Capitalism corrupts democracy and will destroy American society as we know it Unless We Regulate it Fairly

The following is an explanation of how capitalism subverts and eventually destroys democracy, unless appropriate rules are laid down to separate the influence of money from the electoral process.

We know what democracy is, right?  One man, one vote.  We know what capitalism is, too.  That’s the system whereby people earn money to buy goods, and when they have more money than they need to buy goods, they save their money.  When people have less money than they need, they have to buy lesser goods and/or go hungry.

What is the interaction between democracy and capitalism?  When we get together to vote, candidates for public office advertise, and to do so, they spend money.  Second, when important policies are considered by our legislative and executive bodies, advocates of some policies also advertise to the general public.  Finally, advocates of financial interests (companies or groups of companies, for example) pay lobbyists who spend their time trying to persuade our representatives to enact policies that they favor.

There are other, less well known and possibly less legal, methods by which capital influences democracy.   For example, a business interest can bribe a political representative to vote a certain way.  A business can even pay for the re-election campaign of a judge for the purpose of obtaining the judge’s favorable ruling in a court case affecting the business’s interests.  That actually happened just a few years ago: a business (a coal mining company) paid 2.5 million dollars to a state Supreme Court justice’s re-election campaign; after the judge was re-elected, he voted favorably on a case affecting that company that saved the company 44 million dollars in costs (fines for pollution.)  In this case, the federal Supreme Court reversed the collusion although the judge remained on the bench.

Clearly, there is substantial room for capitalism to have a profound effect on the operation of democracy.  This is an area of potential mischief which was never addressed in our Constitution.  At that time, the late eighteenth century,  the process of learning for whom to vote and the processes of governance by our representatives were little affected by the presence of money.

Money was assumed to be sufficient for both campaigning for office and while carrying out one’s office because those who governed were independently wealthy.  It was assumed that our representatives would have considerably more money than the average voter.  It was also assumed that the process of campaigning would be supported by newspaper coverage, public speeches, rallies, and debates.

Bribery of office holders was prohibited.  The franchise was limited to men who owned property in most cases, so it was assumed that the voter would be educated and able to comprehend the issues discussed.  With the gradual spread of the franchise to all male adults, lack of education became an issue and the probability of ignorant voters easily swayed by propaganda increased.  Compulsory education was first introduced in Massachusetts during the Colonial period and gradually spread to the rest of the US, with Mississippi being the last state, in 1918.

During the American Revolution, the newspaper was the popular source of education for everyone who could read.  Wealthy individuals bought newspapers which they used as platforms for the promulgation of their political views.  Newspapers became a relatively cheap  method of propaganda available to almost everyone.

At the beginning of the nineteenth century, money rapidly became essential to the development of the United States.  The geographic area of the country was greatly expanded by the direct purchase of control over land that had previously been owned by native Americans (“Indians”) from France.  A national bank was established despite the opposition of Andrew Jackson.  In 1833 and 1836, Jackson took actions which destroyed the Second National Bank (originally established to handle the debts from the War of 1812) and threw the US into its first recession by forcing people to purchase land with specie (gold or silver.)

During the process of development in the nineteenth century, the United States went through a number of episodes in which it could be seen that capital was having an adverse effect on governance.  First, the capital value of slaveholder’s chattel was an important impediment to the resolution of the moral issue of slavery and many solutions were proposed for the orderly disentanglement of the slaveholder’s money interest.  None of these solutions were ever carried out.

Instead, a violent uprising by slaveholders occurred and a number of southern states seceded from the Union, provoking the Civil War in 1861.  Current estimates put the number of war dead at about 850,000, an increase of 25 % over previously accepted totals.

The second great crisis related to democracy and capitalism occurred during what is known as the “Gilded Age.”  After the Civil War, corruption gradually took over both state and federal governing establishments, and wealthy individuals obtained highly advantageous relationships with the government and the utilities that appeared (railroad, oil, and so on.)  Government was controlled by wealthy individuals who took advantage of the relative ignorance and apathy of the voter to govern as they pleased.

In 1901, Theodore Rooseveldt became president after William McKinley was assassinated.  He did not campaign on a reform platform, but he did, in fact, partially reform the way business was run.  He dramatically reduced corruption in the federal government and the government of New York State.  He broke up some of the “trusts” that had developed and reduced the advantages the wealthy had enjoyed.  He introduced what he called the “Square Deal”, which offered the average citizen a fair share of prosperity.  Unfortunately, his reforms did not prevent unbridled speculation on Wall Street.

The third great crisis of capitalism and democracy occurred when the stock market crashed in 1929.  This was preceded by the period known as Prohibition, in which, starting in 1920, the consumption of alcohol was forced underground.  The creation of a black market in alcohol separated the government from an essential market and forced those who ran the markets to regulate them, never an effective situation.  The result was the rise of organized crime, which regulated itself through internecine violence.

At the same time, banking and investment industries were allowed to operate with minimal oversight, resulting in frequent Ponzi schemes,  including the eponymous Ponzi scheme.  The stock market crash of 1929 apparently resulted from an increase of “leverage”, or the amount of stock one was allowed to buy on borrowed money, to unsustainable levels.  Inevitably, a transient drop in stock value snowballed into a complete market collapse when  key players were unable to satisfy their “margin calls.”

Worse than the bankruptcy of stock market investors was the wiping out of many small banks by their exposure to the vagaries of the stock market or derivatives markets.  The system collapse of 1929 was followed for years by knock-on collapses of banks and industries.  Lack of demand led to reductions in production, leading to layoffs, leading to even less demand.  The federal government did essentially nothing (if you don’t count actions that made matters worse) until Franklin Delano Roosevelt was elected and inaugurated.

In his first 100 days, Roosevelt put in place a vast array of new programs in an attempt to reverse the effects of the depression.  Most of the programs involved such things as hiring people to produce most anything they were qualified to produce.  A great many bridges, tunnels, highways, buildings, and other structures were put up during Roosevelt’s administration, not to mention the murals, photographic essays, and other art projects.  Other programs were designed to increase demand by deficit spending in many other areas.

Rapid improvement in the economy lead to a premature abandonment of some of these measures in 1937, and the recovery stalled.  Fortunately, America became involved in the struggle against Nazi aggression and the need for war materiel relieved the lingering effects of the Great Depression.

The fourth crisis of capitalism and democracy occurred during the Nixon administration.  In an all out effort to get re-elected, Richard Nixon hired a number of men who were intended to “spy” on the Democratic side of the campaign.  These men were also authorized to perform some “dirty tricks.”  This resulted in the Watergate scandal as well as the persecution of Daniel Ellsworth, the man who leaked the Pentagon Papers to the public.

The fifth crisis has been occurring over the last few years.  More and more money has been spent on campaigning for election, to the point where each candidate for President this year will have mobilized more than a billion dollars in an effort to attain office.  The Supreme Court has essentially removed all obstruction to the expenditure of money in campaigns by declaring, in the Citizens United case, that independent groups (now known as super PACs) can advocate for a candidate “independently” with no restriction on costs.

At the same time, income inequality has dramatically increased with a resulting wealth inequality that, in 2007, equaled levels not seen since just before the Great Depression.  The housing market bubble collapsed in 2007 and took much of Wall Street with it; other victims included the American automobile industry and state and local governments.

Because of the monetizing of political office, individuals and groups who already have a lot of money have been able to tilt the system in their favor.  The tax system, in particular, has been made highly regressive.  This is most obvious in the treatment of investment income as opposed to wage or salary income.  Dividends and carried interest (monies received by virtue of the ownership of stock in companies that declare dividends, for example) are taxed at a fixed rate of fifteen percent.  Ordinary wages are taxed at a variable rate that begins with a fifteen percent fixed contribution for Social Security and Medicare; in addition, up to 36% taxes are levied on wages above a certain figure.  As a result, rich people who do nothing but “clip coupons” (own stocks and bonds) are taxed at half the rate that persons who work full time or more have to pay.

There are many other laws that have been passed at the behest of wealthy individuals and groups that make the American system highly un-democratic.  This is the final crisis for democracy.  The election this November, even if President Obama is re-elected, will not help because it is quite likely that the Republicans will retain control of the House.  Government will continue to be paralyzed in a state that is highly unfair to the average person and clearly un-democratic.

As a result of the Great Recession, an average of 30 to 40 % of all personal wealth (as well as the holdings of institutions such as colleges with endowments) was wiped out.  The less wealthy you were before the crash, the larger a percentage of your wealth you were likely to lose.  Stimulus measures and rescues of large financial institutions were instituted after the crash, but the stimulus was insufficient to relieve the suffering of the average American.  Unemployment has persisted at more than eight percent (nominal) since 2009.  Job growth has been extremely weak and demand has continued to be insufficient to stimulate expansion of the economy.

I deeply regret to say that there is an increasing likelihood of violence and destruction as the average American suffers more and more from the effects of our un-democratic system.  Unless democracy and rational behavior by the American government can be re-established, the chances for civil war and revolution will continue to increase over the next few years.

What must be done to stop capitalism from corrupting democracy?  Capitalism is actually a good thing because it stimulates and lubricates the economy, so it is impossible to remove capitalism as a process.  To prevent capital from influencing government, it will be necessary to end private funding of election campaigns and remove lobbyists.

Public financing of elections will involve the use of “free” television time for candidates, extensive petition drives to establish the popularity of individual candidates, and multiple stages in the election process.  Conventions will have to be held at the local, city, county, and state levels to set up maximum citizen participation.  Voting will have to be required instead of voluntary.  Free photo ID for all citizens will have to be distributed.  Elections will have to be held on weekends instead of Tuesdays.

To address the influence of ignorance on government corruption, it will be necessary to greatly expand public primary and secondary education.  In addition to the basic reading, writing, and arithmetic, students will need courses in good governance, ethics, democracy, and history.  For additional benefit, secondary schooling must include vocational education as well.

If adequate education through high school is re-established, it will not be necessary to expand college and postgraduate education.  The scams of “vocational” schools that “prepare” people for poorly paid jobs as medical assistants and auto mechanics with ridiculously expensive student loans must be prosecuted and eliminated.  These schools have been particular beneficiaries of capitalist corruption in government.

Once candidates are in office, they must be paid in parity for the importance of their offices, and lobbyists must be prohibited from preferential contact with office holders.  All citizens and organizations will have to be given equal opportunity to establish contact with office holders to communicate their points of view (presumably through web sites.)

Finally, the election of judges must be prohibited.  Judges will have to be nominated and approved at the local and state level just as they are now in federal courts, and limited terms of office will have to be established.  For example, Supreme Court justices can be given eighteen year terms, staggered so that every two years a new justice will be elevated.

Most importantly, there must be close oversight and clear penalties for violations of democratic trust by undue influence from moneyed interests.  Every department of government must have an inspector general, including Congress and the judiciary.

The key issue will be the commitment of government to democratic, rational principles.  Democracy must be freed from the malign influence of money and ignorance.  Enlightenment by scientific study must be encouraged and valued through adequate education of the ordinary person.

The alternative will be worse violence than the Civil War and greater suffering for the people.  When income inequality reaches unsupportable extremes as a result of the control of government by capital, violence is inevitable.  This must be prevented by rational and comprehensive reforms before it is too late.