Book Cover

Democratic
Capitalism,  The Way to a World of Peace and Plenty
by Ray Carey

Hard/Softcover/Kindle - 5 May, 2004, Available on Amazon.com

Ray Carey presents the theory and practice of democratic capitalism by coupling his experience with a synthesis of the thought of Adam Smith, Karl Marx, and John Stuart Mill.  The empirical evidence is clear: democratic capitalistic companies produce superior results, and nations that support economic freedom and keep money neutral improve the lives of their people.


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Course 4:43

Letters

Open letter to the intellectual community:

Many believe that humans can reach their full potential if society provides the conducive circumstances and removes the impediments. Others believe that humans are murderous animals needing an all powerful state to control them.
Human history provides evidence to support both views.  The American Founders integrated knowledge and provided the opportunity for many, excluding slaves, to seek their potential.  It was the first time a nation had been designed by reflection and choice but the world was still dominated by those using force for perceived economic benefit. 

The idealists could claim that the 20th century confirmed that economic freedom could feed, clothe, shelter, educate, provide health care for all people in the world, and that economic common purpose could unite people and stop the violence.  The pessimists, however, could point to a record 160 million humans killed by governments during the century and violence that had escalated again to total war.

The world looked to America to lead to economic purpose but America lead instead to the use of violence. The pessimists took control of foreign policy and beginning with the CIA toppling the democratically elected head of Iran in 1953 have dominated other countries by force for political purpose and perceived economic benefit. The same coercive philosophy corrupted the economic system at home and concentrated wealth in record amounts.

The American people have not abandoned the challenge of our Founders to allow all people to reach full potential but their democratic will and wisdom have been ignored in the political process. Those who have successfully lobbied government to concentrate wealth have used the wealth to corrupt democracy. The people need sufficient understanding of economic freedom and economic common purpose to align political policies in their support. This is not happening because the intellectual community has failed from the beginning of America to integrate knowledge, to stimulate democratic power and change the rules from coercive to cooperative.

They have failed to identify the new mode of production for the post-capitalist society that can eliminate material scarcity in the world, distribute wealth broadly, and accomplish this through a moral system. This democratic capitalism has been available for examination since the time of Smith including the refinements of Marx and Mill in mid-19th century. The intellectual community at the end of the 18th century had done an incredible job integrating knowledge showing the way to a world of peace and plenty. Marx and Mill enhanced their contributions in a synthesis that completed the definition of democratic capitalism. The intellectual community did not have to produce new concepts they just had to study this new mode of production.

The question is why?  Why did the group endowed with the education, intelligence, and curiosity, many with a mission of improving the human condition, not examine this way?  They failed in this responsibility because they were culturally conditioned to contempt for commerce and a love of state that has persisted from the time of Plato to the present.

The following is a historical review of this failure, a better understanding of which is prerequisite to the intellectual epiphany necessary to discover the economic system that can bring the world to peace and plenty.  It will describe why everyone in the world, for the first time, will have a pragmatic opportunity to seek their full potential. This incredible opportunity depends only on the intellectual community educating enough people in what political support is necessary for economic freedom and a priority for economic common purpose.

400 bce  Plato and Aristotle have been studied endlessly because their writings were available courtesy of the Muslim culture who maintained them for many centuries and then passed them onto Western civilization during the Crusades.  The mode of production at that time was slavery and leaders would go out and harvest slaves as the need arose. Repetitive wars and violence were part of the culture and the men were honored for their military service. Plato and Aristotle both looked to the State for the just society including prohibitions against people who had been in commerce from holding public office until five years after ceasing their commercial work.

Aristotle: “The polis is prior in the order of nature to the family and the individual”  “for the man who lives the life of a mechanic or laborer  cannot pursue the things which belong to excellence” “ No man could share in office who had not abstained  from selling in the market for a period of ten years”  Plato added “ It is important for the state to keep its trading class as small as possible; second, trade should be made over toa  class of people whose corruption will not harm the state etc.

Plato’s last book described his fascist compound in which music and literature were censored, children were raised by the state, and foreigners were excluded.
Aristotle pointed out that full potential could be attained by putting the conducive circumstance in place and removing the impediments. He called this state eudaimonia but felt that it was possible only for the elite few engaged in a contemplative life.

Centuries earlier other civilizations had institutionalized a caste system such as the Hindus in India who excluded from the four castes the untouchables who did the dirty work.  It was not a world in which an opportunity for everyone to reach full potential could even be considered.  

Christianity did add the important feature of honoring the worth of each individual and it was this feature that made it attractive to the large Roman slave population. There was little optimism, however, that the material world could provide the circumstances necessary to reach full potential consequentially Christianity and other religions concentrated on the rewards in the after life.
The mode of production in the middle ages was serfdom and society was static, that is, the individual was not free to seek full potential they were not even free to change the status that they had been born into.

The optimists believe that the irresistible human urge towards freedom is the motive force that improves lives. The sequence is freedom of the mind, followed by freedom of the body, and finally freedom of the spirit meaning the condition of eudaimonia reached by all. This sequence can be observed in Western  civilization with the advance of technology was gradually freed from the tyranny of church and state. Galileo, Descartes, Voltaire and others were all punished for thinking and saying what they thought. Great Britain was a century ahead of the Continent in the march towards freedom and led in both Constitutional freedoms, the advance of technology and the industrial revolution. The integration of knowledge was expedited by Voltaire bringing back from England the work of Newton, Locke, and Bacon after he had been banished there in 1726.  Notably in the history of integrating knowledge for human betterment is the comment of one of the French Enlightenment in respect to Bacon’s protocols for finding truth in order to integrate knowledge:  “At the head of these illustrious personages should be placed the immortal Chancellor of England, Francis Bacon, whose works, so justly esteemed, deserve our study even more than our praise.”   A challenge unmet by most of the following generations of intellectuals.

Based on results it can be argued that the American Founders were the greatest integrators of knowledge for human betterment in history. But Jefferson and Madison did not have the financial sophistication to prevent Hamilton from writing the rules that immediately put democracy and capitalism in tension, not harmony. Hamilton was the hard working genius who saved the country with his structural work but then followed his political philosophy of providing privileges to the wealthy and powerful in exchange for their participation in government. The privileges were the opportunity to speculate with borrowed money and it produced the first damaging recession in 1818.

The greatest integrator of knowledge for human betterment was the Marquis de Condorcet, the last of the philisophes who was the protégé of Voltaire the first of the philosophes. Condorcet in his “Tenth Stage” presented the full package of advice from a classical liberal manifesto to specific advice on how to prevent the non-democratic privileges that allow the concentration of wealth. This presentation is summarized on pages 62-73 of Democratic Capitalism. It should be studied by all citizens who wish to know how to harmonize democracy and capitalism. Tragically, Condorcet died a few days after finishing this extraordinary document, a victim of the Reign of Terror another man of reason brought down by the men of violence. The following year the French government distributed thousands of copies of Condorcet’s integration. He deserves careful examination, debate and refinement by the intellectual community most of whom have never read him.

At the same time as Condorcet and in fact a friend of his, Adam Smith presented a watershed event in human history, an economic system that could eliminate material scarcity in the world for the first time. His Wealth of Nations combined the emerging technology of the Industrial Revolution with participating well-paid workers. The mode of production, however, became wage-slaves with the philosophy mercantile that believed that profits were maximized by suppressing wages and benefits. Despite the advent of the post-capitalist mode of production, democratic capitalism, much of the present corrupted economy is still dominated by this mercantile philosophy.

History of efforts to combine democracy and capitalism concentrate on the great American experiment. The chief integrators were Jefferson and Madison and their chief contribution was the belief in the people, their “will and wisdom” as they expressed it. This was not a naïve trust but a carefully considered structure that included the filtering process by the elected “aristocracy of talent and virtue” and it included expectations of the high-quality education that was the sine qua non for the success of the democratic experiment. 

Democracy and capitalism in this structure should have been in harmony from the beginning. Adam Smith was studied by the Founders and they were aware that Smith was not an apologist for greed as he was erroneously considered later he was the proponent of economic freedom as the way to eliminate material scarcity in the world in a system in which the workers were involved and well paid.  The greatest integrator of all at the end of the 18th century was Condorcet who combined his classical liberal manifesto with very specific advice on broad distribution of wealth:

Free trade, freedom of speech, freedom of press, the end of censorship, the end of slavery, the enfranchisement of women, universal free education, equality before the law, the separation of state and church, religious toleration, the adoption of a written constitution with a written declaration of the rights of people embedded in the constitution to insure the recognition of those rights, the establishment of a representative or parliamentary form of national government, and local self-government to encourage the independence and the participation of the peasants in government.

It is easy to prove that wealth has a natural tendency to equality, and that any excessive disproportion could not exist or at least would rapidly disappear if civil laws did not provide artificial ways of perpetuating and uniting fortunes; if free trade and industry were allowed to remove the advantages that accrued wealth derives from any restrictive law or fiscal privilege; if taxes on covenants, the restrictions placed on their free employment, their subjection to tiresome formalities and the uncertainty and inevitable expense involved in implementing them did not hamper the activity of the poor man and swelled up his meager capital; if the administration of the country did not afford some men ways of making their fortune that were closed to other citizens.

The most obvious of the non-democratic privileges was borrowed money for speculation and the best integrators of knowledge for human betterment throughout history have warned about their damage. For example, the 20th century proponent of free markets F A. Hayek was clear that the worst infringement on free markets was non-democratic privileges.

The great American democratic experiment worked well and gave more millions of people more freedom and a chance for a better life than any system in history. Our opportunities to build on that legacy in the 21st century world wide, however, depend on an understanding of why democracy and capitalism were in tension, not harmony, from the beginning. In a curious and sad confluence of events at the time that Condorcet was doing such a brilliant job integrating knowledge just before his tragic death Alexander Hamilton was writing the rules of finance capitalism in Washington’s first administration that were consistent with his speech at the 1787 Constitutional Convention. Hamilton (1757-1804)  and Jefferson represent the crucial dichotomy in their view of ordinary people and their capacity to participate in government. Hamilton was quite clear in his speech:

All communities divide themselves into the few and the many. The first are rich and wellborn, the other the mass of the people . The people are turbulent and changing, they seldom judge or determine right. Give, therefore, to the first class a distinct, permanent share in the government. They will check the unsteadiness of the second ,  and as they cannot receive any advantage by a change, they will ever maintain good government.

Hamilton was the bastard from Nevis who had married into the New York establishment, Jefferson was of the Virginia gentry. Perhaps it was Hamilton’s ugly childhood that conditioned him to appreciation of the wealthy and powerful so he proceeded to structure the new government not on Jefferson’s philosophy  of, for and by the people who would get it right in time but rather on the few.  Jefferson’s view was conditioned by his love of the independent farmer and the Louisiana purchase from Napoleon was for their benefit.

Hamilton thought in terms of an industrial country with the manufacturing strength to provide for defense. The country quickly copied European capitalism with the prerogatives to borrow large sums of money to speculate but also to put people in jail for union activities.

Hamilton was long gone from Burr’s bullet when the fundamental fallacy of his philosophy was exposed. Perhaps there were men of honor who would have handled finance capitalism properly but it was the dishonorable who took control after the war of 1812 and drove the country’s first boom/bust cycle. The panic of 1818 was caused, as always, by speculation with borrowed money and the desperate effects were repeated many times. Stocks and real estate values went out of sight after 1813. After the inevitable crash most lost their jobs, prices went up, and thousands were put in jail for such as $10 debts that they could not pay.

Within the first 15 years our democratic experiment was corrupted in ways that are still corrupting the country and unless identified and reformed they will divert us from the way to peace and plenty in the 21st century. What are the lessons not learned? What are the questions raised?

Study of these few years between 1812 and 1818 will provide all the information needed to reform the present system. Honorable bankers funded the War of 1812 fro an essentially bankrupt government with terms that may have been legal but they certainly were not patriotic. The system was then taken over by the Baltimore speculators who were greedy and immoral. The government was in the control of the few but not of the profile that Hamilton had adopted.

From the beginning democracy and capitalism were in tension because wealth was concentrated from government privileges. The people were tense but neither they nor their leaders understood how they were being scammed so the dance went on for another two centuries.  In 2007 the domestic economy is dominated by finance capitalism in wyas that are complete contradictions to Adam smith’s conditions for the success of free markets and foreign policy is dominated by a few militaristic, nationalistic, imperialistic, power-adoring men. 
The all-powerful state is that of Hobbes dreams, not that of the people. The concentration of wealth that corrupts capitalism is then used to “influence” the politicians thereby corrupting democracy.

America demonstrated the power of freedom but functioned at a fraction of potential. The intellectual community criticized the concentration of wealth but the culture never understood the full benefits of economic freedom or the opportunity for the world to unite in economic common purpose. Folly and violence continued. Wars became more “civilized” during the 19th century but that small gain was lost in the 20th century when 160 million people were killed by governments and war became more total and barbaric.

During that time Western nations used their military might for perceived economic benefit. Colonization of the world continued to the present American misadventures. The world was set back at least a century in moving towards economic common purpose by colonization and its residual effects still affecting countries from Iraq to Siri Lanka. None had the infrastructure to handle independence when it rapidly arrived.

It is not surprising that governments were not eager to reform in order to support Smith’s economic freedom. The few were making too much money and the intellectuals were not interested in economic reform. There were early opportunities to observe the empirical benefits of democratic capitalism and some took advantage. Robert Owen in his spinning mill near Glasgow demonstrated that investment in the people produced better profits than the mercantilists who concentrated on suppression of wages and benefits in the new mode of production for the industrial age-wage slaves.

Owen was a poor Welsh boy who had left home at age 10 to “oush his fortune”  In his twenties he met the owner of New Lanark, borrowed money, bought the mill,and married the owners; daughter, Owen saw the potential in each individual, and he undertook to release latent human power through education from the earliest age, cleaqn housing, sobriety, higher wages, and shorter hours. Each in Owen’s mill was given the opportunity to seek their full potential. 

Owen saw this watershed event in human history. There now was an economic system that could eliminate material scarcity and free the world of the violence that had been associated with scarce resources. He proclaimed:
was that through his form of democratic capitalism, humans need no longer starve or live in misery and despair.  In Owen’s Memorials, presented on behalf of the working class, his “First General Result” was a promise of universal comfort:

The period is arrived, when the means are become obvious, by which, without force or fraud of any kind, riches may be created in such abundance and so advantageously for all, that the wants and desires of every human being may be more than satisfied.  In consequence, the dominion of wealth, and the evils arising from the desire to acquire and accumulate riches, are on the point of terminating.

In the “Second General Result,” Owen addressed the education necessary to develop each person:

Owen had a couple of thousand visitors to his economic miracle including the Grand Duke of Russia. He took his discovery to Parliament and campaigned to keep 11 -year old boys off the midnight shift. He took his discovery to the Church of England thinking that a system that improved the material life by improving the quality of life, a system that honored the worth and potential of each individual in a culture of trust and cooperation  would be excitedly embraced by religion who would recognize these as common values. It did not work that way. Owen was rejected by his culture and ended his life promoting workers rights in England and communes in America.

A generation later the intellectual community had another opportunity with the integration of knowledge by Marx and Mill. In mid19th century they both did effectively an audit of Smith’s economic freedom and confirmed that it had demonstrated the capacity to actually eliminate material scarcity in the world, but, it was functioning at a fraction of potential because of concentrated wealth. Both Marx and Mill understood that Smith’s system was potentially an economic perpetual motion machine if surplus was broadly distributed. This was not a question of fairness, it was an essential part of Smith’s dynamic in which the money going to the wage earner, not the wealthy, would add volume in commodities in which the cost and price would go down adding new economic opportunities for more sales to those who could now afford to purchase, adding more volume, lower costs and prices in order to keep the wealth spreading dynamic going a full speed.

Marx is largely disregarded today because his integration of knowledge did not include private property, competition, and skilled management, all of the elements successful integrated by Mill. Marx had no experience in management of change and no understanding of how to implement his important visions. Further, he had the misfortune of having his system tried in an agricultural country by people who also lacked management of change experience.
Marx’s vision included:

J. S Mill shared Marx’s vision but gave it a better change to be implemented in an evolutionary way. He integrated it with private property, competition, and skilled management but he also for the first time saw a moral dimension of democratic capitalism. After many millennium of contempt for commerce here was a thoughtful person actually proposing that there was synergy between building more profits and a moral environment. But if people perform better in an environment of trust and cooperation in which they are given an opportunity to seek full potential why should the idea of synergy be radical?
Mill expressed his discovery this way:

The Democratic Capitalist Manifesto

The other mode in which cooperation tends still more efficaciously to increase the productiveness of labor, consists in the vast stimulus given to productive energies, by placing the laborers, as a mass, in a relation to their work which would make it their principle and their interest—at present it is neither—to do the utmost, instead of the least possible, in exchange for their remuneration.  It is scarcely possible to rate too highly this material benefit, which yet is nothing compared to the moral revolution in society that would accompany it; a new sense of security and independence in the laboring class; and the conversion of each human being’s daily occupation into a school of the social sympathies and the practical intelligence.

John Stuart Mill, 1848
  
John Stuart Mill (1806-1873) and Karl Marx (1818-1883) were close to agreement on the economic-political system that could create so much broadly distributed wealth that material scarcity would be eliminated and all people would be elevated and unified.  The definition and test of this social arrangement wherein each and all could reach their full potential had begun three-quarters of a century before Mill and Marx wrote their manifestos.

Ray CareyRay Carey

Ray Carey learned through managing companies for 33 years how to change the work culture to provide employees with their best opportunities to develop and contribute. This experience began as a 28 year old plant manager and later president of an electric motor company, and concluded with eighteen years as president , chairman, and CEO of ADT, Inc.

See Carey's autobiography of his work career in chapter two of his first book,

Democratic Capitalism, The Way to a World of Peace and Plenty.

For more information about Ray Carey and his advocacy of democratic capitalism, visit the pages of this website.


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I was very happy to hear about the plans for the “Carey Center” at Hamline University. It has been a source of much frustration to me that business concepts which I have seen working and which I admire have so little visibility in academia.

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