The Glue Binding Democracy and a Free Economy Has Melted

June 17, 2024

And that's how democracy and a free economy die.

An astute reader asked me to clarify the difference between individual sacrifice and shared sacrifice in the context of the Common Good, which as he rightly noted, dictatorships use as the justification for oppressive enforcement of a regime that benefits the few at the expense of the many.

In a democracy with a free economy, the Common Good is the responsibility of the citizenry, not a dictatorship. In the current zeitgeist, the Invisible Hand of free markets is understood as a magical force that automatically generates the Common Good out of the churn of everyone aiming to get rich or die trying.

In other words, the Common Good is somebody else's responsibility: there's no need for shared sacrifices, the economy and society take care of themselves as we all get rich or die trying.

This isn't how a society actually works. Somebody has to mind the store of social capital that enables us to focus our energy on individual sacrifices made on our own behalf.

The single-minded pursuit of greed does not magically organize the economy or society to serve everyone's interests equally. As Adam Smith explained, capitalism and the social order both require a moral foundation, which in a free society takes the form of civic virtue: it is the responsibility of every citizen who is able to contribute to the social capital that serves us all to do so not in response to an oppressive state but of their own free will.

The Founding Fathers understood this and feared the decay of civic virtue as a threat to democracy. This was one reason why many of those active in the early decades of the American Experiment favored restricting voting to the class of citizenry who had the biggest stake in maintaining the nation's stock of social capital: the landed / commercial elites.

Commentators such as Christopher Lasch have described the steady erosion of civic virtue and the nation's stock of social capital since the 1970s. Lasch and fellow critics across the ideological spectrum understood that civic virtue is the glue that binds democracy and a free economy: once civic virtue and the responsibility to contribute to the nation's social capital are gone, both democracy and the free economy enter terminal decline.

Social capital, civic virtue and the Common Good are not easily defined or measured. They cannot be reduced to numbers like GDP. This confuses ideological purists, left and right, as social capital, civic virtue and the Common Good cannot be distilled down to simplistic ideological formulations.

This is why Lasch's work cannot be pinned down as "left" or "right": ideologues on both ends of the spectrum find references in his work they agree with. He was addressing issues larger than political or economic ideologies.

The glue of America's social order--civic virtue--has melted away, and few have even noticed. The concept of voluntary attention to the common good--an attention that requires shared sacrifice--has been jettisoned as unnecessary: all we need to do is focus on getting rich by any means available.

This has led to a complete breakdown of the moral foundations Adam Smith identified, and a breakdown of the nation's shared social capital. If our sole responsibility has shrunken down to getting rich by any means available, then quite naturally we bribe politicians, crush competition to establish cartels and monopolies, degrade the quality of our goods and services to increase profits and addict our customers to rake in steady profits.

Consider the difference between Old Money and private equity. Private equity slavishly worships at the altar of mobile capital and increasing shareholder value. Private equity assembles mobile capital from the ends of the Earth--Dubai, London, Hong Kong--and swoops in when it detects an asymmetry between the potential market value and the current valuation of an asset.

Unlike Old Money, which is anchored in a place embedded in a specific culture and social order, private equity has no sense of place or responsibility for contributing to a locale's social capital. Private equity swoops in, buys the asset, sells off pieces to the highest bidders, reorganizes what's left, slaps a quick coat of paint on it and then cashes out via a public offering of equity or debt or a private sale.

The damage done to the local economy, populace and its stock of social capital by this stripmining is of no concern to private equity: get in, maximize profits / gains and then get out, and start circling the planet for the next "opportunity to increase shareholder value." (Hence the term "vulture capital.")

Old Money, rooted in a place and its history, does care about the local economy, populace and its stock of social capital. Yes, Old Money makes money with its money; that is the nature of capital. But Old Money understands that stripmining assets with zero concern for the wreckage left behind does not support either democracy or a free economy that offers a somewhat level playing field to all participants.

This is why it's wise to relocate to a place where Old Money still resides and still maintains an active role in maintaining the social capital of their home base. Living in places dominated by the culture and values of private equity is voluntary servitude in a rotting ship without a compass or leadership.

Old Money keeps an eye on the stock of social capital, and voluntarily engages in using its wealth and influence to preserve or enhance it. Mobile capital flits around the globe, happy to fund a university building here and there to enhance their personal "brand." They don't actually care about any place; that's someone else's responsibility.

And that's how democracy and a free economy die. The glue of civic virtue, of doing the hard part of maintaining the stock of social capital and devoting some care to the common good in this place and in this time--those are somebody else's responsibility.

Me, I'm busy: my underlings located an asset just begging to be dismembered, offshored, stripmined, and we're going to make a killing. Then I'm off to my flat in London, then to my getaway in the South Pacific, and then to a quick meeting in Shanghai. I'm busy making a killing.

Yes, a killing. What died is democracy and a functional economy of equal opportunity. Once the glue melts away, things fall apart. Welcome to what's left of the 2020s and the 2030s.

Podcasts: Crisis, Sacrifice and the New Economy, with Emerson Fersch (1 hour)

Financial Nihilism, Inflation & The Collapsing American Dream

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