Box Score: Money 2, Value 1

Coming of age in the Reagan era, I failed to understand what I was witnessing. America abandoned manufacturing for services and ended up in a time warp.

As a corporate-level software consultant, my father Karl saw elements of this up close. Invited as a fellow traveler by the president of Wiley & Sons (the journal publisher), Karl sat in on the annual shareholder meeting. A careful investment plan charted growth in assets and employment. During the discussion, the CFO queried, “And what is the annualized rate of return on your plan?” With the follow-on to the response, “I can take that same money and make three times as much in the stock market.”

In that era, the stock market still reflected an investment in other people’s ingenuity. This year, as we approached the election, one Trumpie threatened, “Well, if Biden wins, you can be sure the stock market is going to tank!” The inescapable corollary is that the stock market is no longer an economic bell-weather but an instrument of political influence.

That influence is maintained through the ties between the Federal Reserve and the large banks. We are in the mind-numbing reality that the people that take care of our money no longer profit from making it grow, they profit by making it move. That may seem impossible, but the volume of real estate, trade, and government debt is so enormous that simply the placement fees run into the tens of billions of dollars annually.

The bind for the public is that the money center banks hold no interest in seeing the debt reduced. In fact, the Dow weathered recent financial crises because the Federal Reserve issued borrowing authority that the banks loaned to corporations to buy back stock. The value of stock is now linked to corporate debt.

And in the chaos only the financial system has a guaranteed benefit.

Was this intentional? Hardly, but it was inevitable. This is trumpeted by the liberal economists, but they misdiagnose the problem. I hope with this post to steer them in the right direction.

The liberal economists blame “capitalism.” Capitalism, coined by Adam Smith, is a recent innovation, seeing an effective implementation only in the industrialization of the Western world in the late 1800’s. Capitalism was actually a liberalizing social contract. It held that money and labor could collaborate to improve productivity. Higher productivity meant more money for investors and lower costs for labor. It was a win-win scenario.

Capitalism disproved the precepts of Malthus, who held that population growth would always overwhelm the benefits of productivity gains. In part, however, Malthus was proven right because political power was held by the moneyed noble class. Market control was awarded by royal writ, and once secured ensured resistance to innovation that might lead to diversification of supply. Stability of prices was also important to the nobility and their retinues, often sustained by stipends.

The crack in this hermetic system was warfare, and it was to finance their conflicts that the nobility turned to the banking system, leading to the coupling of political and financial interests that suppressed the development of liberal societies.

So the “Box Score” reads as it is because capitalism is now revealed as a brief interlude in the narrow marriage of politics and finance. It was an interlude during which finance married itself to the production of value and the growth of liberal societies.

Regardless of the outcome, the 2020 election proves at least one thing: that Donald Trump is a symptom, rather than a cause. The disease that created him is a return to the festering myopia of political and financial calculations freed from a concern for value or sustainability. Trump is used as a tool by that system to distract attention from the wizards behind the curtain. He is a live facsimile of the special effects in the Wizard of Oz.

How does this manifest in practical terms? Consider real estate. I was told recently that I had to get in the market, because prices would only go up. Looking over the finance package, I noted with surprise that is allocated 50% of my income to real estate costs, rather than the 30% typical of my youth. So the reason that real estate prices are going up is because the Federal Reserve, through Fannie Mae and Freddie Mac, is issuing loans that allocate more of our income to the payment of interest. The increase in home prices has nothing to do with value – it follows from a systematic manipulation of political and financial levers to ensure that we are indebted.

But the fault is not with capitalism. Capitalism was a God-send. The fault is with something I would call “monetarism” – the pursuit of wealth in the absence of any concern for value.

The economic historian should recognize this plague. What should give pause to the rest of us is the proof, in the results of the 2020 election, that the disease is worse that an out-of-control pandemic that has the potential to kill millions of Americans.

I hope that our democracy survives while our liberalizing politicians adapt to that lesson.


In the ‘90s, following the fall of the Iron Curtain and the liberalization of China’s economy, Francis Fukuyama wrote The End of History. From the reviews, I gathered that his proposition was that the competition between centrally planned societies and free-market societies had been decided decisively in favor of the free market. With that settled, Fukuyama argued, all that was left was the working out of the practical details in specific situations. The world would be mercifully free of the paroxysms born of ideological conflict.

The realists pointed out that, in fact, the Cold War era had been relatively free of conflict. With the loss of the dichotomy that pitted Russia and China against the rest of the world, history would in fact resume its messy march. The problem of foreign policy in new millennium would be to prevent generalized conflict on a global scale. We are seeing that borne out in current events.

At root, I believe that the prescience of the realists reflected the falseness of Fukuyama’s dichotomy. The true dichotomy is between societies that commit a significant part of their resources to the protection of human rights, versus those that allow the powerful to exploit human capital. In the extreme, exploitation is visible today in the slavery of child farm laborers in Mexico, and in sex trafficking on a global scale. But it is also seen in the rather more subtle exploitation of educated workers in the developed world, bound by lop-sided employment contracts and forced by income inequity to work and commute long hours that inhibit their investment in the maturation of their children.

With these miserable expectations, I was heartened in the ‘90s by the democratic transition in the Philippines. The methods deployed by the US were a fascinating contradiction. Over the decades, the Philippine armed forces had been reorganized around the use of advanced US weapons systems that require ongoing maintenance. At the strategic level, true mastery of these systems required training in US military academies. That training came with indoctrination in the democratic theory of military service. Thus, when the dictator called upon the military to prevent the installation of a freely elected government, General Ramos would only patrol the streets to maintain order. The Marcos regime had no option but to quit the country.

It has been with some trepidation that I have watched this and other methods deployed by first-world nations over the years to contain the spread of exploitative practices around the globe. The foremost tool has been the creation of plutocracies funded by the sale of natural resources. We see this at play in Russia. Secretary Kerry warned that the invasion of Ukraine would be an “expensive” adventure for Russia. President Putin scoffed that the US could not project power into his back yard, but now can only watch oil prices plummet as the US and other nations opened the taps at their oil fields. It may take some time, but the West must hope that eventually the zeal of the Russian people will wear down under growing poverty.

We see something similar happening in China, which has concentrated wealth in the hands of the very few not only by exploiting human capital, but by failing to contain wide-spread environmental degradation. The problem for China is that its lack of respect for human rights is not limited to the public at large. It extends into the oligarchy as well. Fearing that their wealth will be seized by political opportunists (including, by many accounts, the police), Chinese entrepreneurs are taking their money and talent overseas.

The counter-examples to this pressure are Iran and North Korea, both nations with rigidly controlled ideologies that beat down the will of the people. More disturbing to me is Tibet. The Dalai Lama has indicated that he would rather see the fall of his religious tradition than to have China choose his successor. The Tibetan natives are being overwhelmed by Han resettlement. It appears that the nation is going to succumb to rapacious greed.

The recent debacle over Sony’s The Interview has reinforced my gloom. The United Nations is now building a case against North Korea for widespread human rights violations against its citizens. The details include prison camps containing up to 120,000 people, summary executions and rape. Obviously this is not a situation that occurred overnight. Why has the world been silent? What precedents are we following in this case, and what lessons may be drawn by tyrannical leaders elsewhere?

In formal political theory, the only hope is in the tendency of dynasties to collapse. In the early stages, this is often a matter of cannibalism among the elite. As in China, they seize wealth from each other. When the unprofitability of that course is established, the next stage is in the realization that their ambitions are bounded by the incompetence of the people they depend upon. This results from a number of factors, perhaps foremost being the paranoia of thieves that leads them to surround themselves with people that they can control. When the cost of incompetence is grasped, a competition begins for access to creative talent, which over the long run leads to devolution of power to the middle class.

The lie to this hope is found in feudal Europe, where the middle class was allowed to accumulate wealth only until it created holdings that could threaten the ruling class. Then taxation and royal writs of monopoly were used to restore control to the nobility. Capitalism took hold in Europe only because the War of the Roses diverted the attentions of the nobility during the early stages of the industrial revolution in England.

In the face of these apparently implacable social and political pressures, I trust in faith. Not blind faith, but belief fused with scientific understanding. There are sources of power that beggar the military might of nations because they turn the will of warriors; there are methods of communication that no media barriers can block; there are mechanisms of justice that make the rapacious accumulation of wealth an exercise in self-destruction. Tyrants can frighten and exploit their people, but they can’t repeal the laws of physics.

The Unitarian Universalist minister Mark Morrison-Reed wrote, in Black Pioneers in a White Denomination, that the negro slaves of the American South, having lost all control of their physical existence, turned inwards and discovered an abiding presence of love. Grasping the power it offered, they developed strength to control the will of their masters.

Predators beat a single drum: they use fear and greed to seize wealth, rather than creating wealth through disciplined creativity. It is there, in the fundamental psychological weakness of the predator, that the faithful will find the chink in the armor, and subdue their oppressors.