Monday, March 10, 2014
Don Boudreaux posts on Café Hayek Blog (7 March) HERE a thoughtful quote and commentary, typical of his literate, hard Libertarian thinking, titled “Witch Doctory”, from pages16-17 of the 3rd edition of Paul Krugman’s and Robin Wells’s Economics (2013): “When markets don’t achieve efficiency, government intervention can improve society’s welfare. That is, when markets go wrong, an appropriately designed government policy can sometimes move society closer to an efficient outcome by changing how society’s resources are used… An important part of your education in economics is learning to identify not just when markets work but also when they don’t work, and to judge what government policies are appropriate in each situation.”
Don reports this passage from Jim Gwartney’s talk at the 2014 meeting of the Public Choice Society (in Charleston, SC – one of Don’s “favorite towns on the planet”). Jim Gwartney notes that “too many econ textbooks are ignorant of public choice” and the Krugman-Wells text “apparently has zero mention of public choice or of government failure (despite that book’s many mentions of market failure).”
The theme of Jim’s talk “was that it is not only intellectually sloppy or lazy but, in fact, deeply unscholarly and unscientific for economists today to ignore public-choice analyses of political decision-making. The quotation from Krugman’s and Wells’s book “is just one example – of the still-widespread failure of economists to take public choice seriously… and an embarrassingly large number of such texts – many written by the world’s most acclaimed economists, such as Paul Krugman – are surprisingly naive and unscientific. The authors of these texts pretend to write about reality, but they instead write about a fantasy world and “Far too many economists, such as Krugman – because they either ignore or are ignorant of public choice – simply assume that government somehow is not affected by the many imperfections that these economists readily find in markets”
Don Boudreaux suggests that Krugman and Wells should have ended with a different concluding paragraph that he kindly writes for them:
“An important part of your education in economics is learning to identify not just when governments work but also when they don’t work, and to judge what market policies are appropriate in each situation.” That is, “if someone suggested that you assume that markets always work perfectly (or always work better than government), what sort of scientific credibility would you accord to that person? I hope none. It’s profoundly misguided simply to assume that, if government fails to achieve some attainable and desirable outcome, that outcome can be achieved instead by markets that are assumed to operate perfectly. Such an assumption about market perfection (or superiority) would be unscientific. But such an assumption – as is made by too many economists today – about government perfection is equally unscientific.”
Jim Gwartney rightly laments that far too many economists today simply assume that the witch doctor – the state – has both the miraculous powers and the benevolent interest necessary to cure all social ailments, or at least to deal with these ailments better than can admittedly ‘imperfect’ markets.”
These are typical debating styles in ‘close-quarter’ contests between adherents of polar opposite ideas, common in economics, and rampant in politics, such as in ‘Markets versus ‘States’ debates.
However, I suggest, the habit is universal on all sides of these irresolvable arguments.
Many people are deeply antagonistic to Markets, even considering them immoral and unnatural. Others are equally antagonistic to States, considering them captive to special, corrupting interest groups or dictators and fantasists.
I prefer to be guided by the philosophy closer to the pragmatics of Adam Smith: Markets where Possible, State where Necessary”.
Monday, March 03, 2014
Competition and Cooperation
Mark Wadsworth, Young Peoples Party posts (15 February) HERE
“The Invisible Hand is the expression used, among other things, to describe the phenomenon that even though the private economy is split up into lots of smaller organisations, some co-operating and some competing, when you look at it as a whole, it looks as if it had been deliberately organised that way to achieve a reasonably near-optimum level of output, employment, profits etc. (in the absence of state intervention and natural or government-granted monopolies and so on). So the Honda car you bought from the Honda showroom was not really built and sold to you by one huge organisation called "Honda". There is an endless chain of sub-contractors, suppliers, franchisees and so on. For some reason, things tend to work slightly better this way, if there are lots of smaller enterprises, each focussed on doing one or two things really well. Now if the entire Somerset Levels were owned by a single landowner, it seems likely that he would have looked after his own interests by dredging rivers, digging more channels, keeping certain areas forested, leaving marshy bits at the edge of rivers, building his buildings on stilts or on higher ground (or whatever it is that he would do) and so on. But the Levels are owned by 1,000 farmers with an average of 170 acres each (source). Each of them is trying to get as much out of his little bit as possible, so the farmers on higher ground chop down their trees; the ones near the river want to use all the land rather than leave it fallow; if your farm is on low lying ground, that's where you'll build your buildings; I'm not aware that they all chip in to a common fund to dredge rivers. UPDATE: they do have Drainage Rates actually, see comments. And so things go wrong, and when things go wrong, they all start whining that it is the government's responsibility. I suppose it is true that the government absolved them of this responsibility and then messed up, but all the same, it illustrates the general observation that once it comes to land ownership, The Invisible Hand simply does not function (which in turn suggests that land ownership is the result of state intervention or a monopoly situation). See the related topic of retail mix control. A large part of the reason for the demise of "The Traditional High Street" is precisely because they are divided up into tiny units, each owned by a different people, and there is no incentive to co-ordinate and co-operate to get the best overall use.”
Mark is a little economical with Adam Smith’s actual thinking. I suggest respectively that he poses co-ordination efficiency as a contest of states versus markets, when in fact history shows they were complementary and ever present. This complementary process was a staggered emergence from post-hunter-gatherer societies and the evolution of the division of labour and property, in which collective band and tribal cultures, including local languages, emerged over many tens of millennia. This evolutionary process was not universally in step and is still continuing, as anthropology science shows.
Adam Smith surmised that the very long process of human societal evolution roughly conformed to a four-stadia over-lapping sequence of hunter-gathering, shepherding, farming, and, “at last”, commerce. (Smith “LJ”, 1762-3). He also noted that the entire social sequence was dominated by the universal importance of human “exchange”, that is “The necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.
Whether this propensity be one of those original principles in human nature, of which no further account can be given; or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to enquire. It is common to all men” (Smith “WN”, 1776.)
This is paragraph is of considerable significance to the “cooperating-competing” axis raised by Mark Wadsworth that “when you look at it as a whole, it looks as if it had been deliberately organised that way to achieve a reasonably near-optimum level of output, employment, profits etc. (in the absence of state intervention and natural or government-granted monopolies and so on).” The phrase “deliberately arranged” is worrying because it applies some extra-human entity deliberately intervening in human social evolution.
Experiences such as in Honda operation’s are not uncommon and have not been non-existence throughout history. It is typical of the evolution of exchange almost from deep history. Smith gave an example in the manufacture of the common labourers’ woolen coat in WN. The supply chain extended beyond immediate neighbourhoods internationally abroad. Much of this activity was evolutionary and unintentional, even accidental. There is no semblance of anything like “deliberate” intention and certainly nothing worthy of the simile metaphor of “as if” it is deliberately arranged”.
Mark slips up on facts but thankfully owns up that “they do have Drainage Rates” but he reveals his attachment if in the negative to the modern myth of an “Invisible Hand” this that “in this case [it] simply does not function”.
Lastly, Mark makes an extraordinary claim that if “High Street businesses are “Divided up into tiny units, each owned by a different people, and there is no incentive to co-ordinate and co-operate to get the best overall use.”
Leaving aside my usual comments on the “invisible hand” (scroll down earlier posts” for details), Mark is up against experience of how competitive major and minor firms “co-ordinate and co-operate” on a permanent and continuing basis on matters of their shared common interests, such as common services they pay for and receive from landlords, local and national governments and which they are obliged to pay for or implement. I have consulted professionally for both sides of such transactions (not at the same time!).I also recommend Mark reads Daniel B. Klein’s “Knowledge and Coordination” Cambridge University, 2013, for an appreciation of just how significant coordination is for dynamically competitive market economics. Without combined competition and coordination markets work less dynamically and, in the extreme, severely stagnate
MANY THANKS FOR THE MESSAGES SENT DURING MY RECENT STAY IN HOSPITAL. I AM STILL BEING TREATED FOR FATIGUE AND A LAPSE IN MY RECOVERY FROM STROKE.
I SHALL CUT BACK ON ACADEMIC WORK. ONLY THIS WEEK I TOOK DELIVERY OF A NEW APPLE MAC, BUT HAVE BEEN UNABLE TO USE IT YET! FORTUNATELY, MY OLD MACBOOK PRO IS STILL SERVICEABLE.
Wednesday, February 26, 2014
Gavin is in hospital for a few days and will resume posting on his return home over the weekend.
(Daughter and general dogsbody!)
Gavin is in hospital for a few days and will resume posting on his return home over the weekend.
(Daughter and general dogsbody!)
Sunday, February 23, 2014
ADAM SMITH AND THE LONG HISTORY OF "TRUCK, BARTER AND EXCHANGE"
David Warsh publishes Economic Principles HERE on a superior weekly insider reporting on US financial journalism to the highest economics standard (modest annual $50 subscription - try a free trial-run).
David Warsh writes on, among other topics, the still running debate on the economy and the causes of the 2008-14 crisis:
“A Fateful Year”
“And at some point, I finally I realized who it was Martin* so persistently reminded me. Not David Graeber, the prolix London anthropologist whose book Debt: The First 5000 Years helped inspire the Occupy Wall Street movement. Like him, Martin attaches inordinate significance to a chicken-and-egg theory of the primordial ancient origins of credit. The two are convinced that no barter economy ever existed, that symbolic money, or at least ledger debt, preceded trade. Whatever.”
[*Felix Martin: Money: The Unauthorized Biography, Knopf, 2014.]
This paragraph is a small extract from David Marsh’s much longer piece in his “Economic Principles” (22 February).
Regular Lost Legacy readers will have seen my earlier pieces on David Graeber’s ideas from the modern science of anthropology. I had a brief attempt at an “exchange” of views with David graeber in 2011-12; brief because “David” terminated the ‘his non discussion’ abruptly with my first letter leading to an indignant assault on me for addressing him as “David”, though I was only attempting to ‘cool it’ as we had not exchanged criticism of each other’s views and I wished to avoid possible ‘agro’ with an influential speaker in the “occupy movement”, of which actions I had no view at the time.
It was David Graeber’s confident misrepresentations on Adam Smith that I was attempting to criticise, but of which he said not a word in his assessment of Adam Smith’s paragraph in “Wealth Of Nations” on “truck, barter, and exchange” in his “Debt The First 5000 years”.
Apparently “David” considered it “impolite” for me to refer him informally as “David” in my letter without me first being introduced, like in Victorian days of formal polite rectitude (Jane Austin, et al). Surely, a somewhat “bourgeois” stance for a self-proclaimed militant anarchist to be upset about! I have known many anarchists “communist”, Left and Right, and Libertarian, and I never met one so antagonistic on a personal level.
However, I tried to continue our non-discussion to no avail. Several of his colleagues responded, with doses of troll-like vitriol. Maybe nowadays I live too sheltered a social life.
Well, I am not easily upset by ad hominen debating styles and I carried on reviewing David’s “Debt: the first 5000 years”, starting HERE
In particular my reference to his critique of Smith’s sentence, and his interpretations of the recent anthropological evidence which David Graeber drew upon.
I suggested he had misunderstood Smith’s 18th century expressions when set against his own many multiple 20th century readings by anthropology scholars (most of it accessible on the Internet from his ipad).
My critique summarised Smith’s views as “200 Thousand Years of Exchange” in human societies to account for distinctive inter-human behaviours over a period long before David Graeber’s “5 Thousand Years of Debt”, roughly only from human history since the invention of debt denominated coinage, ignoring c.195 thousand years before then. Yet crude examples of reciprocal co-operation among animals occurred, and still occurs today (see Robin Dunbar. 2004. “Grooming, Gossip and the Evolution of Language”, Faber & Faber, paperback).
Setting Smith’s statement in WN (1776), was made when anthropology was in its infancy with very few studies, or what passed for such, much of it shrouded in travelers’ brief visits, imaginations, myths, and theology, the latter based on the ideas of a tribe of Bronze Age nomads wandering around the deserts of Arabia from the 8th century BCE.
Adam Smith submitted one idea that has been confirmed by modern anthropology, specifically in his reference to “exchange”. He was not referring exclusively to market bargaining.
David Graeber, like many others in his field, read Smith’s “exchange” as “trade” in markets between cognates and dismissed Smith as being absolutely wrong about what happens according to surviving examples of cultures before pre-markets and the invention of money from some 5,000 years ago.
He also does not have time for “Truck” or “Barter” in surviving examples of what anthropologists study closely. Yet much of the behaviours they describe and analyse are “exchange” behaviours which certainly are compatible with Smiths’ use of the term!
Look more closely at anthropology's fieldwork, and notice that much of it shows the domination of cultural forms of behaviovur , such as reciprocity, gift giving, inter- and intra-tribal exchange of obligations, mutual toleration, regular exchanges in material and behavioural tributes to ‘superior’ families inter and intra in tribal peace-offerings and much else, which are abundant examples of human exchange behaviours.
Even truck and barter, exclude a necessity for monetary involvement, and remain a wide-spread exchange behaviour across all human societies now and throughout all of history, including that misnamed long period known incorrectly as “pre-history”. Archaeologists demonstrate that fact at every 'dig' all over the world and they are still widespread today, albeit informally in our highly monetised economies, even among children, who do not have access to their parents money.
“Truck” was a common word used in 18-19th centuries for where goods and services were exchanged (in both directions), commonly in the form of reward in kind exchange for labour services. You have probably heard the lines in the folk-song: “16 tons and what d’ya get,
another day older and deeper in debt.
So Peter don’t you call me ‘cos I can’t go,
I owe my soul to the Company Store”.
Paying wages in kind i.e., Trucking, was made illegal in the 1820 in the UK because of rampant fraud by employers. Clearly it continues in parts of the world in the form of slavery and was well known in feudal times.
The long history of truck and barter testifies to their enduring existence in largely market economies. Have you never swapped comics with a school friend? Or with adult friends and relatives bartering on special social occasions (examples like baby-sitting circles, car pooling, and kid's parties)?
More relevant for discussions with our anthropologist friends, can anybody demonstrate that “trucking” in the forms of the exchange of mutual behaviours by exchanging goods, private obligations and services, conforming with cultural habits, reciprocal loyalties, and obedience to tribal norms, exchange behaviours according cultural norms in return for peaceful relations, and are these not commonly found in abundance in field studies reported in the literature?
Emile Zola in his novel “Germinal” refers to the hatred of a local grocer for his use of access to females in exchange for sex to “pay” in kind (they had no money for their grocery debts during a bitter strike of their men folk against their employers. The wives rioted too against the hated grocer and castrated him. The army intervened later and violently out down the men's violence.
Moving on to exchange in the form of Barter – the direct exploited exchange of goods for goods, such as when European visitors exchanged whisky for furs, etc., with North American natives for decades.
Similar bartered exchanges occurred in 18th century voyages to the Pacific as described by Captain Cook, Bligh, Vancouver and others in their Logs, when for example, exchanging iron for breadfruit plants, (see Bligh’s "Log of the Bounty" and my “Bligh the Man and his Mutinies”, 1987, Duckworth). A reader described to me the unofficial bartered exchanges between some of the seamen and Tahitian natives for sexual access to their wives as a “screw for a nail”, which introduced venereal disease to the island.
Modern households barter for the exchange of all kinds of goods, even forming informal barter clubs to avoid cash transactions and build personal relationships.
Again, barter is an exchange transaction with a long history before money was invented. Evidence of exchange is abundantly available across vast distances between
human communities in such as the Stone age ax trade in Britain, minerals such as Obsidian across the Mediterranean Sea and across Europe, other minerals in North America where inter tribal violence was common and money was unknown.
human communities in such as the Stone age ax trade in Britain, minerals such as Obsidian across the Mediterranean Sea and across Europe, other minerals in North America where inter tribal violence was common and money was unknown.
Smith was right when he used exchange terms known to his 18th Century readers, such as "Truck and Barter", and Graeber is wrong when he emphatically dismisses Smith’s use of exchange claims and so are those of his colleagues who deny exchange as a fundamental human behaviour in all societies in Smith’s now famous sentence in Wealth Of Nations. He also presents market exchanges completely within the neo-classical economics paradigm, which he presents as the same as Smith's even though his classical economics was different from modern economists in many respects. David Graeber ignores Adam Smith’s writings on the derivation of language by exchange (see his “Lectures on Rhetoric and Belles Lettres”, 1762 and in his essay on the origin of human language, 1761, and as a supplement published in his Theory of Moral Sentiments, 3rd Edition).
I respectfully suggest that Professor David Graeber, Phd (Yale) get out more and read more widely in economics, especially in Adam Smith's Works, perhaps, and study a little closer the significance of his colleagues anthropology and field work.
Saturday, February 22, 2014
Common Mistake About Adam Smith on Self-Interest
Andrew C. Ravkin reports (21 February) on a “Free Market” conference in Washington, DC, attended by the Dalai Lama.
“The Marxist Dalai Lama Visits a Washington Shrine to Free Markets”
“The Dalai Lama, who has said, “Deep inside, as far as social economic theory is concerned, I am a Marxist,” spent Thursday morning speaking on two panels at a Washington shrine to free markets and limited government — at the American Enterprise Institute.
“The Wall Street Journal summarized an initial discussion of happiness in a free-market economy, including this description of the Dalai Lama’s view of how self interest can benefit society over all:
“We are selfish. It’s very important for our survival,” he said. “But that selfish should be wise-selfish rather than foolish-selfish.”
Compassion and taking care of others are necessary qualities for people to be happy. “The truest form of self-interest is taking care of other people,” he said.”
The Dali Lama has some interesting views on self-interest. I think they need some qualification more along the views of Adam Smith on self-interest, which are quite different from those scholars who seem to think that Smith took an extreme view of how it was supposed to work in market economies.
The idea that people seeking their self-interest should behave like self-centred egoists is certainly not an idea remotely kin Smith’s.
He expressed his view in the famous “butcher, brewer and baker” example (WN I.ii.2: 26-27) that the customer should “address” the self-love of the seller and not their own. In constructing the element of a bargain by both sides should attempt to mediate the self-interests with the self-interests of the other person.
This did not mean that they simply gave in. This was a process of bargaining. Each party would follow the admonition of bargaining, which is not about simply giving in.
Smithian bargaining is about finding a conditional proposition effectively in the form of: “IF you give me this that I want, THEN I shall give you this that you want”.
The bargainers arrive at the mutually acceptable conditional proposition through conversation, covered in Smith’s “Theory of Moral Sentiments” (1759), by modifying their demands on each other.
If they don’t proceed in this manner they deadlock, often in anger or at least in frustration. This is not uncommon among bargainers, including professional negotiators, politicians and diplomats.
Adam Smith uncovered part of the solution to the bargaining problem through conversation (“every man becomes a merchant”) in 1759 (TMS) and the complete solution in the conditional proposition (‘If Then’) in 1776 (WN). This explains why modern versions of “self-interest’ are misleading. “Self-interest” is not about “selfishness”!
[I re-discovered, so the speak, Smith’s format of the conditional proposition (IF-THEN) in 1972 after completing an MSc thesis based on observing 15 months of live union and management’s productivity negotiations at Shell Haven refinery. This active interest continued for 40 years as a Consultant Negotiator and produced several books on negotiation, such as the “Everything is Negotiable”, “Kennedy on Negotiation” and “The Negotiating Edge”, etc. See Amazon books – all titles are now out of print hence I have no “selfish” self-interest in your purchases!]
Friday, February 21, 2014
ON THE EVOLUTION OF ECONOMIC THOUGHT
Historians of economic thought divide schools of thought, past and present, into ‘Classical’ and ‘Neoclassical’ economics. Sometimes I am also wont to use too broad a brush and spin all variations of ‘neoclassical’ into the catch-all of ‘modern’
The eminent economist, James Ahiakpor, described by others as the ‘”Last Classical Economist” demurs, but is happy to accept a label of being a ‘Classical’ economist, but not necessarily the last one, because such definitive labels cover various sub-schools, depending on different shades of thought that underlines the distinctive qualities ascribed to them across numerous generations of overlapping ‘Classical” and ‘Neoclassical’ thinkers.
Professor James Ahiakpor remarks that “J.M. Keynes used that term [Classical] almost as a slur. That is why several upholders of the classical tradition, including Dennis Robertson and Ralph Hawtrey, shied away from it. But I embrace that label with pride”.
Of the ‘Neoclassical’ school he refers to its own evolution and distinguishes seven sub-schools within it:
“(1) Neoclassical Keynesianism, (2) Post Keynesians, (3) New Keynesians, (4) Monetarism, (5) New Classicals, (6) Real Business Cycle Theorists, and (7) Austrians. Remarking that “I leave out the Marxists.”These avoidable errors are prevalent when practitioners disregard what their predecessors’ actually wrote and distort, often by sheer invention (of which Paul Samuelson on Adam Smith was a classic example, as discussed regularly on Lost Legacy).
Together they outline an evolutionary view of the history of economic thought, which sounds more credible than past economists being patronised by whatever a recent generation says to put down their predecessor’s ideas which they believe are due for a reckoning by their ‘modern’ ideas.
Kuhn’s ideas of “paradigm” shifts might apply here and that is the fascination of the History of Economic Thought.
I am not surprised that so much of the history of economic thought is entangled in not distinguishing the so-called separate schools of its practitioners when account is taken of common misrepresentations after they passed away.
Thomas Humphrey began this thread on the Blog of the Societies for the History of Economics (SHOE@YORKU.CA) and I recommend that readers consult its regular posts from its various daily contributions from authorities of accurate insights to the evolution of the thinking embedded in past ideas.
Others contributors are from the overly protective schools of those of recent thinking by true believers in what temporarily passes for the so-called truths of those suffering from the delusion that they are absolutely right (Hubris?) and their predecessors’ were absolutely wrong sarcastically. On occasion they “bless them”, metaphorically, and comfort them for their tragic ignorance with pathetic quips to their students and readers.
Tuesday, February 18, 2014
MEDIA SPREADS SCHOLARLY MYTHS
Bill Dagnon posts to Mailbag on Baraboo New Republic HERE
“Research proves minimum wage theorists wrong”
“Last week on TV a reporter interviewed a journalist about the effects of raising the minimum wage. The journalist said, according to market theory if the wage were raised demand would lessen for the higher-priced labor and workers would lose their jobs. Next the reporter interviewed a professional economist who stated that numerous studies show that raising the minimum wage has little effect on employment.
This example shows the difference between economic theory and actual economic outcomes.
The origin of economic theory is usually attributed to Adam Smith who wrote “The Wealth of Nations” in 1776. He stated, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
This idea of self-interest was combined with the idea of an invisible hand. In theory, an invisible hand leads those who pursue their own rational self-interest in the market, through competition, to also promote what is best for the general public.”
Apart from the exaggeration using the famous ‘Butcher, Brewers, and Bakers” on self-interest paragraph (WN I.ii.2: 26-7), the next paragraph is also grossly exaggerated and quite wrong. There is nothing about “rational self interest in the market, through competition” which also "promote[s] what is best for the general public”.
The “invisible hand” metaphor “describes in a more striking and interesting manner its object” (Smith’s Lectures On Rhetoric and Belles Lettres”, 1762), to the hidden private motives of a person that leads him to act in a specific manner.
Smith only gave only two direct examples, once each in Moral Sentiments” (1759) and “Wealth Of Nations” (1776), of this metaphor, plus one other that describes its use in pagan superstition about the Roman God, Jupiter and his so-called “invisible hand” that fired visible lightning bolts at enemies of Rome, (History Of Astronomy, 1744-58). None of then mentioned “markets”, “competition” nor “rationality”.
DEIRDRE MCCLOSKEY ON FACTUAL HISTORY OF POLITICAL ECONOMY AND MODERN POLITICS
DEIRDRE MCCLOSKEY posts (16 June) on “Bleeding-Heart Libertarians” HERE http://bleedingheartlibertarians.com/2012/06/factual-free-market-fairness/
McCloskey is one of the most original thinkers in the history of political economy writing today, in my view. Her writing is one of the reasons why I am a softer libertarian and not one of those “harder”, rightwing, sort of Libertarians who hate the very existence of states, nor or those leftwing, hard haters of markets. (A pox on both of your houses, Sir!)
I strongly recommend that you take the time to read her contribution on “Factual Free-Market Fairness” and consider her arguments and some of the 140 comments her thoughts provoked on the “Bleeding Heart Libertarian’s Blog”.
[Note: her essay is part of a symposium on John Tomasi's "Free Market Fairness". For an introduction to the symposium, HERE for a list of all posts in the symposium, HERE ]
Deirdre writes: “To a discussion by political philosophers a mere fact woman like me, an economic historian trained in the 1960s as a transportation economist, has really only one thing to contribute. It is, to slightly modify Cromwell’s imprecation to the Scottish Presbyterians in 1650, “I beseech you, in the bowels of Christ, think it possible that you may be [factually] mistaken.”
[GK: Cromwell was an English Protestant; later the Scottish Presbyterians spit into fundamentalist Covenanters" and traditional "Presbyterians"; Smith was a member of the latter majority grouping.]
"Factually. I realize that Kant laid it down that what humans are factually like, or what their history factually was, is forbidden to play a part in ethical reflection. We are supposed to be looking for principles that any Rational Creature would adhere to, whether a six-headed being in outer space or the man on the Clapham omnibus. As an economist I can see the charm in assuming a character Max U, or Rational R, and then proceeding. And I know that most social psychologists (I except among the younger generation Jonathan Haidt, for example, or, Mike Csíkszentmiháyli of my generation, or Jerome Bruner of an earlier generation) find it charming to believe that ethics starts with their own earliest experiments. Such models and experiments are a lot simpler than reflecting in addition on art and literature and philosophy since the Rig Veda and the Epic of Gilgamesh. But the modern cleverness after Hobbes and then Kant and Bentham and now with the fierce modernists of freakonomics and hedonic measurement seems less relevant to human experience—which is after all why we would want an ethical theory in the first place—than the virtue-talk of the ages. We can’t, and shouldn’t, stop being humans, who were once children, and will die, and who reason and love and hope in human ways. As Will Wilkinson puts it, “if hammered into reflective equilibrium with the help of clever thought experiments and modeling assumptions” of the political philosophers since Hobbes, we nonetheless, and even (Will observes) in the very rules of our reflections, “are also going to be, to a very large extent, creatures of our environment.” Kant’s decision to omit anthropology (which he in fact taught every Saturday in term) was a human and rhetorical choice, not written in the starry heavens.
So: I’m from economics and history, and I’m here to help you. In the factual background assumed in the elegant contributions here by Elizabeth Anderson and Samuel Freeman there’s a very particular story (less so in Richard Arneson and not at all in Wilkinson), embodied since the late nineteenth century in what Tomasi calls High Liberalism. The High-Liberal political philosophers such as Anderson and Freeman and Dworkin and Nussbaum rely, against Kant, on a factual story which they take to be so obvious as to not require defense. I claim that on the contrary their master narrative is mistaken, as anthropology or economics or history. You can hear versions of it every night on MSNBC (you can hear other mistaken master narratives on Fox News, so understand I am not recommending that).
The story is, in a few brief mottos to stand for a rich intellectual tradition since the 1880s: Modern life is complicated, and so we need government to regulate. Government can do so well, and will not be regularly corrupted. Since markets fail very frequently the government should step in to fix them. Without a big government ee cannot do certain noble things (Hoover Dam, the Interstates, NASA). Antitrust works. Businesses will exploit workers if government regulation and union contracts do not intervene. Unions got us the 40-hour week. Poor people are better off chiefly because of big government and unions. The USA was never laissez faire. Internal improvements were a good idea, and governmental from the start. Profit is not a good guide. Consumers are usually misled. Advertising is bad.
Thus Anderson: ”Externalities, asymmetrical information, and other collective action problems are . . . pervasive in economic life. Countless ways of conducting business reap gains for some while imposing unjust costs on others. Create a cartel. Stuff rat feces in sausages.” Thus Freeman: “It is a truism to say that in order to achieve the benefits of an efficient market economy (increasing productivity, greater economic output, increasing productive capital, etc.), the basic rules of property, contract, and exchange must be structured [by government] to realize efficient market relations.”
No. The master narrative of High Liberalism is mistaken factually. Externalities do not imply that a government can do better. Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers. Efficiency is not the chief merit of a market economy: innovation is. Rules arose in merchant courts and Quaker fixed prices long before governments started enforcing them.
I know such replies will be met with indignation. But think it possible you may be mistaken, and that merely because an historical or economic premise is embedded in front page stories in the New York Times does not make them sound as social science. It seems to me that a political philosophy based on fairy tales about what happened in history or what humans are like is going to be less than useless. It is going to be mischievous.
How do I know that my narrative is better than yours? The experiments of the 20th century told me so. It would have been hard to know the wisdom of Friedrich Hayek or Milton Friedman or Matt Ridley or Deirdre McCloskey in August of 1914, before the experiments in large government were well begun. But anyone who after the 20th century still thinks that thoroughgoing socialism, nationalism, imperialism, mobilization, central planning, regulation, zoning, price controls, tax policy, labor unions, business cartels, government spending, intrusive policing, adventurism in foreign policy, faith in entangling religion and politics, or most of the other thoroughgoing 19th-century proposals for governmental action are still neat, harmless ideas for improving our lives is not paying attention.
In the 19th and 20th centuries ordinary Europeans were hurt, not helped, by their colonial empires. Economic growth in Russia was slowed, not accelerated, by Soviet central planning. American Progressive regulation and its European anticipations protected monopolies of transportation like railways and protected monopolies of retailing like High-Street shops and protected monopolies of professional services like medicine, not the consumers. “Protective” legislation in the United States and “family-wage” legislation in Europe subordinated women. State-armed psychiatrists in America jailed homosexuals, and in Russia jailed democrats. Some of the New Deal prevented rather than aided America’s recovery from the Great Depression.
Unions raised wages for plumbers and auto workers but reduced wages for the non-unionized. Minimum wages protected union jobs but made the poor unemployable. Building codes sometimes kept buildings from falling or burning down but always gave steady work to well-connected carpenters and electricians and made housing more expensive for the poor. Zoning and planning permission has protected rich landlords rather than helping the poor. Rent control makes the poor and the mentally ill unhousable, because no one will build inexpensive housing when it is forced by law to be expensive. The sane and the already-rich get the rent-controlled apartments and the fancy townhouses in once-poor neighborhoods.
Regulation of electricity hurt householders by raising electricity costs, as did the ban on nuclear power. The Securities Exchange Commission did not help small investors. Federal deposit insurance made banks careless with depositors’ money. The conservation movement in the Western U. S. enriched ranchers who used federal lands for grazing and enriched lumber companies who used federal lands for clear cutting. American and other attempts at prohibiting trade in recreational drugs resulted in higher drug consumption and the destruction of inner cities and the incarcerations of millions of young men. Governments have outlawed needle exchanges and condom advertising, and denied the existence of AIDS.
Germany’s economic Lebensraum was obtained in the end by the private arts of peace, not by the public arts of war. The lasting East Asian Co-prosperity Sphere was built by Japanese men in business suits, not in dive bombers. Europe recovered after its two 20th-century civil wars mainly through its own efforts of labor and investment, not mainly through government-to-government charity such as Herbert Hoover’s Commission or George Marshall’s Plan. Government-to-government foreign aid to the Third World has enriched tyrants, not helped the poor.
The importation of socialism into the Third World, even in the relatively non-violent form of Congress-Party Fabian-Gandhism, unintentionally stifled growth, enriched large industrialists, and kept the people poor. Malthusian theories hatched in the West were put into practice by India and especially China, resulting in millions of missing girls. The capitalist-sponsored Green Revolution of dwarf hybrids was opposed by green politicians the world around, but has made places like India self-sufficient in grains. State power in many parts of sub-Saharan Africa has been used to tax the majority of farmers in aid of the president’s cousins and a minority of urban bureaucrats. State power in many parts of Latin America has prevented land reform and sponsored disappearances. State ownership of oil in Nigeria and Mexico and Iraq was used to support the party in power, benefiting the people not at all. Arab men have been kept poor, not bettered, by using state power to deny education and driver’s licenses to Arab women. The seizure of governments by the clergy has corrupted religions and ruined economies. The seizure of governments by the military has corrupted armies and ruined economies.
Industrial policy, from Japan to France, has propped up failing industries such as agriculture and small-scale retailing, instead of choosing winners. Regulation of dismissal has led to high unemployment in Germany and Denmark, and especially in Spain and South Africa. In the 1960s the public-housing high-rises in the West inspired by Le Courbusier condemned the poor in Rome and Paris and Chicago to holding pens. In the 1970s, the full-scale socialism of the East ruined the environment. In the 2000s, the “millennial collectivists,” Red, Green, or Communitarian, oppose a globalization that helps the poor but threatens trade union officials, crony capitalists, and the careers of people in Western non-governmental organizations.
Yes, I know, you want to reject all these factual findings because they are “right-wing” or “libertarian.” All I ask you to do is, once in a while, consider. Don’t believe everything you read in the papers."
You can read more by Deirdre McCloskey in her major studies of the emergence of and early acceptance of the new bourgeois social class in the age of commerce: "The Bourgeois Virtues: ethics in the age of commerce", University of Chicago Press, 2007, and Bourgeois Dignity: why economics can't explain the modern world", University of Chicago Press, 2010.
They will open your minds ...