Originally published January 11, 1982
This is the FIRST article published in the series named “The Dismal Science”
THE REAGAN Administration has not managed the feat singlehandedly, and we may hope that it will not be completely successful, but in the very short time of a year it has gone a very long way toward destroying the morale of the American people. By morale I do not mean merely eagerness for life or sense of well being, though they are included. More fundamental than psychological tone are morale as mores and morale as morality. It is these that are being destroyed. For the first time in the history of the world, a society is being deliberately and cheerily based on the proposition that it’s good to be greedy. The world has certainly seen greedy people before, and many of these have been completely convinced of their right to their riches; but never before, I think, have the rich pretended that they benefit the poor by stealing from them.
For 35 years, since the end of World War II, we have been giving ourselves quite a beating. It is an argument for our strength that we have survived McCarthyism and Vietnam and Watergate. Yet these traumata were not comparable to Reaganomics. The junior Senator from Wisconsin notwithstanding, very few saw Red-baiting as more than a political ploy; tragic though Vietnam was, it cannot be seriously argued that we embarked on it to get anything for ourselves; Watergate was an ad hoc lunge for personal survival, not a way of life proposed for a society. But Reaganomics is earnestly hailed as a universal ethical system. There is nothing- well, almost nothing-cynical about it. There is a world of difference between, say, the thinly veiled threats of CREEP‘S fundraisers and the boyish candor of President Reagan. We will learn that boyish is not better.
Most of the discussion about the effects of Reaganomics has understandably focused on the harm it does to the poor, in whose safety net it has ripped gaping holes. Many lament this harm. Some expect it to result in an electoral reaction of the underprivileged that will sweep the Republicans from power. Cruel as the fact may be to contemplate, there is little in the political experience of mankind to encourage such an expectation. Unlike the rich and the pseudo rich, the poor don’t vote their pocketbooks; they just don’t vote. Even Marx expected little from the lumpenproletariat. It implies no indifference to the desperate plight of the poor to suggest that the special and original vice of Reaganomics lies elsewhere, nor did we really need David Stockman’s indiscretions to call it to our attention.
What President Reagan is accomplishing is the corruption of the economic elite, that is to say the rich, who are assured that they will serve mankind better the richer they manage to become. This is not Adam Smith’s Invisible Hand guiding entrepreneurs-that is, doers-for the public good. Our new rich are expected to work their miracles merely by being rich, not by doing anything at all.
The doctrine is of course not without its recent forerunners, including the “maxi-tax” of 50 per cent on earned income that produced, in 1972 and after, a rank and gross efflorescence of six- (and even seven-) figure executive salaries(and now we’ll have a maxi-tax on all income). Then there is the flaccid side of consumerism, which, under the tutelage of television, presents living it up as the aim of life. And it says a great deal that for many years now men who think of themselves as honorable have used the term “tax shelter” without shame or even a trace of embarrassment.
For a parallel to our present debauch, one must go back to the Germany of World War I and its aftermath. The Junkers and industrialists made no pretense of uplifting their fellow-men, but their greediness provides a chilling example of how the morale of a society is destroyed from the top. It is often contended that the Weimar inflation of 1922-23-with its wheelbarrows of marks for a loaf of bread-ruined the middle class and so destroyed the society. Actually it was the other way around. The center did not hold because it had already been destroyed by wartime profiteering.
Hjalmar Schacht, no wild-eyed radical in spite of his middle names (Horace Greeley), wrote of “the bountiful flow of money [during the War] from the coffers of the Treasury into the pockets of the producers [industrialists and Junker agriculturalists],” and contrasted this with the relatively heavy wartime taxation in Great Britain and the United States. After the War there was “the impression made on the public by the spectacle continually paraded before their eyes of particular undertakings and firms expanding their concerns, acquiring new works or erecting new buildings, amid the general monetary collapse, all with the aid of paper mark credits which they were able to obtain at will and repay in currency which every day was worth less and less. The private banks, in giving such paper mark credits, did so at the expense of their depositors or at the expense of the Reichsbank …. ”
Change a few words and you might think you were reading today’s newspaper accounts of the oil companies, who insist that they need their windfall profits in order to drill for more oil yet instead use them to start an office machines company (Exxon), to buy Montgomery Ward (Mobil), and to try to gobble up “competitors” (Mobil again). Or you may be reminded of DuPont borrowing $4 billion to buy Conoco; or of U.S. Steel begging the government for protection against foreign competition while using its credit, not to update its obsolete plants, but to bid for Marathon Oil. In Germany, since the rich insisted on being rewarded rather than taxed, and since by 1922 the middle class had already been despoiled, resort was finally had to the printing press. Speculation, as Schacht tells us, “spread to the smallest circles of the population.”
I’MNOT SAYING that we are condemned in a Santayana-esque way to repeat that, or any other, history. I am saying that if you want to destroy an economy, the first thing to do is to corrupt the rich. The rot will spread very fast indeed, simply because the rich are the ones with the money.
Money is a sign of faith. The full faith and credit of some institution is behind it. Money is good if it is issued in good faith and credited-accepted-in good faith. The question of faith extends far beyond the relationship between the one who tenders the money and the one who accepts it. Although tenderer and acceptor must have faith in each other, they also must have faith in the relative stability of the economy and the relative equity of the society in which they participate. The acceptor must have faith that someone else will accept the money should he decide to spend it; and the tenderer must have faith that he will be able to enjoy what he bought with the money he tendered.
Money circulates only when these faiths are living. To the extent that they are compromised, the money is compromised. This is true even of so-called hard currencies. Gold is preferred to paper by the individual who wishes to opt out of the economy; but even he has to have faith that somewhere at some time there will be an end to whatever prompts his preference for gold, and that someone else will then accept the gold in the ordinary course of living. If no such use for gold can be foreseen, if the hand of every man is indeed against every man, only guns and butter are worth accumulating. The Inca’s hoard did him no good.
People fear that too much money will be issued unless it is tied to something tangible, like gold. But there is too much money in an economy only when a society’s morale is sagging: The government can exhibit bad faith by taxing inequitably. The banks can exhibit bad faith by creating money for speculative rather than productive purposes. And both of these exhibitions are very visible today. They are centerpieces of Reaganomics. Hard as the Federal Reserve Board may try to fine tune the economy, it has neither the strength nor the means to overcome the effects of the bad faith of Reaganomics, except by destroying faith in the economy altogether. This is the notorious trade-off between continuing inflation and deepening depression.
Every editorial writer in the land worries that if the Fed releases its brakes on the money supply, the economy will, as they say, overheat and inflation will, as they say, roar out of control. Those bitter alternatives are inexorable only where a people’s morale has been destroyed, where the rich are rewarded rather than taxed, where greed is held to be the height of virtue. We are not there yet, but boyish enthusiasm has already taken us a long way.
The New Leader