The friction or antagonism between the private and the public sphere was intensified from the first by the fact that. . .the state has been living on a revenue which was being produced in the private sphere for private purposes and had to be deflected from these purposes by political force. — Joseph A. Schumpeter, Capitalism, Socialism and Democracy
Human life began with people scratching the world they lived in for food and shelter. They traveled as nomads, then, after someone invented the rudiments of agriculture, they settled down. As producers they were subject to raids from bands who confiscated their produce. Eventually the invaders figured they could make their thieving lives easier by settling among the victims and serving as their protectors—in exchange for life support. This is sometimes called the conquest or predatory theory of state origin and is described with precision in Albert Jay Nock’s Our Enemy, the State (1935) in which he wrote, borrowing ideas from Franz Oppenheimer,
There are two methods, or means, and only two, whereby man’s needs and desires can be satisfied. One is the production and exchange of wealth; this is the economic means. The other is the uncompensated appropriation of wealth produced by others; this is the political means.
The state is an organization of the political means. No state, therefore, can come into being until the economic means has created a definite number of objects for the satisfaction of needs, which objects may be taken away or appropriated by warlike robbery.
Production and theft—the economic means and the political means—constitute life on earth, with the state the embodiment of the political means. But if it’s really this obvious, why don’t more people revolt against this arrangement? And how did it come about that “Big Business”—inextricably bound to markets—fostered state growth?
In the late-19th century business leaders knew that “the federal government, rather than being a source of negative opposition, always represented a potential source of economic gain,” as leftist historian Gabriel Kolko wrote in his seminal work, The Triumph of Conservatism.
Despite the large number of mergers, and the growth in the absolute size of many corporations, the dominant tendency in the American economy at the beginning of [the 20th] century was toward growing competition. Competition was unacceptable to many key business and financial interests, and the merger movement was to a large extent a reflection of voluntary, unsuccessful business efforts to bring irresistible competitive trends under control. (italics added)
Murray Rothbard adds, in his indispensable history, “the market, hampered though it was by high protective tariff walls, managed to nullify these attempts at voluntary cartelization.”
With the country strongly opposed to monopoly, how could these industrial giants get the government protection they sought? Monopoly was always understood to mean “grants of exclusive privilege,” so it would seem an impossible task for corporations to lobby government for monopoly status.
Their method was ingenious: Promote the idea that market giants already represented monopolies by virtue of their size. People came to believe any sufficiently large enterprise monopolized its market, raising prices and cutting production at its pleasure. Government intervention, therefore, would be done in the name of controlling monopolies. As Rothbard put it, “the regulatory commissions could subsidize, restrict, and cartelize in the name of ‘opposing monopoly,’ as well as promoting the general welfare and national security.”
As business pursued state-enforced privilege, so too did a new breed of intellectuals, many educated in Bismarckian Germany, who sought to bring the state into what they believed was an indispensable ethical agency. For the American state this was a godsend. Business wanted state protection from competition, the intellectuals needed jobs, and the state would provide protection and jobs while receiving the ideological cover necessary for expansion.
Banking in particular profited from this arrangement as Morgan, Rockefeller, and Kuhn-Loeb leaders sought to establish a government-enforced banking cartel. As I wrote in the Jolly Roger Dollar: “[Bankers] began by hiring agents to promote the idea that banking crises were the result of inadequate regulation and an ‘inelastic’ currency.” People feared and hated the “Money Trust” of Wall Street, so Congress created the Pujo Committee to put on a show:
Prior to passage of the Federal Reserve Act, Wisconsin Senator Robert La Follette and Minnesota Congressman Charles Lindbergh Sr. delivered scathing speeches attacking “the money trust” for causing booms and busts. . . .
During the summer of 1912, the committee scared the wits out of people with statistics and testimonies showing the power Wall Street had over the economy. To the public Congress seemed to be doing its job by cracking down on corruption, though at no time were Lindbergh or La Follette called to testify, nor did anyone seem to attach any significance to the fact that the biggest bankers were leading the charge for reform.
At 6:00 p.m. on December 23, 1913 President Wilson signed the Glass-Owens Act, creating the Federal Reserve System, the nation’s central bank. At a House Committee on Financial Services Meeting on December 12, 2013, House member Melvin L. Watt of North Carolina, stated:
An American Banker article argued at the time, “The financial disorders that have marked the history of the past generation will pass away forever.” The Comptroller of the Currency at the time said, “Financial and commercial crises or panics seem to be mathematically impossible.”
Clearly, these predictions proved to be somewhat overly optimistic. . .
Only “somewhat,” of course. Anyone criticizing the state’s many and various depredations is either ignored, silenced, or crowned with the title of “conspiracy theorist.” In this way, as Rothbard wrote, “the masses will never learn of the nonexistence of their Emperor’s clothes.”
In an essay discussing Bertrand de Jouvenel’s On Power: The Natural History of Its Growth, economist Pierre Lemieux discusses how de Jouvenel pointed out that,
…through the centuries men have formed concepts designed to check and limit the exercise of State rule; and, one after another, the State, using its intellectual allies, has been able to transform these concepts into intellectual rubber stamps of legitimacy and virtue to attach to its decrees and actions.
Thus, for instance, an individual’s natural rights “enshrined in John Locke and the Bill of Rights,” became a statist “right to a job.” Parliamentary democracy as a check on monarchical rule “ended with parliament being the essential part of the State and its every act totally sovereign.”
Conclusion
Rome was a predatory state that destroyed itself from within. Our state managers seem imbued with Rome’s model.
I discuss how we can avoid disaster in my short book, The Fall of Tyranny, the Rise of Liberty.
