All Commentary
Sunday, September 1, 2002

Investor Politics: The New Force That Will Transform American Business, Government and Politics in the Twenty-First Century

Authoritative, Educational, and Entertaining

What better way to strengthen the roots of capitalism than to give its participants a stake in the system! But how? This is the question John Hood addresses in Investor Politics. In a world filled with envy, largely reflecting hatred of capitalism’s wealth-building capabilities, it is refreshing to read the author’s optimism about what’s leading us away from the socialist trends of the past century and a half.

One might think of Hood’s thesis as trendy. After all, the past two decades have vindicated significant portions of his main theme: that most households are favorably disposed toward politicians whose proposals strengthen individual ownership and freedom to manage their own assets.

Starting with a wonderfully prescient quote from Thomas Jefferson, the author does the reader a great service by tracing the historical forces and individuals most responsible for the rise of America’s welfare state. He emphasizes the powerful political movements that arose in response to migrations of citizens from a largely agrarian economy to a dense, more specialized, and predominately urban society. As farmers on their own land and as entrepreneurial merchants in small towns, Americans lived rather self-reliantly, owning most of their capital and labor resources. But as technology and investment capital flowed into agriculture, productivity and output rose, rendering much farm labor redundant.

Hood contrasts the land- and home-ownership situation of a farmer with the condition of a worker facing weekly or monthly rent payments required for living in rapidly growing industrial cities during the second half of the nineteenth century. The psychology and politics diverge sharply, based on such factors as self-employment versus employee status, and ownership of one’s own land and tools versus paying a landlord and leasing tools and equipment owned by a capitalist banker or shareholder.

The author dates the hatching of America’s cradle-to-grave welfarism with the writings of Edward Bellamy, the influential American journalist who wrote the utopian novel Looking Backward. But Hood is careful to chronicle the ways in which the foundations for America’s welfare state had already been excavated by the time Bellamy achieved national notoriety in the late 1880s. Hood is at his best when organizing for readers the political threads that coalesced to give us today’s welfarism.

Ironically from our current perspective, the Progressives were urban and voted for the Republican Party and the Populists were rural and voted for the Democrats. Hood explains how, by 1912, all political parties stood for increased government intervention in the economy. Proliferation of immense federal programs in the New Deal era marked a natural outgrowth of these earlier statist movements and the financial and employment insecurities exacerbated by the Great Depression.

Again, one testimony to the excellence of Hood’s book is its historical continuity. He recapitulates for readers the squalor of congressional pandering to the “envy lobby” of a bygone decade. However, note that the pandering to envy described here occurred 40 years before the Depression. Specifically, Hood points to Populist calls in the early 1890s for a peacetime corporate income tax not to raise revenues, but to redistribute income, and the 1894 congressional enactment of the first personal income tax since the Civil War.

As coherent and helpful as the historical developments presented by Hood are, his chief mission in writing the book is captured in its subtitle, which might be paraphrased: “Ways to restore American self-reliance, responsibility, and limited government.” From the introduction of 401(k) plans in the 1980s to welfare reform in the 1990s to early 21st-century momentum aimed at restructuring and circumventing the public-school monopoly, Hood is convinced that the public has made a profound course change. Aided by economic growth and prosperity in the 1990s, the author sees a growing segment of the public becoming increasingly insistent on controlling their own financial affairs and increasingly disaffected by government’s relentless assault on household incomes, assets, and private decision-making.

Hood is simultaneously convincing and entertaining: authoritative and educational in his proposals for generating permanent reform through greater individual asset ownership, and entertaining in how he uses history and empiricism to defrock political and economic charlatans. Citing the wisdom of Aristotle as his premise–”Great is the good fortune of a state in which the citizens have a moderate and sufficient property”–Hood details the virtues of individually owned medical and educational savings accounts, privatization of Social Security, elimination of income taxation, and more welfare and unemployment-related reform.

The author harbors no illusions that converting our entitlement mindset into an investor mindset will be quick or easy, especially with entrenched bureaucracies and constituencies. But he sees favorable trends.

In a hard-hitting “war room” segment, Hood outlines a six-point strategy for undermining the welfare state. The key it seems to me is the author’s call to reformers to “clearly challenge the underlying immorality of writing envy into law.”

  • John Hood is a former president of the John Locke Foundation, a state policy think tank in North Carolina, and author of The Heroic Enterprise: Business and the Common Good (Free Press).

  • David L. Littmann is senior economist with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich., and the largest state-based free-market think tank in the country.