The chapter starts with a beautiful quote from Martin Luther King jr.:
"Communism forgets that life is individual. Capitalism forgets that life is social, and the kingdom of brotherhood is found neither in the thesis of communism nor the antithesis of capitalism but in a higher synthesis...that combines the truths of both.”
Martin Luther King jr.
Many people seem to believe that the only alternative to the excesses of
capitalism is the repression of communism. This is a false idea. Both systems
failed because "they created a concentration of unaccountable power that stifled liberty and creativity for all but a few at the top."
The synthesis alluded to above, is, according to David, a system that "roots
power in people and communities of place and unleashes our innate human
capacity for cooperation and creativity."
Too much centralized power doesn't work well, as history has proven and current events show. A redistribution and decentralization of economic and political power is necessary.
Wall Street versus Main Street.
Wall Street type of economy refers to "institutions of big finance and the captive corporations that serve them". Their location can be anywhere in the world. The name is a symbol of a world of pure finance "using money to make money by whatever means for people who have money".
Producing real goods and services is only a byproduct of this activity.
"Financial speculation, corporate-asset stripping, predatory lending,
risk shifting, leveraging, and debt-pyramid creation" form the core business of Wall Street. It does not create real wealth for society, as discussed in the previous chapter.
Main Street refers to the world of local businesses and working people "engaged in producing real goods and services to provide a livelihood for themselves, their families, and their communities". It is more varied in its values and priorities. Its enterprises are varied: from family businesses to cooperatives and locally owned corporations. Most of these businesses function "within a framework of community values and interests that moderate the drive for profit".
Community service is a value committed to by many Main Street business owners.This orientation distinguishes Main Street from Wall Street. David mentions the Business Alliance for Local Living Economies (BALLE) whose members are engagedin building the New Economy.
The problem with the corporate charter (the publicly traded limited liability
corporation) is well known: it "creates the legal capacity to amass under unified management the power of virtually unlimited financial capital".
The shareholders ae exempted from liability beyond the amount of their
investment. The real economic power in the USA resides with Wall Street
institutions that buy and sell corporations as mere commodities.
Any consideration of social or environmental nature is punished by a hostile takeover or "a revolt of institutional shareholders". The result of all this is a global "capitalist economy destructive of both life and the human soul".
Freedom to commit fraud
David explains that the term free market "is a code word for an unregulated
market that allows the rich to consume and monopolize resources for personal
gain free from accountability for the broader social and environmental
consequences." Financial rogues and speculators profit from "subsidies, the abuse of monopoly power, and financial fraud". This increases inequality between people. Costs are externalized to society.
David's conclusion is that markets work best "within the framework of a caring community. The stronger the relations of mutual trust and caring, the more the market becomes self-policing".
The market alternative
Capitalism is not synonymous with markets and private ownership. David refers
to the influential work of Adam Smith "Inquiry into the nature and causes of the wealth of nations". Smith articulates the democratic ideal of "a self-organizing economy that creates an equitable and socially optimal allocation of society's productive resources through the interaction of small buyers and sellers making decisions based on their individual needs, interests, and abilities."
Pages 49-50 of David's book detail some of the conditions of efficient market
allocation. These conditions deal with the size of the influence of the sellers and buyers, distribution of income and ownership (no extremes), completeness of information (no trade secrets), incorporation of all costs into the sale price, balanced trade between countries, savings to be invested in the creation of productive capital. This refers to Main Street economy, rather than Wall Street! The latter represents a narrow class interest.
Table 3.1 summarizes the above discussion. See p. 51 of the book.
Rules make the difference
When a market economy lacks proper rules, a framework that provides the
context for daily decision making, one gets capitalism. In the latter, liberty is being misused to concentrate economic power, monopolize resources and
maximize the profits of the already rich. Costs are passed to the taxpayer.
Wall Street is like a cancer that should be eliminated. It drains society's energies and produces very little of value. Adam Smith stresses the need for government interference in such cases of misuse of liberty, in his book “The theory of moral sentiments”.
Main Street market economy facilitates "decentralized economic
self-organization to optimize the use of local resources to meet local needs.