POP culture

Premises Of Post-Objectivism


Copyright Bryan Register 2001
All Rights Reserved

The goal of this paper is twofold. The first goal is to develop a sketch of a libertarian approach to ideology. Ideology, as I see it, exists in a context of class warfare, state power, and hegemonic struggles for control. I develop a libertarian approach to these questions, largely by way of engaging with remarks by Marx and Engels on these questions - Marxism has a set of strikingly sophisticated analytical devices which I hope to appropriate, even while I reject certain key moments of Marxist economic analysis. A political philosophy's understanding of classes and related phenomena will largely determine its theory of ideology. But such a theory should generate specific empirical predictions about the content of the rhetorical acts which inculcate the ideology of the dominant class. Thus the second goal is to look at some rhetorical texts and see whether the predictions of libertarianism are borne out. My samples involve critiques of the rise of so-called 'junk bonds' in finance in the 80's. The reason for choosing these texts will become evident. For reasons of length, several important lines of argument are developed in footnotes.

Marx writes that, "In so far as millions of families live under economic conditions of existence that divide their mode of life, their interests[,] and their culture from those of the other classes, and put them in hostile contact with the latter, they form a class." (Marx in Tucker 1972, 608) A class is constituted, then, by economic conditions that divide it from other classes with which it is in hostile contact, and that lead it to be different in mode of life, interests, and culture from other classes. Elsewhere, Marx had suggested that
Economic conditions first transformed the mass of the people of the country into workers. The combination of capital has created for this mass a common situation, common interests. This mass is thus already a class as against capital, but not yet for itself.... An oppressed class is the vital condition for every society founded on the antagonism of classes. (Marx in Tucker 1972, 218)

The economic relations that divide classes, then, have something to do with the combination of capital (in the sense of means of production). The situation and interests of the mass, or the class against capital (in the sense of the owners of the means of production), is determined by their relation to the means of production. Likewise, one expects, for the situation and interests of the capitalist class.

How does one class exploit another by way of economic relations? Here is a brief list, by Engels, of the essential features of capitalist relations of production:

Transformation of industry, at first by means of simple co-operation and manufacture. Concentration of the means of production, hitherto scattered, into great workshops. As a consequence, their transformation from individual to social means of production - a transformation which does not, on the whole, affect the form of exchange. The old [feudal] forms of appropriation remain in force. The capitalist appears. In his capacity as owner of the means of production, he also appropriates the products and turns them into commodities. Production has become a social act. Exchange and appropriation continue to be individual acts, the acts of individuals. The social product is appropriated by the individual capitalist. Fundamental contradiction... (Engels in Tucker 1972, 716)

Here is how it seems to work. Under feudalism, production and exchange were both individual: the individual tenant farmer worked the land, and likewise individual farmers, merchants, or lords exchanged goods (sometimes by way of appropriation). Under capitalism, due to technological developments, production has become social while exchange remains individual. Because workers exchange their labor for pay, a fundamental distortion is introduced into the distribution of wealth: workers socially produce all of the value in the economy, but they individually exchange some of it away. Thus capitalist relations of production give rise to two classes: the socially producing class, and the class to which this class exchanges some of the value which they produce. The former class is the proletariat, and the latter the bourgeoisie or capitalist class.

For Marx, then, capitalist relations of production constitute the owners and workers of capital as opposed groups playing a zero-sum game: any value gained by the owners is of necessity taken from the workers, because the owners do not participate in the social process of production and hence make no productive contribution to the social product (the aggregate wealth of the community). This oppositional relation constitutes workers and owners of capital as different in interests, as well as mode of life and culture. The relations of production become one of Marx's essential analytic tools in coming to understand the nature of capitalist political economy and hence the exploitative social relations to which it gives rise.

The libertarian approach to the theory of class which I will present here is modeled on Marx's but seeks to avoid certain key errors which he makes. A core error of Marx's account is his failure to place the individual business concern within its economic context. It is because of this failure that Engels's explanation would continue, moving on to list essential features of the late stages of capitalism like this:

Partial recognition of the social character of the productive forces forced upon the capitalists themselves. Taking over of the great institutions for production and communication, first by joint-stock companies, later on by trusts, then by the state. The bourgeoisie demonstrated to be a superfluous class. All its social functions are now performed by salaried employees. (Engels in Tucker 1972, 717)
Engels does not understand the relationship of the owner of capital to the market within which she operates, and hence has failed to correctly grasp the relationship between worker and owner of capital. Ironically, this is because he has failed to grasp the social character of the productive forces.<1> Here is a very simplified version of what he has failed to recognize.

The individual business concern produces goods of some kind which are sold on a market. The owner of that concern must design the concern to maximize her profit. She does this by arranging to produce goods for which there is a relatively high demand relative to supply, and for which cost is low relative to expected income. However, she cannot arrange things in this way without knowing the social relations of supply and demand, and the expected costs and income to be expended and derived from a given arrangement of the productive forces. This information exists in the form of prices: current prices of the good to be produced, as well as the capital and labor required to produce those goods. Without prices, the owner of an individual business concern could make no decisions at all; no investment decision could be any more rational than any other.

If we were to, through some form of social action, eliminate the distinction between Marx's classes, such that the owners of the business concern are identical with those who work at it, the problem to be solved would not disappear (nor need it be exacerbated). The owners of a worker-owned business concern would have as their goal (ceteris paribus, of course - homo economicus is a myth) the maximization of their wealth, which would be derived in the form of a portion of the profits gained by their business concern. They would thus benefit from the social information carried by prices, just as the bourgeois owner of the business would have benefited.

However, prices can exist only under social conditions of exchange. Only when agents are willing to exchange goods or services with one another is there a price that they are willing to pay for those goods or services which they desire. But if there is no price without exchange, and no exchange without a market, then there can no rational economic decision-making without a market. Engels is wrong to say that the function of the bourgeoisie could be taken over by salaried state employees. It could be taken over by workers who retained the social difference between firms, so that prices could be established on an open market, but it could not be taken over by a single agent (construed as a single person or organization, such as the state) and continue to function.

So the existence of a market is crucial to rational economic decision-making, because economic decision-making is typically decision-making in a social context, and crucial information about this social context is carried in the form of prices. But this implies that there must be persons who attend to the market and are empowered to direct capital in those ways most likely to produce a profit. It is quite possible for this agent to be the workers of a firm, organized for mutual advantage in the marketplace. But there are reasons why this arrangement may not be most efficient. Different persons have different levels of skill at understanding market signals,<2> and it is often most efficient that those who have the necessary skill and inclination focus their efforts in this area, even as others focus their efforts elsewhere, often as workers in a business concern owned by one who has the necessary training to direct capital to achieve a profit. Owners and workers each benefit from this arrangement: owners of capital have workers to produce the goods for which the owners have realized there is substantial social demand, while workers' efforts are rendered more efficient and more remunerative by their participation in a profitable concern. The owners are performing a valuable social service and their salaries are not stolen from the workers. Indeed, the crucial labor performed by the owners of capital make possible the rational direction of the business concern and hence create the opportunity of the worker to engage in social production just as the crucial labor performed by the workers make possible the business concern and hence create the opportunity of the owner to engage in rational direction according to signals of social supply and demand. The division of labor here achieved is no more sinister than any other and does not give rise to a division between classes.

Obviously, there can be conflicts of interest between owners and workers of capital; for this reason, libertarian social theory recognizes that workers must be empowered to form unions and strike and that there must be some third party capable of mediating between the two. (These conditions are not met if the 'third party' is the state acting on behalf of the owners, and the form which mediation takes is violence directed against workers.) But it is not plain that such conflicts are necessary or will occur systematically in an unregulated marketplace.<3>

Despite the failure of Marxism to grasp the social nature of production (and hence to grasp the relation between the owner and worker of capital), there are important insights to be gained into the nature of classes from Marx's approach. For Marx, a class is a relational group which acquires its identity as a class by its oppositional relations with other classes. These oppositional relations are essentially economic in nature. These relations, furthermore, are key to explaining social and economic phenomena.

Libertarian social theory seeks to understand contemporary social relations in terms of class. But Marx's theory of class makes sense only if we have already accepted his mistaken theory of the worker-capitalist relation. Libertarian analysts, however, have discovered that there is a cleavage within contemporary society which has much the same effects which Marx thought that the cleavage between worker and capitalist had. Often the very same economic events (such as, crucially, the business cycle) which Marx would have explained with reference to the divide between workers and capitalists can be explained with reference to the divide between the majority of the populace and the owners of banks when they are organized either as a cartel or under the administration of a central reserve bank. (Grinder and Hagel 1977, 64) Grinder and Hagel argue that, as capitalism advances and acquires greater internal complexity,

The bank... emerges as an ultimate decision-maker... since it is directly involved in the allocation of loans to specific industrial and commercial ventures. Its decision-making is explicitly oriented towards production activity and it is this form of decision-making which actively determines the parameters within which the economic system will evolve. Active planning control is thus delegated [by depositors] to the bank as a financial intermediary who exercises it subject to the constraint that the depositor may eventually withdraw his funds.

In the absence of politically imposed barriers to entry, the unhampered competitive market process will act to ensure that financial institutions, just as any other market participants, will be constrained by the prospect of increasing competitive activity if they fail to perform as efficiently as possible. In addition, financial institutions are clearly precluded from establishing a monopolistic control over the commodity with which they deal since money necessarily pervades the entire economy. (Grinder and Hagel 1977, 63)

The argument is this. Some individual depositors wish to defer consumption in return for greater consumption at a later time. They wish to gain the maximum future consumption, that is, the maximum rate of interest. But in general higher-interest investments are also higher-risk investments. The depositor is willing to forego the maximum possible interest in return for a preferable ratio of risk to interest; that is, she is willing to lower her expected return if she can get a higher return with less risk than she would have done otherwise. The bank is the institution which she employs to gain a relatively high return on her investment, and she pays the bank for taking on the risk of her investment by lowering the return which she requires. Moreover, the depositor typically is not an expert on financial matters and thus has greater confidence in the investment decisions made by a bank than she would make herself; alternately, she may simply not wish to spend time acquiring the knowledge of the market which is necessary for wise investment. Thus, the bank becomes the agency which is primary economic decision-maker, in lieu of the individual depositor/investor.<4>

Because banks make their money by way of lending money, it will be to their benefit to loan more money rather than less. Thus banks will be tempted to maintain ever-smaller fractions of their depositors' deposits on hand for repayment should those depositors wish to withdraw their funds; that is, they will be tempted to pursue inflationary policies. However, those banks with a lesser fractional reserve will have more difficulty should many of their investments fail and/or should many of their depositors seek to withdraw their money simultaneously. At worst, the less fractional reserve a bank has on hand the more likely it is to fail and thus potentially destroy its depositors' savings. Since depositors wish to avoid such risks, they will tend to gravitate toward banks with relatively high fractional reserves (or even full reserves). Thus there is a market pressure toward higher reserves.

However, it is possible to eliminate this pressure. This can occur if all banks systematically maintain lower reserves. But this cannot be arranged for on the unfettered market, because cartelization on the market creates a prisoner's dilemma: each bank will benefit from defecting from the cartel; knowing that each other bank faces the same temptation to defect, each bank is likely to defect. But that an inflationary banking cartel cannot be created in the unfettered market does not imply that an inflationary banking cartel cannot be created. All that is necessary is fetters:

Banks have historically failed to achieve their inflationary objectives on a free market and, as a result, these financial institutions have ultimately turned to the political means embodied in the coercive state apparatus in order to implement their cartelizing and inflationary monetary policies....

State intervention serves to reinforce considerably the inherent importance of the banking sector both within the capital market itself and within the economic system as a whole.... Most importantly..., cartelization of banking activity permits banks to inflate their asset base systematically. The creation of assets made possible by these measures to a great extent frees the banking institutions from the constraints imposed by the passive form of ultimate decision-making exercised by their depositors. (Grinder and Hagel 1977, 64-5)

Banks can be cartelized only by way of state intervention. If the state creates a bank that backs all individual banks, then each bank may pursue inflationary policies and reduce fractional reserves without fear of failure. Individual banks are aware that the central bank will pay its depositors should its investments fail, and thus are unmotivated to preserve depositor confidence. To put the point another way, depositor confidence has been placed, not in the bank, but in the state.<5>

For libertarian social theorists like Grinder and Hagel, the basic division between classes comes about because of the structurally distortive effects of state action on the economy. State intervention in the banking sector is both spectacularly destructive to the economy<6> and tends to move a certain group of well-placed bankers from a position of responsibility to depositors and adherence to market discipline into a position of economic class dominance.

Grinder and Hagel categorize different groups within the dominant class. They aren't quite clear on the nature of the actual ruling class that they distinguish from other groups, but it flows from the logic of their argument to this point that it would stem from the original group of bankers who lobbied for cartelization. I'll call this the state-banking nexus. Additional constituents of the class of beneficiaries of state action include the state bureaucracy by which the ruling class rules, upper echelons of the military and their commercial suppliers (which two groups together constitute the military-industrial complex), the political party elite who are funded largely by the ruling class (and who deliver up the faE7ade of functioning democracy), court intellectuals who take grants from the ruling class and provide them with scholarly justification, and owners of quasi-private corporations which rely on the state for a large proportion of their funding and profit.

Grinder and Hagel suggest that organized labor and recipients of welfare are also members of the dominant class, but these suggestions are harder to accept. With respect to organized labor, it might be more to the point to differentiate between labor organizers, who might be able to deliver union support to key members of the ruling class in return for timely political action to support the organizers' bids for power within labor, and workers themselves. The latter might not show any benefits. With respect to recipients of welfare, such persons are often victims not only of structural dislocations in the economy caused by the economic machinations of the ruling class, but of barriers to market entry maintained by those who wish not to face competition. Welfare is the means by which resentment against these effects is kept under control; welfare recipients ought not be looked at as members of a dominant class, but as enemies of the dominant class whose silence is purchased with state handouts.<7>

But even if we count out workers and the unemployed, Grinder and Hagel show the relations of power between most of society and a group composed of powerful figures within the state-banking nexus, the military, the political parties, the academy, the managers of quasi-private corporations, and perhaps certain elements of the labor movement.

These groups are not homogeneous, and one group - the state-banking nexus - appears dominant within the system. Thus we should introduce the notion of hegemony. Gramsci explains:
What we can do, for the moment, is to fix two major superstructural "levels": the one that can be called "civil society", that is the ensemble of organisms commonly called "private", and that of "political society" or "the State". These two levels correspond on the one hand to the function of "hegemony" which the dominant group exercises throughout society and on the other hand to that of "direct domination" or command exercised through the State and "juridical" government. The functions in question are precisely organizational and connective. The intellectuals are the dominant group's "deputies" exercising the subaltern functions of social hegemony and political government. (Gramsci 1971, 12)
For Gramsci, class society is not characterized by a dualistic opposition between two classes engaged in a zero-sum game. Rather, there are many 'subaltern' groups who sustain the hegemony of the ruling class but are not strictly members of it. Thus Grinder and Hagel's model becomes clearer if looked at through the lens of Gramsci's notion of hegemony. The true ruling class is the state-banking nexus. But this class must maintain its rule by way of groups other than itself. To do this, it must attract the aid of these other groups; it must invite them within hegemony in order to make them serve hegemony. Politicians, academics, and others are eager to prop up relations of power in return for a cut of the ruling class's profits and other benefits. Thus they constitute hegemony in two ways: first, they are most of its members (outside the state-banking nexus, the true hegemonic class), and second, they sustain it and help determine its nature.

Gramsci's final sentence ("The intellectuals are the dominant group's 'deputies' exercising the subaltern functions of social hegemony and political government.") might seem a little odd or be liable to misinterpretation. Gramsci is not using the word 'intellectual' the way it is ordinarily used.<8> For Gramsci, the mark of an intellectual is not having a certain kind of, paradigmatically academic, job, but rather performing tasks which involve a relatively high ratio of mental effort to physical effort:

When one distinguishes between intellectuals and non-intellectuals, one is referring in reality only to the immediate social function of the professional category of the intellectuals, that is, one has in mind the direction in which their specific professional activity is weighted, whether towards intellectual elaboration or towards muscular-nervous effort. This means that, although one can speak of intellectuals, one cannot speak of non-intellectuals, because non-intellectuals do not exist.... There is no human activity from which every form of intellectual participation can be excluded... (ibid., 9)
Libertarian social theory wishes to suggest that certain groups, including especially the military-industrial complex, the political parties, the academy, the managers of quasi-private corporations, and perhaps certain members of the labor movement, are the subaltern hegemonic classes, while the true dominant class is the state-banking nexus. By Gramsci's criterion of intellectuality, all of these groups are clearly intellectuals. So there is a neat fit here.

Gramsci's subaltern hegemonic classes sustain domination in two contexts: in the state, by way of coercion, and in civil society by way of hegemony. It is important to grasp the relationships between these two contexts of activity. For libertarian social theory, the ruling class is constituted as the ruling class specifically by its relations to the means of coercion, the state. No group of people that does not employ - typically state - coercion to advance its economic interests can qualify as a dominant class.<9> Thus there is a means-ends asymmetry between hegemonic and coercive ways of maintaining relations of domination. For libertarianism, coercion, typically by way of the state, is the relation of domination which is the target of critique. Hegemony, which is the way those intellectuals who serve the dominant class work in civil society to preserve relations of power, is only hegemony in relation to the coercive acts of the state which it serves to sustain and/or legitimate.

However, at least in ostensively democratic societies, members of the state itself are often not the primary beneficiaries of statism. Rather, the ruling class exists within civil society and employs the state as a means to distort the workings of civil society, especially the market. In the present case, the state-banking nexus employs the state as a means to its distortive end. But the maintenance of state power requires that the populace acquiesce in state actions. This requires the development of hegemony in civil society. A libertarian analysis of the state-banking nexus, then, must recognize three moments of the relations of power: a hegemonic moment in which statism is preserved by way of various machinations, a statist moment in which certain illegitimate economic behavior within civil society is coercively enforced, and what I'll call the 'terminal moment' in which the illegitimate economic behavior is actually performed and wealth unfairly accrued by unproductive elites. For libertarians, the second moment is what makes the terminal moment possible, and it's the fact that statism is a moment in the wealth-gathering activities of the state-banking nexus that constitute it as a ruling class. The first moment, hegemony in civil society, is a mere means and is objectionable only insofar as it sustains relations of statist dominance. But because the economic manipulations are performed within civil society, this means that civil society can become a location of struggle against the state-banking nexus in two ways: first, in a practical way, in which economic competitors to the state-banking nexus attempt to redirect wealth in ways more appropriate to the actual conditions obtaining in the market (it's to prevent this that the state-banking nexus co-opted the state in the first place), and second, in a persuasive way, in which intellectuals attempt to delegitimate the statist regime.

A similar quasi-symmetry shows up in Gramsci:

The superstructures of civil society are like the trench-systems of modern warfare. In war it would sometimes happen that a fierce artillery attack seemed to have destroyed the enemy's entire defensive system, whereas in fact it had only destroyed the outer perimeter (ibid., 235)

...it should be remarked that the general notion of State includes elements which need to be referred back to the notion of civil society (in the sense that one might say that State 3D political society + civil society, in other words hegemony protected by the armour of coercion. (ibid., 263)

In the former passage, the state is central and civil society a protective periphery; this is the earlier liberal perspective in which the dominant class is constituted of members of the state and the workings of civil society are a mere instrument by which it secures its state power. But in the latter passage, hegemony is central and coercion a protective periphery; since hegemony is the means by which dominance is secured in civil society, and coercion the means by which dominance is secured in the state, this implies that civil society is central and the state a protective periphery. I take it that this is more like the classical Marxist perspective, in which the dominant class is constituted by its relation to the means of production and the state is a mere instrument by which it secures its economic power. The binocular perspective derived from the synthesis of these two views, however, is eminently libertarian. The libertarian analysis of contemporary society will be similar to Marx's in that it regards state action as caused by the desires of certain actors within civil society, but it will be like the classical liberal approach in that it regards classes within civil society as essentially constituted by differential relations to state power. Thus neither the class divisions between the state-banking nexus and others within civil society, nor the distortive actions of the state, are mere epiphenoma of one another: they relate, dialectically, in a mutually supporting manner.

How, then, do the subaltern classes sustain, through hegemony in civil society, the dominance of the state-banking nexus? Different subaltern groups do so in different ways at different times, but one key way is by way of ideology. In general, the state-banking nexus has taken partial control over a state apparatus which was not designed to serve it and which is legitimated, in the eyes of the populace, not with respect to how well it serves the state-banking nexus but rather with respect to how well it serves the populace. Thus, if the state-banking nexus wishes to sustain its relations of domination to the rest of the populace, it must resort to mystification and distortion: it must make the illegitimate appear legitimate. At this point, libertarian social theory should introduce the concept of ideology.

I want to look at ideology from two points of view. The first involves the neutral conception of ideology as introduced by Higgs:
By ideology I shall mean a somewhat coherent, rather comprehensive belief system about social relations.... Ideology has four distinct aspects: cognitive, affective, programmatic, and solidary. It structures a person's perceptions and predetermines his understandings of the social world, expressing these cognitions in characteristic symbols; it tells him whether what he "sees" is good or bad or morally neutral; and it propels him to act in accordance with his cognitions and evaluations as a committed member of a political group in pursuit of definite social objectives. (Higgs 1987, 37)
Higgs argues that ideology in this neutral sense is important for historical explanations. History is at least partly driven by forms of mass or group action, in which many people coordinate action to achieve some goal. But whenever there is group action, there is a prisoner's dilemma: no one participant in the action will have a significant effect on the success of the action, but the success of the action requires that there be many participants. Each participant will thus be tempted to defect and become a free rider. But since this does not occur, something other than an individual's own expected effect on the outcome of the group action must be at least partially motivating each member of the group (unless all group action relies on mass irrationality, which is obviously not the case). Higgs suggests that an additional motivation for participants in group action is a sense of identification with the cause which satisfies a basic desire for solidarity with appropriate others. Which others are appropriate for a person is decided by her on the basis of her ideology. Thus ideology in Higgs's non-pejorative sense helps explains group action.

Ideology in this sense is surely necessary for the imposition of relations of domination or for their removal or replacement with other relations of domination. Persons will participate in the imposition of such relations because they experience some kind of solidarity - including, I imagine, class consciousness - with the class which they wish to see made dominant. Persons will participate in the removal of such relations because they experience some kind of solidarity with similarly inclined anti-establishmentarians.

However, Higgs downplays an essential feature of ideologies (even ideologies construed non-pejoratively). He notes that

...all [ideologies] contain unverified and - far more significant - unverifiable elements, including their fundamental commitments to certain values. In relation to these elements, which are neither true nor false, the allegation of distortion has little or no meaning. Ideologies have sources in the guts as well as the mind, and neither logic nor empirical observation can resolve visceral disagreements. (Higgs 1987, 38)

For Higgs, the essential feature of ideologies is that they are value-systems.<10> Were we to present identical phenomena to persons with different ideologies, they would come away with different evaluations. But this is typically not the case, because we often cannot present identical phenomena to persons with different ideologies. Ideologies are not only value-systems, they also involve claims of fact. For this reason, different evaluations of 'identical' phenomena are not to be explained simply with reference to different values, but largely with reference to different beliefs about matters of fact.

An example may clarify. Consider the Gulf War. As explained in the popular press of our semi-fascist semi-liberal welfare-warfare state, the Gulf War was in fact a response by western democracies to violent aggression by a dictator. Since the United States and its allies have a moral obligation to preserve democratic institutions, such as those of Kuwait, whenever possible, the Gulf War was clearly appropriate and moral. This is especially so in light of the negligible loss of civilian life caused by US surgical strikes.

A socialist or libertarian capitalist critic of the Gulf War probably would not disagree that it is good to fight tyrants and defend democracy, and that there are times when this might be an appropriate action for a democratic state to take. Such a critic would, however, pay attention to other relevant facts of the matter and hence derive a very different evaluation. It's not that stopping tyrants is bad, it's that Hussein's tyranny was really US tyranny; it's not that democratic institutions are bad, it's that Kuwait doesn't have any; it's not that minimal loss of civilian life is bad, it's that US action has caused the deaths of millions of civilians.

Because the two ideologies - that of the statist mass media<11>, and those of the libertarian or socialist critic - seek different kinds of factual, explanatory accounts, they might end up giving different evaluations because of their different explanations of how the social world works. But with respect to explanations of social events, there is a matter of fact about how things are. An ideology which lays bare the actual explanations of events is different in kind from an ideology which mystifies or obscures the real world. This is the difference which the pejorative conception of ideology seeks to mark. Thompson introduces such a conception of ideology:

Critical conceptions [of ideology] are those which convey a negative, critical, or pejorative sense. Unlike neutral conceptions, critical conceptions imply that the phenomena characterized as ideology or ideological are misleading, illusory or one-sided; and the very characterization of phenomena as ideology carries with it an implicit criticism or condemnation of them....

Ideology, according to [a certain Marxist] conception, is a system of representations which conceal and mislead and which, in so doing, serve to sustain relations of domination. (Thompson 1990, 53-54)

Thompson continues to suggest that:
The analysis of ideology... is primarily concerned with the ways in which symbolic forms interact with relations of power. It is concerned with the ways in which meaning is mobilized in the social world and serves thereby to bolster up individuals and groups who occupy positions of power. Let me define this focus more sharply: to study ideology is to study the ways in which meaning serves to establish and sustain relations of domination. (ibid., 56)
This has important implications for libertarian social theory. So far, I have tried to introduce the outlines of a libertarian theory of (contemporary US) class relations and a libertarian approach to the issue of hegemony. This should ground a libertarian approach to ideology.

For libertarianism, classes are constituted by differential relations to the state. A class, such as the state-banking nexus, which is the primary user of state power to advance its own economic interests, must interest other classes in sustaining its dominance. Thus a hegemonic group of classes emerges around the central hegemonizing class. These classes sustain relations of dominance directly, by way of state action, and indirectly, by way of their hegemony in civil society. One of their primary goals in civil society is to mask, distort, and hide our understanding of the relations of domination which they wish to preserve. To do this, they must inculcate in the people incorrect beliefs as to matters of fact, including facts about the explanations of events in the social world. The dominance of the state-banking nexus leads to a wide variety of economic dislocations, crises, and gross inequities, which occur because of the differences between how the state-banking nexus relates to the state and how other, oppressed, classes relate to the state. Since the state is supposed to protect the people from oppression and is legitimated with reference to responsivity to democratic demands, the hegemonic classes must prevent the people from discovering that their state is oppressive and radically undemocratic. They do this by way of ideology: by way of preventing the people from understanding how the social world works. Specifically, they inculcate in the people a sense that state action solves problems and does not typically create and/or exacerbate them.

Since libertarian social theory holds the opposite view - state action almost always worsens the problems it is designed to solve, and state action almost always sacrifices the interests of some to others - it views any communication, especially rhetoric, which veils the actual effects of state action as ideological. Libertarian ideology criticism, then, will focus on how communicative acts tend to mystify social relations in ways that make state action appear appropriate to the very people who will be harmed by it.

Two related tropes, I think, will be among the most common in statist rhetoric. The first is introduced by Barthes as the privation of history:

Myth deprives the object of which it speaks of all History. In it, history evaporates. It is a kind of ideal servant: it prepares all things, brings them, lays them out, the master arrives, it silently disappears: all that is left for one to do is to enjoy this beautiful object without wondering where it comes from.... We can see all the disturbing things which this felicitous figure removes from sight: both determinism and freedom. Nothing is produced, nothing is chosen: all one has to do is to possess these new objects from which all soiling trace of origin or choice has been removed. This miraculous evaporation of history is another form of a concept common to most bourgeois myths: the irresponsibility of man. (Barthes 1970, 151)
Statist ideology - mythology - removes from history and makes natural the causes of negative social phenomena. The ideologist wishes to sustain and/or enhance state power. To do this, she must rhetorically construct the state as solver of problems presented by some non-state factor. But typically the problem occurs in the context of state action. Thus two solutions present themselves: either remove the state action which contributes to the problem, or employ the state as a means of removing whatever else it is that causes the problem. The libertarian chooses the first option because the second option simply leads to more economic distortions and vicious inequalities, while the ideologist is committed to choosing the second because this is the only means preserve her favored relations of power. In order to avoid allowing the libertarian alternative to occur to people, the ideologist must mask the fact that the state could change its mode of action. Ideology, then, takes actions of the state as natural and unalterable. It dehistoricizes them by making them the background against which social phenomena occur, rather than as part of the etiology of those social phenomena.

The other master-trope of statist rhetoric is the mystification or even rhetorical obliteration of non-state action. The ideologist seeks to expand state power at the expense of non-coercive means of action. To do this, she must prevent people from grasping the actual nature of those non-coercive means of action. State regulation of the economy is justified to the degree that the economy has no means of self-regulation. State education is necessary to the degree that there is no agent other than the state which can educate. State welfare is necessary if we are unaware that agents other than the state can aid the poor. And so forth. Statism relies on our systematic ignorance about agents of action other than the state, and means of action other than coercion.

The two tropes work together. The degree to which we take the state for granted is the degree to which we cannot imagine social problems being caused by the state. The degree to which we do not believe in non-state agency is the degree to which we will invite the state to solve our problems. But this solution then becomes, rhetorically speaking, part of the background against which the next crisis occurs, rather than, as it is in fact, the partial cause of the next crisis.

Let us assume that the present theory is correct. Then we can predict that the dominant ideology will serve the purposes of the state-banking nexus. Their power is sustained through a complex web of machinations, involving state coercion and hegemony within civil society. All components of this establishment must be defended with ideological mystification, but one component is the core: the partial oligopoly of the state-banking nexus within the financial market. Anyone who transgresses on the statist market distortions put in place by the state-banking nexus, the theory predicts, would become an instant target of character assassinations. At a minimum, her financial methods would be demonized. Beyond that, her mode of business might be regulated out of existence. At worst, that mode of business might be criminalized and she put on trial for violations of ex post facto laws. Here, I want to look at two sample texts which, in the mid-1980's, advocated the regulation of the junk bond market. I'll briefly explain why this is of interest by reference to the 'junk bond king', Michael Milken.

Milken headed the high-yield bond division of investment company Drexel Burnham Lambert from the mid-1970's until he was imprisoned in the late 80's. The 'junk bonds' which he sold were bonds which are not considered 'investment grade' by the state-banking nexus because of the status of the companies which offer them:

...Milken became convinced that the market, particularly ratings services such as Moody's and Standard & Poor's, did not understand the true riskiness of bonds. He believed that, in deciding which firms' bonds were entitled to an investment-grade rating, these services overrated the importance of historical track record and physical assets and placed insufficient weight on other, more important factors such as talent and the firm's future prospects. If investors only understood that below-investment-grade bonds were less risky than their ratings implied, a big market could be created. (Fischel 1995, 24)
Milken, then, aimed to lead investors to place their capital in lines of production which establishment investors wouldn't touch. But this aim was based on the theory that the establishment was mis-evaluating the investment potential of bonds. He made hundreds of millions of dollars for himself and Drexel by arranging for massive investments in high-yield bonds, but the benefits were not limited to a small coterie:
Drexel's success was accompanied by the parallel success of the companies and entrepreneurs it financed. With Milken's support, whole industries - including gambling, telecommunications, and health care - were financed in significant part with high-yield bonds. So too were various minority-run business. Reginald Lewis became the first black CEO in the Fortune 500 after Milken financed his $985 million buyout of Beatrice Foods. It is no coincidence that minority leaders and organizations were among Milken's strongest supporters. As outsiders themselves, they were appreciative of someone who gave them a chance. (ibid., 25)

That is, Milken redirected investment on a massive scale, and not in directions that the state-banking nexus was taking. For precisely this reason, his epistemic labor paid off rather better than that of the establishment banks.<12>

Cut out of the profits, the dominant class called on the state to eliminate this threat to their economic power. A first step, though, to defending themselves was to demonize the junk bond market. Establishment rhetors stepped into place, advocating regulation. Regulation of the junk bond market represents a barrier to market entry and is hence anti-competitive - but then, competition is what the state-banking nexus organized itself to eliminate.

In an April 18, 1985 Wall Street Journal editorial entitled "Junk Bonds and Other Securities Swill", Felix Rohatyn argues for 'intelligent regulation ' of the junk bond market. He opens by claiming that "Hundreds of millions of dollars have been lost by banks, cities, and state agencies under the impression that they were making perfectly safe investments backed by government agencies." He doesn't provide any cases or make any explanations. But moreover, he is foregrounding bad investments at the rhetorical expense of the overwhelming majority of junk investments. Fischel explains that, "In 1989 $8.11 billion of the bonds defaulted, or about 4.3 percent of the total market. In 1990 defaults increased to $18.35 billion, or 10.1 percent of the market. But still, even in 1990, its worst year, 90 percent of the market did not default." (Fischel 1995, 153) Since Rohatyn is writing in 1985, his allegation is a bit ridiculous. Had he actually said that hundreds of millions of dollars were lost out of a market of hundreds of billions, then we would have known to ignore him. By taking the losses out of their context, he creates the impression that junk bonds have been by and large a disaster when they have in fact been by and large a success.

He continues to explain that,

The common thread running through such stories is the failure to assess risk on the part of financial institutions and fiduciaries eager to perform. There'd be no junk bonds - the name Wall Street has attached to high-yielding, often unsecured, debt securities rated double-B or lower by financial ratings services - if institutions weren't often willing to ignore substandard credit ratings in exchange for higher yields... There'd be no Continental Illinois or Penn Square [sample disasters] if more emphasis were placed on credit and less on growth.
For Rohatyn, decisions by financial ratings services are the standard of value of financial offerings. He naturalizes their decisions by treating any disagreement with them as nothing but confusion or ignorance. Someone who, like Milken, actually pursues a different epistemic policy than the ratings services cannot possibly have a reason for doing so. Moreover, his essential conservatism comes through in the final sentence. Credit stems from a company's past behavior and current assets. Growth - what Rohatyn thinks is too risky - is future-oriented. This sort of conservatism naturalizes the status quo by stressing the past and present at the expense of future possibilities.

For Rohatyn, the greatest danger of junk bonds and the hostile takeovers they finance is that "Under the banner of deregulation and total faith in the marketplace, we're impairing our greatest of assets: the credibility of our capital markets and the faith in our financial institutions." But two inches to the right, in the next column, he writes that

[The New York Times] reported that Ivan Boesky, an arbitrager who had acquired 8.7% of CBS, might join Ted Turner... to acquire all of CBS for $4 billion. CBS stock was driven up to more than $110 a share by these speculative stories...
Now, our faith in our financial institutions consists in our willingness to make investments in them. If people are eager to invest or hold on to their investments - which is the case if stock prices rise - then our faith in our financial institutions must be high, not low. So Rohatyn has directly contradicted himself. How is he able to do this? Note that the remarks on CBS do not give anyone's motivations for selling or buying stock at the higher price. In fact, no one seems to be involved at all: CBS stock 'was driven up'. The passivization of stockholders removes agency from the picture. But additionally, Rohatyn wants to prevent us from realizing that the quantitative claim about rising stock prices contradicts his qualitative claim about our confidence in our financial institutions. To generate the incommensurability, he converts the qualitative fact about our rising confidence in our financial institutions into a quantitative claim about CBS's stock prices, which we can no longer contrast with the qualitative claim. Barthes notes that, "By reducing any quality to quantity, myth economizes intelligence: it understands reality more cheaply." (Barthes 1970, 153) But Rohatyn runs against Barthes's expectation that the dominant ideology will involve "a weighing operation, the essences... placed in scales of which bourgeois man will remain the motionless beam." (ibid., 155) Rohatyn is, as Barthes suggests, making the financial world all too easy to understand, but the misunderstanding which he seeks to produce requires that the quantitative data be unintegrable with his qualitative claims. Rohatyn seeks to make it impossible to weigh the claims against the data.

Rohatyn's next move is to again obscure motives: "The interest rates [junk bonds] carry are mostly higher than the rates of return the underlying businesses are likely to earn in periods of economic downturn. These securities are therefore based on the ability of new management to sell assets in order to service debt." But such restructuring was often the point of the takeovers, not an accidental side-effect of their failures. Fischel explains that

...inefficiently run firms, particularly conglomerates that had grown too large by acquiring other firms in unrelated lines of business, were another prime source for restructurings. Firms... needed a major shake-up, a fundamental change in business strategy. Restructurings facilitated such fundamental change by altering target firms' organizational and financial structure. Reorganized firms typically had much more concentrated ownership and higher leverage than before... Streamlining and cutting back on unprofitable business lines also became more attractive as an option. (Fischel 1995, 17)

By neglecting to mention why takeover artists take over, Rohatyn has obscured the presence of human agency in the market. However, he does continue, in conservative vein, to suggest that restructuring might be impossible: "Whether such sales will be possible in a period of recession is questionable. Whether large corporations can be treated like artichokes and simply torn apart without any regard for employees, communities, or customers, solely in order to pay off speculative debt, is a further question for public policy." The artichoke image suggests that large corporations are organic wholes. This dehistoricizes their current structure by treating them as just as naturally put together as an artichoke is. But moreover, Rohatyn is still ignoring the goals of takeover artists. Under what circumstances is it profitable to promise high returns to investors? Lowering production is not such a circumstance. Rohatyn appears to be unaware that value does not appear in the world simply as a consequence of the production of consumable objects, but as a consequence of matching such production to actual social demand.

Rohatyn concludes with calls for regulation: "The answer to these excesses is intelligent regulation, as opposed to total deregulation or over-regulation." Here, Rohatyn avails himself of what Barthes calls 'Neither-norism', which "...consists in stating two opposites and balancing the one by the other so as to reject them both. (I want neither this nor that.) ...We find again here the figure of the scales: reality is first reduced to analogues; then it is weighed; finally, equity having been ascertained, it is got rid of." (Barthes 1970, 153) Rohatyn wants neither fascism nor freedom in financial markets. He wants just enough financial freedom to sustain the pretense that the US has a free market<13>, with just enough state control to sustain the power of the state-banking nexus. That this is his actual goal is made clear by one of his proposed regulations: "Federally and state-insured and regulated financial institutions should be sharply limited in their ability to invest in obligations carrying below-investment-grade credit ratings." Those credit ratings are determined by the state-banking nexus's ratings services. Rohatyn's goal is to have the opinions of the state-banking nexus written into law, further enhancing its control over economic decision-making and doing severe damage to the junk bond market.

To be sure, Rohatyn is suggesting this line only with respect to state-backed lending institutions. But that he does not entertain the possibility that such institutions should lose their state backing and be subjected to market discipline dehistoricizes the state's backing of banks, which is precisely the source of the state-banking nexus's power.<14>

A similar story can be told with respect to another Wall Street Journal editorial, this one on May 14, 1985, by Pete Domenici (Republican senator from New Mexico and chairman of the senate budget committee as of the writing), entitled "Fools and Their Takeover Bonds". Domenici wants to argue that there should be a moratorium on and eventual regulation of the junk bond market.

Domenici says that junk bonds should be regulated because of "the recent and growing role of federally insured lending institutions and government-backed pension funds in purchasing junk bonds" and the fact that, "Since 1981, more than one thousand federally insured thrifts have been merged or liquidated." While he does not argue for the point, the reader infers that 'over 1000 federally insured thrifts have been merged or liquidated' because of 'the recent and growing role of federally insured lending institutions... in purchasing junk bonds.'

Moreover, the market should be regulated because of "the use of junk bonds to circumvent the Federal Reserve's margin requirement [which] provides that loans for stock purchases cannot exceed 50% of the value of the stock being bought." Junk bonds can be used to circumvent this rule because the sale of junk bonds is not (as of 1985, at least) considered in the law as a form of borrowing. So an agent could sell junk bonds to raise money for a stock purchase in which borrowed money, including money gained from the sale of junk bonds, constituted more than 50% of the value of the stock being bought. He says that the margin requirement "is written in the blood of 1929", appealing to the common belief that the overinvestment which was responsible for the Great Depression was made possible by a lax regulatory regime and hence implying that a lax regulatory regime with respect to junk bonds might trigger some future economic downturn.

Domenici discusses the case of Metromedia Inc.:
Metromedia sold $1.3 billion of junk bonds in two hours... last year, even though the prospectus admitted: "Based on current levels of operations and anticipated growth, the company does not expect to be able to generate sufficient cash flow to make all of the principal payments due on the notes..." It goes on to state, "Based on current levels of operations, the company's cash flow would be insufficient to make interest payments...."
Domenici notes that Metromedia sold seven of its TV stations to help make debt payments which it accrued during the $1.3 billion sale of junk bonds. Like Rohatyn, Domenici has backgrounded the epistemic agency of investors. He seems to be suggesting that Metromedia made a mistake in its bond issue and that purchasers made a mistake in their bond purchases. But he drops the context in which such bond offers and purchases make sense. Purchasers would buy bonds only if they had some reason to expect that they would make a return on their investment; Metromedia surely had some financial incentive to offer the bonds. By dropping this context, Domenici treats the sale and purchase of junk bonds in a vacuum. By abstracting the junk bond market from the reasons for its existence and the motivations of those who engage in the sale or purchase of junk bonds, Domenici rhetorically constructs the market as a machine in which human intention plays no part. Indeed, he concludes this section by quoting the chair of the Securities and Exchange Commission, who said, "The more leveraged takeovers and buyouts today, the more bankruptcies tomorrow." This quote constructs the market as a machine which takes takeovers and buyouts as inputs and gives depressions as outputs.

Junk bond advocates have also argued that leveraged takeovers improve the economic efficiency of the firms which are taken over. But Domenici says that "Talk of improving management is a smoke screen for the raiders' scorched-earth tactics..." But the substance of Domenici's argument seems to come here: "[Corporate raiders] are looking for targets with two characteristics: strong cash flow and little debt. The quality of management is irrelevant. ...court documents also undercut any contention that the raiders are concerned with the long-range health of the target company." Here, Domenici rhetorically constructs corporate raiders as short-term profiteers, who destroy companies and make a lot of money in the process. But again, Domenici has abstracted market processes from the context of human intentions within which they make sense. The junk bond market, as with all financial markets, can only exist in a context in which purchasers of financial offerings expect to benefit from their purchases. Since junk bonds, as used in takeovers, amount to a means of taking out loans, junk bond buyers - those who are loaning the money to allow the seller to perform a takeover - expect the sellers to repay the purchase cost of the bond with interest. But money is not made from destroying capital; it comes from making capital produce goods which sell on the market at a profit. Corporate raiders are able to make their profits from their restructuring of their takeover targets such that greater economic efficiency is the result. Buyers of junk bonds expect sellers to perform this task. Domenici, however, rhetorically constructs corporate raiders as acting in a vacuum, in which the intentions of junk bond purchasers do not exist.

Domenici concludes by obscuring the nature of markets and hinting that the real intelligence at work in markets is always state action:

Market theorists love to rhapsodize about the wisdom of markets. But part of this wisdom consists of dealing harshly with fools who believe that good times are without end.
Market theorists love to rhapsodize about the wisdom of markets, because such theorists realize that markets are (essentially?) a means of communicating information about economic phenomena and are the product of many distinct decisions made by persons with divergent interests and knowledge. Thus they propose that regulation of markets typically blocks the flow of economic information and prohibit decisions which persons would have made. But Domenici has systematically suppressed this context, by treating corporate raiders as the only agent of action in the junk bond market and hinting that junk bond purchasers behave mechanically, without attention to their own financial interests. Thus the source of market wisdom has been suppressed. No wonder, then, that Domenici provides an alternative source of wisdom: the harsh dealings of the regulators.

In this paper, I have sought to, by way of engaging with the closely related Marxist tradition, sketch out a libertarian approach to the theory of class. Grinder and Hagel have proposed that the dominant class in contemporary society is what I've called the state-banking nexus, a cartel of banks which employ their command over the state regulatory apparatus to limit competition within their own field. Other groups perform and legitimate the coercion of the state-banking nexus. Thus this class is not simply a dominant class, but the center of a complex hegemony. Introducing the pejorative notion of ideology, I then made some basic empirical predictions about what the dominant ideology of contemporary society should be if the libertarian theory about the state-banking nexus is correct. If libertarianism is correct, then certain tropes ought to show up in the rhetoric of defenders of the state-banking nexus. Finally, I briefly examined two such rhetorical artifacts, one written by an investment banker and one by a Republican senator, both in the allegedly pro-market Wall Street Journal. Both behaved as expected. They both obscured the epistemic action of investors and others in the market, and both dehistoricized the status quo of bloated corporations and state intervention in financial markets.

Of course, two pieces of confirming data will hardly prove a theory. But hopefully this paper has presented a sample of what mature libertarian rhetorical analysis will look like, and has suggested a plausible line of research.

Thanks to Dana Cloud and Chris Matthew Sciabarra for their comments on a draft of this paper.

Barthes, Roland. 1970. Mythologies. New York: Noonday Press.
Domenici, Pete. May 14, 1985. "Fools and Their Takeover Bonds." Wall Street Journal. p. 28.
Fischel, Daniel. 1995. Payback. New York: HarperBusiness.
Gramsci, Antonio. 1971. Selections from the Prison Notebooks. Quintin Hoare and Geoffrey Nowell Smith, eds. and trans. New York: International Publishers.
Grinder, Walter E. and John Hagel III. 1977. " Toward a Theory of State Capitalism: Ultimate Decision-Making and Class Structure". Journal of Libertarian Studies 1:1, 59-79.
Higgs, Robert. 1987. Crisis and Leviathan. Oxford: Oxford UP.
Long, Roderick. 1998. "Toward a Libertarian Theory of Class". in Paul, Ellen Frankel, Fred D. Miller, Jr., and Jeffrey Paul, eds. 1998. Problems of Market Liberalism. Cambridge: Cambridge UP.
Marx, Karl. 1986 [1849]. Wage-Labor and Capital. with an introduction by Frederick Engels. Chicago: Charles H. Kerr.
Rohatyn, Felix. April 18, 1985. "Junk Bonds and Other Securities Swill." Wall Street Journal. p. 30.
Thompson, John. 1990. Ideology and Modern Culture. Stanford: Stanford UP.
Tucker, Robert. ed. 1978. The Marx-Engels Reader, 2nd Ed. New York: W. W. Norton & Co.
<1> Why does Marx fail to grasp the social nature of production? I suspect that it has something to do with his commitment to the labor theory of value. For Marx,
...the fluctuations of supply and demand always reduce the price of a commodity to its cost of production. It is true that the actual price of a commodity is always either above or below its cost of production, but the rise and fall reciprocally balance each other, so that within a certain period, if the ebbs and flows of the business are reckoned up together, commodities are exchanged with one another in accordance with their cost of production and thus their price is determined by the cost of production. (Marx 1986 [1849], 29)
This claim is not true. Marx is correct to say that prices are determined by supply and demand, that profit level of a business concern is determined by the ratio between the supply and demand of the goods produced by that concern, and that investment is determined by profitability. Thus capital is invested in those lines of production the demand for the products of which currently most outstrip supply of them. However, a line of production need not overproduce to lose investment. It can simply be less profitable than other lines of production. The average price of goods is not equal to their cost of production but is higher. This is the case because the quantity of wealth in the economy is not fixed but continually rises; hence, all lines of production can be profitable at the same time, though perhaps not to the same degree.

Marx moves from the claim that the value of a good is determined by its costs of production to list the two factors the costs of which compose the costs of production:

The determination of price by cost of production is the same thing as its determination by the labor-time required for the manufacture of a commodity; for cost of production consists of (1) raw materials and wear and tear of implements, that is, products of industry whose manufacture has cost a certain number of days' work, and which, therefore, represent a certain amount of labor-time, and (2) direct labor, which is also measured by its duration. (ibid., 30)
So the costs of production are costs of plant and equipment, which is ultimately determined by labor, and costs of labor. For Marx, the owner of capital adds nothing to the value of the goods produced by her business concern. But this, too, is false. There is a third factor in value, which is that it meets a demand.

A little example might help. Assume that two persons make snow machines - machines that manufacture artificial snow - and that they perform identical labor in so making. One of the two takes her machine to Alaska, where there is snow aplenty. The other takes her machine to Texas, where snow (let us say) sells as a novelty item. They then place an equal amount of water into their machines and perform an equal amount of labor to create equal amounts of snow. Why does one of them make a profit, while the other does not? Because there is a demand for snow in Texas, but not in Alaska.

The Marxist theory would predict that the two piles of snow have equal value, because an equal amount of labor went into the production of each pile. But the two piles have different values. There must, then, be a third factor in the creation of value. We create value not just by creating physical objects which can in principle be objects of consumption by others, but by seeing to it that the creation of such objects meets some demand. This task is not mechanical, but epistemic. It consists (essentially) of monitoring the market to note ratios between supply and demand of goods and directing investment into lines of production in which demand substantially outstrips supply.

Marx is aware that capital moves from less profitable to more profitable lines of production: "...what is the result of a rise in the price of a commodity? A mass of capital is thrown into that flourishing branch of business..." (ibid., 28) Note the phrasing: capital 'is thrown'. Marx is employing the rhetorical trope Thompson calls 'passivization', which "occurs when verbs are rendered in the passive form, ...[which tends to] focus the attention of the hearer or reader on certain themes at the expense of others. They delete actors and agency and tend to represent processes as things or events which take place in the absence of a subject who produces them." (Thompson 1990, 66) By backgrounding the process by which capital is thrown into more profitable lines of production, Marx rhetorically annihilates the agents who do the throwing, owners of capital.

The employment of this trope at this place in Marx is not accidental. Were Marx to own up to the fact that owners of capital move capital around, then we might ask why they do this and what the effects are. But then the importance of the owner of capital would become apparent. When owners of capital change lines of investment, they do so to enhance the profitability of those investments. But this happens only when they invest in lines of production with relatively high profits. And high profits are achieved when demand had previously outstripped supply. That is, when owners of capital make investments of capital, they are striving to cause supply to meet social demand. Without someone performing this function, demands could be met only in a happenstance way. But if value is created not in the creation of possible objects of consumption, but of actually desired objects of consumption, and owners of capital decide which goods are to be produced, then the investment decisions of the owners of capital are crucial to the creation of value. If we accept that labor alone creates value, then we must include the epistemic labor of the owner of capital in the equation. If this is not something which we regard as labor, then the labor theory of value is mistaken.

The argument here has not been the familiar one about different persons having different levels of ability or different kinds of labor having different values. Rather, the point is that for anyone's ability or labor to be socially valuable, it must be directed toward meeting social needs. Such needs constitute demands for goods, and such demands determine prices of goods. Those who redirect capital to fulfill such needs are not parasites; to the contrary, without their labor, most other labor would be dramatically less valuable.

<2> I don't attempt to explain this fact here. But it is a fact about persons' economic skills, not about their levels of wealth. Wealthy people can lack the essential skills necessary to make successful investments - that is why they turn to the state. And those of modest background can certainly attain these skills (hence the persecution by the state-banking nexus of its competitors).

<3> Historical argumentation to the contrary would need to take into account the political situations in which rational labor unrest has occurred. Much historical evidence ostensively linking conflicts between labor and management to free-market capitalism in fact links conflicts between labor and management to statism ('state capitalism').

<4> This is not to deny that the depositor is an economic agent. Depositors are consumers of financial offerings by banks and are hence essential members of the market to which banks must be responsive. They choose between banks and they choose between different financial offerings at various banks; indeed, they choose whether or not to invest at all, and if so how much. Nevertheless, the depositor hires the bank to make particular decisions and take certain risks for her , and her investment would not have been a good one if she were not relieved of a substantial burden of decision-making.

<5> Moreover, cartelization constitutes a barrier to market entry. Those banks which originally pushed for the cartel will have substantial power over the new regulatory apparatus which governs the cartel, and will thus find it possible to set up a regulatory regime hostile to market entry. But moreover, the very fact that no bank is required to hold a high fractional reserve constitutes a barrier to market entry because entrants to the market cannot compete with established banks on the issue of level of reserve; the issue no longer exists.

<6> The cartel's power is not an academic point. The banks' greater capacity to lend brings with it a greater capacity to lend poorly. Systematic overinvestment by the banking cartel can lead to periods of intense capital development. However, during the inflation, prices do not reflect social demand. Because the quantity of money available for investment and consumption is not what it would be on the unfettered market, but the quantity of capital and consumption goods remains unchanged, the apparent wisdom of given investments is not what it would be on the unfettered market: it becomes difficult to tell a good investment from a bad. Thus banks will tend to systematically malinvest in lines of production for which the social demand, as communicated by prices, is not as high as it would appear given the distorted prices. Eventually, stockholders cannot help but discover the malinvestments and seek to reinvest in other lines of production which will be actually, and not merely apparently, profitable. The sudden attempt to liquidate and reinvest within the inflated market triggers a massive drop in the value of stock. Stockholders (including, indirectly, depositors) lose money on a vast scale as the actual social value of their investments makes itself known.

Incidentally, when Engels provides a list of features characterizing a middle stage of capitalist development that looks like this: "...unheard-of development of productive forces, excess of supply over demand, over-production, glutting of the markets every ten years..." (Engels in Tucker 1972, 716), he is discussing a business cycle brought about by state intervention in the banking sector as I've discussed - not a cycle innate to the unfettered market.

During such crises, it is typical for the state to attempt to soften the blow. But because the bankers' cartel has such power within the apparatus designed to regulate it, the true cause of the downturn, the banks' inflationary policy, is never dealt with. Rather, the state typically seeks to increase regulation and control over economic activity. Because of the banks' substantial power over economic decisions, the state may find it difficult to control economy activity in ways not approved of by the cartel and its allies - worse, it can just follow the orders of the cartel. Thus the decision-making power of the cartel's members is even further enhanced.

<7> With respect to alleged impoverished oppressors, Grinder and Hagel seem to have slipped into an error Long thinks of as typically conservative:

For a conservative Lib[ertarian]Cap[italist], the paradigmatic example of a special interest advancing its interests through government favoritism is that of impoverished welfare recipients - an unlikely candidate for a ruling class! (Long 1998, 325)

LibCaps, especially conservative-leaning ones, can be too quick to see existing capitalism as an approximation to the free market they cherish, and to defend it accordingly. When LibCaps blame the government for harming the poor, they are all too likely to use the conservative argument that handouts create a welfare mentality and a culture of dependence, without the distinctively libertarian supplement that government regulations actually prevent the poor from rising out of poverty. (ibid., 332)

<8> "This way of posing the problem has as a result a considerable extension of the concept of intellectual, but it is the only way which enables one to reach a concrete approximation of reality." (Gramsci 1971, 12)

<9> An issue worth considering in this context is the relation between the libertarian and the Marxist theories of the state. For Marxism,

As the state arose from the need to hold class antagonisms in check, but as it arose, at the same time, in the midst of the conflict of these classes, it is, as a rule, the state of the most powerful, economically dominant class, and thus acquires new means of holding down and exploiting the oppressed class. (Engels in Tucker 1972, 753)

For libertarian theory, the state can never be a new means of oppression; rather, it is the only means specific to oppression. Everything else done by the dominant class by way of maintaining its power is either an offshoot of statist coercion or something which, were it not somehow tied to statism, would not count as oppressive in the political sense.

For non-anarchist libertarians (such as myself), the government is not intrinsically an agent of coercion or class warfare. Rather, the government has the legitimate function of protecting the rights of its citizens from violation by force or fraud, foreign or domestic. Libertarians typically distinguish between a government - which does nothing but protect the rights of its citizens - and the state, which is a government once it has become a tool of class warfare. So libertarians would expect class warfare to arise within a society when a certain group seizes control of the government and converts it into a state (and themselves into a class), whereas Marxists would expect class warfare to arise without the presence of a state.

However, it's not clear just what the difference is, because Marxists and libertarians seem to use the term 'state' the same way. Engels says of formation of the Roman state: "The victory of the plebs burst the old gentile constitution asunder and erected on its ruins the state..." (ibid., 751). He cannot possibly mean that at a certain point in Roman history, after the 'old gentile constitution' had been 'burst asunder', that a first Roman government came into being. Likewise, when he says that the formation of a society's state "...is the admission that this society has become entangled into irreconcilable antagonisms..." (ibid., 752), he cannot possibly mean that societies form governments only after they have found themselves enmeshed in some kind of fundamental class conflict. Rather, he has to mean that within a society which has some form of public administration which we can call 'government', classes arise and then take control of the (or form a new) government, at which point in time they constitute that government as a state, since it is now a means of economic class exploitation.

Now it looks as though the difference between the libertarian and Marxist theories of the state turn on the concept of a class. For Marxists, classes are defined by reference to their relations to the means of production, while for libertarians, they are defined by reference to their relations to the means of coercion - the state. But the dispute looks almost semantic. Marxists agree that the state is important to class warfare. If this 'important' can be given a strong reading - as 'essential' or 'necessary' in the strong modal sense - then the Marxist would agree that without the state there can be no classes. Libertarians will surely agree that there is something distinctive about the group which is about to seize state power even before it has done so; they simply don't wish to call this group a 'class'. But it is clearly a proto-class or potential class even on a libertarian account. If Marxists were to agree that something important has happened to the nature of the dominant class at the moment that it assumed state power, and libertarians were to agree that a proto-class is importantly related to a class, then the dispute might well shrink to one about whether to call a group of people who haven't yet but are on their way to take state power a 'class'. But this analysis turns on the question of whether the Marxist would in fact agree that the state is essential for class warfare; if I'm wrong on that point, then the dispute is substantive after all.

<10> Unlike Higgs's, my own libertarianism at least hopes to be ethically cognitivist. So from my point of view, his political economist's value-neutrality itself sounds ideological.

<11> Why 'statist'? Because (if the present libertarian theory is correct) the corporate mass media is directed, ultimately, by the interests of the state-banking nexus; those interests are, largely, in the preservation of statism.

<12> Establishment ideology would have it that junk bonds are intrinsically bad, and that that's why the state-banking nexus wouldn't deal with them. But in fact traditional banks did deal with them, just not as well as Drexel:

Overall, Drexel's share of defaults of the total number of all high-yield bonds underwritten between 1977 and its guilty plea at the end of 1988 was 43.6 percent, slightly less than its market share of 46.8 percent. In contrast, Salomon Brothers' share of defaults (18.3 percent) was three times higher than its market share (6.1 percent), First Boston's share of defaults (18.5 percent) was 2.3 times its market share (8.1 percent), and Lehman Brothers' share of defaults (3 percent) was 1.4 times its market share (2.1 percent). Drexel's "junk" was better than the products of many of its jealous rivals. (Fischel 1995, 153)

<13> This is a bit like the 'two-party system', which maintains the minimum number of nominal parties necessary to sustain the illusion of democracy.

<14> Incidentally, the real joke of the Rohatyn editorial comes in the by-line: "Mr. Rohatyn is a senior partner of Lazard Freres & Co." He's a member of the state-banking nexus which he seeks to defend.

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