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Wednesday, January 4, 2012

Occupying Wall Street

The Occupy Wall Street agenda is vague, but the protesters at least have the good sense to know that something is awry with the political-economic system we labor under. Protesters carried a variety of signs, one of which stated, “End corporate welfare.” The Associated Press reported, “Demonstrators said Saturday they were protesting against bank bailouts and the mortgage crisis.” One 21-year-old man told the AP, “The enemy is the big business leaders of Wall Street, the big oil company leaders, the coal company leaders, the big military industrial leaders.”

Considering the housing and financial debacle that began in 2008, the continuing hardship it unleashed, the fortunes made in the run-up to the bust, and the tax-financed bailouts that followed, what’s wrong with feeling that “the system” has done a number on most Americans? It’s perfectly reasonable to think that some radical changes are needed. Our lives and well-being are subject to the moves of large organizations over which we have no control. But to know what should change, one has to understand what happened.

Note that in the young man’s statement above, one word is glaringly absent: government. (He does use the word “military,” but many people across the political spectrum seem to think the Pentagon is not part of the government.) Unfortunately, the protesters most likely fail to appreciate that everything associated with the Great Recession is a product of a longstanding and deep-seated partnership between big influential business/financial interests and government—the corporate state. Through most of American history, banks and other financial institutions have operated in league with government, especially since the Federal Reserve opened its doors nearly a century ago, and this money-manipulating cartel has facilitated war, cheap credit to favored interests, and bailouts.

So why aren’t the protesters also outside the Fed, the Treasury, and the Capitol?

Most if not all of them likely favor a big expansion of government, but in light of our political-economic history, that would be precisely the wrong way to go because it would further empower the same coercive bureaucracy that gave us this crisis. Putting new people in charge won’t alter that fact that the bureaucracy wields powers that should not exist.

What the protesters miss is that corporate power is derived from government power—it’s the most dangerous derivative. Without State power no bank (or collection of them) could set the economy on a balsawood platform of inflated currency and cheap credit, creating the conditions for recession and long-term unemployment, nor could it stick taxpayers with the cost of bad investments. Such mischief requires a central bank and congressional power to compel the taxpayers. Washington and Wall Street need each other. They don’t agree on everything, but their public feuds should not mislead anyone into thinking they are adversaries. They are in cahoots, dependent on a system that constrains regular people’s honest economic activities and benefits an exploitative elite.

I will not rehearse here how corporate-state policies created the housing and financial bubble that burst and plunged the country into the Great Recession. Instead, I want to indicate that the corporate state is not new in America. It has been more the rule than the exception.

There’s no better illustration than the New Deal, particularly the National Industrial Recovery Act (NRA), which cartelized business through industry-generated and -enforced codes that suppressed competition, restricted production, and kept prices high during the Great Depression. John T. Flynn, the muckraking reporter who despised government-business collusion, bureaucratic control, and militarism, told the story in “Whose Child Is the NRA?,” which appeared in Harper’s Magazine, September 1934.

Flynn notes that the NRA is commonly regarded as the “Charter of Labor” or the product of President Roosevelt’s Brain Trust, the collection of Progressive academics who informally advised FDR. In fact the NRA’s roots lie elsewhere:

The actual business of putting together the NRA began in March, 1933, after Roosevelt took office. But one must look far beyond the throb and pother of those feverish days to understand the swift succession of moves and the cast of characters behind them. . . . Regimentation of business means, in the minds of those who use the term, forming businessmen into regiments, bringing business under regulation, controlling production, prices, trade practices, the rules of the game. For seventy years at least business men have been, in varying degrees, in favor of this. . . . Later on the Chamber of Commerce of the United States raised the slogan of “Self-Rule in Industry.” This was not a struggle to shift the control of industry from the government to industry itself. Industry wanted not freedom from regulation but the right to enjoy regulation.

Self-rule meant the power to penalize code violators who wished to compete freely. (Without enforcement, cartels fall apart as members “cheat.”) As the Chamber and prominent businessmen such as General Electric president Gerard Swope, along with Wall Street lawyers, pushed for government-backed industry cartels, members of the House and Senate were advancing bills, which Roosevelt opposed, to set maximum hours for workers. An alternative bill emerged from discussions that included Hugh S. Johnson, who had worked for Bernard Baruch on Wall Street; John Dickinson, a Wall Street lawyer; and Chicago labor lawyer Donald Richberg.

“When, therefore, the NRA act was brought forward, it was to defeat the [Sen. Hugo] Black and [Rep. William] Connery bills, to turn the subject over to employers and to give them, besides, something they had wanted for years but dared not now insist on—the modification of the antitrust laws and the privilege of self-rule in industry,” Flynn wrote. (Note: The freed market was not among the alternatives.) He concluded that big business made out well with the NRA:

If now we keep all this in mind it will be easy to understand all that has happened since NRA became a law. I am reliably informed that [Chamber President H. I.] Harriman told his directors that it was a complete victory for the Chamber. They got more than they hoped—modification of the antitrust laws, self-rule in industry, defeat of the Black and Connery bills, the right to regulate hours and minimum wages transferred to the trade associations under NRA supervision instead of by statute. In short, with the exception of the collective bargaining provision—which as we have seen was subsequently robbed of much of its original strength—the NRA plan represented almost entirely the influence and ideal of Big Business Men. The share of the Brain Trust in its paternity was microscopic; the share of the Chamber of Commerce and other business interests was predominant. [Emphasis added.]

This was no anomaly. Government power ultimately will be influenced and controlled by those whom the occupiers despise. So, protesters, rail against Wall Street. But rail, too, against its indispensable partner—government, with its unique legal power to wield aggressive force—and realize that the genuine antipode of the system you oppose is the freed market.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.