Consuming Our Capital

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It must be admitted that there is a degree of instability which is inconsistent with civilization. But, on the whole, the great ages have been unstable ones.

~ Alfred North Whitehead

A sure-fire sign of a business enterprise in decline is when it begins using its invested capital to pay operating expenses. Such signs of ill-health are not confined to the world of commerce and industry, but can exhibit themselves in the life of any system. We are witnessing the practice in the collapse of Western Civilization, as we scurry to meet short-term demands by sacrificing the foundations upon which our culture has long been grounded.

Creative and vibrant civilizations do not come into being in some haphazard manner, nor are they the products of careful planning on the part of self-appointed "leaders." They seem, rather, to have emerged from the convergence of various conditions, whose syntheses provided the opportunity for great numbers of people to pursue their respective interests in mutually-supportive ways. A culture thrives when it is capable of producing the values that define it. The success of Western Civilization can be traced, to a great extent, to the processes of industrialization, which essentially resolved the problem of how to sustain the lives of millions of people.

But neither the Industrial Revolution nor the emergence of the factory system were sufficient to account for the greatness of Western culture. There were numerous practices, attitudes, ideas, and other factors that provided the necessary conditions for this system to flourish. It has been the preoccupation with the material benefits of our civilization — accompanied by an increasing belief in the irrelevance of its intangible foundations — that has contributed so much to the collapse of Western society. Because of the centrality of institutionalism in our lives, it can safely be said of our culture that whatever is nonmaterial has become immaterial.

What are the intangible qualities upon which a prolific society is based? They seem to include the importance of conditions such as individual liberty, the inviolability of private property, and the respect for contractual obligations: factors that must exist if self-interest-driven pursuits are to be energized. While no civilization has yet to embrace these values with consistency — the powerful sentiments of the Declaration of Independence, for instance, did not extend to slaves or American Indians — the creative well-being of any society can be measured by the degree of their influence. The collapse of the Soviet Union was occasioned by its continuing war against the self-directed nature of life.

Support for the conditions under which individuals can act in furtherance of their self-interests — however they may subjectively define them — has led to the flourishing of human activity not only in the production of material well-being, but in the arts, literature, philosophy, entrepreneurship, mathematics, spiritual inquiries, the sciences, invention, exploration, and other dimensions that fire the imaginations and energies of mankind. When mention is made of Western Civilization, do not the names and accomplishments of Shakespeare, Beethoven, Leonardo, Bacon, Edison, Michelangelo, Curie, Emerson, Milton, Bach, van Gogh, Pasteur, Einstein — to identify but a few — immediately come to mind? Do we not think of such persons as the creators of our civilization?

While the works of such people make up so much of the substance of our culture, their efforts depended upon conditions that encouraged — or at least did not discourage — their work. The marketplace system of voluntary transactions facilitated exchanges that allowed people to benefit exponentially from one another’s efforts. To the degree respect for the principles of property ownership prevailed, men and women enjoyed the means for acting freely within the world. The importance of liberty and the distrust of power led to efforts (e.g., constitutionalism) it was thought could restrain political systems. A focused interplay of the intellectual and spiritual dimensions of our minds provided a base from which to analyze and evaluate human action.

It has been this underlying social environment, wherein the self-interest motivations of individuals are able to express their autonomous and spontaneous energies, that represents the capital of a healthy civilization. The products of such a culture — as much as they contribute to human well-being — are of far lesser import than the respect for intrinsic principles that allow for the production of creative works. For the same reason that erosion of the capital structure of a firm can hasten its demise, sacrificing the fundamental values of a civilization can bring about its death.

It is difficult for rational minds to look at our present societal plight and see it as no more than a temporary downturn. We are close enough in time to the "Great Depression" that plagued America for more than a decade, that many of us imagine that, like this earlier period, there will be a full recovery to both our economic and other social systems. We might think of our current problems as akin to a bad case of the flu that our immune system will soon subdue. Perhaps a hangover from an evening of self-indulgence provides a more comforting metaphor.

Whatever analogy we choose, our current cultural decline runs to much deeper explanations than what confronted us some eight decades ago. The hangover of prior generations has advanced to cirrhosis of the liver, and rather than facing the need for a change in lifestyle, we look for an organ donor to absorb the costs of our profligacy. Our illness, in other words, is of terminal dimensions; our erstwhile immune system — made up of those personal and social attributes that sustain a healthy organism — has been depleted through decades of ignorant and unfocused dissipation.

Civilizations are created and sustained by individuals; they are destroyed by collectives. In our case, the institutionalized collective has found the most expedient course of action to be found in consuming the capital upon which Western Civilization has long thrived. Like a spendthrift heir to an estate — whose upbringing has provided him with little sense of responsible behavior — far too many of us have been eager to scuttle the values that have kept us relatively free and prosperous. Being willing to play the political game of accepting short-term benefits in exchange for long-term costs — particularly if such are to be borne by others — we have helped to destroy the capital of our basic social system.

The principles of the marketplace no longer discipline economic behavior as they once did. Firms that lack the creativity and competence to withstand the rigors of competition, now call upon the government to bestow gifts of billions of dollars upon them. Just as the state has long subsidized its failures (e.g., government schools, police protection, military defense), major businesses will have their failures subsidized. They are also able to take advantage of the state’s powers of eminent domain — a practice inconsistent with the principle of private property — to force others to incur the costs of building factories, shopping malls, apartment complexes, and sports stadia. Following the invention of the automobile, there have been close to two-thousand car manufacturers in America who succumbed to the disciplines of the marketplace and became defunct. There was a time when it was understood that the opportunity to succeed in the marketplace carried with it the risk of failure. Today, firms plead for government funding under the rationale that they are "too big to fail."

While the Constitution neither limited government power nor guaranteed individual liberty, there was a time when most people shared the illusion that it did — or, at least, that its language ought to be so interpreted. Today, the Constitution no longer has any definitive meaning: presidents can declare wars on their own initiative; legislation need not be completely drafted before being enacted into law; Bill of Rights requirements for public trials, habeas corpus, restraints on searches and seizures, are routinely violated whenever it suits government officials to do so. Administrations now openly admit to their authority to assassinate Americans whom they unilaterally select for extermination. The chief offense at the Nuremberg war-crimes trials involved the starting of a war; today, such an act is a cause for celebration among patriotic Americans. The Constitution neither protects individuals, nor empowers government: state power is now grounded in pure usurpation.

Truth-telling; respect for the obligations of contracts; stable currencies; and a willingness to overcome immediate time preferences — all of which are necessary for longer-term investments — are qualities in decline in our world. The lies that precipitated wars in Afghanistan and Iraq no longer trouble most Americans, who seem prepared to accept a new set of official falsehoods about Iran; courts have long been willing to rewrite — or refuse to enforce — contracts they deem "unfair" to one of the parties; while inflationary monetary policies encourage short-term time preferences among both investors and consumers.

Such phenomena reflect the dysfunctional and destructive attributes associated with organizational size. In his important book, The Breakdown of Nations, Leopold Kohr identified what he called "the size theory of social misery"; that "whenever something is wrong, something is too big." As Gabriel Kolko observed in The Triumph of Conservatism, large business organizations have a tendency to become too bureaucratic and rigidified to retain the resilience necessary to make adaptations to changes in their world. As I demonstrated in two of my books — Calculated Chaos and In Restraint of Trade — an institutionalizing imperative begins to dominate our thinking; we learn to identify ourselves with and attach ourselves to organizations that produce the values upon which our well-being depends. At this point, the organizations become transformed into institutions; they become "too large to fail."

What we fail to understand when we elevate the products of our actions above the free and creative processes that generated them, is how the vibrancy of our culture gets diminished. If we were to take our children or grandchildren to a taxidermist to have them forever preserved in the cuteness of their infancy, we would at once see that it is their life-sustaining energy we want to perpetuate, not some momentary form in which such dynamism finds expression. To relate such distinctions to current political behavior, the creative health of the American economy would be fostered by allowing Detroit auto manufacturers to go out of business, rather than having their insufficiencies subsidized by the state. Did the auto industry really suffer when the Brush, the Omaha, the Stanley Steamer, the Moon, the Maxwell, or the Eldredge Runabout failed to survive? Were such enterprises regarded as "too big to fail" and bailed out by the government? Certainly, the deadly virus of institutionalism had already infected that industry when, by the late 1940s, established firms were able to call upon the federal government to thwart the competition from Preston Tucker’s innovative car.

Historians such as Arnold Toynbee have warned us of the threats to a civilization arising from "a tendency towards standardization and uniformity." Carroll Quigley has emphasized the debilitating effects when a culture’s "instruments of expansion" become institutionalized as ends-in-themselves. Can we learn, from history, to see through the destructive nature of our attachments, and to focus our thinking upon fostering the endless processes of liberty which, alone, make for a creative society? Or, shall we continue mouthing our institution-serving catechisms that tell us how major industries are "too big to fail"; that state and local governments are "too big to fail"; or, that the American Empire is "too big to fail"? At what point do we begin to understand that the printing of money does not create wealth?

After the illusory nature of money no longer sustains even short-term political thinking, and the political establishment intensifies its perpetual war upon human beings, will we continue to allow our gullibility to be exploited? When we are then told that "Western Civilization is too big to fail," to whom will we look for a bailout? Having consumed the capital upon which our civilization was grounded, what printing presses, or military forces, or legislative enactments, will the state have at its disposal to restore what has been destroyed?

Butler Shaffer [send him e-mail] teaches at the Southwestern University School of Law. He is the author of the newly-released In Restraint of Trade: The Business Campaign Against Competition, 1918—1938 and of Calculated Chaos: Institutional Threats to Peace and Human Survival. His latest book is Boundaries of Order.

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