Thursday, April 01, 2010

Book Review: Tragedy and Hope by Carroll Quigley

Let me start this review of Tragedy and Hope by explaining how I am only two degrees of intellectual separation from Glenn Beck. (I figure: you're probably not going to read to the end of this anyway, so why string you along for any longer than the first sentence anyway?) Glenn Beck is a devotee of W. Cleon Skousen, whose very funny The Naked Capitalist (despite the name, it's funny only unintentionally) was a sort of mad Cliff's Notes version of Carroll Quigley's Tragedy and Hope. Therefore, because I rather enjoyed Tragedy and Hope, only the John Bircher-er W. Cleon Skousen separates me from Glenn Beck.

With that behind us, let's get started with a profound exploration of the most important issues of our age. Although Tragedy and Hope was written in 1966, so the light it has to shed on our future is faint (and probably energy inefficient), it does reveal a great deal about our present. By that, I do not mean anything regarding conspiracy theory. Tragedy and Hope does cover conspiracy theory (and by that, I mean conspiracy of the sort which is proved daily in courts of law during conspiracy trials, not that which in American English is a pejorative meant to elicit snickers from the enlightened orthodox at benighted heretics conspiracy theorists), but that did not interest me much. Quigley's description of networks of English and American Anglophile bankers and industrialists in the first half of the twentieth century may be accurate; but to me, largely uninteresting. I already believe that human beings have a tendency to organize together to achieve common interests, and that the most powerful human beings are likely to be a good deal more successful at such endeavors than the average Rotary club or machinists' union. But this, I would think, would be of interest to very few - aside from anarchist groups who might like to know the names (and addresses) of those comprising the networks of the powerful so as to bring about their downfall, accompanied by the spontaneous birth of an entirely new form of unorganized society that will somehow be immune from the predations of local power fetishists. Right.

But there are many aspects to Quigley's Tragedy and Hope - he does a fair amount of rambling in this 1300+ page book that he dictated to his wife (fancy that!) - and some are more worth the read than others. High on my list is Quigley's contention that so many of the Latin American wealthy are insufferable pricks because their culture was so influenced by the Arabs (p. 1115-1119). And that portion of his book which Americans have been conditioned to call "conspiracy theory" and ignore are actually fairly interesting. There is his naming of the New Republic as a Wall Street-financed outlet for left-wing steam (p. 938) - I always thought there was something intrinsically disordered about that magazine - and his description of intellectual buffoonery in the military being the cause of much suffering during World War I ("[The First World War] presents an extraordinary discrepancy between the facts of modern warfare and the ideas on military tactics which dominated the minds of men, especially the minds of military men"). And then there is his very frank and confident tone throughout: he may be a bit overconfident when painting the ebb and flow of thousands of years of human history in broad strokes (the first two chapters, "Western Civilization in its World Setting" and "Western Civilization to 1914"), but when revealing networks of the most powerful economic forces in society, his frank and confident tone strikes a pleasing note of: this is how it is, I think we should be open about it. Entirely absent from his exposition is the moralizing hysteria of the John Bircher-ers, hilariously screaming that global networks of powerful bankers are dragging us towards communism, or even any paranoid, low-self-confidence leftism moaning that everything that has ever happened was planned by someone evil, rich, well-connected - and omnipotent.

So I'll be done with Quigley's descriptions of how the world's most influential networks are those which comprise the world's wealthiest and most politically connected. On to the interesting stuff: the dismal science!

Quigley's 1966 perspective on economics has probably never been anywhere near as interesting as it is right now. While his theories about powerful Anglophile networks probably did cause some consternation back when he wrote them, his writings on matters economic must have seemed unremarkable. Yet today, in an age when we have reverted in many economic respects to the early 1930s, his 1966 perspective on economics is more trenchant than most everything that will be written this year.

Let me take a moment to clarify things: by economics, I do not want you to understand "economics", the witch doctory that passes for a science in universities throughout the English-speaking world (at least). It is widely known that economists are a peculiarly boring sort: intellectually, they produce nothing but masturbation with all the purpose and vigor of a sixteen-year-old Catholic schoolboy. They create theories out of outdated (yet to the layman impossibly complex) mathematics that not only have no relation to the real world, but when actually implemented in the real world they invariably fuck it up.

Rather, I mean real economics: that which hundreds of thousands of college students across the planet seek to learn, but mistakenly take "economics" classes instead. Economics: the understanding of how humans organize themselves to produce things. This is what Quigley excels at. His analysis bears an indelible imprint from his age, and from those who experienced the worldwide economic collapse caused by the implementation of neoclassical economic ideas - and learned from it. Absent from his analysis are prescriptions derived from mathematical models of fantasy realms. He instead looks around the real world (sans, egads, mathematical models!) and draws conclusions from those economic systems that worked; "worked" in the sense that they produced more things, employed more people, and provided a better material life for those within the system. (Here one can find a glaring shortcoming in Quigley's analysis: no conception of how one system's wealth can be generated through expropriation of another.)

At times Quigley even seems something like a capitalist Marx, sharing the latter's morality and desire for a better life for the world's people, but believing that it was his preferred form of capitalism rather than communism that could carry humanity forward to a better existence. And his preferred form of capitalism is what Glenn Beck would call socialism (or communism, or fascism, or sadomasochism, or whatever Beck is shouting these days). With good reason, Quigley believed that the financial concepts of "pure" capitalism did not describe inescapable realities, nor circumscribe the limitations of human economic organization. Why would he, given that the mid-twentieth century's greatest economic successes were those that spurned orthodox economics and chose to organize human and natural resources along what-were-then-unconventional lines?

For instance: war. In World War II, the most successful economies were those that ignored the bleating of financiers and their economic witch doctors (also known as "economists"). Nazi Germany's unorthodox economic policy, and that of the Soviet Union and the United States, proved to be the most effective. Quigley blames Britain's and France's attachment to the conventional economic wisdom of their day for their unimpressive performance in arming to match Germany. Even during World War I, Quigley has nothing but derision for those we today call The Masters of the Universe: "The outbreak of war in 1914 showed these financial capitalists at their worst, narrow in outlook, ignorant, and selfish, while proclaiming, as usual, their total devotion to the social good. They generally agreed that the war could not go on for more than six to ten months because of the "limited financial resources" of the belligerents (by which they meant gold reserves). This idea reveals the fundamental misunderstanding of the nature and role of money on the part of the very persons who were reputed to be experts on the subject. Wars, as events have proved since, are not fought with gold or even with money, but by the proper organization of real resources."

One could say much the same about any other economic endeavor besides war. For instance: industrialization, as events have proved since Quigley's time, is not achieved by following orthodox economic prescriptions, but by the proper organization of real resources. Just ask South Korea, or China, or Japan, or the USSR.

But back to the narrative: Quigley wrote this book during the age of what he called the "pluralistic economy" and what others have called "monopoly capitalism" (not for Quigley - his definition of monopoly capitalism excludes the extent of state intervention that began in the U.S. during World War II): a capitalist economic system where large corporations dominate, and these are controlled by managers and technocrats who are recruited on a meritocratic basis. Corporate power is checked in turn by organized labor, financial interests, farmers, consumers, and most powerful of all, government. Sound like the economic system we are in presently? Nope.

What's the difference? The Great Depression dealt a serious blow to the power of financiers, and World War II proved that the contemporary financial orthodoxy was bunk. This hastened “the eclipse of the bankers, who [were] largely reduced in status from the masters to the servants of the economic system. This [was] brought about by [a] new concern with real economic factors instead of with financial counters, as previously." However, after Quigley's death there was a resurgence of financial capitalism, and financiers ascended once again to the commanding heights of the economy. This passage might sound more familiar: "The growth of financial capitalism made possible a centralization of world economic control and a use of this power for the direct benefit of financiers and the indirect injury of all other economic groups." Yet this is what Quigley wrote about the world economy circa the first few decades of the twentieth century – funny how history repeats itself.

Thankfully, not all of the stupidities of that period of history have reappeared. Gone, now, are the gold standards around the world which restricted money supply to a level far less than productive potential would allow, leading to a crushing deflationary depression that roiled the global economy. The Great Depression would ensnare all of the countries in the center of the global economy, but countries escaped it depending on how quickly they abandoned economic orthodoxy.

Quigley explains that it took World War II and its vast, successful deployment of economic and human resources to convince France, Britain, and the United States “that economic stagnation and underemployment of resources were not necessary and could be avoided if the financial system were subordinated to the economic system.” In Germany, however, “this was not necessary, since the Nazis had already made this discovery in the 1930's." The Nazi government had reduced “financial considerations to a point where they played no role in economic or political decisions. When decisions were made, on other grounds, money was provided, through completely unorthodox methods of finance, to carry them out. In France and England, on the other hand, orthodox financial principles, especially balanced budgets and stable exchange rates, played a major role in all decisions and was one of the chief reasons why these countries did not mobilize” in time to stop the Nazi war machine from laying waste to much of the continent.

Turns out, Quigley was being a bit premature in saying that this lesson had been learned. Or, if he was correct, it has certainly since been unlearned. Today, a dominant, if not the predominant narrative among Unitedstatesian intellectuals is that FDR's New Deal did not cure the Great Depression, but World War II did. This core of the narrative is correct. However, this narrative does not explain the cure to have been due to massive government spending leading to the employment of unused resources, but rather due to some inherent but unexplained aspect of war spending not shared by other forms of government spending.

Quigley's narrative is much more convincing. He explains that the New Deal did not make a clean break from the economic orthodoxy of prior decades which had caused the Great Depression. Roosevelt's “administration treated the symptoms rather than the causes of the depression and, while spending unorthodoxly to treat these symptoms, did so with money borrowed from the banks in the accepted fashion. The New Deal allowed the bankers to create the money, borrowed it from the banks, and spent it. This meant that the New Deal ran up the national debt to the credit of the banks, and spent money in such a limited fashion that no drastic re-employment of idle resources was possible.” Roosevelt's failure was to recognize that orthodox theories about the nature of money and its role in economic organization had been made outdated by the exponential rise in productive potential brought to society by the development of science and technology. The contemporary orthodoxy, with its reification of financial constructs and the attribution to them of powers they did not possess and laws they did not follow, had been helpful in earlier, simpler eras. But the system it advocated could not keep the money supply up with the increased ability of the economy to produce more wealth.

This orthodoxy was dealt another crippling blow after the 1937 rollback of New Deal spending sent the U.S. economy into a sharp tailspin. The idea behind the New Deal was that the economy was fundamentally sound, but just need a bit of a jump start in the form of limited government spending to replenish temporarily-depleted demand. But after the “jump start” spending stopped, and the economy froze in cardiac arrest, the Roosevelt administration “had to resume its treatment of symptoms but now without hope that the spending program could ever be ended, a hopeless prospect since the administration lacked the knowledge of how to reform the system or even how to escape from borrowing bank credit with its mounting public debt, and the administration lacked the courage to adopt the really large-scale spending necessary to give full employment of resources. The administration was saved from this impasse by the need for the rearmament program followed by the war.”

Quigley's conception of capitalist economic reality is worth discussing and quoting at length. He views the basic cycle of a capitalist economy as follows: “(a) purchasing power creates demand for goods; (b) demand for goods creates confidence in the minds of investors; (c) confidence creates new investment; and (d) new investment creates purchasing power, which then creates demand, and so on.” Conservatives tend to focus on point (c) in this cycle, and complain that high taxes on the wealthy undermine confidence and the incentive to invest, while liberals focus on point (a) and the need for the purchasing power of the poor to be increased through wealth transfers from the rich. Both views, Quigley argues, are misconceived to the extent that they are blind to the fact that they are points within a cycle, and are not the beginning or core of any economic problem. The problem is with the cycle in toto, because it is prone to falling into a “deflationary gap”, which Quigley defines as the result ofpurchasing power [being] inadequate because of an excess of savings over investment.” Why does purchasing power become inadequate? Quigley explains that “the savings of a community are largely made by the richer persons in it, and savings increase out of all proportion as incomes rise. On the other hand, the incomes of the poor class are devoted primarily to expenditures for consumption. Thus, if it is correct that there is an increasing disparity in the distribution of the national income of a country, there will be a tendency for savings to rise and consumer purchasing power to decline relative to each other. If this is so, there will be an increasing reluctance on the part of the controllers of savings to invest their savings in new capital equipment, since the existing decline of purchasing power will make it increasingly difficult to sell the products of the existing capital equipment and highly unlikely that the products of any new capital equipment could be sold more easily.”
An increasing disparity in the distribution of national income is certainly what the United States and other countries have faced over the past decades, and the end result of this phenomenon has been, in general outlines, what Quigley described. The wild card has been the the financier's reconquest of the commanding heights of the economy, the financialization of the U.S. economy: the diversion of capital from productive investment to financial products. Income distribution in the United States has been concentrating at the top of pyramid for the past few decades, and with a lack of profitable investment options in the real economy, that concentrated wealth sought fantastic growth in the financial sector, which is nearly to say, in fantasy. Once the fantasy was realized for what it was, fictitious wealth evaporated and the economy went into shock.

Yet today in the United States, the Great Recession is being met with the same tepid half-measures – caused by a refusal to break from the contemporary economic orthodoxy – as the Great Depression was. After just a meager economic stimulus that featured no massive programs of direct job creation, economic witch doctors are already warning of overspending, unpayable debt and possible government default. These concepts do not exist in Quigley's narrative, because they had already been fatally discredited by the Great Depression and the thoroughly unorthodox economic strategies that had successfully cured it.

Perhaps the existence of the Soviet Union made it easier to see certain economic truths then than it is now. According to Quigley's account in Tragedy and Hope, good economics is not scrupulousness in adhering to the dictates of this or that economic theory, but rather ensuring that real resources are used productively, and not idled or wasted – however that is accomplished. The discrepancy between the U.S. and Soviet economies brought into contrast the fact that “the meaning of the word 'costs' and the limitations on ability to mobilize economic resources are entirely different in our system from the Soviet system and most others. In the Soviet economy 'costs' are real costs, measurable in terms of the allotment of scarce resources that could have been used otherwise. In the American system 'costs' are fiscal or financial limitations that have little connection with the use of scarce resources or even with the use of available (and therefore not scarce) resources. The reason for this is that in the American economy, the fiscal or financial limit is lower than the limit established by real resources and, therefore, since the financial limits act as the restraint on our economic activities, we do not get to the point where our activities encounter the restraints imposed by the limits of real resources (except rarely and briefly in terms of technically trained manpower, which is our most limited resource).” In our current economic situation, this is our tragedy. Financial phantasms we take for real economic limits cripple our productive potential, keeping sustainable agriculture, infrastructure and energy systems from being built, while the strange pair of unemployment and overwork ravage families and destroy individuals.

The primary economic problem we face today is ideological. We lack economic ideas and intellectual tools that appropriately describe modern economic reality and potential. If Quigley were alive today, he would likely summarize our current predicament like this: “Briefly, the international and the domestic economic systems [have] developed to a point where the customary methods of thought and procedure in regard to them [are now] obsolete." Let us hope it does not take the successes of another Nazi state to move us past these stifling economic anachronisms.

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