Constitutional Economics

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Socialism and bureaucracy.

The term 'constitutional' implies that the nature of an economy be decided, in a parliamentary manner, by agreement. That is to say not by war, civil war, revolution or any tradition of mastery and servitude.

Capitalism and socialism both claimed to be fairer ways of conducting economic relations. Liberal economics claimed private enterprise in a free market answered the wishes of the people as consumers. Socialism claimed that capitalism subverted the state with private monopolies that dictated the distribution of earnings.
Capitalism led to plutocracy. But state socialism led to bureaucracy.

Many socialists believed the economy would be better run by officials than business-men. But there is an ancient saying that no official ever put his job on the line for the public interest. It is evident that a state monopoly only takes economic dictatorship to its corrupt extremes. State socialism was an unlearning of the lesson in competition taught by Adam Smith.

There is a story somewhere in 'The Gulag Archipelago' about someone who brokered a deal, that would have benefited both sides, being put away for capitalist activities. If individual initiative is terrorised out of a nation, to be left to 'the great teacher', it is not surprising that more tolerant countries get ahead.

This is the weakness of Shaw's 'The Intelligent Womans Guide To Socialism And Capitalism.' He sees an essentially static society smoothly run by officials. He considers individuals who really change things to be rare enough not to unduly affect the infrastructure once fully nationalised. There is no place in his system for a dynamic market economy. State socialism was often nostalgia for a rigidly hierarchic society, in which everyone knew their place.

Stalin's banquets during the forced collectivisation famine, Milovan Djilas on 'The New Class', the steady build up of evidence on corruption from other persecuted writers in Eastern Europe and the Soviet empire are not all.

Ten years before the twenty-strong European commission resigned, on the European parliament's vote of no confidence, there was ample evidence of plunder on the public purse.
'Fiddles, fraud and fatcats' was a page spread by 'The Sunday Times' ( 26 March 1989 ).
Brian Moynahan reported:

With customary and heroic indifference, officials in Brussels were last week shrugging off the latest assault on their bureaucracy as anti-European Commission hysteria. The accusations of mismanagement, incompetance and massive fraud levelled at the Sir John Hoskyns, director-general of the Institute of Directors, was dealt with in traditional style.

The Brussels 'perks mountain' has promoted inequality, too. Neil Kinnock, European Commissioner in charge of reform, was reported ( by BBC Ceefax 28 feb. 2001 ) to be targeting 'militant complacency' thru perks, rather than salaries. Perks cited were a £1,200 per year 'typing allowance' to secretaries and cash for fictitious railway allowances.
The unions are showing their militant complacency by 'threatening to take industrial action, including strikes'.

Anyone, who didnt know 'industrial action' is a euphemism for strikes, might think they were threatening to work, as well as strike. The news-flash called this a protest by Eurocrats. But it sounds more like their minions squeeling at being deprived of crumbs from the high table.

Capitalism and plutocracy.

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Corporate capitalism also poses the problem of irresponsibility.
Reminding one of Michael Moore's tv show, 'The Awful Truth', with Crackers, the corporate-crime-fighting chicken, the website,, is supposed ( in the words of Douglas Rushkoff, april 15 1999, 'The Guardian' ) to be a practical joke against

those giant companies who...enjoy the privileges of citizenship without any of the responsibilities. ( And according to rtmark )...continue polluting our waters and murdering thousands through negligent industrial practises. Even when caught, the offending corporation needs only to pay a fine in order to continue business as usual. No one goes to jail. Meanwhile, with more money at their disposal than most countries, these multinational corporations can donate to elections and pay for lobbyists who give them more access to and influence on public policy than any group of 'private citizens'.

The stagnation of American politics is apparent from a Republican 'landslide' with 20% of the electorate; the 'safe seats' of their voting system; the pride, even, with which some congress-man is in the pockets of a lobby.
One of Michael Moore's themes is to the effect: why vote for the monkey instead of dealing with the organ-grinder?
( The answer to that is the need for a second congress to democratically represent individual occupational interests, so the first congress can keep to its business of community interests represented by their local and state leaders. )

Perhaps the economic justice of an economic democracy would be approachable, if the law were simply as impartial as it is supposed to be. UK Chancellor Nigel Lawson thought that the law unduly favored institutions. He said he had never experienced the like of the furore this caused against change.

Simon Rose, in 'Fair Shares', says, of Britain in 1957, two-thirds of shares were owned by individuals, and 18% by institutions. Thirty years later the position was reversed. In the top 100 companies, individuals owned about 10%. This was, to a large extent, due to pension funds' tax privileges, causing a bias in savings.

Simon Rose says, in another book, 'The Shareholder', that, in the City, there are many jealously guarded ways of making money with almost no risk.
Share dealing became instant after the second computerisation of the Stock Exchange - the second so-called 'Big Bang'. Rose suggested the electronic market could do without the stock-broker and his commission.
In general, fending for oneself could be an option in everyone's education, at any time of life.

'The Guardian' index of top executives' pay, in Britain for 1998, showed rises of more than 26%. That is five times the growth in average earnings and ten times the inflation rate. More than thirty executives' basic pay and bonus topped one million pounds.

The ordinary earner has to form a militant organisation that appears rowdily on the media to threaten the continuance of society, for the odd extra per cent income. Directors quietly help themselves, as well as dispose of huge funds in other ways, regardless of their investors' wishes.

In an interview, Margaret Thatcher's defense of capitalism was that there was even greater inequality in the Soviet system. Certainly, it was not for Stalin's want of trying, if this were not so.

Michael Heseltine has flatly stated that capitalism means inequality. Television exchanges dont make for refined argument. That is to say capitalism makes no sense as a system unless its inequality is justified by some standard distinguishing it from freebooters or embezzlers.

The democratic defense is the right of free enterprise to be rewarded by how well it meets consumer wishes. Hence, the most successful entrepreneurs will have the highest incomes. These incentives of a free market ensure the popular will is properly served.

A parliament for 'the new industrial state'.

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J K Galbraith undermined this case with his theory of 'The New Industrial State.' He argued a theory of convergence by corporate capitalism towards the state-managed economy.
Big projects come from lobbying politicians. And what's left of the 'free' market cannot be left to make up its own mind. There are too many development costs at stake to permit the public to turn down firms' new products. Moreover, big money can best afford the commercial conditioning called advertising, the imposing of the latest fashion line on peoples social need to conform.

People who say mass media advertising isnt very effective might as well say Christianity wasnt very effective when every one went to church. The fact is the adverts on tv are sermons every few minutes for the materialist religion, not of good we hope to be saved for, but goods we hope to save for.

Nowadays, consumption is likely to be the devil's bargain of buy now, pay later, with the help of the credit card companies. ( These people want to own the world. )
In 'The First Circle', Solzhenitsyn has a Russian nationalist trying to purge foreign words. For instance, he replaces 'capitalism' with the Russian word for 'usury'.

Galbraith's description of corporate capitalism deprives it of the democratic apology for liberal economics.
To regain democratic legitimacy, capitalism would have to accommodate equality of lobbying. That is, all occupations should be proportionally represented in the community's production requirements. Vocational representatives are needed for the systemmatic discussion of the nation's consumption needs.
In short, an elected economic second chamber, or comprehensive second congress of special interests out in the open, is required instead of big bucks behind closed doors.

This is the first requirement of a constitutional economy. An economic parliament lobbies the political parliament. Lobbying the production needs of the community should be a full and open consultation of the community. That is, it should be parliamentary.
Likewise, lobbying the consumption needs of the individual should be via their rational representation. Consumers should be able to advertise their wishes, in a feedback relation with industry, not merely an indoctrination by big business.

Alvin Toffler became influential in Republican policy-making. His famous sociological work, 'Future Shock', advocated essentially the same idea:

Such 'social future assemblies' might represent not merely geographical localities, but social units - industry, labor, the churches, the intellectual community, the arts, women, ethnic and religous groups, students, with organized representation for the unorganized as well. There are no sure-fire techniques for guaranteeing equal representation for all, or for eliciting the wishes of the poor, the inarticulate or the isolated. Yet once we recognize the need to include them, we shall find the ways.

A 'basic income' as a finance franchise.

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Constitutional interpretation of the market economy in terms of political democracy is at least as old as the second world war. I mean the idea that consumer spending is a 'vote' on resources. Mrs Thatcher aired this view.
But in a democracy, everyone has an equal vote. Does this mean that Bernard Shaw's theory of equal incomes is correct? ( See 'The Intelligent Womans Guide To Socialism And Capitalism.' )

In the second preface to his book, Shaw clowned that he had written it for everybody but that the only person who understood it was Albert Einstein. There is a truth in this jest.
Einstein said his theory of relativity is a 'principle theory'. So is thermodynamics, which recognises in principle that a perpetual motion machine is impossible.

Shaw's principle theory of equal incomes is analgous. There is no sufficient justification nor necessary rationalisation to be found for any unequal income distribution, which is, therefore, not a basis for lasting social agreement. That is the sum of Shaw's theoretical achievement.

The open-ended growth economy is a would-be perpetual motion machine. Conservation of energy is the principle both of technology and ecology, with regard to the machine and the environment, respectively.

The unstable economy is one of leap-frogging pay awards, plundering all available funds to any given occupation. There is no principle of differential payment, only a question of which jobs are in the best position to take most, despite public disapproval.
In his novel, 'Marriage', H G Wells said : Life's a scramble and will be for hundreds of years yet.

Resources are limited and it makes sense to share them peacably, rather than destroy them in fighting over them or trampling and wasting them in the stampede to get there first. This can hardly happen till everyone has enough, represented by a basic income.
( Not even this is possible till the peoples of the world agree on the respective limits of their populations, instead of going to war over their share. )

A basic income means a basic equality of economic rights and duties, when translated into constitutional terms. If this is an economic franchise, it should come with its own kind of responsibilities, just as the political franchise does. Having an equal vote, to be represented in the country's law-making, means one is expected to abide by and serve those laws.
Similarly, the right to a basic income should be as a modest duty, for a basic wage, to do basic maintanance work for society. Such work should not be for its own sake but just such as is necessary. Workfare is a basic income in this sense. Moreover, paying a basic wage is a widespread legal requirement of private employers.

Democratic paradox of spending equality and earning inequality?

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Are, then, capitalism and socialism coming together in a constitutional framework for incomes, considered as an economic franchise? The political model of democracy can go some way to reconciling the two doctrines. Everyone has an equal vote but they give unequal numbers of votes to the candidates.
One could argue that consumers are the voters and businesses are the candidates for their spending power. Unequal profits register popular preference. ( This supposes an economic parliament to redress unfair advantages of corporate capitalism undermining the free market. )

A democratic paradox of the mixed economy remains. In politics, when a candidate is elected with a big surplus of votes, those votes dont become his own to elect who he pleases. Tho, a show of popularity will further his political advancement.
Consumers may democratically decide what producers get the most profits. But producers are also consumers. Producers' unequal profits will make consumers' incomes unequal and prevent market choice from being strictly democratic, as a rule.

Can a constitutional economy work with democratic consistency? Can free markets work like free elections? It may help to consider that universal suffrage evolved out of lesser franchises. The Chartist William Lovett ridiculed the complicated and expensive list of voting qualifications.

The nineteenth century economist, Ricardo distinguished three kinds of income: rent from land, interest from capital, and wages from labor. These may be spoken of as 'franchises'. They are freedoms confered by law, that not all societies grant to everyone. Land nationalisation abolishes rent. Muslim law forbids interest. And slaves are not free to earn wages.

R H Tawney's 'The Acquisitive Society' quotes Mr Justice Brandeis' verdict that property, used for an 'industrial absolutism', confers a private franchise or jurisdiction'. And Mr Hobson was quoted on a functionless 'Improperty' conferring what Tawney himself called a 'private tax'.
These expressions, a private franchise and a private tax, contain an insight, that is more important than disapproving unjust advantages of the few over the many.

Rent, interest and wages are the rights to raise private taxes, which, in effect, grant finance franchises to the private sector.
There are also public sector franchises, notably in welfare state benefits. These are raised by taxes, by which we mean implicitly, public taxes.

Public and private taxes may be compared to the miscellany of voting restrictions in nineteenth century Britain. The rationalisation of both private and public taxation to an income franchise would compare to the evolution of universal suffrage.

Hermione Parker ( 'Instead Of The Dole' ) reckons that it would be more cost effective to replace Britain's immensely complex social security system, which probably no-one wholly understands, with a basic income.
She says social insurance starts from the premise only those, who have been in paid work, deserve income security. This creates a rat race society in which those, who work for nothing, are second-rate citizens. For instance, ( writing in 1989 ) women who give up work ( that is paid ) to raise a family; those who look after sick relatives or the elderly.

Transferable voting model of financial enfranchisement.

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In politics, an effective vote for all depends on a rationalisation of the electoral system thru proportional representation, properly speaking. ( That is a transferable vote. ) With this system, candidates are elected on receiving a quota or elective proportion of the votes.
Consider a basic wage as a quota of income required of every worker to qualify in their profession. ( For instance, Arthur Conan Doyle turned to writing, while his doctor's practise languished. ) Some will receive surpluses from their ( Ricardian ) private sector franchises. Others may have their income supplemented, by Welfare to Work, up to the income quota or basic share in the community's consumer power.

Higher levels of government require higher quotas to elect candidates. To continue the analogy, you probably want a bigger financial quota than a basic wage. This may not be enough to pay for a pension.
A pension is a clear example of a surplus income, that is not spent but transfered into a pension fund. This surplus goes towards the income quota sufficient to 'elect' ones sustenance in old age. The income surplus transfer may also go to one's wife, or, indeed, doesnt only apply to pensions. There are inheritance transfers or bequests to family, friends, dependants or for good service.

The John Lewis Partnership was the bequest of a business-man with democratic ideals. Profit-sharing offers another way for big earners to spread their spending power, to make consumption more representative of the people's wishes. This further promotes a free market, in which the most popular products earn the most. Because, the public is better served when profits are being re-invested to look-after the work-force. And the pick of skills are attracted by the most successful firms that also have the best terms of employment.

On 11 december 1869, John Stuart Mill replied to the Employés of Messrs. Brewster of New York:

The plan of industrial partnership seems to me highly worthy of encouragement; as uniting some of the advantages of co-operation with the principal advantages of capitalist management. We should hope, indeed, ultimately to arrive at a state of industry in which the workpeople as a body will either themselves own the capital; or hire it from its owners. Industrial partnerships, however, are not only a valuable preparation for that state, and transition to it, but might probably of a long time exist by the side of it with great advantage; if only because their competition would prevent co-operative associations of workmen from degenerating, as I grieve to say they often do, into close joint-stock companies, in which the workmen who founded them keep all the profits to themselves.

The proposals of Messrs Brewster is in some imporant respects a considerable improvement on the English industrial partnerships of which I have any knowledge; because it takes the employés themselves into council to determine the share of the profit to which they shall be admitted, instead of fixing its amount by the sole will of the employers, and because it gives to the council, elected by the employés, an important share in the government of the workshops, even to the extent of allowing them, by a two-thirds majority, to overrule the wishes of the employers.

Robert Ardrey's novel, 'Worlds Beginning', is about an inventor, whose partner raises the money for production, by persuading his workers to risk invest in the firm for a share in the possible profits. Even by 1946, the idea of mere wage earners as capitalists was revolutionary. Ardrey felt compelled to say that the US Constitution was not contravened.

Since then, attitudes have changed towards the old Ricardian demarcation of the economy, into land, capital and labor. In common with a detested socialism, doctrinaire capitalists like Margaret Thatcher, followed by John Major, claimed to want 'a classless society'.
The inequitable society remains.

Michael Moore's book, called 'Downsize This!', refers to one of the polite terms or euphemisms for making corporation redundancies. Workers are fired to improve profits to share-holders. Employment is exported to other countries for cheaper labor costs.
Communities compete with public money to induce big firms to provide local employment. But there may be no guarantee they wont up-sticks to follow the profit motive, leaving a jobless ghetto.

Moore found office space and staff at more competitive rates for a sizable chunk of the US administration, south of the border, down Mexico way. This would release prime real estate in Washington and downsize the government pay roll, thus helping, mightily, the American tax-payer.

Richard Lung.

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