Novak had two aims in writing The Spirit of Democratic Capitalism (1981), whose title was a conscious parody of Weber’s classic statement, The Protestant Ethic and the Spirit of Capitalism (1904, 1930 in English translation). On the one hand, he wanted, like Gilder, to demonstrate that capitalism as such neither impaired the moral capacity of any individual nor contradicted the moral standards of modern society: “There is a strong consonance between the virtues required for successful commercial and industrial practice and the natural moral virtues.” In this sense he was rebutting the long-standing claims of socialists—keep in mind that these were also the deeply felt suspicions of most Americans—and addressing the questions Kristol had recently raised. On the other hand, he wanted to directly confront liberation theology and in doing so provide a positive theoretical alternative to Marxism. In pursuing both aims, his itinerary consciously and closely followed the map drawn by Reinhold Niebuhr, the Christian socialist of the 1930s who turned cold warrior in the 1950s.
Novak was using Niebuhr’s example to argue with Daniel Bell and Charles Lindblom, two giants of American intellectual life in the 1970s. Bell was the Harvard sociologist who had drawn deeply on Marx in writing The Coming of Post-Industrial Society (1973)—he was, not incidentally, a close friend of Irving Kristol, with whom he had founded The Public Interest, a hugely influential journal—and Lindblom was the Yale political scientist who had similarly drawn on Marx (as well as Adam Smith) in writing Politics and Markets (1977), a quietly incendiary book that explained why capitalism and democracy were at odds. Each of them posited a pluralist order in which there were three separate but interlocking systems (economic, political, cultural). But Bell had discovered a disturbing disjuncture between the economic and the cultural systems—the new capitalist hedonism had trampled the older bourgeois values (what Novak had called “the virtues required for successful commercial and industrial practice”)—while Lindblom had (re)discovered a dangerous discrepancy between the economic power of corporations and the political power of individuals (note that this same concern was expressed at the same moment by Kristol himself).
Novak insisted that the moral/cultural system was not out of phase with the economic system because “the most profound of economic motives is almost always—and must necessarily be—family-oriented.” Indeed, the “fundamental motive of all economic activity” turned out to be “family-regarding.” Deferring gratification, saving for a rainy day, promising to meet one’s obligations, all the bourgeois virtues that were visibly decaying in Bell’s account of postindustrial society remained intact in Novak’s account of democratic capitalism: “self-interest” was just an ugly label for devotion to family. This is a compelling argument, of course, but only insofar as the traditional nuclear family functions as the moral anchor of modern economic man. In its absence, all bets on the future of capitalism are off. Perhaps that is why we still try to read that uncertain future in the fractured state of the family.
Novak also insisted that Lindblom was peddling social science hokum. Corporations were not “disproportionately powerful” actors on the pluralist political scene, as Lindblom had argued; they were leading men, to be sure, but they were directed, for the most part, by governments. Here Novak forgot his own homage to the corporation, “a novel social instrument,” as the key structural element of democratic capitalism. But then, his description of the corporation sounded very much like his defense of the family as the device by which self-interest was converted to social purpose: “The assumption behind this invention is social, not individualistic. It holds that economic activity is fundamentally corporate, exceeding the capacity of one individual alone. It requires a social life form which goes beyond the power and the lifetime of one individual.”
So Novak settled the ongoing debate about markets in organizing social life and individual opportunities by reference to institutions that either stood apart from markets (families) or actively administered them (corporations). It was an honorable attempt to demonstrate the continuity of capitalism and character, then, but it ultimately failed because it wouldn’t address the moral problem of market logic. In fact, Novak defended capitalism by celebrating the “social life forms” that limit the reach of markets in the name of purposes that have no prices—for example, he declared that “the family is a form of socialism that corrects the exaggerated individualism” created by modern market economies. He might as well have claimed that capitalism is tolerable as long as socialism contains its excesses.
Novak’s concluding critique of liberation theology was rather less than compelling; for his doubts about the moral contents of free markets were already on display. It also ran counter to the U.S. Bishops’ 1982 statement on the economy, which promoted state intervention in markets on behalf of equality. But it did clarify the deepening fissures in American religious thought of the 1970s and 1980s. Liberation theology was not officially launched until 1968 at the conference of Latin American bishops in Medellin, Columbia, when revolutionary hopes in the Western Hemisphere were highest; it had, however, been percolating within the Catholic Church, north and south, since the 1950s. In many ways, it was a theological version of dependency theory, which held that the former European colonies of Asia, Africa, and Latin America remained poor because they were still locked in exploitative economic relations with advanced industrial nations (especially but not only the United States). To abstain from these disadvantageous relations was to act on a “preferential option for the poor,” to treat the people who had been left behind by capitalism as if they were the future of the church.
The seminal statement of this radical vision came from the Second Vatican Council of 1965, in Gaudium et Spes (“The Church in the Modern World”). Here the gathered clerics announced that “equity and justice” demanded the immediate removal of the “immense economic inequalities” still separating rich and poor nations: “For excessive economic and social differences between the members of the one human family or population groups cause scandal, and militate against social justice, equity, the dignity of the human person, as well as social and international peace.” They also insisted that the real purpose of “economic production” was neither growth nor profit; it was instead “to be at the service of humanity in its totality.” So they concluded that the ancient criterion of need, the criterion on which their church had been founded, had a modern application: “Therefore everyone has the right to possess a sufficient amount of the earth’s goods for themselves and their family. This has been the opinion of the Fathers and Doctors of the church, who taught that people are bound to come to the aid of the poor and to do so not merely out of their superfluous goods.” Indeed, the poor were now deputized to redistribute the wealth on hand when required, as in the biblical injunctions of the Old Testament prophets: “Persons in extreme necessity are entitled to take what they need from the riches of others.”
The sequel to Gaudium et Spes, which was published in 1971 by the Synod of Bishops as “Justice in the World,” was in some ways even more stridently anticapitalist. It recognized, for example, the new issues residing in discussions of the “biosphere,” and proposed, accordingly, to limit economic growth in the name of environmental integrity. And it posited a universal human “right to development,” which makes participation in political decisions the equivalent of access to economic resources. But “liberation through development” required the eradication of existing inequalities between nations and peoples so that “a new form of colonialism” would not again victimize the poor, wherever they lived.
There was no Bible-banging in Novak’s response to this revolutionary theological challenge; his text was Niebuhr, not Isaiah. Instead of a scripturally based treatise on the sources of inequality or the solutions to poverty, in other words, he wrote a social-scientific meditation on the origins of a pluralistic, democratic capitalism. He assumed that dependency theory and its theological adjuncts were nonsense and asked, what kept the Other Americas poor? His answers recalled and rec
ast the arguments of Barrington Moore Jr. (which were, not coincidentally, reminiscent of arguments made by both Marx and Weber). In a seminal book called Social Origins of Dictatorship and Democracy (1966), Moore had shown that the original response of the landed nobility to the appearance of world markets in the sixteenth and seventeenth centuries determined the subsequent political history of their countries. Where they responded by imposing a second serfdom on the peasantry—as in eastern Europe—
democracy was doomed; where they responded by selling or renting their land to commoners, who in turn hired peasants newly freed from feudal obligations—as in western Europe—democracy became imaginable.
Novak used a similarly Weberian typology to suggest that the presence or absence of markets as such explained nothing; the key to the future was how the political and the moral/cultural systems had shaped the economic system. The roots of Latin American backwardness were then a matter of political and cultural failures that had distorted markets and disabled democracy since colonial times; liberation theology was merely the latest of these failures. Capitalism of the North American kind would redeem, not ruin, the South, for it would bring its adjuncts, political pluralism and moral/cultural integrity, to bear on the hapless products of the Spanish empire. Again, however, Novak had demonstrated that the spirit of democratic capitalism and the promise of American life did not reside in the economic system—in free markets, private enterprise, profit motives, and the like. They were instead to be found in a world elsewhere, in a world removed from economic imperatives: it was to be found in the same place liberation theology had located as its preferred destination. So the neoconservative argument once more intersected with that of the radical opposition to capitalism.
The Spirit of Democratic Capitalism was published by Simon & Schuster with a subvention—a subsidy—from the AEI, where Novak became a senior fellow in 1977. AEI was one of several Washington think tanks established or reinvigorated in the 1970s with big money from self-consciously conservative foundations (Olin, Scaife, Coors), which, unlike older and avowedly liberal foundations (Ford, Rockefeller, Carnegie), had no measurable purchase on American intellectual life. Its inventors understood that they needed to create a new political culture, a new intellectual climate, that would completely bypass the universities—the bastion of the Left—and speak directly to both journalists and politicians. Like their counterparts at the new Heritage Foundation (founded in 1973), they raised lots of money ($10 million a year by 1980), identified issues of concern to conservatives, recruited bona fide intellectuals like Novak, armed them with eager young interns, and said, “Let there be books!” Also academic conferences, press releases, talking points, budget studies, sound bites, and photo-ops. The point was to change the world, and that process, they knew, would have to begin in the marketplace of ideas, where liberals, Keynesians, and socialists were still the most reputable and influential peddlers. This institutional environment was the enabling condition of the “Reagan Revolution” as both an intellectual background and a social network—between them, AEI and Heritage sponsored most of the ideas and many of the individuals (including Stockman, Kemp, Roberts, and Gilder) that mattered in the first Reagan administration.
Why Is There Still Socialism in the United States?
Our question now becomes, how much did they matter? We know already that the intellectual origins of the Reagan Revolution were not merely, or even mainly, conservative. Were its consequences just as ambiguous? Let us look at the effects of the supply-side revolution and the larger neoconservative movement on what Novak called the economic and the moral/cultural systems. Marginal tax rates on corporate and individual incomes were cut substantially (by half) in 1981, in keeping with the idea that higher retained earnings would mean greater investment in goods production. But the fifty corporations with the largest tax benefits from the legislation of 1981 reduced their investments over the next two years. Meanwhile, the share of national income from wages and salaries declined 5 percent between 1978 and 1986, while the share from investment (profits, dividends, rent) rose 27 percent, as per the demands of supply-side theory—but net investment kept falling through the 1980s. In 1987, Peter G. Peterson, the chairman of the Council on Foreign Relations and former secretary of commerce under Richard Nixon, called this performance “by far the weakest net investment effort in our postwar history.” And yet the gross national product grew rapidly and the stock market surged after the short recession of 1982–1983.
The Reagan administration did reverse the welfare shift decried by liberals and conservatives alike. Between 1980 and 1987, for example, the human resources component of federal outlay fell from 28 percent of the total to 22 percent, while the defense component rose from 23 percent of the total to 28 percent. Meanwhile, federal funding for state and local spending on public welfare and education declined in real terms (after accounting for inflation) in the 1980s. Journalists and historians subsequently identified this reversal of budget priorities as the means by which the wily Reagan bankrupted the Soviet Union—the Kremlin had to match the American defense buildup or lose credibility—and “won” the Cold War. But it always had primarily domestic purposes rather than foreign policy implications: perestroika over there was an unintended consequence of the supply-side revolution over here.
Moreover, Reagan’s reversal of the welfare shift almost broke the bank back home. Federal budget deficits tripled in the 1980s, reaching levels unmatched except in wartime; by 1986, annual interest payments on the national debt exceeded corporate profits as a percentage of gross national product. For the Reagan administration did favor “free markets,” but couldn’t complete the agenda of “deregulation” started under Jimmy Carter; in fact, federal regulatory expenditures increased more than 21 percent in real terms between 1981 and 1990. And Reagan did make the “restoration” of national defense a principal priority, but he couldn’t stop the growth of government spending on entitlements or transfer payments such as Medicare, Social Security, family assistance (“welfare”), educational assistance (grants or loans), and veterans’ benefits. The Congress wouldn’t stand for it, and so the budget deficit just kept growing. This was not a result of liberal Democratic majorities; avowedly conservative Republican congressmen were equally determined to keep federal funding for local and state transportation projects, equally unwilling to dismantle Medicare or reduce Social Security benefits, and equally eager to regulate the economy on behalf of their constituents.
As David Stockman explained in 1987, “[p]olitical reality blew a large hole in the side of the [budget] cuts he had proposed in his capacity as director of Office of Management and Budget:” the free market and anti-welfare state premises of the Reagan revolution were not going to take root.” The ultraconservative economist Robert Higgs agreed: this so-called revolution “fizzled,” he claimed, because “politics as usual” reasserted itself as early as the spring of 1981. So we might say that the economic system installed and maintained by the Keynesian consensus miraculously survived the supply-side assault. But we should then ask how, and also wonder why anyone still believes that Reagan made an economic difference. What political reality was so powerful that it thwarted the electoral mandates this conservative president could honestly cite? Let us ask the question more pointedly: Was Henry Kaufman right about that majority of Americans committed to an “unaffordable egalitarian sharing of production”? Put it as plainly as possible: Did an unspoken socialism become a bipartisan purpose—politics as usual—in the late twentieth century?
One way to answer the question is to notice the dizzying range of regulatory agencies, federal statutes, and executive orders which, then as now, limit the reach of markets in the name of purposes that have no prices. A laundry list of such agencies, statutes, and orders would merely begin with the Federal Reserve System, the Food and Drug Administration, the Federal Trade Commission, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Federal Communications Commission, t
he Federal Aviation Agency, the Occupational Safety and Health Administration, the Environmental Protection Agency, the Equal Employment and Opportunity Commission, the National Weather Service, the Federal Emergency Management Agency, the National Institutes of Health, the Centers for Disease Control, the National Science Foundation, the National Endowment for the Arts, and the National Endowment for the Humanities. And so on, unto acronymical infinity.
To this incomplete laundry list, we should add the post-Vietnam armed services—the “volunteer army” that now serves as a job-training program and a portal to higher education for working-class kids, of every color, who enter adulthood with great expectations but without good grades, real diplomas, or athletic scholarships. Our new model army is, of course, one dimension of Reagan’s efforts to reverse the welfare shift. But if this massive part of the federal budget is not domestic spending to promote equal opportunity and social mobility—guns and butter, we might say—what is it? And to our apparently endless list we should also add the thousands of nongovernmental organizations and nonprofit institutions that stand athwart the free market, modulating and containing its arbitrary forces. As we shall see in chapter 2, the most important of these hybrids are institutions of higher education, where the public and private sectors now meet to plan the future, and where about a third of Americans now congregate, almost every day, whether as students, teachers, or staff.
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