Inequality, Boom, and Bust

From Billionaire Capitalism to Equality and Full Employment

Howard J. Sherman, Paul D. Sherman

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9780815381280
• eBook ISBN: 9781351210881
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

There is enormous inequality between the income and wealth of the richest 1 percent and all other Americans. While the top 1 percent own 42 percent of all wealth in America, the lower half on the income ladder has only 2 percent of all of the wealth. This book develops a viewpoint contrary to the prevailing conservative paradigm, setting out both reasons for this inequality and the impact of this.

To explain inequality, conservative economists focus on individual characteristics such as intelligence and hard work. This book puts forward new evidence to show that changes in economic inequality are primarily due to characteristics inherent in the standard operation of capitalist institutions. Furthermore, the authors seek to explain the cycle of boom and bust by considering political and social factors often overlooked by conservative economists. This book also explores how wealth influences political policies in a way that increases economic inequality even more than its present level.

Through analysis of American political and economic institutions, Inequality, Boom, and Bust presents concrete steps for an activist, progressive policy to greatly reduce inequality through free healthcare, free higher education, and reduced unemployment.

p.1

1

EVOLUTION OF CAPITALISM, INEQUALITY, AND UNEMPLOYMENT

The present economy, with its inequality and cycles of boom and bust, can only be understood by examining the long, twisting road from the beginning of society to modern capitalism. This chapter attempts to explain just how capitalism developed out of earlier societies in a way that made inequality and cyclical instability an essential part of it.

From 2007 to the present (2017), many countries have had continuing significant unemployment. It is a tragedy when one person is involuntarily unemployed. When 10 million people are unemployed, that is a national calamity. When hundreds of millions of people are unemployed all over the world, it is a disaster with more human misery than the author can fully describe. The present problems of inequality and unemployment take place under the economic system called capitalism.

The evolution of capitalism

What was the behavior and extent of inequality during each stage of economic history? How has inequality developed over the history of capitalism?

How did capitalism come to be our present economic system? Why did the cycles of boom and bust become the usual form of economic change under capitalism? Why does this terrible process keep repeating itself, with corporations and governments making the same mistakes every time? What is the role of vested interests, such as the wealthiest 1 percent of wealth owners? How can we permanently get rid of this terrible system of boom and bust?

How it began

Many sciences today are based on an understanding of how their subject matter evolved from its beginnings. For example, geologists go back to the beginning of the earth’s history to trace how it changed and evolved for billions of years to produce today’s continents, lakes, mountains, and valleys.

p.2

Similarly, in biology, in order to understand all modern species of animals, including human beings, biologists trace the development of animals from the simplest one-celled organisms through the dinosaurs and all the stages of evolution until today. In society, there was a similar process of change to what was found in biology and geology.

There were tremendous struggles to prevent these new theories in geology, biology, and society from being known by everyone. This attempt to hold back the progress of social and natural science was because the political and economic elite wanted no change in knowledge that might threaten their rule. The elite worried that if the average person realized that vast changes were part of the ordinary process of development in the physical and biological worlds, they might get the subversive notion that change is possible in society.

The prehistoric clan economy

There are four aspects of society that can be used describe how it changes and evolves: economic, political, technological, and ideological.

In the prehistoric era, the basic working group consisted of a clan of 20 to 35 people, all of whom were members of an extended family. In what is called the Old Stone Age, the clan used the earliest stone implements as their technology. These tools and weapons were sufficient for the hunter-gatherer type of economy. Most women would gather fruits and vegetables. Most men would hunt for animals. All of the food was then consumed collectively by the entire clan.

This type of economy, relying on collective action and collective consumption, was not designed by a bunch of philosophers. On the contrary, it arose out of utter necessity. Only a hard-working collective of all members of the clan could possibly bring in enough food to feed everyone. Food, clothing, and shelter all depended exclusively upon the labor of the entire clan. There was little or no trading with other clans. If all went well in the hunting and gathering, then the clan could achieve just enough food to prevent starvation.

This type of collective economic unit was naturally ruled by the collective social unit of all the adults in the clan. A leader might be elected from time to time with limited duties and powers, either to rule on disputes or to lead the clan in its economic activities. There was no other government.

The general viewpoints or ideology of the clan arose on the basis of this collective economic and political activity. The strongly held view of the clan was that each person had to contribute their share of labor in order to get their share of the food, clothing, and shelter. Anyone who did not cooperate, or who tried to accumulate a private hidden reserve out of the collective output of the clan, would be exiled. Since the full strength of the clan was needed to produce enough for each person’s subsistence, exile was a sentence of death.

p.3

Because the whole economy consisted of collective action and sharing within the clan, there was no market exchange, no money, private business, or private profit. Therefore, there could be no economic downturn caused by lack of aggregate demand, as there is in the modern business contraction. The only reason for an economic contraction in the prehistoric era was external calamities, such as floods or drought.

There was no economic inequality for more than 100,000 years because everyone in the clan was forced to work together in order to survive. Therefore, they collectively owned and consumed all the products of their labor. There was no business cycle of boom and bust because the present cycle of the modern capitalist economy is based on money, sales, and profit, which did not exist in the prehistoric society.

How did this 100,000-year-old economy ever change to something new and different?

From collective clans to slavery and feudalism

The prehistoric economy of Homo sapiens lasted for 100,000 years or more. Its technology changed at such a slow pace as to be almost unobserved. Then, about 10,000 years ago, the Neolithic Revolution in technology began. The term Neolithic simply means “new stone.” In this New Stone Age, there were some improvements made in the stone tools and weapons that were used in some areas, such as the Middle East. These improvements, which appear modest to modern eyes, were enough to allow some new economic patterns to emerge.

With improved tools, the group of women who collected fruits and vegetables were now able to cut away the weeds and preserve the desirable crops. This led to the first farming.

The men, who had done the often dangerous and sometimes unsuccessful hunting, now became herders able to surround, direct, and to some extent control large groups of animals, such as cows or horses.

The new farming practice of the women, although still with crude implements, provided a much higher level of productivity. The new practice of herding by the men also provided a far more stable diet and larger amounts of meat. The community now had enough food to give up its previous nomadic existence and form a stable village. With a relatively stable food supply and home area, the population began to increase. There was also enough food to feed some people who did no farming or hunting, but specialized in producing better tools and weapons. Under this new system, the technology began to improve significantly.

The larger and more stable production also meant that a few people could specialize in being chiefs and their armed retainers. These people did no subsistence work, but only supervised the activity of the whole clan.

At first, these chiefs had only limited powers and a limited term. Since, however, they had legitimate access to the food supply of the clan, they were able to hire armed followers, expand their powers, and increase their term limits. It took a couple of thousand years from the beginning of the Neolithic Revolution until these new forms of political and economic life emerged.

p.4

Once a permanent village was established, and the productivity of the clan was greatly enhanced by the new tools and weapons, the population grew more rapidly. The village might turn into a small town, while the elected chief might turn into a powerful, permanent chief.

In the Old Stone Age, a war against another clan was always unprofitable. Since the tribes were nomadic, they did not accumulate well-made furniture or fancy dwellings. Moreover, in the Old Stone Age, they had no herds.

The capture of slaves in the Old Stone Age did not help a chief. In the Old Stone Age, any given individual could only produce enough goods for the tribe to provide subsistence for all of its members, including that individual. So the slaves could not produce any surplus for a chief.

That situation changed with the Neolithic Revolution. Productivity rose because of improved stone tools and weapons, so that an individual could produce a surplus above their own needs. The chiefs and their armed followers could then use captives from a successful war as slaves. The slaves could then produce their own subsistence plus enough goods and services to allow the chief to live at a much higher standard of living.

Slavery meant that one person could tell another person what to do and the owner had the right to use anything the slave produced. The slaves were a type of labor that was coerced by armed strength and had no personal freedom.

On the foundation laid by the Neolithic Revolution, there followed the Bronze Age and Iron Age. During those ages, humanity expanded from small villages to towns to large cities, and from large cities eventually to empires.

During the Hellenistic/Roman Age, there were various types of labor. These ranged from slaves to serfs to free workers, as well as every combination in between. Some empires, such as Egypt, Greece, and Rome, used a larger percentage of slaves. Some empires in the Middle East, such as Persia, used more serfs.

The operation of slavery

The Roman Empire consisted mainly of large plantations using slaves, though there were some large cities. The cities encompassed about 5 percent of the population. Slavery allowed a small wealthy class to live in luxury. The cities were also able to find enough slave labor to build immense monuments for religious deities and governing kings and emperors.

Slavery, however, also led to many problems. Slavery exhausted the land because it could utilize only the simplest techniques and the same type of crop in most of the plantations. Any more complex situation made it impossible to keep order and to supervise the slaves. Therefore, Roman agriculture became more systematic, but hardly ever increased its productivity per slave.

Another problem was that slavery produced an ideology which claimed that all work was servile, so the master class should indulge only in the arts and in politics. Thus, the entire class that had the leisure time to work on new inventions did not do so because any kind of work was considered beneath the status of the master class.

p.5

Because of the continued use of the simplest technology in farming, there was always a need to expand by conquering new lands. Furthermore, the lifetime of a slave was limited because of the hard work in poor conditions for most agricultural slaves, combined with insufficient food. To replace those slaves who died, it was necessary to conquer new areas from which large numbers of slaves could be taken.

To conquer other peoples, the Romans needed a large army. The army was also necessary to defend Rome from large nomadic tribes on its frontiers. These tribes were envious and wanted to conquer the luxurious homes and monuments of the Roman cities.

Yet it became more and more difficult to maintain a large army. Slaves could not be used for an army because they would have to be armed, and armed slaves were the great nightmare of Rome. So the Romans conscripted almost all of the free farmers who remained outside the plantations. As those farmers remained in the Roman army or were killed in war, the Romans ran out of replacements.

Heavy taxation was also needed to finance the wars. Therefore, the farmers that were left behind became poorer and poorer from taxation. These impoverished farms often ended when they were taken over by the larger slave plantations.

Since the Romans could not rely on the slaves as soldiers, and since there were few free farmers remaining, the Romans were forced to pay members of the hostile nomadic tribes to become soldiers. Such armies became less and less reliable at fighting against the other tribes on the frontiers. Moreover, these armies began to exercise their power in the sport of taking over the Empire and creating a new Emperor.

Slavery is the most exploitative and unequal society. The slave owner has complete control of all production, although the owner normally allows the slaves just enough goods and services to exist at a subsistence level during a brief lifespan. The high degree of inequality meant that the national market for consumer goods was always limited, because slaves produced all of their food, clothing, and shelter on the plantation.

A capitalist type of market economy never developed for most of the society as inequality remained so great within the Roman Empire. Most of the Roman population remained on large slave plantations until near the end of the Empire. Therefore, most goods and services were used with the slave economy on these plantations, but were not sold in markets. As a result, there was no cycle of boom and bust, but rather a long stagnation that finally resulted in a decline and fall.

Roman power and living standards declined from the second to the fifth century ad, then fell completely apart in the fifth century. As a substitute for the slave plantations, the ruling group slowly turned toward the society known as feudalism and the labor form known as serfdom. Some small amount of slavery continued to exist in Europe during feudalism.

The complex story of the end of the prehistoric period and the rise of slavery is in the Pulitzer Prize winning book Guns, Germs, and Steel by Jared Diamond (1997).

p.6

The operation of feudalism and serfdom

Feudalism slowly became dominant in Western Europe, starting about 500 ad and reaching its peak in 1200 to 1500 ad. In feudal society, the law said all land belongs to the King. The King was the strongest of the nobles. He gave large estates to the other nobility, which they could use so long as they agreed to furnish soldiers to help him in his wars. The great lords in turn gave some of their lands to lesser lords and knights, who retained the right to use these lands as long as they gave military support to their particular lord.

At the bottom of this pyramid of power were the serfs. The serfs worked on the estates of the lords and the knights. Under the feudal system, each serf must work a certain number of days for the lord of the estate. The male serfs did agricultural labor as well as making some roads and other infrastructure. The female serfs often worked in the lord’s castle, doing domestic activities of all types. They were frequently exploited sexually by the lord, his sons, or his armed retainers.

The aggregate economy of slavery and feudalism

It is worth emphasizing that 90 to 95 percent of the population worked on the land in both slave and feudal societies. Each of the plantations or estates was largely self-sufficient. The slaves or serfs produced all of the food, clothing, and shelter that were needed.

The Roman masters brought only a small percentage of their output to market. Although the Romans had a few major cities with markets in them, most plantations produced mainly for themselves, with a relatively small surplus sent to market.

Roman bankers mostly loaned money for long-distance trade or for military purposes. Few people in agriculture ever saw money. Finance and long-distance trade did sometimes have problems of lack of demand or inflation. The basic economy of the plantations, however, was self-sufficient. Therefore, it could not be harmed by lack of aggregate demand.

The feudal lords of Western Europe used almost everything on their own estate, leaving next to nothing to be brought to market. As a result, at the peak of feudalism in about 1200 to 1500 ad, there were few markets, little use of money or credit—except in a few long-distance transactions—and no private profit to be made in most of the transactions that were within a single estate.

Since there were few or no markets, no money or credit, and no private profit...

Table of contents

• Cover Page
• Inequality, Boom, And Bust
• Title
• Copyright
• Dedication
• Contents
• List of Figures
• List of Tables
• Preface
• Acknowledgements
• About the Authors
• 1 Evolution of Capitalism, Inequality, and Unemployment
• 2 Evolution of Inequality and Unemployment in America
• 3 Storm Over Economics
• 4 Inequality and the Normal Operation of American Capitalism
• 5 Unemployment and Inequality
• 6 Profit, Investment, and Inequality
• 7 How Inequality is Affected by Boom and Bust
• 8 How Inequality Affects Consumer Demand
• 9 Credit, Bubble, and Bust
• 10 Government: Economic Inequality and Political Inequality
• 11 Global Capitalism, Inequality, and Crisis
• 12 Story of the Inequality Cycle
• 13 The Great Recession and Inequality
• 14 Financial Crisis and Inequality
• 15 Democratic Revolution: A Progressive Road to Economic Equality and Full Employment
• Technical Appendix: Model of the Inequality Cycle
• References
• Index