Is Resistance Futile? The Corporate-Government Complex

October 18th, 2012
in Op Ed, syndication

Written by Derryl Hermanutz

Michael Payne published a timely 13 October 2012 OpedNews article titled, “Corporatism is Systematically Sucking the Lifeblood Out of America”. My comment on that article has expanded into this article length jeremiad fat-cat-politicianSMALLagainst various corporatist shenanigans.

As a disclaimer I must say that I do not categorically object to the corporate form of organization.  In fact it is necessary as enterprise scale grows beyond the immediate personal size where the owner(s) can operate the business by themselves.  Just as it is not possible in a geographically large and populous nation state to practice direct democracy where all citizens meet to argue and decide issues, it is not possible in a large business to practice owner management.  Whether these large scale public and private institutions benefit or harm human interests is a legitimate field of debate.  But if large legal constructs like nation states and corporations are to serve the democratic interests of the people who are “the nation”, then the people must have power to regulate and constrain the actions of those institutions, or else they become tyrannical masters rather than obedient servants of the nation.

Follow up:

Perhaps our governments and corporations have already become too big and powerful and self-serving for democratic constraint, which is why I ask, is resistance futile?  Well, resistance is actually “impossible” if we are deceived or otherwise unaware of what we are up against.  The corruptions and shortcomings of political government are readily visible and are continuously and exhaustively recited by the political right and need no additional comment from me, so I will attempt to pull back some of the veils behind which corporatist power is concealed.

The Free Market Myth

First off, corporations do not operate in "free markets" and thus do not deserve the sympathetic treatment we might charitably extend to little guys struggling to earn their daily bread amidst sharp competition.  The enterprise scale and geographic reach of giant collectivist entities like modern transnational corporations presents an absolute barrier to entry against upstart ruggedly individual "competitors" who don't already have billions of dollars and/or a substantial share of the market in an economic sector.  Enterprise scale alone prevents anybody but other collectivist plutocrats from entering the industry as a 'competitor'.  Rugged individuals who seek to prosper by their own independent efforts are simply bought out or steamrolled out of the running.

The Free Market Ideal

Free markets are populated by myriad small business owner/operators whose personal income and business income is essentially identical (at least with a few orders of magnitude) and who enter and leave an industry not much differently than employees take and quit jobs; and NONE of the individual businesses in a truly free market has ANY power to fix costs and prices or otherwise control the industry in which they operate. There are no “industry standard” businesses in a free market.  There is radical diversity seeking localized niches, sometimes expanding into larger businesses, but by definition never achieving industry “dominance”.

Market Reality

In free market doctrine the sovereign consumer alone is king and commander of the economy.  Producers are supposed to be “servants”, not “masters”, competing to serve the demands generated by human needs and desires.  But this has been known to be false at least since John Kenneth Galbraith published “The Affluent Society” in 1958, exposing the fact that producers artificially create desires and “cause” previously nonexistent demand for their products via advertising.

Suppliers produce whatever they can best profit by then create demand for those products in a wholesale reversal of what is still portrayed in market theory as a “demand-driven” economic system.  Insofar as corporate suppliers use advertising to psychologically manipulate consumer needs and desires, market models do not capture the dynamics of this “supply-driven” system.  And corporate suppliers are not “serving” a demand-led market economy but are “commanding” a supply-led corporate economy.

A Command Economy

As manipulated consumers dutifully purchasing the advertised baubles they have been induced to desire, the people become the servants of the corporate production system, not its masters.  Effective corporate control of its demand market transforms the system from a market economy to a command economy.  Stalin’s command economy failed from lack of production.  Our command economy is failing for lack of widely distributed income to fund consumption.

As small upstarts, Steve Jobs and Bill Gates, and other competitors who ultimately lost the battle for dominance, created the personal computer revolution.  Genius that generates invention and innovation is a property of individual people driven by personal motives, not of “committees” or “boards of directors” hashing out consensus on “principles” and “policy”.  But as these upstarts obtained outside financial backing and grew to dominate their markets they ceased being participants in a “free market” and began operating in an oligopoly populated by a few giants rather than myriad small fry.

And as Leopold Kohr observed in his 1957 anti-gigantism book, “The Breakdown of Nations”,

“If capitalism had such stunning success in its earlier stages…it was because of its embodiment of the competitive principle whose most fundamental prerequisite is the side-by-side existence not of a few large but of many small facilities requiring not the waste of extensive but the economy of intensive operation.”

The Failure of Success

Kohr’s idea is that relatively poor small business people intensively work their very limited capital, most of which is embodied in their own ideas and ambition rather than in material or financial resources they possess.  Individualist entrepreneurs have been described as “maniacs on a mission”, like “the pirates of Silicon Valley” in their early years.  By intensive effort, invention and innovation, and jealously efficient husbanding of the few resources they command, they ‘might’ survive and eventually prosper.  By contrast, rich corporate enterprises thrive by controlling vast resources and exploiting “the commons” that are spectacularly wasted.  Wasting resources would bankrupt small business owners, but it is business as usual for large conglomerates which can pass off those costs into their captive markets where other people pay the price of the “market externalities”.

As Kohr further observes,

“Before capitalism outgrew its competitive small-unit pattern, it suffered little of the subsequent miseries of accumulation.”

Small business people “own” and “work” the material and intellectual resources that are their “capital”, and they “earn” whatever income their business is able to generate.  As Kohr’s student and friend E.F. Schumacher puts it in his 1973 book, “Small is Beautiful: Economics as if People Mattered”,

“No great private fortunes can be gained from small scale enterprises, yet its social utility is enormous.”

Builders vs. Extractors

Small scale businesses competing in free markets produce no billionaires, because no human being by his own efforts working his own capital is capable of “earning” billions, and according to free market doctrine, the invisible hand of the marketplace allocates incomes accordingly as people produce and  thus earn the wealth.  Great wealth can only be attained by “extracting” billions, achieving such market dominance that you can set prices for your product, and underpay the thousands of workers who contribute their efforts to the enterprise and so “earn” and should be “paid” their “market share” of the company’s earnings.  This kind of rational and economically/morally defensible income distribution would prevail IF incomes were being allocated by competitive “markets”, not by controlling “men”.

But in fact the hands that allocate incomes and determine income distributions are all too human even if not always readily visible.  Will anyone argue that the Asian workers who physically produce Apple hardware and Microsoft install discs are being paid their “market share” of the price Apple and Microsoft charge for their end products?  Those Asian workers are not paid enough to survive in North America, though they are fairly well paid by their own national standards.  But this ability to practice international labor arbitrage in order to extract the lion’s share of the benefits of other people’s work for oneself is one mark of market dominance.  Free market doctrine claims this kind of extreme imbalance is “temporary”, but we will all be long dead before Asian workers gain a “market allocation” of the retail price of the goods they produce for transnational corporations.

If a situation exists where a business’s owners or managers are able to systematically enrich themselves on the backs of the thousands of employees and suppliers without whose efforts the large scale business would not be possible, and/or at the expense of the millions of consumers who pay anti-competitive high prices for the business’s products, or who are sold toxic or otherwise defective products, or at the expense of taxpayers who bail out too-big-to fail companies and whose governments award astonishingly rich contracts to the “winners” of pork-barrel politicking, then that business is NOT operating under the competitive forces of a free market.

The Invisible Hand

By definition of concept, the invisible hand of the free market “optimizes” outcomes for everybody concerned, even if not immediately and if less than perfectly.  It allows for naturally wide disparity in human productive ability, and accepts a role for good or bad “fortune”.  That is the moral and motivational precept that induces democratic people to believe in the free market and oppose excessive central planning and allocation-by-men.  Free markets are “fair” even though they are not “equal”, and make each person better off than he could be under any humanly designed and centrally controlled system.  Private charity and a modest welfare state, as even Adam Smith advocated, can provide for those who cannot provide for themselves.

Because competitive forces prevent the development of unnaturally wide wealth disparity in a free market, the presence of extreme wealth in a few hands alongside debt and poverty for millions is empirical proof that competitive market discipline has failed and systematic market control is at work.  During the 1930s millions of Americans saw clearly that the American system, which was called a capitalist free market system but was in fact a “market” system by reputation only, had utterly failed them, and they agitated against capitalism toward communism in a desperate search for a change that would serve THEIR economic needs.

Pages: 1 · 2 · 3

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.


  1. Doug Clark says :

    Interesting and valid points. We split up At&T and de-regulated the airlines with positive outcomes for competition.

    Off hand, would seem our multinationals could be at a disadvantage if foreign competition didn't reduce scale in a like manner.

    Would like to hear solutions - our decentralizing moves in the late 70's didn't have the same level of global inter-connectedness and scale of competition that exists today.

  2. roger erickson says :

    Derryl, you certainly touched on a lot of hot buttons currently vexing ~99% of citizens.

    There are known parallels to this in observations of other evolved systems. For a system to grow, it's obviously necessary to find ways for more members to be even more organized than were those of the original, smaller population. That's fiendishly difficult, cannot be predicted, and is always solved by trial and error. How fast groups benefit from ongoing trial & error is the moment of competition - called Adaptive Rate. As new methods are sampled, evaluated and selected, what occurs is never a do/don't outcome, but rather a complex pattern of altered and newly invented tolerance limits. Think of it as system tuning.

    In the case of liquidity notation (public currency) it's absolutely true that currency supply has to follow transactions, on-demand. At this point our outlooks diverge a bit. I see no harm in having banks track & report on liquidity (what you call "creating" currency). I don't see how we can scale up an increasingly dynamic and agile economy without creating liquidity notation on-demand.

    In my mind the root causality for the bulk of our economic malaise is the payment rate allotted to the accountants who keep liquidity records. My contention is simply that all accountants, bankers and financiers (and corporate CEOs) are grossly overpaid.

    It's always tempting, as an accountant, to try to hoard some of the fiat numerals flashing through ledgers & spreadsheets & debit/credit accounts. Some of them will inevitably test the waters, and claim that "You can't conclude REAL transactions without getting the numerals, calculations, and liquidity balance reports from us!"

    However, a simple solution is available to the rest of us. We can simply say "BS! Sure we can." That's exactly what we did back in 1933, when we left the gold-std, sent the gold-plutocrats packing, let our Treasury supply unlimited liquidity through it's newly chastised accountant, the Federal Reserve, and unleashed all the pent up public initiative that had become depressed solely for lack of liquidity.

    My suggestion is not to do away with banking or even the Federal Reserve, but simply to re-regulate them, and remove the excesses by re-establishing new tolerance limits for ongoing liquidity services. The new limits would largely remove the incentives for trying to hord liquidity notation, instead of using it.

    That way we could subtly transition our growing system away from hoarding fiat currency (a necessarily depreciating asset) ....
    and go back to hoarding coordination capabilities, and net production and Adaptive Rate. By doing so, we'd incidentally close our existing Output Gap.

  3. Admin (Member) Email says :

    Roger - - -

    What your comment does not address is the problem that there is not enough money in the real economy - and too much in the financial economy devoted to speculation, what Steve Keen has defined as the Ponzi economy.

    It is this Ponzi economy that has created the bubble which is now going through a debt deflation resolution.

    Behind the discussion that Derryl has developed here I see some fundamental questions which he did not get into.

    1. Why is the sovereign currency of the U.S. created by the U.S. substantially only through the creation of credit instruments upon which the sovereign must pay interest?

    2. Assuming the answer to #1. is that it is part of a system designed to prevent the government from "printing" too much money and thus devaluing the (debasing) the currency, why do we tolerate the continuation of that system which has seen the 95% debasement of the currency over the past century? The system has failed to satisfy its design criteria.

    3. As Derryl has pointed out in previous essays, an expansion of the money supply is necessary to keep pace with increasing population, growing productivity and to provide for profits. So this has obviously been a condition satisfied for part of the past century, but when it has been "over-satisfied" there have been periods of inflation (debasement) which have penalized creditors and also periods of under-supply (deflation)which have penalized debtors. A very necessary problem to be addressed is how such periods of "distress" can be mitigated, minimized, or eliminated.

    4. Also behind the essays that both Derryl and Roger have presented could be discussion of the monetary policy being pursued by the Fed. The assumption of the policy is that creation of liquidity can be extended until a demand recovery occurs and employment recovers. The problem with the policy (in my opinion) is that it has no component to determine the distribution of that liquidity. It is provided to the financial sector and is not distributed from there. The QE policy therefore is not getting the desired result because the financial sector creates very little aggregate demand. Without aggregate demand there can not be a more robust employment increase. What is missing is a coherent model such as described by Dirk Bezemer (2009) and proposed by Steve Keen (2010) which is based on double entry accounting for the macro economic sectors: banks, firms, workers and government. Preliminary research on such models has shown clearly the inauspicious choice of enhancing financial sector liquidity (the QE policy) compared to increasing the liquidity of the firm and worker sectors.

    Thus, as well developed as the article and comment are, I would suggest they merely scratch the surface of core pragmatic issues of the day, which are:

    A. Why does the U.S. government pay interest to use its own money?

    B. Why are not sectoral balance and flow analysis using models including debt (credit) and money being used in formulating economic policy?

    C. What can be used to replace the operational system of the past 100 years which has repeatedly failed to deal meaningfully with currency value stability?

    John Lounsbury

  4. Admin (Member) Email says :

    Comment submitted by e-mail:

    Great comment Roger.

    I agree with everything you say, though you and I sometimes get our terminology crossed re money. Your mind has fully migrated into the fiat camp, whereas 99.99% of the population either never think analytically about money or still think of it as a scarce commodity. This latter camp includes virtually all academics and media and policy makers, so I write to this majority, trying to lift some veils and show them a perspective from which the roots of the current malaise are visible.

    Central banking "base money" monetary mechanics can appear to be an arcane and prohibitive area of inquiry so I strip the system down to its core and explain that private banks create our money by lending. This accords with John K Galbraith's observation in his 1975 book, "Money", that banking and the money system are perhaps the only human system whose operation is made DELIBERATELY complex and obfuscatory so that people will not understand the simple fact that private banks are creating our money supply and lending these creations of financial credit as their private property. Almost everybody believes that the government issues our money, or that money somehow naturally arises out of the production of wealth. Almost nobody knows that money is numbers created by bankers.

    As long as most people continue to believe these falsehoods they will never be able to unravel the Gordian knot of our era: debt. So I take Alexander's approach and simply cut off the knot and show that banks are the rope that issue money at one end and debt at the other so that all money begins with a bank loan and ends with a loan repayment.

    One end of the rope issues money into the economy in the form of loans of bank deposits that borrowers spend "in" to the economy. The other end of the rope receives money back "out" of the economy in the form of loan repayments. Money is a flow of financial credit out of the banking system into the economy them out of the economy back into the banking system. Money is born into the economy as the spending of a bank loan and dies as a loan repayment, because the money only "exists" as positive and negative numbers recorded on banking system balance sheets.

    Balance sheets balance to zero so there is always net zero money in the banking system because the positive numbers are the economy's "money", and the corresponding negative numbers are the economy's "debts", and all of the money is loaned with the corresponding debt attached to it. If all the money was used to pay all the debts, there would be no money and no debts. That is the basic arithmetic of our zero sum bank-debt money system.

    If governments taxed money out of the economy to redeem all their bond debt there would be no more bond debt and no more of what MMT confusingly calls "vertical" money, as if the money created by government debt adds net positive money numbers into the economy. Government debt is no different than private debt, because banks create the money to buy both the public bond debt and the private promissory note debt. And if the debtors repay the loans both the money and the debt are simply cancelled on the bank balance sheets.

    The fact that governments since Andrew Jackson "don't' in practise redeem their bonds, but continuously roll over past debts and add to them, doesn't change the fact that the government "owes the money" to the holders of the bonds, and has to "repay" the money if the bondholder/lender doesn't want to roll over the loan when the bond matures. Just like private sector debtors have to repay the money or re-borrow it when their bank loan comes due.

    Private sector debtors, taken as a whole, do not repay their total stock of bank debt either. So just as the government leaves money circulating in the economy rather than taxing it out to repay their debts, "the private sector" also leaves money in the economy because all debtors do not simultaneously earn their money back out of the economy and repay their debts.

    A logically consistent depiction of this dynamic would distinguish between the public stock of "vertical money" represented by total government bond debt; and the "private stock" of vertical money represented by the total stock of private bank debt currently outstanding. To say that government debt creates "permanent" money simply because governments haven't paid back their debts yet is simply to confuse people about the basic operation of our bank-debt money system.

    The banking system balance sheet can "expand" so that there's a trillion dollars of loans outstanding which means there's a trillion dollars of money still out in the economy that debtors have not yet earned back out of the economy to repay their debts. Or the banking system balance sheets can "contract" so that there's only half a trillion dollars of money in the economy and half a trillion dollars of debt still owed to the banks who issue the money as loans and collect the debts as loan repayments. But whether the balance sheets record a quadrillion of money and a quadrillion of debt, or a million of money and a million of debt, the balance sheets always sum to zero because the money equals the debt.

    Meanwhile, as Jefferson complained to Gallatin, monetary expansion causes asset price inflation so that bankers (who create the money that fuels the inflation) and their allies can sell their assets at inflated prices and collect all the money as their personal property; then monetary contraction (calling in loans) deflates asset prices so bankers et al can repurchase their assets at a fraction of the price they sold them for during the previous inflation. By repeatedly grinding the economy between inflation and deflation the bankers and their allies end up owning everything and "the people end up homeless on the continent their ancestors conquered". This is not an outcome generated by competitive market forces. It is a consequence of "private banks having the issuing power of money", as Jefferson knew all too well.

    The "rope" that issues money on one end and receives repayment on the other, which is "the banking system", is simply the issuer and manager of the economy's money numbers. But bankers are "men", not ideal "institutions", and men abuse their awesome power to create and allocate money. So people need to understand that bankers create and allocate money or they will continue to believe that individuals and corporations become rich and politically powerful by "market forces", when in fact it is largely due to banker choices who gets rich and who gets broke or bought out.

    That's all I'm trying to do, lift the veils of illusion that conceal the human control of the money power, so that with Thomas Jefferson they will see that men exercising power, not markets allocating income distributions, create the financial and industrial titans who obliterate our free markets and dominate rather than compete in our economies.




Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved