Socialism, Capitalism, and the Liberal Republic

Individual and Society

In 1994, Jeff Bezos left a comfortable and, presumably, lucrative job at a hedge fund to venture into the then embryonic arena of e-commerce.  Using a combination of his own savings and some volunteered by a few close family members, he founded an online bookstore that he called “Amazon”.

It is hard for us to remember (or even to imagine) now, 25 years on, how big a risk he and those other initial investors were taking.  The “dot com boom” had not yet happened – Amazon was, in fact, one of the technological disruptors at the source of that wave.  At the time, the internet itself may have already existed for nearly 20 years, as a small and specialized research network, but the World-Wide Web – the standards and software that allow the general public to easily browse for information and conduct business on that network – was only five years old and limited mostly to text, with only crude graphics.  Among the small fraction of Americans who were yet active online, most still got internet access through dial-up modems and telephone lines.  And online commerce, of any sort, barely existed.  As Bezos, himself, is reported to have said in a 2001 interview[3],

At the time we launched this business it wasn’t even crystal clear that the technology would improve fast enough that ordinary people — non-computer people — would even want to bother with this technology.

But bother with it they did.  The rest is, of course, history: Bezos is now one of the richest men in the world based largely on his holdings in Amazon.com.

There is a certain complexity to such wealth.  Jeff Bezos’ net worth is based not on earnings accrued over the years from Amazon’s profits but on the value of his Amazon stock – which reflects less what Amazon has earned to date than what other investors see as its potential for earning in the future.  Hence his is, in some senses, “paper” wealth, not tangible wealth, the value of which rises and falls on a regular basis with the stock market and could be depleted, or even wiped out, in a matter of hours or days by a general financial crash or by some catastrophe in Amazon’s market or operations.  Amazon stock is traded publicly so he could, in theory, sell it to turn it into cash.  But the value of a company’s shares is only as robust as the trust people place in them.  A company founder selling too much or too quickly would likely be interpreted by the market as a loss of confidence in the company’s future and trigger a contagion of selling by others, a contagion that would drive down the stock’s value and do severe financial damage to the company and its shareholders.  In other words, Bezos may “have” many billions, but he can’t easily spend most of them.

That doesn’t mean his wealth is illusory or ephemeral or useless – far from it.  He has built a company that generates enormous revenue and has great potential for making considerable profit well into the future.  He has paid out many billions of dollars in salary and benefits to many hundreds of thousands of employees over several decades, generated many billions of dollars in sales for his suppliers, and satisfied many billions of dollars in consumer need and desire for his customers.  He has created immense value for an immense number of other people; and the value of what he has built and holds for himself is real.

But his wealth isn’t anything like the image most people have in their heads, of Scrooge McDuck and Richie Rich and money vaults crammed with piles of gold coins and stacks of thousand-dollar bills.  It doesn’t represent a hoard of lucre extracted from others in the past; rather, it represents the potential for new wealth to be created for others in the future.  As a result, neither assessing his actual wealth nor figuring out how to tax it away for public use is as simple or as easy as it might seem to the average aggrieved citizen or populist politician who holds that to be a righteous cause and a desirable policy.

Still, let’s do a thought experiment.  Imagine that Jeff Bezos, as the creator and driving force behind both the original idea of Amazon.com and its expansion from simple bookstore to commercial behemoth, had instead simply agreed to collect one cent for every item sold through Amazon’s website. That is, imagine his reward had been in the form of cash, generated from day-to-day sales, directly into his bank account.  If a typical item ordered through Amazon were worth, say, $10, then that one cent would represent 1/10 of 1% of the purchase price; for a $100 item, that would be a mere 1/10 of 1/10 of 1%.

Would anyone dispute that the man who conceived the very idea of Amazon, took the financial and professional risk to create it out of the void, and devoted 25 years of his life to growing it into what it has become deserves that penny?  Would anyone argue that he might not deserve even more?  Is there anyone with any sense of proportion who would say that penny represents “greed”, excessive or otherwise?  Is there anyone with a realistic notion of “fairness” who would call that penny “exploitation”, either of Amazon’s customers or of its employees?  I would hope not.

So, what would such an agreement mean?  In the early years of Amazon, it would not have meant much.  In its first year and a half or so of operation, Amazon sold about half a million dollars in books[4]; if you assume the average price was $10, that would have amounted to about 50,000 books and netted Bezos something like $500.  After 2½ years of operation, and the addition of $8M from outside investors to enable a significant expansion, Amazon had grown to something like $15M in aggregate sales and a hypothetical $15,000 to Bezos’ pocket.  Not exactly billionaire status.  Far, even, from millionaire status.  In fact, barely a living and well below minimum wage had that been his only compensation.

But what about now?  It’s hard to find a solid report of how many items Amazon currently sells in a year, but here are a couple of points from which we might extrapolate:

    • Amazon sales on Prime Day last year were reported to be about 100 million items. If we assume sales for that enormous promotional event represented 100x the sales for a typical day, then annual sales would be on the order of 460 million items.
    • Amazon’s total reported revenues for 2018 were just below $233B. If we guessed an average item ordered through Amazon cost $50, that would represent sales of about 4.6B items.

So, splitting the difference, we might estimate that customers happily buy something like 2 billion items per year from Amazon.  And we might presume that each of them does so fully aware of, and unbothered by, the fact that Jeff Bezos might get a penny from the transaction.  That would put Bezos’ annual take at something in the range of $20M – probably $200M in total over the course of Amazon’s 25-year history and, perhaps, more like $1B or $2B over its next 25 years.  That is enough to place him well over the line into ranks of the “super rich” that so offend people like Elizabeth Warren and Bernie Sanders and Alexandria Ocasio-Cortez.  According to them, his penny per item, aggregated across billions of purchases, would represent a clear moral affront.

Which suggests an obvious question: How is it that an act everyone would consider moral and fair and inoffensive on its face suddenly becomes immoral and unfair and offensive – even obscene – merely because it is repeated, voluntarily and without regrets, a few billion times a year by many millions of satisfied customers?

That they, indeed, believe it to be immoral and unfair and offensive is the inevitable conclusion we must draw from the opprobrium being heaped on “the rich” by the current crop of self-declared Progressive Socialists and Progressive not-quite Socialists, in the Congress and among the would-be Democratic Presidential nominees.  How wealth was accumulated – and how much wealth was created for others in the process – is irrelevant to them.  The mere existence of extreme wealth is, by their accounting, a gross injustice, if not in absolute terms then at the least by contrast, by the fact that millions of people willingly pay those pennies to someone, like Jeff Bezos, who provides them a service they value but not to everyone else who does not.

That those Progressives, indeed, view it as immoral and unfair and offensive — a genuine injustice – is their rationale for demanding that Mr. Bezos, and others like him, relinquish “ill-gotten” riches that they neither “need” nor “deserve”.  That they view it as a genuine injustice is the rationale behind Alexandria Ocasio-Cortez’ declaration that, even if billionaires may not be, themselves, immoral, a system which permits them to exist, which permits accretion of such disproportionate wealth, is fundamentally “wrong”.

For what else but an injustice can justify condemning “the rich”, in toto, using the rhetoric of guilt and moral liability?  What else but an injustice can justify the use of force to wrest their wealth away from them?

And what can transform a prima facie personal justice into a de facto communal injustice but a claim of Social grievance and an assertion of transcendent Social authority over individual moral autonomy?

 

Every form of government asserts a right to control certain troubling forms of individual conduct and to claim certain duties of citizenship in the name of the collective Good.  And every culture avows certain preferred norms of behavior and imposes certain expectations about how individuals ought to contribute to overall societal well-being.  Neither of those is inherently Socialistic.  Individual people willingly band together to protect themselves against a capricious and often hostile world, forming families which grow into tribes which, in turn, evolve cultures and eventually formalize their relationships into governments.  And, to function with minimal friction between individuals, those social groupings evolve strategies for encouraging and enforcing cooperation.  Both the moral strictures of ethics and the practical restraints of cultural mores and traditions are governors on the most egocentric aspects of human nature, intended to inhibit behavior which harms others or disrupts the functioning of society.  The purpose of government is as a backstop to those ethical and cultural restraints: coercive laws and punishments apply precisely when and because those merely persuasive cultural rules and sanctions have failed to elicit a level of civil cooperation adequate to the needs of social comity.

America’s founding document, the Declaration of Independence, asserts that the fundamental and justifying reason for governments to exist is to “secure these rights” of individuals to live their lives free of coercion and to pursue their own well-being by and on their own terms.  There is a seeming contradiction built into that proposition, for government is, by definition, itself coercive.  The purpose of government is then, one might suppose, to coerce people into living lives free of coercion.

That is not, of course, what the Founding Fathers meant.  Coercion is not a contrivance of government; it is the state of nature.  Governments exist because the Jungle exists, because there are human predators who will use their superior might to prey upon their weaker titular brethren.  And not merely lone predators or even merely packs of them.  There are other whole Societies beyond our own which are unarguably hostile to us.  We create government to protect us from internal villains and from external enemies.  And we consent to granting it some limited coercive authority – and to granting it some limited demands on our allegiance and some limited debts of duty, both material and corporeal – because that is what is necessary, in practice, to providing such protection.

But we also create governments to protect us from mobs, from throngs of our fellow citizens who would use the superior might of an aroused majority to enforce its will upon or exact its penance from a weaker minority (or individual) that has run afoul of its sense of justice or of entitlement.  That is the intent behind much of the detail in the American Constitution: to erect barriers between the majority and its desires when those desires stray beyond the bounds of civilized conduct and into the realm of the Jungle, into the realm of predation upon some disfavored minority or disfavored individuals.  And, recognizing that power corrupts and that those who would govern are also human beings prone to human foibles, many other details in the Constitution are intended to erect similar barriers between the desires of the government, itself, or of the governors who speak for it, and those who are governed.

Notwithstanding the general, and rather insubstantial, admonition in the preamble to the Constitution that the government should – among the many things it was established to do – “promote” the general welfare, both the “checks and balances” built into the Constitution and the statement of principle in the Declaration of Independence communicate clearly that the role intended for the American government was, to a significant degree, to constrain the power of a majority, and of a powerful minority that wields the resources of the state, to impose its preferences upon everyone else.

Socialists like Bernie Sanders and Alexandria Ocasio-Cortez, and Progressives like Elizabeth Warren, chafe against many of those constraints, calling them “anti-democratic” – and they are right about that.  They are anti-democratic.  That is, rather, the point.  If a mob roams through the streets of the town demanding money from anyone it encounters and threatening violence on those who won’t comply, everyone understands that is both immoral and unacceptable.  Why, then, should it become not only moral and acceptable, but laudable, if the same mob decides, within the safe confines of the voting booth, to outsource those tasks of threat and confiscation to the police powers of the State, under the rubric of “taxation” and in the name of “paying your fair share”?

For, once you assert that there is an unambiguously discernible Social Good and that Society has an absolute moral priority over the individual in pursuit of that Good, what limits apply?  If the Social Good is defined by whatever the majority decides, what prevents the mob from simply taking whatever it wants, whenever it wants?  If the government asserts the authority to demand whatever it deems necessary to the “public interest” from whomever it deems to have “more than they need or deserve” or to be “enemies of society”, what prevents it from demanding too much, or, indeed, demanding it all?

Democratic Socialists say that what the majority wants, the majority (and, therefore, the rest of us) should get; Progressives say that we should all get whatever “progress” they are promoting, backed by a democratic consensus when they can achieve it and by an assertion of moral condescension and “scientific” assurance – and to hell with consensus – when they can’t.  Both demand that we grant the State the moral authority of Society to enforce their visions upon those who disagree, and both speak eloquently about how far they should be allowed to go with that Societal authority in the name of the “Social Good” or “progress”, or in the name of “fairness” or “justice”.  They never talk at all about where and when, having been granted such expansive authority, they should, or might, deign to stop.

 

The constitutionally-constrained republican government and capitalistic economic culture bequeathed to us by the Founders was not, contrary to the beliefs both of the most ardent (and admiring) Libertarians and of the most ardent (and critical) Progressives and Socialists, intended as an individualist altar to ego.  Nor was it intended to thwart the will of the majority to accomplish any public purpose, at all.  The Constitution does, after all, however feebly, describe as one of the government’s purposes “…to promote the general welfare…” and it authorizes the Congress to allocate money and to pass “necessary and proper” laws to achieve that end.  It does, after all, include specific provisions allowing for things like the taking of property by eminent domain for the public use and the “regulation” of interstate commerce.  It does, after all, authorize the creation of some communal services and goods like a postal service and public roads.  Although it was not a specifically enumerated power of the federal government, the Founders universally advocated that things like schools be publicly provided by the governments of the various states and towns; and they tolerated a higher degree of government authority at those local levels – presumed both to exercise a less expansive scope and to be closer and more responsive to the people they governed – than they nominally would have tolerated in Washington[5].  The first few Presidencies and Congresses after the ratification of the Constitution – peopled by the Founders and other men of their generation – pursued a great many public-spirited policies that stretched the newly-created restraints on the Federal government’s authority.  And 2½ centuries of subsequent Presidential and legislative action, and jurisprudential acquiescence, have dramatically – if not yet fatally – expanded the purview of what public purposes governments at all levels may, indeed, pursue.

But America’s republican and capitalistic framework was, at the least, intended to remind us that limits and boundaries matter.  It was intended to remind us that individuals, even “rich” and “intolerant” ones, are not merely instruments of some communal Social aspiration but are self-justified beings with their own moral purposes, moral dignity, and moral autonomy.  And it was intended to remind us that the preponderance of human Social objectives are, and generally ought to be, pursued, negotiated, and consummated within the civic sphere, not within the political one, and on a scale that is localized and adaptable rather than universal and, therefore, relatively inflexible.

The Founders believed in both Social Responsibility and Civil Obligation.  They simply presumed – for good reason, at the time they lived – that those were duties possessed of and willingly acknowledged by citizens in a moral civil society, safely and prudently left largely unencumbered by the manipulation and compulsion of political dominion.

In a prosperous and heterogeneous society like ours it is unconscionable that there are people whose lives are ruled by economic desperation and despair or by prejudice and bigotry.  We should – we must – find ways to ease their burdens.  But the word I chose – “unconscionable” – was precise.  It is not a matter of justice and injustice, of innocence and malefaction, of absolution and blame, but of conscience.  It is not enough to force us to comply with what is someone else has deemed to be required.  We need to want to do what is right.  And it is ultimately broad, robust, and concordant cultural and social standards, consistently, resolutely, and justly (and persuasively) applied – not condescension, political edicts, and police powers – that will change hearts.

Socialism is an attitude as much as it is a policy.  The key philosophical distinction between what is and is not “Socialistic” lies in the distinction between treating the Social Good as a communally-specified and compulsory moral obligation, or as an individually-assessed and aspirational cultural ideal.  The key rhetorical distinction between what is and is not “Socialistic” lies in the distinction between reproaching individuals for their depravity and decadence, or inspiring them to express their virtue and decency.  And the key practical distinction between what is and is not “Socialistic” lies in the distinction between imposing that compulsion upon individuals through a governmental threat of force – and, ultimately, of violence – or encouraging that aspiration from individuals through socially-administered approbation and disapprobation – with, perhaps, some constructive but modestly designed and humbly applied governmental prodding to help things along.

Next: “Nominal” Capitalism…

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