Our economy Part 2

The great collapse of 1907 wasn’t unique in the annals of stock market collapses. It was caused by rampant speculation with borrowed money as are most collapses of this nature. What set the collapse of 1907 apart was the severity of the collapse. As banks and trusts across the nation began to go bankrupt it started a run on even the soundest of banks that threatened to topple the whole banking system of the US. The only thing that kept the whole country from going bankrupt was the determined efforts of one individual; Mr. J. P. Morgan. Morgan spearheaded an effort to get all the largest banks in New York to inject liquidity in the form of capital in the market to stave off further collapses. Without his efforts the whole system would have likely collapsed and politicians took note. When the whole national economy is only saved from a total collapse by the efforts of one banker, even though Morgan was arguably the most powerful banker in the world at the time, people sat up and took notice.

The next year Nelson W. Aldrich, the chairman of the Senate Finance Committee, set up a commission to study the causes of the collapse and come up with recommendations for preventing it from happening again. Aldrich and his committee studied the records of what had happened and also took it upon themselves to study banking systems in more modern financial systems all over the world. What they soon recognized was that a central bank was needed to stabilize the economy and prevent the type of runs on banks that had happened over and over in the US previously. After much political maneuvering the Federal Reserve Act was passed in December of 1913.

The act itself established a national central bank with powers to create money and make discounted loans to member banks. All nationally chartered banks were required to become members of the Federal Reserve and purchase stock in their regional reserve bank as well as hold a certain amount of reserves in their local reserve bank. While this system has been modified and expanded many times since its formation it is still the central bank that controls US financial policy by setting interest rates and managing the money supply. In 1980 it was expanded so that all banking institutions could become members of the Federal Reserve and enjoy the advantages of discount loans and the security of government banking. It is basically a government guarantee for depositor’s money; a state run entity that controls the banking industry and therefore the US economy.

It is worth pausing here to attempt to define one of the basic economic systems that I started this post with. The great bogey man that conservatives like to use to scare the voting base into supporting their agenda with is socialism. Socialism is the first cousin to communism according to most conservatives and the onset of socialist policies is a sure fire path to communism. A basic definition of socialism would be an economic or political theory advocating public or common ownership and cooperative management of the means of production and or capital. It is the favorite stick that conservatives like to use to beat up upon liberals with as they accuse them of fomenting socialism. The Federal Reserve Act is unquestionably a socialist piece of legislation. It put the banking industry under the control of a state run, publicly owned institution; the Federal Reserve. It is THE entity that controls the US economy and has been since 1913 and it is a socialist entity.

In other words, under President Woodrow Wilson, who is widely regarded as one of the most ardent advocates of free markets that ever sat in the White House, the United States adopted a central banking policy that is the very definition of socialism. The stark realities of 1907 and many other cyclical crashes of the US economic system forced our government to adopt a socialist agenda to cope with market fluctuations that threatened to destroy our economy over and over. We have not been a free market since the inception of the Federal Reserve Act and the reason it was adopted was because the free market itself was so volatile and unpredictable that the country simply couldn’t expand with any certainty. Subsequently, the power of the Federal Reserve has been increased many times to cope with emergencies in our economic system because the simple truth is that unfettered free markets are inherently unpredictable and dangerous.

Let’s consider some other facets of the US economy as well. The public school system that fostered the great explosion of literacy in this country from the mid 1930’s onward is a socialist entity. State, local, and Federal governments own the schools and finance the education of almost every child in this country. We can argue whether these institutions are as efficient and productive as they need to be but no one can argue that they are not socialist entities.

The vast electrical grids that power homes, industrial centers, and businesses all over this country are owned by state, local, and federal governments. They were financed, built, and maintained by these same entities and are inherently socialist institutions. Again, we can argue that they have not been maintained and updated as efficiently as they should have been but it cannot be reasonably argued that they are anything other than socialist entities.

The road systems that our economy depends on to get goods to market are owned by state, local, and Federal governments who built and maintain them. The interstate road system that was built during the Eisenhower administration is the key to most all of our national trucking industry and it was built and financed solely by the Federal government. As in my other examples above we are seeing a slow and gradual degradation of this system as funds to maintain it are steadily shunted into other areas of government but it cannot be argued that our road systems are not socialist entities.

Medicare and Medicaid which provide health insurance for our elderly and those without the means to otherwise do so is controlled, administered, and ran by state and federal governments. There are many problems with the system as it stands today, not the least of which is funding but it is entirely a socialist institution.

Much of this country’s industrial might built since WWII comes from US government support and institutional lending from the government controlled banking industry. Almost all necessary and needed research and development breakthroughs in the major industries in this country since WWII were indirectly funded by government research and development programs in the military and NASA. Drug companies’ research and development projects are largely supported by government grants. I will delve more into this tendency in a later post but suffice it to say that much of our industrial strength goes hand in hand with government support of a socialist nature.

The truth is that we our economy is a capitalist/socialist hybrid that is constantly evolving to meet the needs of consumers here and all over the world. The basic flaw in Karl Marx thinking was that he didn’t see that capitalism could evolve. It is a good thing for all of us that it has. I think we need to keep that in mind when the fear mongers of the Tea Party and other right wing movements bring out the socialist stick. If it weren’t for socialism our economy would have collapsed years ago.

As a matter of fact in every facet of American life mentioned above the conservative movement of Reagan and right wing Republicanism away from socialism towards more free markets has led to a universal degradation of our abilities and efficiency.
Reagan had a line he made famous during his run for the presidency. “Are you better off now than you were four year ago?” Can anyone reasonably argue that any facet of our economy is better off now than it was in 1980 when trickle-down economics came in favor?