The Theory of Business Enterprises Part 5: A Legal System That Supports Businessmen

In Chapter 8 of The Theory of Business Enterprises, Thorstein Veblen takes up the political and legal systems of the US. Both are designed to support business at the expense of everyone and everything else. By 1904, people were used to thinking about almost everything in terms of money, and that means that “… the management of the affairs of the community at large falls by common consent into the hands of business men and is guided by business considerations.” And that’s true of both national and international matters.

He claims that this habit of mind is reinforced by the doctrines of Natural Liberty, a reference to the theory of John Locke, which I discuss here. Locke’s theory was formed at a time when production was dominated by the artisan and the small farmer. He argued that the worker, these individual small producers, were entitled by the principles of Natural Liberty to own the things they produced, whether it was the blacksmith, the cobbler, or the weaver/dyer. Locke was concerned to protect their production from the monarch, whose absolute power was backed up with troops. Apparently teh landlord was entitled to rent, and to a share of the produce of tenants, but never mind why, exactly. That notion carried over to industrial production, so that the owner of the factory was entitled to the goods produced by the workers. Veblen refers to this as a metaphysical theory, but it obviously doesn’t explain much.

The unquestioned idea that property rights are part of Natural Liberty survived the days of artisans and small farmers, where they made some kind of sense. The common people could be said to be free in the sense that they controlled their hours of work and the methods of production. The idea carried over into the era of industrial production, where businessmen controlled much more of the work and private life of the worker. It meant that the arrangements of industrial production could not be interpreted as unlawful coercion. Workers were free to take whatever work was available at whatever price. They not entitled to any of the goods produced, directly or indirectly, but only to a wage, if the capitalist actually paid one. Or, they could starve. We’ve seen this before. https://www.emptywheel.net/2015/11/17/the-great-transformation-part-6-labor-as-a-fictitious-commodity/

Veblen offers this explanation for the willingness of the workers to put up with this arrangement. It’s like the manorial system, where the workers thought, he says, that the production remained with the feudal lord, and thus increased the wealth of the group, and that was good for the peasantry. Also, the feudal lord provided protection to the peasants, for which they were grateful. This in turn looks like patriotism. These two ideas of property and patriotism in led the common people to feel as though they had “some sort of metaphysical share in the gains which accrue to the business men who are citizens of the same ‘commonwealth’; so that whatever policy furthers [their] commercial gains … is felt to be beneficial to all the rest of the population.” Or, as he puts it later when discussing the governmental support for all things business,

And in its solicitude for the business men’s interests it is borne out by current public sentiment, for there is a naive, unquestioning persuasion abroad among the body of the people to the effect that, in some occult way, the material interests of the populace coincide with the pecuniary interests of those business men who live within the scope of the same set of governmental contrivances.

“Some occult way”, a lovely description of much economic theory.

The main function of the law is to insure that the interests of business men are protected. In large part, that means enforcing “freedom of contract”. That means the freedom of the workers to enter into whatever contract they choose. The reality is that workers don’t have much in the way of freedom, and the businessmen were free to offer whatever terms they chose. The pressure on the workers was pecuniary, and therefore wasn’t assault and battery nor breach of any contract. Consequently the law had no interest in the matter. If the jury of workers objected to this interpretation of the law, and ruled in favor of a worker injured on the job, that was because their vulgar minds couldn’t grasp the grandeur of the rules of Natural Liberty, and they would be quickly corrected by the superior minds of the Judiciary.

Veblen’s view was to receive confirmation the very next year in the now famous case of Lochner v. New York, 198 S.Ct. 45 (1905), where SCOTUS upheld the freedom of bakers to work more than 60 hours a week despite a New York statute designed to protect their health and safety. The case is famous for the dissent filed by Justice Oliver Wendell Holmes, who claimed that the majority decided the case on the basis of “…an economic theory which a large part of the country does not entertain.” Also, it was decided under the Fourteenth Amendment, just the first of a long string of horrible misuses of that Amendment.

Here’s Veblen’s view of the results:

De facto freedom of choice is a matter about which the law and the courts are not competent to inquire. By force of the concatenation of industrial processes and the dependence of men’s comfort or subsistence upon the orderly working of these processes, the exercise of the rights of ownership in the interests of business may traverse the de facto necessities of a group or class; it may even traverse the needs of the community at large, as, e.g., in the conceivable case of an advisedly instituted coal famine; but since these necessities, of comfort or of livelihood, cannot be formulated in terms of the natural freedom of contract, they can, in the nature of the case, give rise to no cognizable grievance and find no legal remedy.

Veblen doesn’t mention one ground of support for property rights that seems important to me: That’s Mine!. This may be the most deep-seated view that any of us has, and the idea that we have to share anything, including the very air we breathe, seems unfair to many of us. I can do what I want with my property, so If I want to paint my house with polka dots, hand a garish sign on my shop, or poison the air and water, and lie about it, that’s my right and you can’t stop me. The natural extension of that idea is that businessmen can do whatever they want with their property, just like I can with mine, and screw the community.

With that background, and with a grasp of how firmly it’s held, we can begin to understand how the neoliberals found a strong basis for their reworking of neoclassical economics into the force it has here today. Natural Liberty reinforces That’s Mine to create loathing for any intrusion on the freedom to do what one wants with one’s property. Everyone agrees that the proper role of government is to enforce those property rights. And that is the real ground of property rights: raw power. Locke makes a metaphysical argument, but the Monarch had armed troops. If Locke’s conception prevailed, it was because the power to command those troops to seize property and give it to the monarch had been eliminated.

In the US, private property is protected by the Constitution, and all levels of government enforce that protection zealously. Laws that restrain the use of property to damage the community are not enforced zealously, as we know from the aftermath of the Great Crash and the rate of rise of prices of pharmaceutical drugs. This is a deeply stupid and dangerous arrangement of priorities.

Notre Dame undergrad (math); JD, Indiana University at Bloomington; 1st Lieutenant, US Army.; private practice in corporate and securities law; Assistant AG in Tennessee for consumer protection and securities; Blue Sky Securities Commissioner, Tennessee; private practice, bankruptcy and corporate law.

I have had a lifelong interest in economics. For most of my career, that interest was practical, focused on the problems in front of me. Lately I have been more interested in economics as a theory, especially its impact on the lives of people like those I met in my bankruptcy practice, and on the politics of money in the US. I also enjoy reading philosophers, starting in college and steadily expanding my reading ever since. I wrote at FireDogLake for a number of years.

Generally, I think the problem facing the US is the dominance of neoliberal discourse. I think it clouds the vision, and limits the kinds of problems that can be identified and solved. For example, the existence and danger of climate change can easily be identified in a scientific discussion. However, the problem does not fit the neoliberal discourse because science insists that the pursuit of individual and corporate self-interest will lead to devastation. In neoliberal discourse, the pursuit of self-interest always leads to Eden.

The neoliberal project has two prongs. One is the police function of crushing dissent and alternative views. The police function is provided by government agencies and private and institutional actors. The counterpart is the economic system , which is operated by government and by private and institutional actors. Some of these actors operate in both spheres. I focus on the second prong.

4 replies
  1. bevin says:

    The power of eminent domain is derived from the notion that all real property is held in fee from the crown.
    The feudal lord to whom you refer did not own, in the allodial sense, anything. He held it, as did his successors, under certain conditions from the Crown, which could at its discretion reclaim the ‘property.’
    The great transformation took place when the wealthy, through their control of the legislature, enshrined their customary ‘rights’ into law. At the same time denying the legality of those customs-hedging the property of the poor- which prevented them from seizing the commons. And ending the customs which, as conditions under which they held their ‘property’ abridged their freedom.
    Under English common law there is no such thing as private property of the ” It’s Mine” sort. It is all held, in trust, as it were, from society personified in the sovereign.
    The idea that property can be used to anti-social ends is, in law, as false as, in practice, it may be routine.

    It is an interesting fact that the Royal Proclamation of 1763, enacted by Lord Shelburne, enraged colonial speculators by declaring large tracts of ‘western’ lands to be out of bounds to non-natives. This was undoubtedly a contributory factor in the revolution.
    Shelburne, ironically was heir to the lands which William Petty, the original Political Arithmetician, gained when , as surveyor general in Ireland, he made a fortune out of stolen real estate.

  2. Ian says:

    BEVIN SAYS:
    It is an interesting fact that the Royal Proclamation of 1763, enacted by Lord Shelburne, enraged colonial speculators by declaring large tracts of ‘western’ lands to be out of bounds to non-natives. This was undoubtedly a contributory factor in the revolution.
    .
    I SAY:
    For an expanded discussion on how extensive the provisions of the 1763 Royal Proclamation were can I recommend:
    .
    http://www.thecanadianencyclopedia.ca/en/article/royal-proclamation-of-1763/
    .
    In addition to the very brief references in wikipedia.org?

  3. bloopie2 says:

    “Veblen doesn’t mention one ground of support for property rights that seems important to me: That’s Mine!. This may be the most deep-seated view that any of us has, and the idea that we have to share anything, including the very air we breathe, seems unfair to many of us. I can do what I want with my property, so If I want to paint my house with polka dots, hand a garish sign on my shop, or poison the air and water, and lie about it, that’s my right and you can’t stop me. The natural extension of that idea is that businessmen can do whatever they want with their property, just like I can with mine, and screw the community.”
    .
    Yes, but. If I want to paint my house a nice tan color or a light gray, that’s my right and you can’t stop me. If I want to hang an attractive sign on my shop so that I can get customers and survive, that’s also my right and you can’t stop me. Those are good things, not bad things. Should the powers that be (or the community) have the ability to stop me from doing those good things? Who’s to say who can stop who from doing what? How draw the line, and where? I guess the question is, Is there, in this regard, an example of a well-functioning, fair community that has existed in the last two millennia, that we can consider?
    .
    Nice post, as usual, thank you.

  4. earlofhuntingdon says:

    The majesty of the law mythology effectively hides how laws are made, in whose interest, and who pay its costs. Similarly, the contemporary American economics profession has elided from view the history and sociology of economics, which might inform the curious about how economic policies are formed and business practices legitimated, in whose interests, and who pays their costs.

    Lochner v. New York is a famous example. Decided in 1905, the Supreme Court, then as now (and for most of its history), was securely in conservative, business-friendly hands. This was so despite (because?) the era witnessed massive social tensions and labor unrest.

    https://en.wikipedia.org/wiki/Lochner_v._New_York

    Lochner was only tangentially a property case, but the underlying theme is a no holds barred defense of business against the unseemly demands of workers. The case was so controversial that it gave its name to a decades long period of the court’s slavish support for business interests.

    Lochner was famous, among other things, for furthering the perversion of the 14th amendment. Nominally, that amendment was adopted to advance the rights of former slaves. It requires (among other things) due process and equal protection. Clients of well-paid lawyers, however, tend to be owners of large businesses, not former slaves. They appropriated the personal rights claims for the new kid on the block – the business corporation, and most especially its more novel cousin, the holding company. This was the era in which massive businesses, trusts and family fortunes were converted into business corporations. The holding company was invented to consolidate and control them, and to avoid growing restrictions on the monopoly power of trusts (sugar, steel, meat, cigarettes).

    Lochner specifically dealt with “freedom of contract”. Enshrined in sublime vagueness in the Constitution, freedom of contract, like other economic concepts, requires any number of assumptions. As we know, economic assumptions often defy logic and everyday reality. The Lochner decision is no exception. The court assumed that parties to a contract always and everywhere are equally able, under the law, to choose whether and what terms to agree to. The court blithely ignored the ubiquitously uneven power relations the justices must have tripped over on their daily travels to and from the courthouse. Per Lochner, state action to improve working conditions for bakery employees violated the freedom of bakery employers and their employees to agree to any working conditions they might choose, however exhausting and dangerous for the employee those might be.

    The “freedom” of employees to set terms of work with their employers has not much improved since the heyday of McCormick, Swift, Armour, Pullman, Ford, Rockefeller, or Carnegie and Frick. Indeed, that era of capitalism proudly deemed it a duty to minutely specify the time and manner in which a worker was to perform each task during the work day, and often the manner in which a worker lived at home (often living in company housing and shopping in company stores, overpaying for cheap merchandise with company-issued script, not real money).

    Some of the law, and bargaining and working conditions have changed. But not because the majesty of the law graciously conceded the need for change or because workers patiently waited for that change to come.

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