When human beings were hunter-gatherers living in small tribes, life was simple. There was no need for the concept of money and possessions were limited to what one could carry – tools, weapons, animal skins, maybe some crockery. This state lasted for about 150,000 years after we first became a species. Then, about 6,000 years ago, crop and animal husbandry were discovered. For the first time people were able to stay in one place for extended periods. The very earliest evidence of writing was in the form of accounting for commodities and the concepts of money and property ownership were born.
In the modern world people get money for living in a variety of ways. A few inherit enough money that they don’t have to work at all, but most people still “earn” their living by working for an hourly wage, perhaps the most basic form of work as commodity. That’s what my blue-collar father did. For many years he made $2.12 an hour with time-and-a-half for overtime. Benefits? Zero. It was a straight trade, work for money. And of course many also work for a salary, a contractual agreement that sometimes included benefits. (Robert Reich in today’s paper says that the fraction of workers with medical benefits has declined since 1980 from 74% to less than 10% today.)
Another source of money for living is investing. Is investing a form of “earning”? If it is, I suggest that it is fundamentally different from the barter of work for money. Investing of course is essential in a society that is inter-dependent because it leverages specialization, the process by which we have learned to trade different forms of labor. By specializing, everyone benefits and that has been amplified enormously by science, technology and industrialization. In only a hundred years, for example, America has evolved from a culture of 90% farmers to one in which only 1% of the population produces enough to feed the whole country and export even more. But here’s the point: that basic link between bartering hourly work for pay was, in the latest 0.06% (six one-hundredths of one percent) of humanity’s time on earth, broken by the concept of investment. I say that we still have a long way to go to learn to live with this concept.
Anyone who has taken economics 101 in college knows that capitalism, while being head and shoulders ahead of any other system, has always been beset by wild cycles of boom and bust, cycles that continue today. Why should this be? I suggest that it is because of that broken link. There is no objective formula for the system, and fairness is not part of it. Corporate boards are notoriously cozy with management and often morally, if not legally, corrupt. What is an executive’s time worth? You can’t price it objectively. You can’t say it should be 10% of sales, or 5% of earnings, or 0.1% of net profit because it is simply impossible to separate the executive’s contributions from those of his colleagues and those who work for him. It is all subjective, and in present day America we have seen an explosion in what most people see as unreasonable “compensation” of executives compared to workers. Compounding this problem is that we currently tax capital gains, the principal source of money for the rich, at a lesser rate than than we do the wages of regular workers. It is a moral inversion.
In the current controversy surrounding the amazing wealth of GOP candidate Mitt Romney, the broken link between “earning” money and leveraging it by manipulation is prominent. Bain Capital, Romney’s invention, is not a company that builds widgets, it simply reorganizes the debris left from other failed businesses. Is this a necessary kind of business? Obviously it is – somebody has to clean up the messes. Are its profits justified? That is an unanswerable question because there are no criteria for that. Capitalism is a system of hard work on a small scale and of clever opportunism on a large scale. And a collective economy on a national scale is subject to the aforementioned wild swings of boom and bust.
What should be the governor of the engine of wealth, the popular source of the American Dream? I submit that it can only be found in the twin mechanisms of government regulation and an open press, and those in turn can only operate effectively under a constitution like ours, a constitution which was crafted to encourage openness and compromise in governing.
Those who see economic success in less regulation of business are missing an important point. Unregulated free enterprise is an engine without a speed governor, and it was just that that caused the internet bubble and also the housing crisis that culminated in the present Great Recession. Capitalism is an unstable system that our young species is still learning to manage, and lately we aren’t doing so well at it. (The dinosaurs ruled for 60 million years, 400 times longer than our species has been around.) We had better learn because all seven billion of us are stuck here together on this little blue marble. We can screw it up out of avarice or we can make it work for everyone, our choice.
And one final thought about that great document, the Constitution: it is government that we expect to “promote the General Welfare”, not business, and if we deny government that function, fairness in society will be forfeit and the economy will continue to fail of its own imperfections.