FTC’s important characters and concepts appear in the titles of episodes that describe them, and are Capitalized wherever they appear in FTC.
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| Image: Cooper (1789, USA Public Domain) |
In our last episode King Eric became King of Denmark, Norway and Sweden. With his ships and shore batteries, he would one day acquire and enforce a Monop controlling passage through the Oresund and the Denmark Straits. For large merchant ships, there was no feasible passage from the Baltic to the North Sea other than the Oresund. To obtain the safety and speed of passage that King Eric could make scarce, the master of a vessel had to pay Eric’s toll, the Sound Dues. King Eric would collect Monop Rents, reducing the benefit of the trade for the master and increasing the benefit of the trade for himself.
In other kinds of products than marine shipping, and the agricultural Land of Old One Ricardo’s Tales, a Monop escapes the constraints of competition and, within limits, controls the trade. To oversimplify slightly, the Monop names the price at the expense of the counterparty. The difference between the Monop’s price and a hypothetical competitive market price is the Monop Rent, the benefit of the trade the Monop shifts from the counterparty. Consider tea, for instance.
One night, the Sons of Liberty, a political group, dressed as American Indians and rowed into Boston Harbor. They sneaked aboard ships of the British East India Company (chartered by Queen Elizabeth I as the first limited-liability corporation). They tossed the cargo of tea into the water, an event remembered as the Boston Tea Party.
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| British East India Company Flag (William Downman, 1685) |
Eric’s Sound Dues toll was intentionally small to avoid provoking significant opposition. Likewise the British Parliament intended the Tea Act duty would arouse little opposition.
Though the Tea Act tax was small, “No taxation without representation!” became a slogan of the Sons of Liberty. Sam Adams, one of their leaders, said the Monopoly, even without a tax, was tantamount to a tax. He recognized Monopoly as a burden the State enforced on the people who could buy only from the Monopoly. The Boston Tea Party was a foreshock of the American Revolution, but that’s another story.
Long after the Boston Tea Party, and some old timers said it was even later than the great wars and the death of Reagan, clouds darkened the windows of banks throughout the world. The banks had lent money to many people who now lacked income because their employers, the Ingenious Innovative Job Creators, had dismissed them from their jobs. The dismissed employees stopped paying the banks.
For a long while, the bankers were certain all would be for the best. The bankers had bought Puts. They had confidence, financial expertise, and many reasons why Puts reliably rise when other investments fall. “The risk actually undertaken is very modest and remote,” the bankers said. Despite the confidence, sellers emerged. In October, prices of shares on the Exchange hit a record peak, then meandered downward day after day for many months, a period remembered as the year of the confident bankers.
On a Thursday in February more than a year following the price peak, television journalist Rick Santelli, reporting on current trading from the floor of the Chicago Mercantile Exchange, expressed exasperation that governments were giving money to people who seemed undeserving, because they should have the wisdom and personal responsibility to provide for themselves. Mr. Santelli pronounced an unusually entertaining and memorable editorial, culminating with “We’re thinking of having a Chicago Tea Party in July”. In these few words, Mr. Santelli ignited a new political movement, called the Tea Party.
In the Fairy Tale of Capitalism, we often find one term with two meanings. In this case, Santelli’s Chicago Tea Party opposed taxes and the government giving money to people they thought didn’t deserve it. The Boston Tea Party opposed taxes and the government giving a Monop to a Firm, which was utterly different. Incidentally, each week, King Eric’s job included sending soldiers some place or other in his vast realm to suppress peasant uprisings and rebellious nobles. The chronicles are silent on rebel opposition to Eric’s taxes.
In the year of the confident bankers, the bankers explained that the declines in prices reflected mere paper accounting losses. In the second winter after the October peak, many mere paper losses became real money losses. Some people, such as bankers and householders, urged government intervention to make good the debts the dismissed employees stopped paying, especially after some Puts failed. Then, less than a month after Santelli’s proclamation, prices’ long meander downward became a financial cascade. Prices on the New York Stock Exchange sank to their lowest level following the peak.
The Tea Party favored minimal taxation, because with less taxation, they would have more money to spend on cars and houses in foreclosure, as Mr. Santelli had explained. They favored property rights, Capitalism and minimal government. They disfavored ideas like government economic stimulus spending, universal public education, universal health care, public fire departments, government food for starving children, and other undeserved or unnecessary government expenses that taxation would ultimately fund.
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| Image: Nathaniel Currier (1846, Public Domain) |
Property rights meant governments would protect the Aristocrats’ Capital, so no one else could divert it. Capitalism, of course, was that virtuous confluence of free markets and private property that the Old Ones Smith and Ricardo had described and the Old Ones Marx and Engels had named. The Firms owned by the Staffs’ employers, the Aristocrats, manifested the virtuous confluence.
The Staffs valued minimal government. Big government would impose laws regulating how the Managers treated the Workers. Big government forced them to do something with production waste other than release it in the convenient river adjacent to the factory. Big government required they expose their accounts and explain their Firms in public disclosures. Government regulatory meddling required truckloads of reports implying expenses of document preparation and handling. Regulation by big government helped sometimes, but mostly it caused significant expenses from unnecessary (because honorable Managers ran the Firms) work.
Profits were the revenues, minus the expenses, and minus the taxes. (Technically, any payment by the Firm reducing the profit of the Capital is an expense, including Rents paid to landlords, wages paid to Workers, and taxes paid to government.) Not only did big government regulation burden the Firms with expenses, the Staffs explained, big government also required unnecessary government expenses, financed by taxes.
Without the “job-killing” regulation and taxes of big government, said the Staffs, the Managers might raise the wages of the Workers, and the Ingenious Innovative Job Creators might hire more Workers. The Staffs omitted to mention they might not. And, of course, expenses reduced the current quarter’s profits the Staffs reported to their Aristocrats.
The Staffs and the Tea Party fell in love from the start. The Staffs provided dazzling verbosity and graphs to the Tea Party. The Staffs urged Professors to sing “Growth of GDP” and other songs about how lower taxes increased government tax revenues and about how magnifying the flow of incomes through the Firehose Up, the Aristocracy’s income stream, enabled the Ingenious Innovative Job Creators to hire more Workers. The Professors sang innumerable ballads on the Firehose Up conveying GDP growth to Aristocrats so the Downward Trickle would benefit the Workers.
The Staffs arranged their Aristocrats political contributions so the Tea Party could get control of government. They arranged the charitable contributions to business schools to provide incomes for esteemed Professors. The Professors and the Staffs, having been educated by the Professors, provided intellectual allure to the non-intellectual Tea Party. The Tea Party welcomed anyone who favored Capitalism, ideologists of the respectable William Buckley and Ayn Rand styles, Supercompensated CEOs, Aristocrats, the Staffs, and small-government Libertarians, because these people saw the unnecessary and undeserved expenses of big government. They also welcomed survivalists, gun enthusiasts, religious zealots, advocates of unscientific points of view, anti-intellectuals, lonely people adopting new friends’ views, self-styled “conservatives”, and others. Together their large influential minority voting block had power. Tea Party members came mostly from the 90 Percent. In the Tea Party, the Workers aligned with the Aristocracy, the Staffs and the Managers.
Every Staffer knew her future income could depend on the next quarterly report.
The chronicles tell us that on coming to the age of majority, the handsome, strong, daring and impetuous King Eric of Denmark declared diplomacy had produced little, and something about “make Denmark great again”. He made war for territory, draining the treasury, weakening the military, and losing a little land rather than gaining it. War for land would lead to his great Monop by sea, the principal component of his Firehose Up, about which we will learn more in the next episode.
My deep thanks goes to editor and friends who critiqued my prepublication drafts.
Notes on Images and Sources for the Eric Tetralogy: https://daniel-brockman.blogspot.com/2017/08/FTC-eric-tetra-1-rents-and-monops.html
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