06/19/2017

Why Big Business Is Nothing To Be Scared Of

Marian L. Tupy, CapX

Jeremy Corbyn’s economic ideas, as I have explained previously, owe a great deal to the intellectual battles fought between the British Left and  Right during the 1970s and the 1980s. Corbyn, alas, is not the only leftist whose ideas are firmly stuck in the past.

On the other side of the Atlantic, the US Left is busy revisiting 100 year-old concerns from the Progressive Era. Listening to the leaders of the contemporary Democratic Party, you might think that the power and influence of the American corporation is the greatest threat to democracy. But where did that concern come from and should we really be worried?

The modern corporation is a product of the Industrial Revolution, which started in Great Britain in the 18th century, spread to the United States and then, somewhat later, to continental Europe. Prior to the Industrial Revolution, the main unit of production was the family, not a company. Of course, companies have existed for thousands of years and we can trace the first joint economic ventures (ie “proto-companies”) all the way back to ancient Greece and Rome. Until the modern era, however, most national output came from family farms in rural areas and artisan families in towns. Consequently, in the pre-industrial era, the only serious concentration of wealth and power was in the hands of the predatory nobility.

The Industrial Revolution changed all that. Old fuels (wood and peat) gave way to new fuels (coal and oil), old sources of power (wind and water) gave way to new sources of power (steam and electricity) and old machines (the spinning wheel and hand loom) gave way to new machines (the spinning jenny and power loom). The modern factory was born. Factories were located near towns, because towns were located near rivers and factories, like towns, needed access to large amounts of water.

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Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

 

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