Read The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers for Free Online
Authors: Michael Perelman
positions of authority. Consequently, maintaining the legitimacy of authority is crucial for capitalism.
The proper maintenance of authority is an old question. Machiavelli’s
The Prince
may be the classic text on the subject. His chapter 17 asks whether it be better to be loved than feared. He concluded “it is safer to be feared than loved.” 17 Machiavelli’s conclusion is just as applicable for capitalist management as for a medieval prince. In this sense, a certain amount of Procrusteanism is a necessary requirement for the capitalist workplace.
The key insight from Watson’s experience is the degree to which the workers were able to organize themselves in spite of management.Had their objective been to earn profits, their efforts would have qualified as entrepreneurial—and far more so than is usually expected from workers who lacked the formal qualifications usually associated with leadership.
The Federal Reserve to the Rescue
Business leaders understood why workers, such as Watson and his colleagues, openly challenged management. They had little fear of getting fired because unemployment rates were very low. Although they would never admit to such crass motives, business leaders know that maintaining a substantial level of unemployment gives them a strategic advantage. Losing a job posed few risks for Watson’s colleagues since many equally attractive jobs were available at the time. Where jobs are harder to find, workers are less likely to behave in ways that displease management, including demanding higher wages.
Since the end of the Second World War, the responsibility for creating the “appropriate” level of unemployment has fallen to the Federal Reserve. Officially, the Federal Reserve has a dual mandate to prevent inflation and to maintain full employment. In reality, the Fed concentrates on fighting inflation by vigorously preventing full employment.
A board of seven governors, appointed by the president and approved by the Senate, theoretically runs the system, but the Fed is actually quite Byzantine. “Constitutionally, the Federal Reserve is a pretty queer duck” was the verdict of the populist Texas congressman Wright Patman. Martin Mayer, author of
The Bankers
and other excellent books on finance, went further, observing that “the Federal Reserve would be a queer duck even without any Constitution, for a more awkward and complicated mixture of private and public, executive and legislative, national and regional could not possibly be imagined.” 18
In addition to the Federal Reserve Board, each of the twelve regional banks has a president, selected by bankers. These regionalpresidents, directly representing the interests of the banking sector, wield enormous power.
The chief policymaking arm of the Federal Reserve, known as the Federal Open Market Committee, consists of a rotating pool of seven of the governors and four of the regional bank presidents plus the president of the New York Federal Reserve Bank. This committee makes the key decision regarding monetary policy—whether to make credit scarce or abundant.
The decisions of the Open Market Committee have a powerful effect on the economy. When the committee makes credit tight by restricting the supply of money, interest rates increase, which then discourages businesses from borrowing to finance spending on building, plants, equipment, and the like. In addition, higher interest rates depress consumers’ purchases of cars or houses on credit, because their monthly payments depend on the rate of interest.
Shrinking consumer purchases, together with the higher cost of borrowing, further discourages business from investing. As a result, the economy slows down, replenishing the pool of unemployed workers.
In effect, then, the Fed represents a collaboration between the bankers and government, free to make policy without congressional oversight. The only requirement placed on the Federal Reserve is that the chairman has to appear
The proper maintenance of authority is an old question. Machiavelli’s
The Prince
may be the classic text on the subject. His chapter 17 asks whether it be better to be loved than feared. He concluded “it is safer to be feared than loved.” 17 Machiavelli’s conclusion is just as applicable for capitalist management as for a medieval prince. In this sense, a certain amount of Procrusteanism is a necessary requirement for the capitalist workplace.
The key insight from Watson’s experience is the degree to which the workers were able to organize themselves in spite of management.Had their objective been to earn profits, their efforts would have qualified as entrepreneurial—and far more so than is usually expected from workers who lacked the formal qualifications usually associated with leadership.
The Federal Reserve to the Rescue
Business leaders understood why workers, such as Watson and his colleagues, openly challenged management. They had little fear of getting fired because unemployment rates were very low. Although they would never admit to such crass motives, business leaders know that maintaining a substantial level of unemployment gives them a strategic advantage. Losing a job posed few risks for Watson’s colleagues since many equally attractive jobs were available at the time. Where jobs are harder to find, workers are less likely to behave in ways that displease management, including demanding higher wages.
Since the end of the Second World War, the responsibility for creating the “appropriate” level of unemployment has fallen to the Federal Reserve. Officially, the Federal Reserve has a dual mandate to prevent inflation and to maintain full employment. In reality, the Fed concentrates on fighting inflation by vigorously preventing full employment.
A board of seven governors, appointed by the president and approved by the Senate, theoretically runs the system, but the Fed is actually quite Byzantine. “Constitutionally, the Federal Reserve is a pretty queer duck” was the verdict of the populist Texas congressman Wright Patman. Martin Mayer, author of
The Bankers
and other excellent books on finance, went further, observing that “the Federal Reserve would be a queer duck even without any Constitution, for a more awkward and complicated mixture of private and public, executive and legislative, national and regional could not possibly be imagined.” 18
In addition to the Federal Reserve Board, each of the twelve regional banks has a president, selected by bankers. These regionalpresidents, directly representing the interests of the banking sector, wield enormous power.
The chief policymaking arm of the Federal Reserve, known as the Federal Open Market Committee, consists of a rotating pool of seven of the governors and four of the regional bank presidents plus the president of the New York Federal Reserve Bank. This committee makes the key decision regarding monetary policy—whether to make credit scarce or abundant.
The decisions of the Open Market Committee have a powerful effect on the economy. When the committee makes credit tight by restricting the supply of money, interest rates increase, which then discourages businesses from borrowing to finance spending on building, plants, equipment, and the like. In addition, higher interest rates depress consumers’ purchases of cars or houses on credit, because their monthly payments depend on the rate of interest.
Shrinking consumer purchases, together with the higher cost of borrowing, further discourages business from investing. As a result, the economy slows down, replenishing the pool of unemployed workers.
In effect, then, the Fed represents a collaboration between the bankers and government, free to make policy without congressional oversight. The only requirement placed on the Federal Reserve is that the chairman has to appear
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