Posted by: theoptimisticconservative | September 12, 2010

Don’t Forget: The Regulatory State Requires You to Be a Marxist Laborer

Marxism posits two roles for labor: labor and consumption.  It distinguishes categorically between labor and capital.  The two do not – cannot – overlap.  The American model of the small-capitalist entrepreneur is Marxism’s “forgotten man”:  the actor Marxism has no role for.

If you are willing to accept the role of labor as defined by Marxism, government can tax and directly regulate everything you do.  It can offer you goodies and dispense or withhold cash flows you have agreed to depend on.  You don’t care, moreover, if government confiscates profits from “business,” or imposes a heavy regulatory burden on it, because that’s capital, and you’re not any part of capital.  Even your savings and investment portfolio are just a precaution:  a preparation for the future when you are no longer working for a paycheck, but still need to consume.

Your role in accelerating the economy is to consume.  Government encourages you to do this because it can tax consumption directly, it can tax the businesses that cater to consumption, and it can tax the jobs that serve it.  It can also regulate all these processes and impose fees on them.  The consumption economy is a huge bonanza for government.  In fact, government can’t really survive in its current state without consumption.  The whole welfare state is dedicated to encouraging you to consume rather than to save and pay your own current costs.

Government is so uninterested in you building wealth that it tracks and reports your buying power with the consumer price index, but has little or no concern about the state of the home-equity wealth held in small chunks by millions of Americans.  The CPI reports what it costs for the average consumer to pay rent, but US federal agencies don’t watch or evaluate the average relationship between mortgage payments and building home equity.

Marxism doesn’t care if you have home equity, because as far as Marxism is concerned, having home equity doesn’t mean you are a capital owner.  It means you’re a worker with a better retirement cushion (or a better basis for current consumption).  Federal and state governments, where economic and financial policies are set, don’t care about your home equity – except when you sell your home – because they haven’t designed a way to tax it.  It’s a relatively uninteresting abstraction to them.  In fact, it’s so unimportant that for the last 30 years, the federal government has felt no compunction about attacking home equity – jacking it around artificially for political purposes, like mandating high-risk lending – just as if home equity doesn’t really matter to the economy.

But home equity does matter to the US economy.  It matters uniquely.  Home equity is the source of 80% of the capital for small business start-ups and expansions, which in turn are the economic activities that create 70% of new jobs.  When home equity evaporates, small businesses don’t start or expand.  Current businesses that are marginal lose their viability.  It’s a simple and fundamental reality.  The level of the phenomenon was catastrophic in the early 1930s, and may become so in the current downturn.

But the model of humans and their economy on which our modern state relies is the Marxist model.  The Marxist model says precisely that the American small-cap entrepreneur doesn’t exist.  Labor can’t own or wield capital.  Capital can’t derive naturally from labor.  The American small-cap entrepreneur is both capital and labor, but Marxism says he is a non-existent irrelevancy, and the modern state increasingly treats him as one.  He is too small to survive in the regulatory state as “capital,” but whatever he has over and above what it will take to eat tomorrow, and to entertain himself this weekend, is more than “labor” really needs.

This interesting quantity between “labor” and “capital” is the one in the human condition that has always fit the Marxist concept of “excess value” most closely.  (“Excess value” is taught inaccurately in the classroom as referring to the difference between a worker’s productivity – his value to the employer – and what he’s paid.  For Marx it was a more organic concept:  a worker “should” have to do only a certain amount of work to live happily, and any work, production, or accumulation of wealth beyond that was excessive in an absolute sense.)  It’s the quantity that makes for a middle class, and it’s the one modern governments have either targeted for confiscation or chosen to ignore as an economic factor – or both.

For the modern state to continue on its preferred basis, you and I have to accept our assignments in the Marxist mold.  If we are behaving instead like small-cap entrepreneurs – consuming little and tapping real-estate equity to build a small business – our economic profile may be precisely the one that has made America uniquely successful, but it’s not the tax cow for the government that the Marxist-worker model is.

Home equity has been the capital engine of American prosperity for many decades, abetted by our friendly property laws.  (A good primer on this is the 2000 book The Mystery of Capital, by Peruvian economist Hernando de Soto.)  The relatively low entry price to home equity in America, and our insistence on equality of access, have been tremendous economic accelerants, enabling us to absorb and make entrepreneurs of an urbanizing farm population and an influx of immigrants.

Meanwhile, in multiple ways, technology today is breaking up the short-lived oddity of the industrial organization on which Marx based his theories. Human aspirations and economic trends are straining against the big-capital-versus-labor model on which the modern regulatory state is based.  And the ability to tap home equity works hand in hand with technology to encourage small business formation – a style of life to which more and more Americans are leaning, as they seek to work at home, nurture the children there, and live in a less consumption-driven way.

It’s government that is clinging now to the Marxist model – government and a set of its dependent constituencies, like labor-union leadership, multi-generational welfare beneficiaries, and some (not all) segments of “big business.”  Their raison d’être and income flows depend on perpetuating the Marxist model.  They depend now on preventing people from turning into small-cap entrepreneurs, because that American model evades so much of their regulatory supervision, their bases for taxation, and their government-backed market power.

It’s not just the regulation and taxation that need to be rolled back.  It’s the whole Marxist mindset that needs to be repudiated.  That mindset never accurately described what man is or what he ought to be, and it was always the least applicable to America, for whose most important economic actor it doesn’t even have a name.  It’s time to get rid of this Marxist anchor weighing us down.  We’ve been basing government policies on it long enough.

Cross-posted at Hot Air.


Responses

  1. We can start on tomorrow in lots of places. And then more earnestly on Tuesday 11/2.

  2. Gee, O.C., your Marxism/consumption/home equity/small business/taxation thing might not be the best, or at least the most comprehensible argument or astute observation you’ve ever made. Home equity may well be a significant source of small business financing (or it may not) but isn’t supplying the fodder for consumption a primary role of small business? And hasn’t home equity been a huge source of the funding for that very consumption? The role of home ownership in American society has changed dramatically over the years. Lengthy mortgages are a recent development. Home buyers have been encouraged to regard their purchase as a savings account/investment that is guaranteed to appreciate in value and they have uncritically accepted that myth. Home “owners” in general have had no intention of making the final mortgage payment on a house. The property was to be sold at a profit when personal circumstances changed or it could be re-financed as it appreciated and money sucked out to be used for the purchase of motorcycles and Caribbean cruises. Certainly various players in the real estate business and government encouraged this irresponsible behavior but that doesn’t let the consumer off the hook. Additionally, the day after the painters leave, a new house, like a car or a pair of jeans or any other consumer good, begins to deteriorate, to become worth less, in reality, than its replacement cost. While it might be pleasant to own a property that keeps ascending in value without improvements, or even maintenance, one shouldn’t be surprised if its value plummets. The U.S. housing market was long overdue for a massive correction, which is only in its initial stages even now.

    Certainly the monstrous machinery of government requires ever more of the wealth of the country to finance its expanding redistribution schemes based on the purchase of votes. That’s not necessarily a Marxist phenomenon but it is a statist one. Any government, and its accompanying bureaucracy, is more interested in its own perpetuation than the well-being of its subjects.

  3. cm — we may have to agree to disagree on this one. The 80% of capital for small business start-ups and expansions that comes from home equity is documented. I tried to find the citation on that for this post — I linked it a couple of years ago from a long-term University of North Carolina study published in 2006. I’ve had a catstrophic data loss and a change of computer since then, and I just couldn’t locate it quickly (or recover it online), otherwise would have provided the link, as I prefer to do. But the exact number was actually 81.8%, and that reflected only direct backing of business capital by home equity. The study also pointed out that a good percentage of the other 20% is indirectly backed by home equity.

    I’m no friend of irresponsibly “spending” one’s home equity on consumption. Borrowing for consumption is never a good idea, and that’s one of the worst ones. But I’m always surprised at the number of conservatives who think home equity is actually a BAD thing, as if it’s wrong for housing values to appreciate.

    Housing values HAVE to appreciate in the long run, because the population expands but land is finite. I disagree with government policies that jack housing values around — push them up artificially and cause them to crash — but if we are prosperous and reproducing ourselves, housing values will inevitably increase. And that’s good.

    You might be interested in finding the de Soto book I mentioned in the post. It contains good, documented information Americans are never taught in school today, about the unique access people from all backgrounds have had to growing capital through real-estate equity in the US. Home equity has been the engine of small business in this country for over a century (and longer than that in the earlier-settled areas of the East). It’s a source of equity that is a great equalizer, allowing a lot more people to become proprietors than would be the case if they could only borrow from venture-capital managers or against stock market investments.

    There is no question that the insane appreciation of the market between about 1998 and 2007 was unnatural and damaging. But that was an appreciation that was artificially stimulated by government policies, which distorted both the real estate and securities markets by MANDATING high-risk lending (not just backing it, but actively mandating it, with threats by the federal agencies against targeted lenders). If government had simply not done that, none of the many consequences would have befallen us.

    As for what governments have a natural tendency to do, you are quite right. But it’s still the Marxist view of man that has served as the justification for taking a limited, constitutional government in the US and turning it into a cradle-to-grave nanny.

    Remember that the US government, unlike all others, didn’t start OUT with a paternalistic view of its relationship to the citizen. Government in the US wasn’t supposed to just “do what governments do,” and Americans used to have a strong sense of that principle. It was acceptance over time of the Marxist view of man — which is different from both the Judeo-Christian view and the view found in John Locke and Adam Smith — that got us to agree to government tending the laborer from cradle to grave.

    I don’t argue that every single mind in the 50 states holds this Marxist view of man, by which “labor” is perpetually excluded from the benefits and power of “capital.” But our academic thinkers have overwhelmingly adopted it. Our politicians have been exploiting it for years. All our domestic government agencies operate as if it’s true.

    What Marx did was take the human tendencies to envy, pessimism, and shortsightedness and turn them into a comprehensive theory of human life. No, you don’t have to call yourself a Marxist to be one. But the systematization of this way of thinking is what enabled it to become a pretext for overturning limited government. That project was necessary in America, in a way it wasn’t anywhere else.

  4. It’s a rare opportunity to differ with the ideas of someone that normally has such an admirable grasp of reality. First of all, federal government policy has been dramatically PRO home ownership and consequently that of establishing home equity. The mortgage interest tax deduction is ample proof of this. Politicians would love to eliminate it and grab that tax money but it’s just as much a third rail of politics as fooling with social security. And while it’s a great incentive for home buyers and the businesses associated with them, there really isn’t any more reason for the federal government to encourage home ownership than there is for it to promote the ownership of Cuisinarts or Labrador retrievers. Rather than distort the market, the feds should leave the home business, and the rest of the economy, alone. With less government intrusion at all levels housing would be cheaper.

    If you feel that home prices should continually increase, perhaps a drive through Arizona might prove enlightening. Swing by Geronimo, for instance. Years ago some optimistic soul pounded the last nail in the roofing on his house there and stood back, satisfied that the building was a good investment, “money in the bank”. Today that uninhabited structure, unpainted for decades, slowly decomposes along the Gila River and Highway 70. No one wants that building or any of the others about it. Nothing is for sure.

    While some of us deplore the expansion of our government, if that’s a function of Marxism is open to argument. Of course Marx said many things and his ideas are interpreted in different ways to advance opposing schools of thought. It should be kept in mind though, that Marx attempted to predict the future, that he described a sequence of economic and social developments that were inevitable, that capitalism would lead to a dictatorship of the proletariat and then to a “withering away of the state”. That has yet to occur anywhere and there’s no reason to believe it will.

    That’s not to say that the much dreamed of, but never realized “free market” will survive in even the attenuated form it now exists. But it won’t be usurped by Marxism. The ideologues that occupy elected, or maybe especially unelected positions, are able through regulatory and tax policies to extend the power of the parasitic state to its greatest possible extent without completely killing the private sector. That’s their goal. They’re really fascists.


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