The Folklore of Capitalism by Thurman W Arnold
New Haven, CT: Yale University Press, 1937
(xiv) That folklore consised of a series of very simple mental pictures. The government was pictured as the thrifty head of the family who balances his budget and saves money for the future. If he does not do so he goes bankrupt and his children suffer. The national debt which had been constantly increasing since the First World War was a mortgage on the property of every citizen, which sooner or later would have to be paid by the next generation. Prosperity and full employment could only be forthcoming by balancing the national budget and taking the burden of taxation from the backs of our taxpayers. The money and credit necessary to operate our economy and full employment would then be produced by private industry and our economy would begin to grow and expand, as it did in the nineteenth century. The idea that government credit or government debt could be used to create purchasing power necessary to distribute the products of the twentieth-century industrial revolution was unsound, radical, crackpot, dangerous, and subversive. It was leading us straight to socialism. Such was the economic folklore of 1932.
(xv) For years a group of economists led by Leon Keyserling had advocated balancing the economic budget rather than the fiscal budget. By this they meant that on one side of the balance sheet the President should estimate the productive capacities of our national industrial plants. On the other side there should be listed the demands on that productive capacity for necessities such as schools, public works, water conservation, health, and so on through a long list. Congress should then formulate programs which would not put an inflationary burden upon our productive capacity but at the same time would utilize it to its fullest extent. France has such a plan. Germany though without a formal plan has for years thought in terms of production rather than money. In other words, balancing the economic budget consists in the establishment of economic goals and the implementation of those goals by practical methods.
(xvi) The central idea of the economic folklore which frustrated our ability to use the capacity of the modern industrial revolution may be expressed as follows: Private enterprise with its tremendous variety of credit devices is able to supply the purchasing power which will not only utilize our full productive capacity but enable it to expand. It is the duty of the government to prevent that expansion from proceeding so rapidly. The government performs that duty by balancing the budget.
(xviii) Conservatives in Power: A Study in Frustration by Edwin Dale Jr, financial editor of the NYTimes
(xix) The real difficulty is that we have failed to realize the tremendous productive capacity of the twentieth-century scientific revolution. That capacity is so great that the credit mechanisms invented by the private sector of the economy cannot fully employ it. Those credit mechanisms, which we will call the private printing of money, have never before in our history pumped as much money into the nation’s purchasing power.
(xx) The Potomac River is a good illustration of this folklore. It is an open sewer. A vast recreation area badly needed has gone to waste. The more the sludge accumulates the greater will be the burden on posterity. We have the productive capacity to clean up this river and all the other rivers. But we cannot do so because it would be an intolerable burden on our taxpayers. According to our folklore there is only one economic situation which would justify cleaning up the Potomac, and that is if Washington, DC, became a depressed area. In that case, perhaps, we might clean it up, not because the job itself was worthwhile doing but because the expenditures might prime the pump and get Washington on its economic feet again. But until Washington becomes a depressed area it is better to let the Potomac fill up with sludge so that it will remain a handy way of priming the pump in the future.
(xxii) A public debt owed by a nation to its own citizens is not a mortgage which their children must pay off. The building of necessary public works is an asset both for the present and the future.
(5) All arguments against heresy follow the same pattern. A Devil must first be discovered who is trying to lead the people astray. A Hell must be invented which illustrsates what happens to those who listen to the Devil. The conception of free will is essential. Then the age-old story is told.
(9) We are still convinced that appeals to the thinking man to choose his system of government are not ceremonies but actual methods of social control. We still use governmental creeds as a basis for diagnosis.
(20) One does not speak of a successful trial lawyer as a great scholar of the law - and one does not speak of successful political strategy as statesmanship.
(23) This chapter will therefore be based on the assumption that social creeds, law, economics, and so on _have no meaning whatever_ apart from the organization to which they are attached.
(25) The elements which all social organizations share in common may tentatively be described as follows:
1. A creed or a set of commonly accepted rituals, verbal or ceremonial, which has the effect of making each individual feel an integral part of the group and which makes the group appear as a single unit...
2. A set of attitudes which makes the creed effective by giving the individual prestige, or at least security, when he subordinates what are ordinarily called “selfish interests” to those of the group….
3. A set of institutional habits by means of which men are automatically able to work together without any process of conscious choice as to whether they will cooperate or not…
4. The mythological or historical tradition which proves that an institutional creed has been ordained by more than human forces.
(27) In this country we like to think that we decided to write down all our governmental principles in one document called the Constitution. Actually, the Constitution consists of thousands of documents written at various times.
(31) It is considered quite a sophisticated observation in these curious times to say that both political parties are exactly alike. Few, however, understand that the reason for this is that where the center of attention is abstractions rather than practical objectives all parties are bound to be alike.
(37) Our Devil is governmental interference. Thus we firmly believe in the inherent malevolence of government which interferes with business. Here are people who are not to be trusted - they are the bureaucrats, the petty tyrants, the destroyers of a rule of law. Organizations always tend to assume the charcters given to them by popular mythology.
(46) For example, years ago Mr Justice Cardozo pointed out that law was really literature.
(48) …the great principle that government should not interfere with business.
(50) Anything which could be called governmental interference in business necessarily created bureaucracy, regimentation, inflation and put burdens on posterity.
(58) Out of it have been spun our great legal and economic principles which have made our learning about government a search for universal truth rather than a net of observations about the techniques of human organizations.
(61) Yet it was constantly pointed out by its opponents that if one tried to obtain Socialism, one got either Fascism or Communism, with their attendant evils of regimentation, bureaucracy, dictatorship, and so on, and that individualism disappeared.
(61-62) Tendencies are regarded as far more important than immediate effects and the danger to posterity actually seemed more real than the danger to existing persons.
(83) Social plans are a symptom, not a cause. Goods are distributed, not through plans, but through habit and ceremony. Most of these ceremonies are not recognized as such and are thought to be expressions of fundamental truth.
(96) The quaint moral conceptions of legal and economic learning by which the needs of the moment could be argued out of existence were expressed by “long run” arguments. Such arguments always appear in religious thinking. From the point of view the future is supposed to be the only reality, just as Heaven in the MIddle Ages was the only reality. All else is regarded as temporary, shifting, and ephermeral. This way of thinking allows men to ignore what they see before them in their absorption with the more orderly blueprint of the future.
(100) Each social science was a pyramid of abstract theory, imposed upside down on some simple myth believed by the man in the street.
The result of this devotion to theory was to obscure practical necessities and to prevent the alignment of groups according to their actual interests. It was impossible to form political parties to represent the interests of different economic groups because everyone believed in the same slogans and refused to talk about practical affairs. Therefore, party platforms in America were practically identical, except for minor detail.
(101) The reason was obvious. Everyone belonged to the same church. Everyone believed in a written Constitution and a Supreme Court to save the nation’s soul, and in the existence of sound economic principles discovered by impartial learned men in colleges to cure its body. And, above all, everyone believed in a government of principles and not of men. The idea that different classes of the country really had opposing interests, that they were _not_ all working hand in hand toward the same goal - ie, justice under the capitalistic system - never took any emotional hold on any extensive group. A separate labor movement was regarded as dangerous even by a large section of labot.
(104) The learned theology of the time, however, convinced men that the same general principles of credit, noninterference with business, bureaucracy, the gold standard, the Constitution, and individualism operated without regard to particular organizations or personalities.
(106-107) [Annual poll of national problems] The reader will note: (1) that abstractions always lead the list and practical problems get very few votes; (2) that there are no problems stated concretely; and (3) that the problem selected as the most pressing is one which is already on its way to a solution through the emergence of a new organization which is rising to fill the need.
(108) This curious attitude is the result of a philosophy that great organizations dressed in clothes of individuals achieve long-run unselfish and humanitarian results by pursuing their selfish interests. The only control needed is that of an umpire. The only formulas needed are standards by which the umpire can apply the rules of the game.
…. “To be grandly vague,” said Herbert Finer, “is the shortest route to power; for a meaningless noise is that which divides us the least.”
(110) Thus we developed two coordinate governing classes: the one, called “business,” building cities, manufacturing and distributing goods, and holding complete and automatic control over the livelihood of millions; the other, called ‘government,” concerned with the preaching and exemplification of spiritual ideals, so caught in a mass of theory that when it wished to move in a practical world it had to do so by means of a sub rosa political machine.
(112) When organizational changes began to appear after the depression, the liberals opposed change and lost their identity as a group. This is characteristic of liberal movements in times of change. They always disappear, because they are symptoms of belief in established forms. They stand on the same fundamental truths as conservatives and immediately join forces with conservatives when new organizations appear to violate those truths.
(137-138) We suggest therefore that the platform of the observer by the following:
1. Institutions are like personalities playing a dramatic part in society. They are to be judged by their utility in the distribution of physical comforts and in the development of an atmosphere of spiritual peace.
2. When institutions fail to function, reforms must be attempted with something like the same point of view with which a trained psychiatrist reforms an individual. That point of view must recognize that an institution has something which may be called a subconscious mind. This means only that its verbal conduct must be calculated to inspire morale and not to describe what it does.
3. Law and economics are the formal language of institutions on parade.
(142) Professor Edward S Robinson of Yale, apsychologist who chose to observe law and economics
(144) … editors do not realize that a political campaign is a dramatic production.
(145) The trick of being tolerant between elections and starting a mass attack when the battle actually commences is not yet learned.
(162) Most people will think in terms of a religion of government.
(176) A trial cannot be a sensible way of investigating facts because the process consists in having two partisans indulge in mutual exaggerations on their own behalf with the idea that the juidge will find the truth in the middle. The detective does not adopt that process.
NB: Same with governance and with the media - all use two opposite poles to approach the “middle” assumed common ground
(189) Men cheerfully accept the fact that some individuals are good and others bad. Therefore, since great industrial organizations were regarded as individuals, it was not expected that all of them would be good. Corporations could therefore violate any of the established taboos without creating any alarm about the “system” itself. Since individuals are supposed to do better if let alone, this symbolism freed industrial enterprise from regulation in the interest of furthering any current morality. The laissez faire religion, based on a conception of a society composed of competing individuals, was transferred automatically to industrial organizations with nation-wide power and dictatorial forms of government.
… The Government at Washington gradually changed into what was essentially a spiritual government whose every action was designed to reconcile the conflict between myth and reality which men felt when a creed of individualism was applied to a highly organized industrial world.
(197) The arguments often appeared nonsensical, but it should be remembered that for the purpose of binding organizations together nothing makes as much sense as nonsense, and hence nonsense always wins.
Tears and parades, not factual psychological discussion, are the moving forces of the world in which we happen to live; and this is true even for psychologists.
(205) industrial feudalism
(220) And the reason for this was that the reformers themselves were caught in the same creeds which supported the institutions they were trying to reform. Obsessed with a moral attitude towared society, they thought in Utopias. They were interested in systems of government. Philosophy was for them more important than opportunism and so they achieved in the end philosophy rather than opportunity.
(230) A corporate reorganization is a combination of a municipal election, a historical pageant, an antivice crusade, a graduate-school seminar, a judicial proceeding, and a series of horse trades, all rolled into one - thoroughly buttered with learning and frosted with distinguished names.
(231) Although to the casual observer the complications seem more forbidding, actually the dialectic of this process is very simple. It consists in the endless repetition in different forms of the notion that men must pay their debts, in a situation in which neither men nor debts in any real sense are involved.
(251) 4. A recognition of the public responsibility of a great organization to provide security to its retainers and distribute goods would be Communism.
6. Industrial organizations are not themselves dictatorships because they are individuals exercising their own free will.
… And so the slogans run which protect the dreamworld of fiscal thinking from the actual world of social conduct.
(259) Fees and patronage in industrial organization, however, are protected by two myths which work together as follows: (1) Nothing that great American businessman do with their own property can be other than helpful. (2) Great organizations are in fact American businessmen. It is the combination of these two myths that creates an anarchy which makes ethical conduct on the part of socially minded businessmen almost impossible. This can be illustrated by concrete examples.
(262) In the year 1937 the poll taken by the Institute of Public Opinion showed that two thirds of the people of the United States did not have a decent living wage to support their families according to what they considered the minimum standards of the time.
(280) Thus the implicit belief that nothing but efficiency could result from uncontrolled private organization, and nothing but inefficiency could result from government organization enabled us to spend vast sums as bonuses to improve every other country but our own.
(285-286) Government organizations did not operate on the profit motive and therefore private initiative was more efficient. Government organizations could only be operated at great cost to the taxpayers, whereas private organizations made profits and hence “cost” no one anything.
(310) One of the most interesting types of taxation levied is illustrated by the Ford Motor Company financing. This type of taxation has become familiar in European dictatorships. Ford simply shipped cars to all his dealers with the demand that they pay for them or else their business would be confiscated. With the aid of local banks they paid. There was nothing else for them to do. Many of the Ford dealers worked all their lives to contribute to Ford. However, the similarity of these payments to a tax escaped the attention of men living in the dreamworld of fiscal thinking. They were considered a free and voluntary trade between a big man called the Ford Motor Company and a lot of little men called dealers.
These same pressures were found in the distribution of securities. Great issuing houses had a number of good things to distribute and number of sour issues. If a dealer wanted the patronage of the great house, he took the sour with the good, and got the money back from the public if he could. The investor was supposed to protect himself by diversification, so that he would get a reasonable number of winning tickets in this lottery scheme of taxation. It was taken for granted that a substantial number of tickets would lose.
… A world of trade between independent individuals gradually became an industrial feudalism.
(311) In which is discussed the curious myth that permanent public improvements, conservation of resources, utilization of idle labor, and distribution of available goods are a burden on posterity if accomplished by an organization called “government” which assumes public responsibility.
… It set up standards by which the Government was judged by its failures, while an industrial organization was judged by its successes and its failures were excused.
(312-313) The second important underlying myth which aids private organizations and hampers government activity along practical lines is the notion that the government has no “assets.”
(313) Wealth, as we have shown, is nothing more than a present-day guess as to what goods and services an individual or an organization can control in the future. The organization spending on a large scale raises hopes; men begin to believe in it; its stock goes up in value; its hopes are reflected in its bookkeeping; thus it becomes solvent.
NB: The best thing is to have a million dollars in the bank. The second-best is to owe the bank a million dollars. As the saying goes.
(317) The principles of “waste” did not apply to business at all, because of the theory that “waste” was automatically eliminated by competition. No one had the faintest idea what “waste” was anyway.
NB: Bill McDonough’s natural design rules where “waste equals food”
(324) When interviewed on the ethics of such transactions [tax avoidance dodges], Mr J P Morgan said: “If the government cannot collect its taxes, a man is a fool to pay them.” His remark represented current business ethics toward the Government. No respecatable person could make the statement that if a _bank_ was unable to collect its notes, the debtor would be a fool to meet his obligations.
…The right to fight long and expensive legal battles has become identified with human freedom, and on the banner of every great tax avoider is inscribed the motto; “Taxation without litigation is tyranny."
(326) However, the central idea was that “government” does not spend its “own” money. It can have no assets. It cannot use corporate methods of balancing its budget.
(329) The notion is that nobody “pays” for the mistakes of private organizations, except the investors, the laborers, and the purchasers, and that their loss is not a tax but is something due to their own fault for investing in, working for, and purchasing from, the particular organizations. In the case of governmental organization, every mistake is a tax on posterity.
(333) A philosophy of government is a series of parables through which men see the world before them.
(356-357) 8. Institutional creeds, such as law, economics, or theology, must be false in order to function effectively. This paradoxical statement means that they must express contradictory ideals, and must authoritatively suppress any facts which interfere with those ideals.
(357) Therefore, attempts to make creeds consistent, or to make preachers practice what they preach, are effective as destructive, but not as constructive, forces. What radicals are constantly calling hypocrisy in legal, economic, or ecclesiastical bishops is in reality their ability to act well on the institutional stage which has been set for them by a complex of forces for which they are responsible.
… The creed of any institution is public presentation of a drama in which the institution is the hero. The play is spoiled unless the machinery behind the scenes is carefully concealed. In this lies the explanation of the paradox that legal and economic principles must be false in order to be effective.
(376) Procedural reform can only be effective where the reformer realizes that the judicial process is necessarily a dramatic contest.
(379) Public debate is necessarily only a method of giving unity and morale to organizations. It is ceremonial and designed to create enthusiasm, to increase faith and quiet doubt. It can have nothing to do with the actual practical analysis of facts.
NB: “Increase faith and quiet doubt” is ambiguous, increase quiet doubt?
(382) It is important that political debate be positive and affirmative and not negative. When slogans appeal only to fears they hinder organization. The side with the positive slogans will therefore have the advantage.
NB: But in the drama of a political campaign a positive slogan does not have to become a positive program: Make America Great Again
(392) The Constitution has ceased to be a charter of positive government. It is only a protection against unholy desires.
