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.