“History is economics in action.”  Karl Marx

Requiem for The American Deam

Recently, I stumbled upon a fascinating documentary: “Requiem for the American Dream, Noam Chomsky and the Principles of Concentration of Wealth and Power” (available on Netflix and Amazon streaming video). The film is a series of interviews of Chomsky conducted over four years and released in 2015.  Chomsky’s focus in the film is economic inequality and its corrosive effects on society and democracy.

The interviews are structured around 10 economic and political principles associated with the concentration of wealth and power.  Chomsky articulates his views in a manner that is coherent, compelling, and accessible to the economics-challenged like myself.

He begins with Principle No. 1: Reduce Democracy, by discussing James Madison’s views and efforts in framing the Constitution.  Madison was a true believer in democracy, but he also worried about “an excess of democracy.” He felt that our system should be designed so that power resides in the hands of the wealthy, because they “are the more responsible set of men.”

In the constitutional debates of 1787, Madison stated that “The major concern of the society has to be to protect the minority of the opulent against the majority.”  In other words, if everybody has an equal vote, the majority of the poor will naturally come together to take away the property of the rich minority.  This concern, says Chomsky, goes all the way back to Aristotle, who believed democracy to be the superior system of government, but who pointed out the same “flaw” as Madison, that on an equal footing, the poor majority would seek to take away the wealth of the rich minority.  But they had opposite solutions: Aristotle proposed trying to reduce inequality, Madison proposed reducing democracy.  In the end, the founding fathers placed the most power in the hands of the Senate – which was not an elected body in those times.  Senators were selected from the wealthy.

From that beginning, Chomsky walks us through U.S. history, the cycles of progress and regression, and the constant tension between the Aristotlean and Madisonian tendencies.  It is fascinating stuff.  At one point while watching the film, I was struck by Chomsky’s comment that we should not be at all surprised by the current political and economic landscape.  That comment reminded me of the observations of two historians, B.H. Liddell Hart and Will Durant.

Liddell Hart was primarily a military historian, but in his book Why Don’t We Learn From History?, he contemplates broader themes as well as “the familiar string of political confidence tricks, repeated all down the ages – yet they rarely fail to take in a fresh generation.”

Truth is a spiral staircase. What looks true on one level may not be true on the next higher level. A complete vision must extend vertically as well as horizontally – not only seeing the parts in relation to one another but embracing the different planes.

History provides that complete vision.

Durant is more specific. He devotes an entire chapter to Economics and History in his 1968 book The Lessons of History and shows us how concentration of wealth is a recurring and natural cycle.

“Since practical ability differs from person to person, the majority of such abilities, in nearly all societies, is gathered in a minority of men.  The concentration of wealth is a natural result of this concentration of ability.”  The freedoms of democracy accelerate the rate of concentration.  In 1968, Durant wrote “the gap between the wealthiest and the poorest is now greater than at any time since Imperial plutocratic Rome.”  I wonder what he would say today.

According to Durant, when the disparity widens to a point of critical instability, pressure is relieved in one of two ways: by legislation redistributing wealth or by revolution distributing poverty.  He provides historical examples: Solon’s redistribution of wealth in 597 B.C. Athens (one of Solon’s methods was establishing an income tax whereby the rich paid taxes twelve times that of the poor),  Rome’s hundred years of class and civil war, the Reformation, the French Revolution, and Durant’s final example (which Chomsky also discusses in “Requiem”):

“The government of the United States, in 1933-52 and 1960-65, followed Solon’s peaceful methods, and accomplished a moderate and pacifying redistribution. Perhaps someone had studied history. The upper classes in America cursed, complied, and resumed the concentration of wealth.”