Monthly Archives: January 2012

The Poverty of Conservatism

As the United States moves into its presidential election in 2012, voters should review the economic plans proposed by the Republican Party and its leading presidential candidate, Mitt Romney.  The Republican Party laid out its major economic ideas last spring in its “Path to Prosperity,” (which can be downloaded at while Mitt Romney outlined his ideas in his “Plan for Jobs and Economic Growth” (available at  Not surprisingly, the two documents give very similar proposals, likely because both are based on “conservative” principles that have failed for over thirty years.  Both propose lowering income and corporate tax rates and cutting government spending down to 20% of Gross Domestic Product (GDP).  However, neither describes what programs it specifically wants to reduce, while also refusing to provide any detailed plans for saving money on Health Insurance, Social Security, Corporate Welfare, or the Military budget.  Their energy policy proposals are so unrealistic that they could lead to a national disaster.  When compared to other economic policies, particularly the “Plan for a Rational Budget” (available for review and free download at, the Republican and Romney plans fall far short of anything likely to help the U.S. economy or the federal budget.  This only reminds us how desperately we need to reform the corrupt electoral system that continues to tilt government policies toward an inability to solve our major national problems.

Income Tax

The Republican Party’s taxation plan has not changed since 1981: lower tax rates while broadening the tax base, which means eliminating tax loopholes and havens that the rich use to avoid paying taxes.  “[The Path] draws on the commonly held view that the key to pro-growth tax reform is lowering tax rates while broadening the tax base – that is, letting individuals keep more of the money they earn, while getting rid of distortions, loopholes and preferences that divert economic resources from their most efficient uses.”  (The Path to Prosperity: Restoring America’s Promise, page 50)  In essence, Republicans want to eliminate tax loopholes to raise more revenue, but then lower tax rates to get revenue back to where it was with the loopholes.  Mitt Romney entirely agrees, writing that “[W]e need both to lower rates and to broaden the tax base so that taxation becomes an instrument for promoting economic growth.” (Believe in America: Mitt Romney’s Plan for Jobs and Economic Growth, page 40)  These two ideas are very similar to general Republican proposals since the 1980s.

Unfortunately, those 1980s tax reforms benefited the rich far more than anyone else in the United States.  This has been proven by repeated economic studies, most famously by Joseph A. Pechman.  “The inescapable conclusion from these figures is that the well-to-do in our society had very large reductions in tax rates in recent years, while the tax rates at the low and middle income levels have not changed much.  Since the before-tax distribution has become much more unequal in the 1980s, it follows that inequality has increased even more on an after-tax basis.” (Joseph A. Pechman, “The Future of the Income Tax,” published in The American Economic Review, Volume 80, Number 1, March 1990, page 4)  The poverty of conservative economics was already a clear and present reality by 1990.

Broadening the tax base is also unreliable for the long-term.  The loopholes closed in the 1980s were put back into place by corrupted Congresses and presidents since then, so the lower tax rates are the only thing we can expect to survive over time.  Instead of assuming that closing loopholes will have a long-term affect, we should assume that the loopholes will re-emerge due to a corrupt electoral system, and we should set tax rates accordingly.  The independent “Plan for a Rational Budget” does that, and proposes new tax rates that would reduce taxation or keep rates the same for 80% of Americans while increasing taxes on the top 15% of incomes.  This would increase federal revenues over $800 billion per year, a major improvement over the failures of conservative economic ideas.

Corporate Tax

The Republican Path to Prosperity demands a reduction in corporate tax rates: “Encourage economic growth and job creation by lowering the corporate tax rate from 35 percent, which is the highest in the developed world, to a much more competitive 25 percent.” (Path to Prosperity, page 53)  Mitt Romney proposes the exact same rates; Day One of his administration promises a bill that “Reduces the corporate income tax rate to 25 percent.” (Believe in America, page 6).  Both assume that a lower corporate tax rate would encourage growth, and both ignore the fact that corporations in general only pay half of the current 35% rate (for more on how much corporations pay today, see Robert S. McIntyre, Director of Citizens for Tax Justice, “Statement Before the Senate Budget Committee Regarding Business Tax Subsidies Administered by the Internal Revenue Service,” page 1.  The Statement was given March 9, 2011 and published by the Citizens for Tax Justice at

In reality, the largest American corporations pay an average of about 18% in corporate taxes today.  Lowering the tax rate from 35% to 25% would have little real effect on revenue, unless the 25% is actually collected in full.  It does not appear likely that a Romney Administration would seek to collect more money (25%) in corporate taxes than what the Obama Administration collects today (18%).  However, lowering the official rates to 25% might encourage corporations to pay even less than the 18% they really pay today.  It would be far better for the government to actually collect the full 35%, see what that does to federal revenue, and then make a more rational decision on where to set the tax rates.

Government Spending

The Republican “Path to Prosperity” gives many dire predictions about U.S. government spending over the next few decades and promised to cut that spending to 20% of GDP.  “With responsible spending cuts now and structural reforms of government spending programs going forward, this budget ensures government spending remains on a sustainable path.  Government spending will fall below 20 percent of the economy by 2015.” (Path to Prosperity, page 56)  However, the Republicans never say which programs they will cut or give any major details on how they will reduce government spending overall.  Romney’s claims, and his lack of detail in what he wants to cut, are eerily similar.  “As president, Mitt Romney will immediately move to cut spending and cap it at 20 percent of GDP.  As spending comes under control, he will pursue further cuts that would allow caps to be set even lower so as to guarantee future fiscal stability.”  (Believe in America, page 141)  He offers few details on how to accomplish such spending reduction, outside of suggesting a balanced budget Amendment to the Constitution and a plan to reduce the federal workforce through retirements.  Neither of these fiscal theories proposes ways of saving money; they only set goals for cutting and capping government spending.

The Plan for a Rational Budget, however, proposes to save money by making adjustments to Health Insurance costs and Social Security while cutting unneeded spending on Corporate Welfare and the Military.  These suggestions would immediately balance the federal budget and save about $1 trillion by altering the government systems that Republican proposals almost totally ignore.

Health Insurance

Republicans largely admit that the U.S. health insurance system is a national disaster, and it is a disaster that is costing far too much money.  The Republican proposal is to continue spending nearly the same amount of money, but give that money to individual states to allow the states to create their own individual insurance systems.  They want to “[s]ecure the Medicaid benefit by converting the federal share of Medicaid spending into a block grant tailored to meet each state’s needs, indexed for inflation and population growth.”  (Path to Prosperity, page 39)  Mitt Romney proposes almost the exact same thing: “As president, Romeny will push for the conversion of Medicaid to a block grand administered by the states.” (Believe in America, page 143)  Despite the fact that Republicans constantly accuse President Obama of pushing the United States toward socialism with his demands for health insurance reform in 2009-10, Republicans themselves continue advocating for taxpayer-funded health insurance that is undeniably socialist.  The major difference is that the Republicans want to pass responsibility for administering health insurance off on the states by creating the “block grants.”  The Republican Party, in effect, is socialist without any solutions on how to run the system to make it work well.

The best answer, given in the Plan for a Rational Budget and advocated by many consumer and physician groups, is to convert to a “single-payer,” universal health-insurance system modeled on the Spanish, Japanese, or Italian systems.  Converting to such universal coverage would actually save the United States budget over $300 billion per year while covering all people in the U.S. with far better care.

Social Security

The Republicans’ lack of solutions for Social Security is even more striking.  The Path to Prosperity gives no suggestions for stabilizing Social Security for the short- or long-term future.  It only demands the President “to put forward specific ideas on fixing Social Security” and for Congress “to offer legislation to ensure the sustainable solvency of this critical program.” (Path to Prosperity, pages 48-49)  Romney’s ideas are hardly more detailed.  He vaguely offers “a number of options that can be pursued to keep the system solvent—from raising the eligibility age to changing the way benefits are indexed to inflation for high-income retirees.  One option that should not on the table is raisin the payroll tax or expanding the base of income to which the tax is applied.” (Believe in America, page 142)  Romney is only willing to take a strong stand against one policy: broadening the base of income subject to taxation.  Instead, he demands to avoid the one policy proposal that would actually solve the long-term funding problem because he does not want people making over $106,000 per year to pay any more taxes.  However, raising the payroll tax limit from $106,000 to $200,000 per year would easily fund Social Security until the 2080s, as the Rational Budget clearly proves.  The Republican lack of leadership in such a fundamental part of American society is shocking, and that shock is only surpassed by their refusal to even consider the best solutions.

Corporate Welfare

The Republican refusal to address Corporate Welfare is yet another glaring gap in their fiscal proposals.  The non-profit Citizens for Tax Justice estimated that U.S. corporations were given at least $365 billion in subsidies in 2011.  (Robert S. McIntyre, “Statement Before the Senate Budget Committee,” page 2)  The Republican Path to Prosperity merely complains about political favoritism in the giving of such funds, while Mitt Romney does not discuss Corporate Welfare at all!  Most companies that receive Corporate Welfare do not actually need the money to run their businesses; instead, they are simply favored by politicians that took campaign donations from those companies.  Corporate Welfare is clearly a corrupt system and should be targeted for elimination if Americans are serious about balancing the budget.  Eliminating 90% of that $365 billion in subsidies would save the United States Budget at least $329 billion per year in spending.  The Plan for a Rational Budget proposes to cut that much waste from the budget.

Military Spending

Republicans are equally silent on the need to cut military spending that has grown out of control.  Their Path to Prosperity wants to keep military budget at “$692.5 billion for national defense spending in Fiscal Year 2012, an amount that is consistent with American’s military goals and strategies.”  (Path to Prosperity, page 28)  Republicans want to later cut inefficient spending by $178 billion per year, but reinvest $100 billion of that into “combat capabilities,” so that the budget will only save $78 billion per year.  Such insignificant savings are an insult to anybody that has studied the long-term history of U.S. military spending, and such a tiny amount will only cut the U.S. budget deficit by about 7%.  Mitt Romney’s plan could only be more short-sighted if he refused to even mention the need to reduce military spending . . . which he fulfills by refusing to discuss military spending at all in his economic plan.

The Rational Budget, though, demands that the United States only keep a military strong enough to defend its own territory.  This can be accomplished by spending as much on our military as the next two largest powers combined, which would continue to make the U.S. military the largest and best-funded in the world.  We can defend U.S. territory, and probably most important allies, even if we reduce military spending by virtually half in order to save $384 billion per year.  That is far more than the Republican plan to save a paltry $78 billion per year, and will go much further toward solving the U.S. deficit.


Of course, the major reason the U.S. spends so much money on its military today is that it relies on foreign oil sources for energy.  In order to control those sources, the U.S. military has invaded, conquered, corrupted, or otherwise pressured foreign governments to sell oil to the U.S. at prices below normal market value.  The American obsession with controlling foreign oil is one of the biggest factors bankrupting the government.  The Republican Path to Prosperity implies its continuing support for this fiscal madness by demanding that military spending stay constant in order to fulfill its foreign “goals and strategies.”  Republicans want the American economy to continue its reliance on oil and natural gas, most of which does not sit on U.S. territory.  Mitt Romney completely agrees with reinforcing the status quo.  His major energy proposals are “significant regulatory reform, support for increased production, and a government that focuses on funding basic research instead of chasing fads and picking winners.” (Believe in America, page 90)

The Republican/Romney strategy for U.S. oil independence is to drill for more oil in U.S. territory.  This is a weak plan because the U.S. uses 25% of world oil but has at most 5% of world oil reserves in its own territory.  Therefore, even if the U.S. drilled every drop of oil out of its land, it would only produce one-fifth of what its economy actually uses.  The U.S. must find, fund, and build alternative energy sources if its economy is to survive the long-term future.  Many studies have shown that rebuilding the electricity grid to focus on wind, water, and solar power would produce more than enough electricity for predicted future usage rates.  (Mark Z. Jacobson and Mark A. Delucchi, “A Path to Sustainable Energy by 2030,” published in Scientific American, November 2009, page 60)  The U.S. could convert its current gasoline automobile fleet to a combination of hydrogen and electric vehicles to break the current reliance on oil.  U.S. plastic production could largely be replaced by green plastics and production methods.  The U.S. can break its reliance on oil, convert to clean and renewable energy sources, stop polluting its territory and population, and break its ridiculously high amounts of military spending within the next few decades.  The initial investment would carry a high price tag, but would easily be worth the spending in the long run and the overwhelming need for new infrastructure would create an employment boom.

Sadly, the Republican Path to Prosperity ignores all these factors and refuses to make the national investment.  Its only major statements on green technology are to demand that the U.S. only fund high-speed intercity rail lines when “they can be established as self-supporting commercial services.” (Path to Prosperity, page 33)  In effect, Republicans only want to build efficient public transportation when some company has already built them and proven that they are profitable.  Mitt Romney also falls into the trap of declaring energy usefulness only according to profit.

[W]ind and solar power, two of the most ballyhooed forms of alternative fuel, remain sharply uncompetitive on their own with conventional resources such as oil and natural gas in most applications. . . .  As for job creation, studies show that “green” jobs might actually hurt employment more than they help it.  Green energy is capital-intensive and tends to displace labor. (Believe in America, page 90)

Romney wants to focus on oil and natural gas production because they are more profitable today, even though those resources are becoming increasingly scarce, which means they will be more costly to develop in the future.  The growing cost of oil and gas, combined with the technology leaps in green energy that will reduce their cost, will flip current costs in the next ten years, making green technology half as costly as “conventional resources” by 2020. (“Path to Sustainable Energy by 2030,” page 64)  Romney ignores these facts, and instead wants to focus on the dirty, dangerous, and destructive oil economy.  Anyone looking for evidence of those facts can consider the effects of invading Iraq, attempting to conquer Afghanistan, and the inability to stop the BP oil volcano in the Gulf of Mexico in 2010.  If the definition of insanity is to do the same thing over and over again but expect different results, the Republican/Romney plans for energy production rely on a short-sightedness that is truly insane.

The Rational Budget combines a large reduction in military spending with a smaller investment in green technology resources.  Even the most skeptical of environmentalists argues that we can solve the energy and climate problems by investing only $100 billion per year in research (Bjorn Lomborg, editor, Smart Solutions to Climate Change: Comparing Costs and Benefits.  Cambridge: Cambridge University Press, 2010, page 396).  Other scientists argue that we can build an entirely clean, renewable, and safe electricity grid for the U.S. by investing only $17 trillion over two decades.  This would free the U.S. from foreign wars based on the need for increasingly rare oil reserves, from the pollution that currently clogs our major cities and rural communities, and from the high energy prices that Americans pay today.  After considering these possibilities, we realize that Republicans like Romney can only talk about continuing the status-quo because they refuse to discuss or debate anything else.


The Republican Path to Prosperity and Mitt Romney’s Plan for Jobs and Economic Growth reveal a disturbing refusal to admit past mistakes and make desperately needed changes.  They refuse to increase taxes on the wealthiest Americans to help reduce the national deficit.  In fact, they want to lower taxes on the rich while forcing the rest of us to pay, an idea that has proved disastrous since George W. Bush and the Republican Party cut taxes for the rich in 2002.  Today’s Republicans want to go a step further by reducing the corporate income tax, which could likely lead to further fiscal disasters.  They want to balance this by cutting and capping government spending, but they refuse to specify exactly what programs they want to cut.

Strangely, their ideas only grow vaguer from there.  Republicans in general, and Romney in particular, offer zero details on how to fix health insurance, Social Security, corporate welfare, or military spending for the long-term.  They refuse to even discuss the details of these programs, just as they refuse to discuss the details of renewable energy.  They love to debate some of the short-term costs, but never the much more impressive and important long-term benefits of transitioning to a renewable, clean electricity grid.  As American voters turn away from their ideas for economic investment and growth, the public should be reminded that the Plan for a Rational Budget can be read and downloaded for free at!  Unfortunately, many of these ideas have little chance of becoming real policy until we change our electoral system to eliminate the corruption that keeps these ideas from being considered in Washington, D.C.


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The “Free Market” Fantasy: How Free Market Ideas Hurt Competition and Self-Regulation

Many politicians and commentators argue that government regulations hurt company profits and, therefore, hurt the economy as a whole.  They argue that government should stop setting rules for businesses in order to create a “free market.” Such statements rely on a patchwork of different ideas that may sound reasonable in theory, but do not work well in practice and have historically harmed the U.S. economy.

“Free market” strategy depends on several connected ideas.  It argues that businesses can regulate themselves, and that they are actually forced to regulate themselves in order to keep customers.  Companies need to keep loyal customers in order to continue selling goods, so companies that make and sell defective, dangerous, or generally bad products will quickly lose customers.  Companies therefore need to sell good, reliable products in order to keep sales up, increase company profits, and stay in business.  Companies in competition with other companies, therefore, are thought to be the best source of regulation.  Free market theorists call this “self-regulation.”

These free market ideas clearly rely on the fact that businesses are in constant, active competition with other companies selling similar things.  Free market theory further assumes that customers have many choices in buying products, have reliable information about the products so that they can make good decisions on what to buy, and that customers actually use that information to punish companies that make inferior goods.  All of these assumptions are destroyed in any real “free market,” so the mere existence of a free market undercuts a company’s willingness to regulate itself.

Economists have argued and effectively proved that true free markets destroy competition over time.  Even Adam Smith, one of the theoretical founders of market capitalism, argued that big, rich businesses quickly buy out their competition.

To widen the market and to narrow the competition, is always the interest of the dealers.  To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, and absurd tax upon the rest of their fellow-citizens. (Adam Smith, Wealth of Nations.  Amherst, New York: Prometheus Books, 1991, pages 219-220.)

Smith warned that free market capitalism encourages companies to monopolize their industry by eliminating competing companies.  As one company becomes dominant and eliminates all others, competition amongst companies disappears and customers are left with only one source to buy from.  This consolidation of entire industries occurred repeatedly in the 1800s in the steel industry under Andrew Carnegie, oil under John Rockefeller, meat packaging under Gustavus Swift, communications under Alexander Graham Bell, and many others.  Many of these monopolies were broken up by Anti-Trust legislation passed and enforced in the late 1800s and early 1900s.  However, a new wave of monopolization has occurred over the past forty years.  For example, the 1996 Telecommunications Act and recent FCC decisions have eroded the limit on how many media outlets an individual company can own in a certain market.  (For more information on these problems, visit or read their book Changing Media: Public Interest Policies for the Digital Age, which can be downloaded for free through the website.)  We cannot expect customers to punish a company for bad practices if they can only buy a product from one monopolistic company.

Companies also seek to stop the spread of information that buyers find useful when deciding which company to buy from.  Big, rich businesses use their wealth to stop investigations into their practices.  Corporate leaders use bribery and financial threats to force governments to avoid investigating the bad practices and destructive results that companies use to make money.  The current American campaign donation system has even been described as “legalized bribery” by former Congressmen (Cecil Heftel, End Legalized Bribery: An Ex-Congressman’s Proposal to Clean Up Congress.  Santa Ana, California: Seven Locks Press, 1998).  We see this problem lead to catastrophes such the Wall Street collapse of 2008, the 2010 BP oil spill in the Gulf of Mexico, and the Massey coal mine explosion that killed 29 miners in Montcoal, West Virginia in 2010.  When big businesses use money to influence politics, we can expect government investigations into unfair or dangerous practices to disappear and become ineffective.

Many monopolistic companies use their great wealth to stop government officials from collecting and advertising even the most basic information about certain products.  One recent example is the massive corporate attempt to stop the government from publishing nutritional statistics on food packages.  The public won that battle with the National Labeling and Education Act of 1990, but such victories are rare.  The American public generally receives little information on the products they buy because government investigations are often castrated on the orders of corporate leaders.  This makes it extremely difficult for the public to get any reliable information to base their buying choices on.  The customers’ power to threaten a company through boycott is greatly reduced in any “free market.”  Monopolistic companies are therefore not threatened, so they often neglect regulating themselves.

Customers often put themselves into an even more dangerous position when they do not make a personal attempt to learn about the products they buy or the companies they buy from.  In fact, many customers continue buying products that have been publicly labeled dangerous, defective, or of poor quality.  Many Americans today have built up psychological “brand loyalty” to the point that they continue buying from companies they know are harmful.  Americans continue to flock to buy from Wal-Mart, BP, McDonalds, Exxon-Mobile, and Coca-Cola even though a great amount of information exists that proves those companies are harmful.  Other companies sell similar products, but American consumers continue to buy due to “brand loyalty” and advertising.  (The brand loyalty and advertising problems are examined in detail in Naomi Klein, No Logo: Taking Aim at the Brand Bullies, Picador USA, 2000).  This causes another collapse in free market theory: companies will not regulate themselves when they see that their customers are not using public information to punish a company’s bad practices.

“Free market” and “self-regulation” ideas will not free us from the evils of our most powerful businesses.  These ideas are a fantasy that will only make things worse and possibly send American society back to the problems, mass inequalities, and entrenched powers that controlled the United States in the 1800s.  Society cannot rely on “free markets” to regulate companies because free markets undercut the public pressures that are supposed to force companies to regulate themselves.  Free markets naturally create monopolies that annihilate customer choice, the spread of public information, and the willingness of people to use information to punish offensive companies.  Instead, governments must be empowered to ensure that competition amongst many companies continues to exist.  This may require government to break up large monopolies, as the United States government did in the early 1900s.

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Adam Smith on the Crisis of Capitalism

Ideology is a powerful thing.  Whether one’s ideology is based in racism, equality, or the assertion of overwhelming political power, it cannot be denied that people are driven to extremes by their ideas of what is right and good.  People have willingly killed and died for their ideologies, so it is not surprising that people driven by ideology have frequently disregarded or otherwise ignored small but important flaws in their ideas.  Today’s American culture has reached such a point of conformity in its support of capitalism.  The government de-regulation movement, which has emerged since the 1970s, has accomplished little other than the monopolization of entire industries such as media, health care, and national defense.  Each of these industries has clear importance for the population’s prosperity; yet, like many other areas of the economy, that very prosperity is under attack by the rigid acceptance of what the population believes are the “laws” of market capitalism and free trade.  Such unquestioned acceptance of capitalism’s benefits entirely ignores warnings given by Adam Smith in his major work, Wealth of Nations (1776).  Though Smith’s book is often held up as the greatest description of capitalism’s benefits, Americans generally ignore its warnings regarding the destruction of competition that would inevitably result in monopolists’ control over government and society.  Adam Smith gave these warnings just as the engines of industrial capitalism were picking up speed.  Americans today would do very well to heed these warnings.

Adam Smith’s greatest statement regarding the need for government regulation of capitalism occurs at the end of Book One of the Wealth of Nations.

The interest of the dealers [referring to stock owners, manufacturers, and merchants], however, in any particular branch of trade or manufacture, is always in some respects different from, and even opposite to, that of the public.  To widen the market and to narrow the competition, is always the interest of the dealers.  To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, and absurd tax upon the rest of their fellow-citizens. (Adam Smith, Wealth of Nations (Amherst, New York: Prometheus Books, 1991), pages 219-220)

Smith here stated that the economic “interests” of businessmen are naturally opposed to the public interest.  This is because the natural goal of any businessman is to acquire, by any means necessary, a monopoly over the entire industry or trade that he is involved in.  The obvious result of such a monopoly would be the destruction of all competitors, which inevitably hurts the public by reducing choice, efficiency, and progress while raising prices to whatever levels the monopolist deems necessary to achieve his desired profit.  Though Smith warned against such an “absurd tax,” Americans today have been convinced that government de-regulation is necessary to rid the economic world of a burdensome bureaucracy.  The public’s need for media, health care, and military defense is clear; but it is also clear that rampant government de-regulation in each of these areas has permitted monopolies in forming and taking control of their markets.  The “absurd tax” has become a reality.  The remainder of this essay will reveal exactly why Adam Smith warned against the dangers of monopolies: their inefficiencies, the untrustworthiness of corporate leaders, their exploitation of workers, and their ability to control government to favor their own business demands.

Monopolies Destroy Capitalism

Monopolies hurt capitalism.  This is because monopolies tend to be far less efficient, since they have no real competitors threatening to break into their market.  With no worries, the business reigns are loosened so long as they continue delivering profit (which a monopoly cannot avoid doing since its products are the only choice on the market) and efficiency suffers as a result.  Smith pointed out how a lack of corporate fear of profit-loss clearly hurts the public interest.  “The pretence that corporations are necessary for the better government of the trade, is without any foundation.  The real and effectual discipline which is exercised over a workman is not that of his corporation, but that of his customers.  It is the fear of losing their employment which restrains his frauds and corrects his negligence.  An exclusive corporation necessarily weakens the force of this discipline.” (Smith, Wealth of Nations, page 138)  Because a worker works best when he fears losing customers through fraud or negligence, any movement in the direction of monopoly should worry the public.  Such monopolies reduce public choice to the point that the worker no longer fears losing customers.  Where would the customers go?

The problem is ugliest in such vital fields as health care or military defense.    If the public needs what the worker produces, and a monopoly exists in that industry, then the producers can be as fraudulent, negligent, and even as inefficient as they choose without fear of losing profits.  Much later in Wealth of Nations, Smith wrote that such monopolies grow so inefficient that they would be incapable of survival without government favoritism.  “Without a monopoly, however, a joint stock company, it would appear from experience, cannot long carry on any branch of foreign trade. . . .  [Business competition] is a species of warfare of which the operations are continually changing, and which can scarce ever be conducted successfully, without such an unremitting exertion of vigilance and attention, as cannot long be expected from the directors of a joint stock company.” (Smith, Wealth of Nations, page 481)  In short, those who run monopolistic businesses eventually run short of “vigilance and attention” because such hard work is not needed to guard the company’s profits.  Therefore, the existence of monopoly entirely contradicts capitalism’s reliance on competition and efficiency.  In permitting the unchecked conglomeration of economic and productive power, such monopolies are today killing the competition and efficiency that are capitalism’s lifeblood.

Mistrust of Merchants

Of course, an inefficient monopoly cannot last long without either public complaint or attempts by new businesses to break into the market.  Because monopolies are inherently run with a lack of “vigilance and attention,” their inefficiencies would likely make them prime targets for political or competitive attack.  The monopolist is then left two possible means of survival: he can either reform his business (and its directors) to run more efficiently in order to head off outsider attempts at breaking into the market, or he can “influence” political leaders and force them to ensure his continued monopoly.  Most monopolists choose the latter, since it is usually less expensive.  Adam Smith clearly recognized this dilemma; explicitly warning the public to not trust what he labeled as “merchants.”

The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.  It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. (Smith, Wealth of Nations, page 220)

Precisely because the businessman’s vested, economic “interest” is never the same as the public interest, the public must always be wary of “any new law or regulation” proposed by businessmen that would affect businessmen.  In fact, the public should not just be cautious, but must be outright suspicious of their intentions.  In short, businessmen are in business in order to make money; Smith says that they are willing to “deceive and even to oppress the public” in order to raise their profits as high as possible.  Their great personal wealth, monopolistic tendencies, and political power actually enable businessmen to propose laws and to control politicians in order to accomplish any of their economic goals.  Smith has implied that the public should not simply be attentive to this inherent problem of capitalism, but that they should also act in creating government regulations aimed at curbing such disastrous effects.  Adam Smith’s warnings against trusting the “merchants” have not been heeded, and the public at large suffers the consequences of such inattentiveness.

Exploitation of Workers

Smith commented on the fact that industrial capitalism grows primarily through the exploitation of the average worker.  Smith wrote in Wealth of Nations that, while capitalism creates the average worker as perhaps the most important factor in the economy (because their collective labor accounts for nearly all material production occurring in society), capitalistic businessmen will always attempt to control these workers by a combination of overburdening them with work and denying them an educated political voice.

But though the interest of the labourer is strictly connected with that of the society, he is incapable either of comprehending that interest, or of understanding its connexion with his own.  His condition leaves him no time to receive the necessary information, and his education and habits are commonly such as to render him unfit to judge even though he was fully informed.  In the public deliberations, therefore, his voice is little heard and less regarded, except upon some particular occasions, when his clamour is animated, set on, and supported by his employers, not for his, but for their own particular purposes. (Smith, Wealth of Nations, page 218)

The laborers’ “interest” is intimately connected with the interests of the general society because that society is overwhelmingly made up of common laborers; the society cannot flourish in its entirety if its majority is kept in ignorance and poverty.  However, capitalistic owners (always seeking monopolistic control of the market) do all in their power to keep control over this huge laboring population.  They accomplish this by forcing the public to work long hours which leaves the public little time for education or political awareness.  The only time that workers’ interests become important in political debates are those rare occasions when their demands happen to align with something that their owners want to increase profits.  Clearly, Adam Smith suggests that some type of worker organization or government regulation is required to overcome such harshly imbedded powers that businessmen use to control the political culture.

Smith presents the capitalistic worker as intuitively understanding that he is dominated by his employers, but incapable of any political action to affect his poverty.  By overburdening the workers with labor, by denying them education, and by refusing to support their claims, Smith argues that capitalistic workers often lack the power to enact changes that would benefit them.  Only government regulation of capitalism can solve such problems.

 Power of Monopolies to Control Government

Just as the public should fear monopolies using their power to buy their way out of their harmful actions, Adam Smith also warned us to beware of a similar attempt by businessmen to assert their power to exploit workers.  Smith feared monopolists’ ability to use their wealth to “influence” politicians in pursuit and guardianship of their profit margins.

This monopoly has so much increased the number of some particular tribes of [manufacturers], that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature.  The member of parliament who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance.  If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services, can protect him from the most infamous abuse and destruction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists. (Smith, Wealth of Nations, page 368)

According to Smith, the first step taken by capitalistic monopolists is to “intimidate the legislature.”  This is presumably done by giving part of their personal wealth to politicians in the form of personal gifts or campaign donations.  As legislators come to depend on such gifts for their expensive lifestyle or their re-election, the businessmen grow to own the politician.  Much of the politician’s “reputation for understanding trade” or otherwise being a good public servant are the result of a campaign built and paid for by the business interests.  If the politician were ever to vote according to his own opinion or conscience, without the permission of his business owner, then the politician opens himself to the full destructive power of the businessman’s wealth.  The politician’s professional reputation is insulted, his personal reputation is viciously attacked, and he may even come under the threat of assassination or other types of physical harm.  Adam Smith in this way presumed that the political corruption resulting from businessmen’s control over government would only grow with the profits that industrial capitalism would generate for the monopolists.  Those who tend to monopolize economic power also tend to monopolize political power.  The two are heavily and inherently connected.

As Adam Smith predicted throughout Wealth of Nations, industrial capitalism has given the modern world an amount of material production, and with it personal enjoyment, far beyond that of any epoch of human history.  The division of labor has led to an undeniable degree of economic growth and human benefit over the past two hundred years.  However, Smith also warned us of the dangers of capitalism and the inherent drive of businessmen to attain monopolies over their respective markets and industries.  In the United States, cultural and ideological devotion to Smith’s ideas regarding the benefits of capitalism run extremely high.  Wealth of Nations is often held up as “the best statement and defense of capitalistic economics.” (Smith, Wealth of Nations, page viii)  Americans would do well to also observe Smith’s many warnings regarding the motives and powers of capitalist owners and monopolists.  Americans today should continue reading Wealth of Nations and should consider its ideas as hugely important today.

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