What the Democrats and the Nation Have Lost
Economies are among the most complex structures that we humans create. When fully developed, the movements within an economy can seem instantaneous, mysterious and sweeping. We move in cycles of growth, recession and depression like a huge school of sardines. Supply, demand, competition, consumer sentiment, essential or inessential commodities, interest rates, money supply, exchange rates, climate, infrastructure, government and each individual participant interact to create economic movements. Underlying this complexity, however, are three simple elements that create an economy. The first and most basic is human work.
The father of capitalism, Adam Smith begins his The Wealth of Nations with three short paragraphs that are the basis for the thousand pages that follow. Human work acts on nature to create, make and extract things and to offer services. Only human work adds value to what already is. Human work done in the present and as it has accumulated over time is the indispensable element in every economy. The next step in the process is that humans either directly barter their goods and services with others or they exchange their work for a currency. Currencies are the universally accepted preferred form of exchange and they can be anything. Shells, salt, beads, precious metals or paper have each served as currencies within specific economies. Currencies, it must be recognized, represent work and add a major level of simplification to exchanges but they also add a major complication. Only a government can create and defend a currency. People within the economy must recognize a currency both as a symbol of the value of their work and of the work of others. Gold is not a currency but a symbol of the human work it can purchase or sell. Gold’s value is only the value of human work it can control.
The second major element in a healthy economy is that the people who work consume in proportion to their contribution. The labor of slaves contributes human work to an economy but they are not free to consume. Not only are slaves and wage slaves excluded from the economy but their reduction to mere survival needs deprives the economy of benefit their participation. Their work may produce goods and services of great value, but because they never get to spend the wealth that they create markets are deprived of benefit of their spending. This is the precisely the root of problem we face today in the global income disparity between the top 1% and the 99%.
The third major influence on an economy recognizes the primary way in which the value of work is distributed among the participants in the economy. There are members of economies that do not perform the work of directly expanding economic wealth. Religious leaders, teachers, salespersons, owners, government, police, fire personnel, managers, bankers are a few examples of persons whose survival depends on other’s work. Without other’s this class could not continue their derivative participation in the economy. Nobility and slave owners exemplified this group to Adam Smith. Of course, no one would question the benefits that many of these actors can bring to an economy. The key to Smith was the ratio between the income retained by those who did the actual work and those who either facilitated other’s work or those who were merely entitled to fruits of other’s labor.
It was clear to Smith that the quality and quantity of the work produced was the basis of all wealth. Without those who farm, extract energy from the land, manufacture and build infrastructure, there could be no bankers, stock brokers, sales personnel, government, police, etc. The workers in a bee hive or a human economy are the source of survival of its members and all the wealth that an economy generates. Workers are usually the largest group within an economy and usually the least appreciated. The economy will generate its greatest output if those that do its primary work are healthy, well-motivated, and if the benefits of their work are fairly distributed so that this vast majority can spend.
Capital is stored work. Work, exchanged for a currency, can be invested, saved and stored in infrastructure or banks so that others can use this capital to further expand their economy. Work can also be stored as knowledge. If economies are to expand, however, work performed in the present must be justly compensated in the present.
The study of economics has yielded two major competing systems to distribute the costs and benefits derived from an economy — free market capitalism and communism. Pure free market capitalists believe that the natural dynamics working within an economy will always move it toward a natural and healthy balance. Communists attempt to control every aspects of the economy to achieve a balance they have pre-determined. Communism has proved a total failure in its attempts to achieve growth or control supply and demand. Both have failed. Capitalism has fared better, but both systems are susceptible to the destructive effects of power to redirect the distribution of the wealth that work creates. The Communist’s power over all aspects of the economy invites rampant corruption. In Capitalist economies power also corrupts. If those controlling the distribution of the wealth are the wealthy, this almost invariably insures that a small percentage of the population will retain the bulk of the value produced by the work done within the economy.
Each income can only be derived from its economy. Again, economies are created by the work done by all the people within it. Within the US capitalism, both the Democrats and the Republicans have failed to insure a just distribution of the wealth created by American workers. The failure of the Democrats has been their unwillingness to confront those with the power who control the distribution of wealth. The Republicans produce the same result, but, in contrast, their failure is the result of a flawed faith that just capital flows will naturally occur if unregulated. Both have failed to recognize and employ Smith’s three fundamentals of economics.
Progressive taxation to cover the costs of the economy is only method available to maintain free markets, minimize regulation, and achieve a just distribution of the wealth created by human work. The configuration of a just tax has been established among socially conscious capitalistic democracies. Persons or families who earn a wage designated as a “minimum” needed for survival contribute to the economy both their work and spending. They should pay no further income tax. Persons who derive enough combined income from all sources to save should be taxed in proportion to the savable amount. In theory, this tax can be as high as 99%, for example, on the second billion in income. The use of foundational work that makes the economy possible is the only source of personal income. Taxing only savable personal income encourages spending without requiring it. It encourages better pay and benefits for workers, more competition, spending on development, infrastructure, and efficiency. Tax margins and percentage should be computed as multiples of the minimum wage thus encouraging societies to increase the factor determining tax brackets.
The Democrats failed to connect the top 1%’s wealth and methods of accumulating it with the destruction of the middle class. As long as a small portion of the population can escape just taxation of the personal income generated by all the work performed within the economy, then the entire economy must suffer. A government of, the people, by the people and for the people only exists only to provide and maintain the infrastructure necessary for the economy to flourish. It cannot allow the few to accumulate the wealth created by all. The people cannot allow government to serve and maintain itself.
What the Democrats and the Nation Have Lost