Matt Yglesias and I certainly do read history differently. He writes recently in a Salon article:
The basic economic foundations of industrial capitalism as we've known them for the past 150 years or so have an activist state at their core. Building political institutions capable of doing these things properly is really difficult, and one of the main things that separates more prosperous places from less prosperous ones is that the more prosperous places have done a better job of building said institutions. There's also the minor matter of creating effective and non-corrupt law enforcement and judicial agencies that can protect people's property rights and enforce contracts.
The point is, it takes an awful lot of politics to get an advanced capitalist economy up and running and generating wealth. A lot of active political decisions need to be made to grow that pie. So why would you want to do all that? Presumably because pie is delicious. But if you build a bunch of political institutions with the intention of creating large quantities of pie, it's obviously important that people actually get their hands on some pie. In other words, you go through the trouble of creating advanced industrial capitalism because that's a good way to create a lot of goods and services. But the creation of goods and services would be pointless unless it served the larger cause of human welfare. Collecting taxes and giving stuff to people is every bit as much a part of advancing that cause as creating the set of institutions that allows for the wealth-creation in the first place.
This is counter-historical crap. Unfortunately, my real job is taking all my time today so I can only give a few quick responses rather than the thorough beating this deserves
- Capitalism is not a "system." It is an un-system. It is an order that emerges from individuals exchanging goods and services to their mutual self-interest. While it requires a rule of law, those rules can be exceedingly simple -- at their core they are "don't deal with other people via force or fraud." Sure, case law can be complex - what happens to a land deed that has one boundary on a river when the river moves. But I don't think this is what Matt is thinking of.
- Yglesias is following the typical socialist-progressive line that our modern wealth creating capitalist economy was somehow created by the government. I am sure this line works with the low information voter, but that does not make it any more true. Industrial capitalism arose long before the government even acknowledged its existence. The US economy was generating wealth - for everyone, rich and poor - long before politicians stuck an oar into the economic waters. Go back even 85 years and you will not see anything in the "political economy" that would be recognizable to a modern progressive. In other words, the wealth creation came first, and then the politics came second.
- Again we see this bizarre progressive notion that wealth creation is this thing apart, like a water well in the desert. Income distribution in this model is a matter of keeping the piggy rich people from hogging all the water. But in a free society, the economy and its gains are not separate from people, they are integral to the people. Gains are not somehow independent variables, but are the results of individual gains by each person in the system. People operate by mutual self-interest. When I work for you, I get a paycheck, you get your products made -- we both gain. Steve Jobs grew wealthy selling iPads, but simultaneously my iPad made me vastly better off.
- It is wrong to say that all distributions of wealth are arbitrary. In a free society, there emerges a natural distribution of wealth based on people's exchange with each other. And contrary to the progressive mythology, that system was floating all boats, not just the rich ones, long before the government gained the power to redistribute wealth. Yglesias is right in saying that income distribution in a progressive political economy is arbitrary. In fact, income in any government-managed economy is distributed arbitrarily to whoever can gain power. I am always amazed at progressives who somehow have this vision that there will be some group of people with absolute power who wukk make sure there will be a flat and equitable income distribution. When has that ever happened? Name even a single socialist country where that has happened.
- What political decision has ever been made the grows the pie, except perhaps to keep the government's hands off pie creation? When "political" decisions are made to grow the pie, what you actually get is bailouts of Goldman Sachs, wealth funneled to connected billionaires like Elon Musk, and Solyndra. Politics don't create wealth, they are a boat anchor lashed to the wealth creators. The only thing politicians can do productively is make the boat anchor lighter.