…along with a lot of other things.

Back in November, at Future of Freedom, Jacob Hornberger wrote: “America’s welfare state way of life is based on the notion that the federal government is needed to force people to be good and caring to others.” To which I responded: 

Um, no. America’s welfare state way of life is based on the notion that, since the capitalist state redistributes massive amounts of income and wealth upwards from producers to rentiers as profit, rent, and interest, compensatory state action — namely, returning a tiny fraction of that income to the neediest — is necessary to preventing capitalism from collapsing from social disorder or insufficient aggregate demand.

The welfare state did not come about as the result of any idealistic “notion” on the part of do-gooders and bleeding-hearts.

Not one to let minor issues like historical facts stand in his way, Hornberger took another swipe at it:

I thought that the abolition of poverty was the very reason for America’s conversion to a welfare state in the first place. Isn’t that why progressives enacted a federal income tax in 1913? Isn’t this why they enacted the Federal Reserve System in that same year? Isn’t that what Franklin Roosevelt’s New Deal program in the 1930s was all about? Isn’t that what Lyndon Johnson’s War on Poverty and Great Society programs were all about?

Well, it appears you thought wrong, Jacob. The answer to all your questions is “no.” The motivation behind all those policies was to stabilize the capitalist system and guarantee a rate of profit which was sustainable on a long-term basis. Gabriel Kolko summarized the agenda in The Triumph of Conservatism: 

Political capitalism is the utilization of political outlets to attain conditions of stability, predictability, and security — to attain rationalization — in the economy. Stability is the elimination of internecine competition and erratic fluctuations in the economy. Predictability is the ability, on the basis of politically stabilized and secured means, to plan future economic action on the basis of fairly calculable expectations. By security I mean protection from the political attacks latent in any formally democratic political structure. I do not give to rationalization its frequent definition as the improvement of efficiency, output, or internal organization of a company; I mean by the term, rather, the organization of the economy and the larger political and social spheres in a manner that will allow corporations to function in a predictable and secure environment permitting reasonable profits over the long run.

This should hardly come as a surprise, considering the class base of the Progressive movement. It was, to a large extent, a movement of the managerial classes, and its ideology at core was to apply the same logic to society as a whole that industrial engineers applied to the production process.

As I wrote in my last rejoinder: “At every step of the way, the primary architects of the 20th century mixed economy were hard-headed capitalists. There is enough historiography on this theme by James Weinstein, Gabriel Kolko, G. William Domhoff, and Frances Piven to keep Hornberger busy for many months.”  

But he doesn’t stop there. After a digression into goldbuggery, in which he blames the Federal Reserve for making people poor by “debasing our currency,” he trots out the right-libertarian talking point that people’s standard of living rises

through the rise of productive capital. Workers with better tools and equipment produce more. That increase in productivity leads to higher revenues and higher wage rates. 

How does such productive capital come into existence? Through savings. People save part of their income and place it in banks to earn interest on it. The banks lend the money to employers, who use it to purchase better tools and equipment for their workers. Thus, savings leads to higher productivity and, thus, to higher standards of living…. 

This claim has been a centerpiece of capitalist apologetics since the “wage-fund” doctrine of the classical political economists. In the late 19th century it was largely supplanted by arguments from the increased “marginal productivity of labor” made possible by capital investment. But in practice the latter argument did much of the same work, and was associated with quite similar polemical rhetoric. Twentieth century capitalist ideologues like Hazlitt stated that wages were limited by the marginal productivity of labor, in much the same way that their predecessors presented them as limited by the size of the wage fund advanced by capitalists. And since the primary source of increased marginal productivity of labor was capital accumulation, both wage-fund theory and marginal productivity theory translated in practice to a prescription for maximizing the profits available for capitalists to reinvest.

“Giving rich people more money is the best way to help poor people” is always a winner on the Right. Hornberger himself is hardly new to the argument that the poor benefit when the rich are “free to accumulate unlimited amounts of wealth.”

But in any case, no, more capital accumulation will not lead to more job creation or reduction of poverty. It doesn’t take a genius to understand that rich people will not invest more money in expanding production and putting more people to work when existing production is idle for want of sufficient aggregate demand. Just look at what rich people have actually done with their tax cuts over the past twenty years — they’ve either dumped money into FIRE (Finance, Insurance, and Real Estate) Economy speculative bubbles, or into private equity and other asset management firms whose primary business model is to buy up productive enterprises, load them with debt, and strip their assets.

That’s the very reason those “hard-headed capitalists” I mentioned above created the 20th century mixed economy. Jacob should listen to them. 

Hornberger really shouldn’t be singled out for blame, though, in repeating such a widespread argument. The ubiquity of such arguments is just what happens, when corporate-funded right-libertarian think tanks spend 75 years huffing each other’s farts instead of studying any real economics or observing the real world. But unfortunately, as the saying goes, a lie is halfway round the world before the truth gets its boots on. That’s especially true when the lie is funded by the Charles G. Koch Charitable Foundation.