

"A democracy should not be organized so that the alert and vigorous minority can easily make its will prevail over their less vigorous fellow-citizens."

The two-party system (p. 312) leads, in Croly's view, to the suppression of differences of public opinion in the interest of party unity. A focus on executive leadership involves a greater emphasis on the candidate for governor's ability to oranize a legitimate majority. Executive leadership will arouse and concentrate public opinion. Interest groups would form coalitions. "Majority rule would be salutary, precisely because it would be fluid and adjustable" (p. 323).

Conclusion

Croly puts excessive faith on the public's ability to discern errors or governmental decisions that are entirely in opposition to the public's interest. The media are able to mislead and misrepresent. Economic interests with much to gain are likely to pay in various ways to obtain misrepresentation that serves them. Coverage of the Federal Reserve Bank and inflation, for instance, has been a joke for the past 50years. The public hears that Alan Greenspan has done an excellent job, and is asleep to the reality that a dollar in 1979 is worth 38 cents today. The flattening of real wages, they are told is due to the tax system and free trade, and they vote for Mike Huckabee.

Croly's optimism about the power of democracy was tragically naive. We will never know how many lives would have been transformed by technological breakthroughs that did not occur because of the adoption of progressive-liberalism.

Similarly, his views on social justice education have had unfortunate outcomes in recent years. One can appreciate his optimism but find his misguided application of religious fervor to democracy distasteful and foolish.

It is tragic that Croly's ideas have had a dominant influence on twentieth century America. His progressive-liberal ideology is intrusive, destructive and ugly. That it has gained favor among American elites suggests a massive failure of twentieth century education and morality. We live in a dark age, especially when compared to the nineteenth century.

War on The Future in Herbert Croly's Progressive Democracy

The past century has seen the persistent belief that government best copes with change. Liberals have viewed social security and regulation as cures for psychological uncertainty arising from free market policies. Yet, most progress has been associated with free markets. In countries like Russia, North Korea, Cuba, China and today's social democratic Europe there is scant innovation. In the case of more government-controlled nations, such as North Korea and Cuba, there is deprivation. Yet, the "progressive-liberals", including (a) liberal economists (b) big business tycoons like Warren Buffet and George Soros and (c) liberal journalists, continue to claim that progress comes from big government, high taxes, inheritance taxes and the Federal Reserve Bank.

The encouragement of government is associated with short-term thinking and faulty understanding of the sources of economic progress. "Liberal-progressives" since Herbert Croly have believed that progress results from increased efficiency, democracy and equity. Although these are all legitimate social goals, and efficiency does contribute to wealth hence progress, progress results from innovation, not from them. Innovation, in turn, depends on willingness to take risks, long term thinking, a realistic faith that returns will not be appropriated, and a high valuation of the returns. Although low interest rates (a low discount rate for a future dollar) stimulate increased valuation of future returns (at two percent a dollar in a year is more valuable than it is at four percent), when the Fed increases the money supply it depreciate the currency, resulting in inflation, uncertainty and insecurity.

It is unlikely that innovators will have first access to new credit (such access is given to commercial bankers, Wall Street, Warren Buffett and the like) and so will suffer from the uncertainty that inflation causes. Thus, the interests of the commercial bankers and Wall Street diverge sharply from the public's and from free markets. Innovation depends on a stable economy and the ability to predict the future so that innovators can predict returns, while Wall Street, big business and banking benefit from (and probably would not exist in their current forms without) interest rate subsidies and state support.

The progress that exploded in the late nineteenth century was due to a stable monetary base (the US was on the gold standard in the late 19th century) and limited government. Yet, the "Progressives" of the early twentieth century did not grasp that progress and innovation had resulted from the long term thinking that result from a stable money supply. In 1913, the "Progressives" pushed through the Federal Reserve Bank in order to, they argued, stop a two percent inflation rate that arose from global gold discoveries (the average inflation rate since 1979, excluding housing which has gone up faster, has been 3.7%). For the past 70 years the Fed has encouraged low interest rates and inflation. During the same period there has been less progress and innovation than there was between 1865 and 1913. Much of the progress and innovation that was made since 1930, for example television, has been based on ideas that had been conceived much earlier, for example by Nikola Tesla.

The liberal economists, tycoons like Warren Buffett and their allies encourage short term thinking in other ways, for instance, through advocating the capital gains, income and inheritance taxes, regulation of the economy and special interest subsidies to firms like Archer Daniels Midland and AT&T that squelch competitive innovators.

Herbert Croly's Progressive Democracy (1914) is a 415 page argument in favor of reconstituting the US government in order to encourage (1) greater democratic participation; (2) unfettered government power ostensibly governed by majority vote, with voice given to political minorities via a pluralistically elected legislature; and (3) enhanced professionalization and administrative power to scientific management-style government administrators who, Croly believed, could be freed from special interest pressure.

Croly believed that progress results from the application of democratic principles to science and that business had played very little role in encouraging innovation. Croly overlooks evident history that to him had been recent. In the thirty-five years preceding Croly's book Thomas Edison, Nikola Tesla, Charles F. Kettering, Alexander Graham Bell, Guglielmo Marconi, Wilbur and Orville Wright and many others flourished and invented crucial technological breakthroughs in a business-driven, laissez faire world. These were businessmen as well as inventors, who profited substantially from their inventions. They were not market manipulators and negotiators like Bill Gates and Warren Buffett. They were breakthrough inventors who came up with and marketed crucial technological breakthroughs. Such innovators are missing today because the capital formation necessary for them has been monopolized by the Federal Reserve Bank and its clients, such as Wall Street and Buffett. In other words, the policies of the "Progressives" have reduced the pace of progress by waging war on the future.

It is not coincidental that Croly overlooks the link between the accumulation of wealth and innovation. Croly lacks a theory about capital formation. He does not think that workers should save because it is, in his opinion, too painful for them to forgo current consumption. He does not make a similar kind of argument against the income tax. Yet, if workers in 1913 had saved at the rate they are taxed by the federal government today, they probably would have saved enough to purchase a business just as John D. Rockefeller did in the 1850s. Croly overlooks such examples as John D. Rockefeller, who was entirely self-made, because such examples are inconsistent with his argument that it is next to impossible for small shop owners and workers to become independent businessmen.

Croly might be viewed as the early twentieth century prophet of the early twenty-first century's sub prime loans, credit subsidies and incipient economic decline. He argues for a short-term politically-driven fix. Although he lacked the economics knowledge to argue for low interest rates (that was Keynes's job twenty years later) Croly did focus on a short-term fix: syndicalism.

Croly believes that businessmen should be asked to encourage syndicalist industrial democracy without concern for risk to their investments. He seems to believe that capital forms on its own and that the risks of investment will be absorbed without cost by....well he doesn't quite say. Some of Croly's ideas may be right in principle--the Japanese have in fact utilized autonomous work teams to encourage application of scientific management tools, an idea that Croly roughly suggests, but the industrial governance system he advocates is absurdly cumbersome by today's standards (and by the early twentieth century's as well).

Croly (p. 382) argues that 19th century liberals' argument that workers should be thrifty and save in order to buy property and so become owners rather than workers is "deplorable" because thrift implies deprivation and it is cruel to ask workers to impoverish themselves in order to save money to become wealthy down the road. Croly was among the earliest of the progressive-liberals who have waged war on the future. Twenty years later, in the 1930s, Keynes was to argue that "in the long run we're all dead." This kind of short term thinking is the heart of the liberals' and free-credit Republicans' war on America's future.

The easy, get-it-for-free mentality took further root in the American psyche. In reality, it is a streamlined version of 19th century populism, which was an ideology of agrarian land speculators who combined the advocacy of easy money with anti-Semitic and anti-British feeling.

The end result of short term thinking is economic decline. Howard S. Katz this week blogs about the role that economic reporters have had in furthering the mistaken Keynesian economic notions that economic progress is due to demand. This kind of thinking is the same kind of short-term thinking that Herbert Croly advocated in the early twentieth century. The end result of this short term thinking, stimulation of low interest rates through monetary depreciation and inflation will be further American economic decline. The century after the Federal Reserve Bank was founded was far less innovative than the century preceding it. Moreover, there was less economic opportunity and greater lunges between unemployment (as in the Great Depression and the 1970s stagflation) and full employment than there had been in the 19th century. Moreover, instead of jobs improving in quality, we have become a nation of retail fast food workers. Innovation has stalled because credit has been diverted into the pockets of Warren Buffett and George Soros.

Herbert Croly and the Progressive-liberals seem to have won their war on the future. Future generations of Americans will be poor in order to satisfy Croly's and his colleagues' narcissism.