Government, the Real World, and Politics: Part 2

Posted Oct 14, 2008
Last Updated Oct 29, 2008

revised, 30 October 2008

Free Market Economics

(First, as a point of clarity:  I put quotation marks around some terms used below.  They equate to writing "so-called," or "in a manner of speaking."  They also mean "this term may fit one or more formal definitions, or even common usage, but don't take it literally.")

    We hear a lot about "the Free Market."  But  just what is "the Free Market?"  Theoretically it's a market free to adjust itself (more or less constantly) under the pressures of "Market Forces," unconstrained by government. 
    Market Forces are defined as:

the laws of supply and demand, which in a free market determine the quantity of trade available and the price at which it is offered. In general, an increase in demand will cause an increase in supply and an increase in price, while an increase in supply will cause a decrease in demand and a decrease in price.  [borrowed and line-edited from]

    And it's all part of Natural Law, right?  As influenced by human decisions, which can and will shift, individually and statistically, logically or illogically, out of greed or compassion or fear.  Without regard to where it leads, and to "collateral damage." 
    Ah!  There's the problem.  In  the absence of constraint, where does it seem to lead, and what are the collateral damages?  And how do we know those wheres and whats?
    We don't, of course.  Predicting future economic states is uncertain work.  Very uncertain, especially beyond the immediate future.  An unexpected result in an obscure lab somewhere can lead to a whole new technology that solves some large problems and produces others.  Or the long speculated-on aliens  from another spiral arm could drop by to visit the primitives.  Or much else, any of which might alter the system negatively. 
    I'll leave those speculations alone here, and stay in present time or the recent past. 
    The "Free Market" is really a metaphor for a non-independent part of reality as a whole.  It's part of the universe. 
    Or put differently, it's an artificial syntactical construct, useful in conceptualizing how the production of goods and services seems to work.  And "Market Forces" is the supply, and demand, and price — and at deeper levels, the integrated linear/non-linear summation of everything that influences human decisions on buying, selling, and pricing.  The "Free Market" is a useful concept and guide, but artificial, limited — and camouflaged by indefinable complexities.
    Not natural.  Artificial. 
    "Ah!" you might say, "that's where statistics comes in!  The Free Market integrates all those things, and statistics, in the light of expert intuition, tells us what to do about it."
    But in the field of economics, and therefore in government and politics, the concepts of the free market, and market forces, are sometimes treated incorrectly as natural law, perhaps equivalent to the periodic table in chemistry, or the Krebs cycle in physiology.  Or for "Free Market" true believers, to the biblical Ten Commandments, plus all the priestly emendments of the Old Testament books of Numbers and Deuteronomy.

    Human activities, loosely but very imperfectly understood, influence "the Market" and can produce serious surprises.  For we are an essential, dynamic part of the system, which includes the fluctuating operating environment, as seen under the narrow lens of "Free Market" theory, focused by "Free Market" priests, and commonly interpreted by "Free Market" true believers with "Free Market" agendas.  And mostly with "Free Market" goals, centered on acquiring wealth — and the powers that accompany wealth. 

    I feel safe in saying that market economics of some kind exists for every social system, past or present — tribal, feudal, free agrarian, industrial, capitalist, socialized, communal — whatever classification you want to apply.  Clan or band economics evolved into tribal economics etc.  Or looked at a little differently, hunter- gatherer systems evolved into herder-farmer systems, which evolved into (etc).  Each in its own environment, to a significant degree shaping that environment, and carrying with it elements of earlier systems.
    But in a world with more than a few hundred million human beings, free trade has come to dominate.  Dating at least from the 13th- Century Mongols, hand-to-mouth hunters phasing into a herding culture half a step behind their neighbors and kinfolk.  New to commerce, they came to embrace free trade principles, and succeeded culturally-politically far better than earlier and later nomadic herdsmen.  Not simply because Genghis Khan was highly charismatic, looked to the future, and never ceased learning.   Though those were part of it.  Nor because he successfully broke down an old aristocratic tribal organization that produced mediocrity and feuds, and replaced it with a classless meritocracy (with its own problems). 
    Nor did he succeed because he adapted foreign military techniques, equipment and experts to his own purposes, integrating them skillfully with his hugely successful cavalry system and strategies; and treated defeated enemies with honor and generosity (unless they'd proven treacherous).   Nor because he avoided battle if he could negotiate; and deliberately intermarried his people, at every level, with the people he conquered, the families of chieftains and the families of common herdsmen.  And required widespread adoptions at every level of alliance, adoptions with full rights of inheritance. 
    Nor because he had a phonetic alphabet created for the Mongol language, and dictated his thoughts and principals to Uighur scribes so they wouldn't be lost (they almost were anyway, eventually).  Nor because he established and enforced freedom of religions, which offended Christian, Muslim, Hebrew, even Buddhist zealots among his people and allies (zealots who believed it their duty to convert others.)  It was a new approach to peace and justice.  And he got away with all of it! — a whole new system! — without great resistance.
    (Genghis Khan promoting peace?  What you been drinking, John boy?)
    And for social unity, he set standards of sharing the wealth of conquest and commerce (!) throughout his expanded people — expanded by alliance and conquest.  (Miserable barbarian you say?)
        WHICH BRINGS US BACK TO ECONOMICS.  Because Genghis Khan was very interested in, among other things, wealth.  And to create and disseminate it, he established free trade, created an orderly postal system, encouraged scholarship, enforced fair practices, protected trade routes…and died at age 65, realizing that his wayward, bickering sons might well blow it all.  As they did; by the 4th generation, the empire was fragmented and decaying.  But it took the Ming dynasty generations longer to eradicate his reforms in China.  And except in China, free trade, and elements of his other reforms, survived throughout most of his vast empire. 

    In the past century, free market economics, as practiced, has spawned irregularities.  Positive feedback, in the mathematical/engineering sense, can cause economies to flourish, but inbalances will build up, and if not corrected, result in crashes.  Which have resulted in constraints of practices deemed destructive or dangerous.  It's a matter of learning from mistakes and successes.
    Of course, the really true believers insist theway to deal with crashes is accept them, and have faith — the market will heal itself.  Yeah, like a broken leg: crippled, painful, semi- functional. 
    Today we don't have a classical "Free Market" anymore.  The environment keeps changing on us, and we keep changing, and our resources and technologies keep changing.  Those seem to be the reason that planned economies, as in classical socialism, have had their own problems. 

    Reforming the "Free Market" may seem dangerous, but in today's complex, worldwide economies, it's bound to be tried.  The alternative seems to be the collapse of the world's already stretched life-support system.  (That's what an economy is: a life support system, not a playground for arrogant plutocrats.)
    And reform calls for careful pragmatism, with broad input, wise (we hope) counselors, open minds, and strong credentials.  And willingness to learn from mistakes, which will always be with us.
    I suspect that if civilization survives to —  say the year 2150 C.E. — it will be considerably communal (not communist — neither bolshevist nor Trotskyist), and ethical, and thereby reasonably just.  The upcoming and subsequent generations have their work cut out for them. 
    And  here's something else to chew on: If reincarnation is for real, you and I will be part of those future generations.  So we need to get our act together. 
    Whatever; we're an interesting lifeform, and we're trying, and learning.
    Now, moving forward some five centuries from the Mongol Empire, to the formative years of the United States, we had something approaching the classical Free Market system (with an underpinning of slaves and indentured workers!).  ("We" not including American Indians and blacks.)  And along with a growing mastery of our natural resources, America's exercise of the Free Market was central to our growth as a nation and an economy.  But by the late 1800s it was producing depressions about every ten years.  Not recessions, but real, bona fide, crash-and-burn depressions.  Along with blatantly — blatantly dishonest business practices not only on the small, patent-medicine- show scale, but on major scales, some of them costing thousands of lives.  [Add an eventual link to War for the Woods here.]
    So reformers began to multiply, and at the beginning of the 1900s, with Republican(!) president Teddy Roosevelt at the helm, businesses began to face serious restrictions on what they could legally do.  Conscience, ethics, morality, were conspicuously not doing the job, so government and other "non-business" entities began to act on the problems. 
    Meanwhile, industrial competition was inspiring industrial cost-cutting, seriously squeezing workers — this at the same time the widening gap between conspicuous consumption and possessions on the one hand, and privation  and destitution on the other, was getting broad attention. Workers began to organize unions.  
    They demonstrated and picketed, and occasionally shut down an operation, notably in the more dangerous industries — mines, railroads, logging… From 1884 through 1912 — that's 29 years — 42,898 coal miners were killed in mine accidents — notably cave-ins, explosions, and flooding — in the U.S.  (I haven't seen any fatality statistics for mine owners.)  Safety regulations were made law, but were widely ignored because they cost money and there was no effective enforcement.
    Strikers died in shootings by private, company-employed police — and by National Guard units.  Army troops with fixed bayonets dispersed women strikers protesting conditions in a clothing factory.  In a strike of coal miners at Ludlow, Colorado, in 1913-14, a tent town of strikers and their families was attacked, looted and burned by a Colorado National Guard force.  (Your tax dollars at work.)  In the fighting immediately before, during, and after the fire (which was followed by a period of guerrilla attacks on mine installations), 69 people died, according to the Colorado state government.  However, a commission seated at the request of John D. Rockefeller II, whse father was the mine owner and the world's richest man.  The commission came up with a figure of 199 dead, almost all of them miners, but including 11 children killed by the Ludlow fire. 
    The upshot was substantial reforms, heightened public awareness, broad public outrage toward mining companies, and some reforms.  Meanwhile the United Mine Workers union became a power to reckon with.
    (The whole fiasco would be replayed on a smaller, briefer scale, but similarly stupid, in the Columbine [Colorado] "War" in 1927!  None of this was mentioned in our American History course in high school, incidentally.)
    As a young coalpasser on my first Great Lakes ship, my mentor had a nose that looked like a twist of gristle, and no teeth at all.  "How'd that happen?" I asked. 
    "Oh, that was in the seafarer's strike of 1913.  The Lake Carriers [an association of shipping companies] hired a bunch of goons, gave them baseball bats, and told them to clear us off the docks.  I got hit in the face with a baseball bat." 
    Someone's version of debate and negotiation.
    And what was the major issue, besides the right to unionize?  The seamen worked the 84-hour work-week (12 hours a day, seven days a week), and they wanted it shortened to a 56-hour workweek (seven 8-hour days). The Lake Carriers Association (also a union, but of wealthy corporations) howled that the change would force them out of business.  (What?)  But the seamen won: their unions were recognized and the work-week was shortened.
    When I sailed (heaved coal, actually), intermittently from 1947 to 1953, the Lake Carriers were still doing very well, thank you.

    After the brief but severe crash of 1920, Wall Street burgeoned.  Investing in stocks and bonds became the rage, as the middle class started to share in the game.  For a few years.  Then, in October 1929 (on the infamous Black Tuesday), the Stock Market crashed, really crashed!  Bankruptcies became the order of the day, and by 1932, 25-30 percent of the American work force was unemployed.  Banks had to cut way back on loaning to businesses, or go broke.  So businesses didn't  have money to operate, couldn't cover their payrolls, had to cut wages and lay people off.  Working people, employed as well as unemployed, had much less money with which to buy things, so sales dropped further, and prices dropped in response — but not enough for the unemployed.  So people went to the bank to draw out their savings.  Many banks quickly ran out of money — went bankrupt — because they'd lost so much of people's savings on loans that couldn't be recovered.
    By 1933, 11,000 of the United States's 25,000 banks had failed, with many more failing daily.  My dad, like many other professional men, had been wiped out: stocks and bank savings both.   Dad was luckier than many, though.  He had enough seniority that in March of 1933, the Pittsburg Steamship Company assigned him to one of the 5 (or was it 7?) ships they planned to operate that year.  The rest of their fleet of 102 (as I recall it) would lay rusting at the docks.  (Five or seven ships could haul all the iron ore that U.S. Steel Corporation expected to need that year, which suggests steel production of about 7% of normal.  That's why it was called the Great Depression.  (But read on; there's another side to this story.)
    So lucky dad had a job, but no longer as a chief engineer, nor any kind of engineer, but as an oiler.  And further lucky, in that he didn't have to heave coal in the stoke hold.  Lucky, that is, until he died of double pneumonia.  Antibiotics hadn't been invented yet, you see — and there was no sick leave.  Company policy in 1933 was: too sick to work?  You're fired!  So he'd kept working, getting sicker and sicker, till they found him lying unconscious on the crankroom deck.
    Captains were sailing as deckhands.  As for the men who'd been working as oilers, coal heavers, deckhands…none of them had jobs, certainly not on Great Lakes ships.  They were living in old boxcars, or shacks made of packing crates, shelters of old hatch tarps…whatever.  Or went back to the farm (if it hadn't been foreclosed on), replacing the hired man, who then hooked a ride on  a freight train headed west, hoping to follow the harvests.  (Such men were termed "hobos.")  Hobos were often beaten and hauled off to jail by the railroads' private police.  Not for  any harm they were doing.  It was matter of principle!  They were supposed to buy a ticket.  You have no money?  The system is broken?  Too bad.  So another principle was ignored: survival. 
    Our president was a good man, an engineer, who had headed up relief efforts in shattered Europe at the end of World War I.  But economically he was a true believer, a "Free Market" fundamentalist.  Though as things got worse and worse, he did begin to change.
    Meanwhile, another Roosevelt — Franklin Delano Roosevelt — was swept into the White House on a reform platform.  Lots of congenital Republicans voted Democrat for the first time, and the GOP lost in every state except Maine and New Hampshire.  FDR proceeded to blunt the Depression somewhat with his New Deal programs.  He got large public works projects approved by Congress, along with constraints on "Free Market" financial operations.  Which changed the mood of the nation, and things improved, little by little. 
     And after the end of the Great Depression, the decadal cycle of depressions faded to brief decadal recessions, a big improvement that economic libertarians seem to hate. 

    Not all reforms are good reforms, certainly not in the long run.  And meanwhile, unions went on to demonstrate that power in the hands of union officials can also be abused, misused, and corrupted.  So the unions in particular had set-backs, and with help from Presidents Harry Truman and Dwight Eisenhower, union leadership moved increasingly to persons who  preferred negotiation to confrontation.  While the new cycle of CEOs was also inclined to negotiation. 
    Times change.

    Trade, "free" or otherwise, doesn't operate in a vacuum.  There are, for example, wars.  In World War One, with a U.S. population of 105 million, 4.7 million young Americans served in the military.  In WW2, with a population of 130 million, the number in uniform was 17.86 million, and in the Korean War, 5.72 million.  During the Viet Nam War, the number was 8.74 million.  Also, during the hostilities, the economy was heavily deformed by the need for ordnance manufacture and transportation.  And when hostilities ended, a great surge of released personnel were ready to return home, to look for jobs.
    After WW1, the discharged veterans got "little more than" $60 (one or two months pay by civilian standards) and a train ticket home.  This was followed by the Depression of 1920, which was mostly brief, but never fully ended in agriculture, despite recovery in other sectors.  During the protracted hard times "on the farm," many farmers borrowed against their land, helping set up the many farm mortgage foreclosures of the Great Depression, a depression which eased markedly over several years, but did not really end till 1940, and rearmament.
    As WW2 drew to a close, the number of veterans to be discharged was something like four times as great as in 1919 — the prospect of 15 million or so newly unemployed young men required quick action.  Congress moved quickly (!) to help assimilate them into civilian life; it wrote and passed the World War Two G.I. Bill of Rights.  An uprecedented action.  Some 7.8 million veterans took advantage of it, in colleges and trade schools. 
    And after four years of being on hold, during  the government-directed war-time economy, the "Free Market" pitched in.  There'd been no new cars, new trucks, new tractors, and damn few new tires, among much else.  So people were on waiting lists for replacements.  It was a high demand, high production economy.
    The feared post-war depression did not occur, though a recession hit in 1948. 

"The Free Market"— Restatement and Summary. 
    The "Free Market," is not a law of nature.  It's a human simplification of the real-world swarm of dynamic events operating according to laws of which we have very limited understanding.  And the forces whirring along as parts of that system include that wild card species Homo sapiens, with its various activities.  In fact, we are a central and defining part of the system economists strive to study. 
    But we are far from the sole part.  We live in a vast complexity of interacting forces, and we influence it strongly.  We simply have the franchise for planet Earth — we are its none too bright, thumb-fingered manipulator, for better or for worse.  And in fact, "Market Forces" go far beyond supply and demand.  Why do you suppose there are so many surprises on Wall Street?  Such different, incompatible strategies?      And why do today's sure things sometimes become tomorrow's shocks?
    Consider Black Tuesday and the Great Depression: Wall Street is a reflection of human traits, individual and cultural: ambition, aggression, fads, fear, impatience, ignorance, greed, psychosis, joy and dark despair…in infinite combinations, all rooted in different circumstances, making predictions (aka guesses) tricky. 
    Add Nature to this: the Dust Bowl droughts, two consecutive ferocious winters, and a number of record hot days in an era before home air conditioning, each contributing to the suffering of, and the slow recovery from, the Great Depression.  And to the obsessive/compulsive, destructive behavior observable in the "Free Market." 
    The iteration of questionable behaviors, even when the system is clearly "malfunctioning," tends to produce chaos. 

    In Europe, in the early 1900s, unrestrained capitalism; long-ingrained economic and class distinctions; associated, festering resentments; and in Russia, the decaying residue of feudalism, all peppered with the new socialist movement, nationalist/fascist movements, and egalitarian passions, were creating serious political unrest. 
    Which worried Wall Street, Congress, and presidents, who feared they might spread to America. Thus the New Deal can be thought of as an American alternative — reform instead of revolution.  In Europe, similar more or less moderate trails were blazed with varying degrees of success.  America's spectrum of environments and resources, coupled with our particular human history, allowed us to avoid much of the turmoil. 
    (In 1917, the Finns, with their own unique history and circumstances, declared their independence from Russia, then fought a brief but savage civil war over the issue of Leninism versus social and economic reforms — the "Reds" versus the "Whites," with the "Whites" winning — and evolved a social/political structure similar in important respects to our own.)
    Meanwhile, America's large area, industrial power, burgeoning and homogenizing population, and established democratic institutions, generated respect and admiration in many European workers and intellectuals.

    In the non-Communist world, Socialism was long touted as the major alternative to "Free Market Capitalism" and Bolshevism as an economic system for our time.  Ask Google for a definition of  socialism; you'll find a list of 24, differing in various respects.   The following ( seems to sum up the classic principles.  Socialism is:
Any of various political philosophies that support social and economic equality, collective decision- making and public control of productive capital and natural resources. A belief that industries and infrastructure within a society should be owned and controlled by the society as a whole (the state) and that such common ownership produces greater general benefit than private ownership for private profit.

But socialism, like Free Market capitalism, has problems in application, and has adopted certain Free Market practices to ameliorate them.  Thus in the European socialist countries, reforms have returned much of the ownership and management into private hands, with at least a quasi Free Market basis, but commonly with government constraints greater than in the U.S.A.  With some activities, notably health care, directed by the central government.  But often administered by regional or local boards or quasi-private entities.
    Given current "Free Market" difficulties, in America and worldwide, an international commission of leading world economists is supposedly being planned, to sort out and evaluate the lessons of past, and particularly current world financial problems, presumably aiming  (1) at coping strategies, and (2) at long-term principles and policies.  With new, and saner, wiser practices.  Hopefully that commission will include at least one contrarian to poke needles into inflated proposals.

    But regardless of the reforms, you can bet there'll be cowboys who'll try to game the system.  So it might be well to include, in financial law, painful penalties for destructive dodges.
    Meanwhile, a case can probably be made that the problem is more of weak ethics in high places, and of our social and cultural values, than it is of our economic and political systems and their structures, such as they are, and of understanding, such as it is. 
    But the aforementioned commission of leading world economists (if it is ever launched), and a concerned Congress and president, can produce some quick and temporary fixes that will reduce problems. 
    And in the process, re-expose and examine the remarkable greed, distorted values and irresponsibility, at all levels, that drove our economy into the muck.  And with our values and ethics thus dissected and exposed, I suspect our viewpoint and culture will become a bit saner and more balanced, with regard to money, power, and responsibility. 
    Which may make a big difference, because greed/irresponsibilty/impatience/gullibility at the grass-roots level has driven many of today's economic (and other) problems.
    "I want it ALL, and I want it NOW!!!"

    And that's enough on economics from this amateur.  Next in this series on "Government, the Real World, and Politics," I'll examine
the issue of a National Health Care system.

    Now here's that brief bibliography I promised on Genghis Khan:

Lister, R.P, Genghis Khan.  1969.   Dorset Press edition 1989, 232 + xx pp.  ISBN 0-88029-406-X.  (This was based on the [then] recently discovered, "Secret history of the Mongols."  Detailed and evocative — "you are there."  Expands the mind.)

Spuler, Bertold, History of the Mongols: Based on Eastern and Western Accounts of the Thirteenth and Fourteen Centuries.  1968.  Dorset Press edition 1988, 221 + x pp.  ISBN 0-88029-271-7.   (This book is enormously colorful, often telling us more about the original writers than about the Mongols.  But the viewpoints are interesting, and enlightening about the era of Mongol dominance.)

Weatherford, Jack, Genghis Khan and the Making of the Modern World.  2004.  Three Rivers Press, 312 + xxxvi pp.  ISBN 0-609-80964-4.  Also rooted in "The Secret History," this book includes some very interesting on-site research, a new perspective, and (to me) a convincing evaluation.

Rodzinski, Witold, The Walled Kingdom: A History of  China from Antiquity to the Present.  1984.  The Free Press, Macmillan Inc., ISBN 0-02-926870-2.  Chapter 6, "Mongol Rule and Ming Restoration," stresses the decay and corruption of the Mongol rulers of China.

Sabloff, Paula L.W., editor, Modern Mongolia: Reclaiming Genghis Khan.  University of Pennsylvnia, 121 + xvi pp.  ISBN 0-924171-91-X.  With many superb color photographs of life among a people half of whom still live as pastoral nomads.  And four thoughtful, highly informed chapters by Mongolian and American scholars, with Mongolian history emphasizing the 20th Century, mostly under Communist rule; and rehabilitating Mongol culture — an ongoing process under the democratic principles of — Genghis Khan!