September 22, 2000

Strakon Lights Up
Rent-controlled pols

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Mainstream populist types who want to "reform" campaign financing aren't rearranging those proverbial deck chairs on the Titanic  so much as drilling additional holes through the hull, it seems to me. And they're doing it to the secret glee of those who have a vested interest in seeing them drown.

After all, the last great outburst of "reform," in the 1970s, helped chart the way to our current point in the ice field. The amount of money spent on campaigns pre-"reform," corrected for inflation, is risible compared to what is spent now. Moreover, the higher circles haven't exactly been barred from influencing the electoral process, according to ruling-class analyst G. William Domhoff in the most recent installment of his Who Rules America  series. The laws limiting the amount that wealthy individuals could donate at the national level, Domhoff says, "did not diminish the influence of the corporate community. If anything, they increased it quite inadvertently."

I depart from Domhoff on that final adverbial phrase. The results of the 1970s "reforms" — their general tendency, at least — surely weren't inadvertent at all. Otherwise it's hard to see how they ever could have been passed. Instead, they reflect the general course of "reform" in American history — a show of action is proclaimed with trumpets and drums to pacify the restless multitude, while the real action consists of quietly handing the higher circles new, more sophisticated, and more arcane tools to maintain and build their privileged position in the political-economy.

Domhoff continues: "Before 1975, a handful of owners and executives would give tens or hundreds of thousands of dollars to candidates of interest to them. Now they organize luncheons and dinners at which all of their colleagues and friends are asked to give a few thousand dollars each to specific candidate and party finance committees."

And they form political action committees. "Corporations can ask their shareholders and executives to give up to $5,000 each year to a PAC," Domhoff writes, "which means in effect that wealthy donors are able to give twice — once directly to the individual, once through a PAC."


Libertarians would advise their mainstream friends concerned about campaign financing that the best way to cut the cost of campaigning is to cut the size and power of government. There is a powerful economic — or, more precisely, political-economic — engine driving big-time campaign financing, and it systematically and predictably blows mainstream reformers right off the tracks every time. It is big-time government, which robs poor outsider Peter to pay rich insider Paul. The greater the stake the higher circles have in controlling the government, the more they will be willing to spend to control the process that selects those who will run the government for them on a day-to-day basis. Economists of the Public Choice school call the process "rent-seeking."

Rent-seeking demonstrably and reliably occurs, but an apparent theoretical problem with it suggests that there's a missing factor. In a TV interview a year or so ago, free-market economist David Friedman explained that the rent-seeking dynamic, in principle, extinguishes itself only when those competing for privilege bid the price up so high that all advantage is lost — the bidders' return on their investment now equals its price (in bribery, campaign contributions, etc.). He saw it as a troublesome difficulty with Public Choice analysis: Why does rent-seeking occur if that is the sure result?

I would answer: It's not the sure result at all. For that's where the missing factor comes in — namely, the ruling class, acting as a class.


One of Domhoff's central projects is to show how privileged, politically active banks and corporations get themselves networked, beginning with interlocking directorships, which he says serve as the "starting point for a deeper class consciousness." Interlocks, he writes, "seem to have little or no correlation with the economic performance of companies. They do not link suppliers and producers or co-opt rivals." Instead, the corporate network "provides a general framework within which common business and political perspectives  can gradually develop." (P. 44; emphasis added.)

Domhoff says the corporate network founded on interlocks serves as fertile ground for the development of an entire policy-formation network, where financial and industrial titans meet and deal through elite clubs such as the Bohemian Grove and elite policy organizations such as the Business Roundtable, the Council on Foreign Relations, the Trilateral Commission, and the Hoover Institution. (See Domhoff, pp. 144-45.)

Keeping all of that in mind helps us see what David Friedman did not see. Rent-seeking in the political realm is not a frenzy of uncontrolled spending by unconnected rich folks competing for government favors. The amount of money spent overall by politically privileged banks and corporations on political campaigns — a few hundred million dollars at most — doesn't even come close to equaling the overall value of their joint control over the official regime. The fact that prices for pols are not  bid all the way up to an unprofitable level is in itself additional evidence that a coherent ruling class exists.

The system the ruling class has imposed on the national economy hardly exemplifies laissez faire; to the contrary, the higher circles seek to suppress "wasteful" or "destructive" competition — competition that would be wasteful or destructive to themselves, that is. It can hardly be surprising, then, that in its inner workings the ruling class doesn't depend on laissez faire, either. Its members naturally have many interests that conflict, but those conflicts must be and are managed in order to assure the overall stability of the system on which all their privileges rely. In Dark Suits and Red Guards, I maintain that the senior conflict-management committee, so to speak, is drawn from senior figures in the financial sector. It is those figures — the darkest of Dark Suits — whose interests, viewpoint, and influence with respect to the political-economy are most nearly universal, owing to the universality of money in the system.

The whole point of the elite policy-formation network and the "shared political perspectives" outlined by Domhoff is to produce and promulgate policies of common interest to the privileged as a class.  One of those general policies aims at artificially restricting both the price and the supply of politicians. (Remember that, in the market, price controls produce artificial shortages.) The "reformist" laws currently in place may, in fact, help advance that aim by limiting donations from individual rich mavericks and turning campaign financing over to more responsible, consensual corporate and banking entities. If so, that's only one facet of the ruling class's expert manipulation of the electoral process, designed to prevent the emergence of a host of maverick politicians and parties that would have to be expensively roped and branded.

The higher circles have made the electoral process too expensive for ordinary people to influence, at least with respect to the higher offices, while keeping it from becoming ruinously expensive for themselves. It amounts to yet another political barrier to entry, in this case entry into politics itself. Students of the free market know what a disaster rent control in New York City has been for ordinary middle-class folks: they've been forced out in droves. If I may coin some new Public Choice terminology, the campaign-financing system is nothing less than politician rent-control.

September 22, 2000


Posted in 2000 by WTM Enterprises.

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Who Rules America? Power and Politics in the Year 2000  (Mountain View, Calif.: Mayfield Publishing Company, 1998), p. 218. [Back to text.]