Economic Theory and Democracy

1. Economic Theory and Democracy From Laissez-Faire to Reaganomics

2. Laissez Faire Economics • The rise of corporations: • Blackstone: • Religion • Learning • Both of the above: “consolidated and united into a corporation they and their successors are then considered as one person in law : as one person, they have one will, which is collected from the sense of the majority of the individuals : this one will may establish rules and orders for the regulation of the whole. • Commerce: “corporations, by the civil law, seem to have been created by the mere act, and voluntary association of their members…but, as with us in England, the king's consent is absolutely necessary to the erection of any corporation, either impliedly or expressly given.

3. Laissez-Faire Economics • Thus: • the corporation was invented early in the colonial era as a grant of privilege extended by the Crown to a group of investors • The corporation limited the liability of investors to the amount of their investment--a right not held by ordinary citizens • Corporate charters set out the specific rights and obligations of the individual corporation, including the amount to be paid to the Crown in return for the privilege granted • The corporation was a LEGAL INVENTION--a socio-economic mechanism for concentrating and deploying human and economic power

4. Laissez-Faire Economics • This began to change in the mid-19th century. Corporations began abusing their charters to become conglomerates and trusts, amassing great private fortunes at public expense in the creation of factory systems and company towns. As a result, their political clout grew. • Corporations set wages, hours, production processes and machine speeds. They kept blacklists of labor organizers and workers who spoke up for their rights. Essentially, corporate officials Maintained unfair bargaining leverage over their workers. • Industrialists and bankers: • Hired private armies to keep workers in line, • Bought newspapers and bribed state legislators. • Campaigned to replace existing chartering laws with general incorporation that set up simpler administrative procedures, claiming this would be more efficient. • Attempted to end legislative authority over charters.

5. Laissez-Faire Economics Corporations availed themselves of the “Due Process” Clause in the 14th Amendment to the American Constitution in order to elevate themselves to the status of a citizen in American politics

6. The Progressive Era (1901-1917) City Reforms

7. The “Progressive Era” State Reforms

8. The Progressive Era Federal Reforms

9. “The New Deal” • The Emergency Banking Act/Federal Deposit Insurance Corporation • Civil Works Administration • Public Works Association • Works Progress Administration • Tennessee Valley Authority • Civilian Conservation Corps • National Recovery Act (price fixes by labor unions)

10. The “New Deal” • Keynesian Economics • Regulation: the Administrative procedure Act: • Congressional code writing (the CFR) • Outreach to community (interest groups) • Congressional hearings, oversight

11. The Post WWII Era • The Bretton-Woods Conference: • G.A.T.T. • The IMF • The World Bank • The WTO • Globalized Free markets: • The Washington Consensus • The “Chicago Boys” • Milton Freidman • Modernization • “Shock Therapy” • The “race to the bottom” • Democracy vs. Free markets: Chili as a case study • Blowback: culture vs. markets