Chyden Finance: profit from hypocrisy

Yesterday and the day before, I commented on some attacks from the far left on the corporate form of capital ownership.

This was not meant to be a defense of the military-industrial complex or the revolving-door between industry and government.

The choice between anti-government libertarianism and anti-market socialism is a false dichotomy.

Both corporations and governments can grow beyond their optimal scales and become too big for the good of the common weal. Megaorganizations — whether empires, nation-states, megacorporations, or even civilizations — are not ‘too big to fail’; they are too big not to fail. Witness the Roman Empire, the USSR, Penn Central Transportation Company, Lehman Brothers, and countless ancient civilizations.

As I have discussed earlier, ultimate power today is passing from location-bound governments to transnational corporations and international bureaucracies. Let us take a moment to reflect on the wisdom of The Who:

Meet the new boss.
Same as the old boss.

In 1934, Wilhelm Roepke drew a distinction in “Kapitalismus und Imperialismus“* (warning: PDF in German) between government domination and market domination that he dubbed imperium vs dominium. Basically, imperium is delivered through military intervention by expansionist governments, and dominium is delivered through monopolistic transactions by expansionist firms.

Roepke’s distinction has been popularized by journalist Thomas Friedman as the so-called Golden Arches Theory of Conflict Prevention and Dell Theory of Conflict Prevention.

Although both imperium and dominium are forms of domination by outside powers that have their roots in gigantism and monopolism, imperium is enforced through threat of destruction, and dominium is enforced through economic lock-in. In other words, there is a non-trivial distinction between the US Air Force, Army, and Navy on the one hand and McDonald’s, Disney, and Microsoft on the other.

In the three-quarters of a century since Roepke penned “Kapitalismus und Imperialismus,” organizations have arisen that blur this distinction. For example, some creatures of government, including the IMF, OECD, and World Bank are fundamentally imperialist organizations that incorporate some of the voluntary-victim elements of dominialist organizations, esp. voluntary membership followed by lock-in. Likewise, some creatures of the market, including Blackwater, Halliburton, and other government contractors deliver their services at the point of a gun.

In the real world, government is corrupted by business as much as business is corrupted by government.

Some time ago, The Wall Street Journal published a longish and generally positive piece analyzing the possible breakup of the USA into several independent countries.

This article was remarkable in that its thesis tacitly acknowledges a disdain for what Roepke called the Cult of the Colossal.

It will be very interesting to see if this notion catches on, thereby destroying any opportunities for those of us who recognize it to profit from it. As a father, a husband, a son, and neighbor, I hope that the greater masses cotton on to the fact that too-big-to-fail is a lie; as an investor, I hope that they don’t.

Don’t forget the past, thus dooming yourself to repeating it, and invest accordingly.

CWE

* Roepke, Wilhelm, (1934), “Kapitalismus und Imperialismus,” Zeitschrift für Schweizerische Statistik und Volkswirtschaft: 370-386.