Updated: Aug 20, 2019
"Elizabeth Warren and Others Seek Corporate ‘reforms’ That Resemble Medieval Royal Charters"
Gramm and Solon (2019) claim that a number on the Left Isle are enemies of the economic enlightenment, which started back in the late-1600s with the evolution of common law of the people; property rights in land were made ever more possible for individuals, not just the monarchy and their friends; creation of money as the main form of wealth; and individuals now having access to both land and capital, encouraged, especially using money capital, to create even more of it, maximize especially the money wealth as it came to be viewed. Capitalism was born. This kind of wealth producing economic order would arise from the liberty and freedom of individuals to seek their self-interest in making more wealth, in maximizing profits. As Gramm and Solon (2019) say it:
Parliament ... established that its laws would govern business—laws created in a process of open deliberation, not by the corrosive influences and rampant cronyism that were pervasive in the medieval marketplace. ...Enlightenment philosophers recognized that the crown, guild, church and village sometimes acted as rent-seekers stripping away the rewards for work, thrift and innovation, and in the process inhibiting productive effort and progress. The Enlightenment established the principle that labor and capital are private property and not communal assets subject to involuntary sharing, and thus unleashed the explosion of knowledge and production that drives human flourishing to this day.
With this preamble, and clearly speaking from the perspective of the Right Isle, they proceed to claim that Senator Warren and others on the Left Isle, reflecting Warrens "Accountable Capitalism Act:"
...would harness large American corporations by imposing new federal charters under which businesses would swear medieval fealty to “stakeholders”: “the general public,” “the workforce,” “the community,” “the environment,” and “societal factors.” Ms. Warren would also mandate that employees hold 40% of board seats at very large corporations. In most cases these stakeholders would not have to “stake” any of their toil or treasure, but, as they did in the Dark Ages, they would claim communal rights to share the fruits that flow from the sweat of the worker’s brow, the saver’s thrift and the investor’s venture....As if to announce step two of the plan, the British Labour Party has now surpassed board-seat meddling and proposes giving employees a 10% ownership stake in major British corporations. And back in the U.S., Sens. Chuck Schumer and Bernie Sanders want to block corporate stock buybacks and possibly halt dividend payments to investors—including retirement funds—unless companies pay additional benefits to workers as well.
Well, maybe. A "not either Right or Left" , but rather a "joint Right&Left" look at this matter can be accomplished through the lens of Metaeconomics. We need to especially go back and reflect on the actual nature of the Economic Enlightenment, and not the distorted version presented by Gramm and Solon (2019). In particular, the most important figure in all of this was Adam Smith, who wrote two books, not just the one Gramm and Solon implicitly acknowledge.
It is true that Smith (1776) was about all the things Gramm and Solon see essential to the Economic Enlightenment, and to produce a kind of capitalism, which often just naturally flows into Bad Capitalism, as Gramm and Solon apparently want; they have that part right. They miss the point, however, that for the Economic Enlightenment to produce Good Capitalism we need to acknowledege Smith (1759). His "other book" was all about the Sentiments, Empathy driving these new capitalists to join in Sympathy with shared cause, in effect joining in a shared Other(still in the own-interest, internalized to own-self)-interest. This new capitalist, truly acting with liberty and freedom, was to freely act on the Impartial Spectator, the conscience within own-self, and temper, otherwise restrain the tendency to take self-interest too far.
While there may be an extreme few (just like there are also extreme elements on the Right Isle) that want the kind of controls Gramm and Solon (2019) claim they are after, it appears most on the Left Isle are not at all against true Economic Enlightenment; they are simply reminding everyone that Ego based Self-interest only (Smith, 1776) needs to be tempered by Empathy based Other(shared with others, but still within the Own-self)-interest (Smith, 1759). Good capitalism is about Making wealth to satisfy both the Self&Other-interest, tempering the natural, primal tendency to mainly Take wealth in the Self-interest. It seems concerns over the “stakeholders”: “the general public,” “the workforce,” “the community,” “the environment,” and “societal factors" is simply another way of saying that Smith (1754) had a point.
So, yes, labor perhaps produces a larger share than the wages they receive: Wages have not grown, the middle-class is not doing well. Capital deserves a reasonable share, just like does labor and management, but, perhaps the stock market has too much influence on what managers, boards of directors, and CEOs actually do. Is extraordinary, extreme CEO compensation... never has it been so high relatively speaking in the history of the Enlightenment... a part of Good Capitalism? Perhaps not. Amazon, run by the richest CEO on this Spaceship Earth, just paid absolutely $0 in Federal Income Taxes (Leonhardt, 2019), not sharing in any of the costs of maintaining roads, airports that haul Amazon products, and wages, labor is paid very modestly. Just because it is legal, does this make it right? There is a Moral Dimension, and an Ethic at work, here. These kinds of events are likely one part of the reason the Left Isle is stirred to trying to bring about true Economic Enlightenment, like Smith (1759, 1776) envisioned, although this is an empirical question that needs to be asked.
Gramm and Solon (2009) allude to the cronyism between business and the monarchy prior to the Enlightenment. Ironically, it is back, with a substantial amount of cronyism between business and the government, with wealth in business and power in politics the goal, with small business, consumers and the taxpayer paying the price, a case made by Munger and Villareal-Diaz (2019). This is especially apparent in the pharmaceutical industry right now, with smoke-and-mirror patents on "new" drugs, price gouging, with both business and government being complicit. Bank bailouts after 2008 gave further empirical evidence of such cronyism. Giving credence to only Smith (1776), like Gramm and Solon (2019) appear to do, while ignoring Smith (1759), is not the way to accurately characterize what the Left Isle is generally concerned about, with Cronyism a big part of that concern.
If we are to be true to the Economic Enlightenment that Smith (1759 1776) and other thinkers of that day had in mind, the Right Isle needs to engage and help to move in that direction, as well. Smith (1759) would be quite unhappy with the nature of capitalism we are seeing in many quarters today, just as are many on the Left Isle; the Right Isle, who often claim to have the moral high ground on the economy, need to join in finding the actual, empathy based, moral community that will work the best. Adam Smith would be pleased if we had a joint, integrated Right&Left-isle, both Isles focused on building a Good Capitalism.
Gramm, Phil and Solon, Michael. Enemies of the Economic Enlightenment. Wall Street Journal (April 15, 2019).
Leonhardt, David. "Their Tax Rate is 0%." New York Times, April 15, 2019.
Mazzucato, Mariana. The Value of Everything: Making and Taking in the Global Economy. New York: Hachett Book Group, 2018.
Munger, Michael C. and Villarreal-Diaz, Mario. "The Road to Crony Capitalism." Independent Review: A Journal of Political Economy no. 23,3 (2019):331-344.
Smith, A. The Theory of Moral Sentiments, edited by D.D. and A.L. Macfie Raphael. Indianapolis, Indiana: Liberty Fund, Inc., 1759/1790 .
Smith, A. An Inquiry into the Nature and Causes of the Wealth of Nations
edited by E. Cannan. New York: Random House, 1776/1789/1937.