Teaching of economics — captured by a small and dangerous sect
from Lars Syll
The fallacy of composition basically consists of the false belief that the whole is nothing but the sum of its parts. In the society and in the economy this is arguably not the case. An adequate analysis of society and economy a fortiori can’t proceed by just adding up the acts and decisions of individuals. The whole is more than a sum of parts.
This fact shows up when orthodox/mainstream/neoclassical economics tries to argue for the existence of The Law of Demand – when the price of a commodity falls, the demand for it will increase – on the aggregate. Although it may be said that one succeeds in establishing The Law for single individuals it soon turned out – in the Sonnenschein-Mantel-Debreu theorem firmly established already in 1976 – that it wasn’t possible to extend The Law of Demand to apply on the market level, unless one made ridiculously unrealistic assumptions such as individuals all having homothetic preferences – which actually implies that all individuals have identical preferences.
This could only be conceivable if all agents are identical (i. e. there is in essence only one actor) — the (in)famous representative actor. So, yes, it was possible to generalize The Law of Demand – as long as we assumed that on the aggregate level there was only one commodity and one actor. What generalization! Does this sound reasonable? Of course not. This is pure nonsense!
How has neoclassical economics reacted to this devastating finding? Basically by looking the other way, ignoring it and hoping that no one sees that the emperor is naked.
Having gone through a handful of the most frequently used textbooks of economics at the undergraduate level today, I can only conclude that the models that are presented in these modern neoclassical textbooks try to describe and analyze complex and heterogeneous real economies with a single rational-expectations-robot-imitation-representative-agent.
That is, with something that has absolutely nothing to do with reality. And — worse still — something that is not even amenable to the kind of general equilibrium analysis that they are thought to give a foundation for, since Hugo Sonnenschein (1972), Rolf Mantel (1976) and Gerard Debreu (1974) unequivocally showed that there did not exist any condition by which assumptions on individuals would guarantee neither stability nor uniqueness of the equilibrium solution.
So what modern economics textbooks present to students are really models built on the assumption that an entire economy can be modelled as a representative actor and that this is a valid procedure. But it isn’t — as the Sonnenschein-Mantel-Debreu theorem irrevocably has shown.
Of course one could say that it is too difficult on undergraduate levels to show why the procedure is right and to defer it to masters and doctoral courses. It could justifiably be reasoned that way – if what you teach your students is true if The Law of Demand is generalizable to the market level and the representative actor is a valid modelling abstraction! But in this case, it’s demonstrably known to be false, and therefore this is nothing but a case of scandalous intellectual dishonesty. It’s like telling your students that 2 + 2 = 5 and hope that they will never run into Peano’s axioms of arithmetics.
Once the dust has settled, there is a strong case for an inquiry into whether the teaching of economics has been captured by a small but dangerous sect.
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Real-World Economics Review Blog 
Of course, economics has “been captured by a small AND dangerous sect,” considering that money and how it works does not even come into play in heterodox economics. How the people have been hoodwinked by a few economists and the people will pay for it in the end.
That should be orthodox not heterodox economics. Sorry!
Actually, the heterodox aren’t quite liberated yet either.
I agree about the dangerous sect, but it is anything but small. In my view the orthodoxy is the emperor’s clothes. The dominant institution, now all but governing us, is the predatory (now more and more financialized and global) corporation. The orthodoxy deliberately and strategically ignores this institution and has done so for a century and a half. It provides a convenient theoretical cover for doing so.
These are two courses that directly threaten the orthodoxy and corporate rule: The History of Economic Thought (which might, heaven forbid, expose tender student minds to the penetrating thoughts of Karl Marx and Henry George and such radical ideas as jubilee and debt forgiveness) and Ecological Economics (which, among other things, presents the planet as other than an exploitable resource, and is truly pro-life). In my cursory review of the top economics departments in the USA (including the one in which I was trained, when “History” was required), none offered by name either course.
We need a plain-language heterodoxy that includes the History of Economic Thought, Ecological Economics, and People Economics and we need to offer it early, at 5th-grade Civics level, high school Social Studies, and Community College/Freshman levels to help change the thinking of the future. We need to do this urgently, as it takes time to penetrate.
Yes, in other words it is the entire web/pattern/paradigm that is the real problem. A new paradigm. like death, is “a thief in the night” for orthodoxies old and new.
while I certainly agree with the main thrust of the above blogs and posts my dream or prayer is to connect these conversations to the public and students. From my observations there are people of all ages out there looking for a more equitable economic system that addresses the needs of all people. Furthermore econoclast’s last paragraph to start with high school students in my opinion is an excellent idea that may also affect interested parents. In posting a quick answer to the above, during this year there has been several newspaper articles where a few dedicated teachers have had great success along these lines. On this basis my plea is if there is a suitably qualified and sympathetic economist reading this post please consider using there knowledge of social systems to reach and support these teachers and their students to better understand how democracy gives them the right to demand a more egalitarian just economic system. Ted
Certainly, not small.
The neoclassical edifice has been built upon two presumptions treated as axiomatic.
The first presumption –explicit only in the works of William Stanley Jevons and Alfred Marshall — is that the rate of change of ‘utility’ at the margin is equal to the price consumers pay.
The second presumption is that, all of the time, ‘utility’ is a diminishing function of the amounts ‘consumed’. Given also that ‘utility’ is considered to be a benefit or a satisfaction :: thus undefined :: and that ‘benefits’ as ‘value-in-use’ may not display diminishing marginal utility, but may be constant or increasing, the former presumption that price equals the rate of change of diminishing marginal utility is obviously incorrect. (Twice a given amount of food provides twice the calories, vitamins, minerals and other nutrients as does a single unit, so it’s not the case that there is any diminishing marginal utility in benefit terms. Similarly, two units of iron allow for twice the production level of one unit of iron where iron is a necessary component of production.)
Which is all to say that the neoclassical foundation rests upon such shoddy assumptions –not to mention the mathemagics of misused mathematical functions (descriptive of declining marginal utility), that the entirety of the neoclassical edifice falls if given any thought.
For instance, one cannot derive a downward sloping demand curve without forever assuming diminishing marginal ‘utility’ (Nor, for that matter, for goods necessary for survival).
For instance, it is only for functions exhibiting diminishing marginal utility that one can say that an increment to total utility is always greater than the marginal rate of utility (as the price by presumption). Thus, the theory of Consumer Surplus rests on that presumption, meaning that all monetary measures of welfare gains and losses rest upon a very shoddy foundation.
For instance, it is essential to all neoclassical analysis that utility of money in the hands of any one consumer is constant. This is essential to all neoclassical analysis.
For instance, the Hicksian recasting of John Maynard Keynes’ thought requires all of the above presumptions. Thus, the shoddy foundation of neoclassical ‘micro-economics’ has been recast throughout the macro-economic re-“framing” of Keynesian thought.
For instance, consumption is the use of goods to obtain a direct or indirect benefit from that use. This means that firms are consumers, so the entirety of the neoclassical micro-economic division between ‘consumers’ and ‘firms’ –the former based upon recasting ‘consumption’ as ‘purchase’– is absurd.
For instance, the neoclassical edifice is completely silent about how ‘consumers’ formulate their budget decision or how the budget is itself reformulated in response to price changes.
For instance, the ‘neutrality’ of money/income is contraindicated by the presumption of a constant marginal utility of money and is especially contraindicated when the distribution of income determines both what is being produced and what is being consumed and, thus, the growth paths of economies generally.
For instance … ah, what the heck, is anybody actually listening?
Larrymotuz,
E. Roy Weintraub in the Concise Encyclopedia Of Economics, claims these are the three basic assumptions of neoclassical economics,
1. People have rational preferences between outcomes that can be identified and associated with values.
2. Individuals maximize utility and firms maximize profits.
3. People act independently based on full and relevant information.
But Antonietta Campus describes neoclassical economics as “marginal economics” in The New Palgrave: A Dictionary of Economics (v. 3, p. 323 (1987)) using these words, “an approach to economics focusing on the determination of goods, outputs, and income distributions in markets through supply and demand. This determination is often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by firms facing production costs and employing available information and factors of production, in accordance with rational choice theory.”
Together these seem to capture the essence of neoclassical economics. Although there are outliers such as imperfect competition, theory of ordinal utility (order of the values of each utility is what’s important and significant, but the differences between each one is not really known or knowable), combination of neoclassical and institutional economics, especially about equilibrium (mathematical version dominant), and integrating econometrics into this synthesis to supposedly allow solid measurement of such things as prices, changes in goods and services, demand, as well as their aggregate quantities. Eventually, this created macroeconomics which influenced the neoclassical synthesis by undermining foundations of classical economic theory such as Say’s Law, and assumptions about political economy such as the necessity for a hard-money standard. Neoclassical theory includes these changes by looking for the equilibrium conditions of Pareto optimality and self-sustainability in markets.
I can only conjecture about why neoclassical economics is such a mess in terms of foundational assumptions. But its success in terms of political power and its close alliance with the predatory rich is easier to explain. Neoclassical economics is utopian. So long as humans are rational, self-interested, and well informed, economic transactions must improve the lives of everyone. A neoclassical economy is a perfect economy. Neoliberalism, on the other hand is not an economic philosophy at all. It is a post-war political movement that grew out of the Mont Pelerin Society, a thought collective that formed a consensus not to put the market at the center of the state, but to take it over completely. Its entire objective is to co-opt economics and subvert the public interest to suit the needs of powerful capitalist institutions and the politicians, economists, financiers, philosophers, bankers, think-tanks and media organizations that support them. Unlike neoclassical economics, which is based on laissez-faire economic liberalism, neoliberalism is a fascist movement wedded to autocratic and anti-democratic economics and government. The two are often confused, sometimes deliberately, and other times by accident. Which in part explains the closeness of neoclassical economics and these same capitalist institutions and their supporters.
Hello Ken.
I don’t know why you choose E. Roy Weintraub’s article ‘Neoclassical Economics’ to respond to my points (and my lament), but it well illustrates what I am talking about.
If you read his article thoroughly, you’ll find it full of contradictions. For instance, take his point 1 where he says “People have rational preferences among outcomes.”
I have no doubt that outcomes are important to all economic agents. I’ve no doubt because any sensible definition of rationality implies forethought about outcomes of decisions.
But only a few paragraphs before making his point about rational preferences between outcomes, Weintraub had written, “The framework of neoclassical economics is easily summarized. Buyers attempt to maximize their gains from getting goods, and they do this by increasing their purchases of a good until what they gain from an extra unit is just balanced by what they have to give up to obtain it. In this way they maximize “utility”—the satisfaction associated with the consumption of goods and services.”
So, there are problems. The first problem is that he switched horses in point 1. Whereas point 1 is all about rationally preferring outcomes, his description of the ‘framework of neoclassical economics’ is not at all about outcomes as such. Rather it’s about maximizing satisfaction in a purchase decision. Indeed, he’s clear that to ‘maximize utility’ is to maximize ‘the satisfaction associated with the consumption of goods and services. And, it’s also clear that by ‘the consumption of goods and services’ he does not mean outcomes from the use of good and services but, and rather, the satisfaction associated with the purchase decision itself.
His point 1, in short, conforms with the rationality of Aesop’s Ant. But his preamble to point 1 conforms with the ‘rationality’ of Aesop’s Grasshopper: a degree of irrationality that leads to the Grasshopper’s death since the Grasshopper is not at all concerned about outcomes but about its satisfaction at the moment it’s doing something. [Weintraub’s Grasshopper is making a purchase and maximizing its ‘satisfaction’ at the point of purchase. It is not at all concerned with ‘preferences’ between outcomes’, for it never thinks so far ahead as to concern itself with outcomes.]
Note that I haven’t said anything about Weintraub’s statement that ‘Buyers attempt to maximize their gains from getting goods, and they do this by increasing their purchases of a good until what they gain from an extra unit is just balanced by what they have to give up to obtain it.’
I have two problems with it.
First, ‘gains’ is another mealy-mouth word here. ‘Gains’ in what, I ask. And, the clear answer to that is ‘gains in satisfaction’.
Second, ‘they do this by increasing their purchases of a good until what they gain from an extra unit is just balanced by what they have to give up to obtain it’ is incorrect as a description. In the neoclassical analysis, incremental gains in ‘utility’ are always greater than marginal gains in utility –owing to the diminishing marginal utility of increments to utility — so, as Marshall and all neoclassical economists actually assert, what the consumer ‘gives up’ is always less than what he/she (or, in my framework, ‘it’ as a ‘firm’ gives up to’ purchase/acquire a good or service.
And, the mathematics of this are also very clear. If, for a good or service, the Total Utility function is Bx minus Ax-squared (utility being satisfaction), then the gain in acquiring a unit (the incremental gain) is always greater than B minus Ax at the point of purchase. And, since price always equals the marginal gain in ‘utility’ at the point of purchase, it’s self evident that the consumer always enjoys a surplus up to the point where Total Utility is maximized.
So, Weintraub made a very basic error when he said that the increment in utility :: ‘what they gain from an extra unit is just balanced by what they have to give up to obtain it’.
Now, if he’d said what they ‘just gain’ at the margin is ‘just equal’ to what they ‘give up’, then he’d simply be saying the obvious: Namely, that the presumption that the price the consumer is ‘just willing to pay’ is just equal to to what he/she or it just gains, then his statement would be correct. But, that’s just another way of saying, “We have presumed that prices equal marginal utility in a framework where all goods and services have diminishing marginal utility.”
Now, Ken, Weintraub’s second point was that “ Individuals maximize utility and firms maximize profits.” If, in fact, agents of economic activity are concerned with outcomes, then this division into ‘individuals’ and ‘firms’ in neoclassical economics an obviously artificial division between agents. Now, Marshall needed that division in order to separate agents who used goods or services directly to obtain direct benefits from those who used goods or services directly to obtain indirect benefits from the sales of their products. [Now Marshall was wise enough to know that an economics based on measuring benefits from use would look very different from one implicitly measuring satisfaction with purchases, but, well, the latter meant that ‘consumers’ could not be firms. This meant that the outcomes for ‘consumers’ as individuals had to be their changes in satisfaction and the surplus of satisfaction that they got relative to what they had to give up to get it. (Put differently, the ‘profit’ of the ‘consumer’ was the ‘surplus of satisfaction gained relative to their cost: the satisfaction in money unit that they had to give up to get this surplus. The ‘profit’ of the ‘firm’, similarly, was the difference between what they got through their sales and what it cost to produce what they sold. (In short, these are reversed images like one sees in a mirror.)
His third point was that people act independently on the basis of full, relevant information. Well, since that’s never the case, I need not address it.
What I am saying here and in my earlier comments, Ken, is that the neoclassical foundations are in the miserable shape that they’re in because the ‘utilitarians’ worked with Bentham’s assumption that ‘benefits’ always correlated positively with ‘satisfaction or pleasure’ in obtaining [also Edgeworth’s continuation in his ‘Mathematical Psychics’ (not physics)]. Since, however, one can obtain measurable benefits without being ‘satisfied with how these were obtained’ (The late G.H. W. Bush hated ‘broccoli’ but his mother saw that, despite this, that he was still getting some essential nutrients from broccoli, with the result that he got the benefits without getting any ‘satisfaction … which is my point here.)
I could get into other aspects or answer questions from others.
Just ask.
And thank you for your thorough comment on what I’d said, Ken.
Larry, very clear comments with which I mostly agree. As a business economist I note that every decision is constrained by its current setting: I love ice cream but on a very hot day I can’s eat more than two scoops before it melts. In market research we long have looked at options, which somehow measure that elusive utility, to see how in a particular situation the choice is made, including to buy no more for the moment because not buying somehow provides more satisfaction, like being able to pay my rent rather than take that expensive trip.
Larrymotuz,
My choice of Weintraub was more about anthropology than economics, per se. One of my areas is “economic anthropology.” I usually begin projects with relevant dictionaries and encyclopedias, since these should congeal the approach economists take to specific questions. I’ve used Weintraub before, so he was handy. I agree his article is filled with contradictions. But that’s not unusual for people in any situation. The CIA operative who overthrows democratically chosen governments to save democracy. The “I hate women” politician who is wholly subservient to his wife. The soldier who kills to stop war. The examples you provide are generally standard contradictions made by many economists. More important for me is another distinction Weintraub shares with other economists. He omits things he doesn’t want to discuss. Mostly, discussion of the consequences of his economic “findings.” Firms get to maximize profit, but consumers only get to maximize utility. This is a game the consumer cannot win or even tie. Unless there are diligent and tough referees to ensure fairness. That forces us to define fairness. Which of course is not the same in each situation. Continuing, Weintraub and most economists adopt the absurd notion that it isn’t goods and services for which consumers enter economic transactions, but rather the “fun” of making purchases. But I must admit here that capitalist propagandists have been remarkably successful at “selling” this proposition to many consumers, and many politicians. Add to this the equally absurd notions that consumers can know with precision when their needs and what they purchase are perfectly (or very near) in balance. Even if consumers have the data, which they generally do not, the math involved would stop the efforts of most consumers. Most consumers are stuck with “I feel like I have enough.” This translates to a society and culture where literally anything the consumer needs to feel satisfied is for sale. But moral codes and their formal collation as laws often control and channel all this. This alternative is a society where consumers with enough money can literally purchase anything that makes them feel better or excited. And this leads to my major point. What is exactly the relationship between buying, selling, satisfaction, and utility, and the good life? Economics does not even consider this question. But for humans attempting to construct functional cultures and societies it is the central question. Economics turns out to be a fine entertainment for a rainy afternoon, but it provides no guidance for humans in their quest to construct useful, satisfying, and durable ways of life. And, of course all the other terms and expectations economists throw around must be defined, as well as how they are computed for their networks to be intelligible and useful. Terms such utility, marginal utility, rational, etc. The subjects of economists’ study, firms and consumers have for better or worse defined all these terms. Too bad economists aren’t even interested in seeing let alone investigating these definitions. Economists are unable to define anything, and simultaneously dismiss all definitions created by non-economists.
This is also why the heterodox must abandon the effort to convert orthodox academics, integrate with the new paradigm and take their message directly to the individual. Politics is simultaneously the strongest and weakest link in finance capitalism’s mental and structural armor.
“You never change things by fighting the existing reality.
To change something, build a new model that makes the existing model obsolete.”
R. Buckminster Fuller
‘“You never change things by fighting the existing reality.
To change something, build a new model that makes the existing model obsolete.”
R. Buckminster Fuller’
True BUT that requires “Economists” to be sufficiently open-minded and capable of understanding what they are presented with. My analysis, “Transient Development”, completely meets what is implied by Buckminster Fuller statement. Yet few of the correspondents on this blog appear to have accepted that the analysis is theoretically justifiable and provides a precise description of manufacturing reality. WHY? Possibly, the explanation is that, the myths they have been taught act as some form of religious belief which can NOT be questioned. If that is true then it answers the question posed by the blog itself.
In plain language please explain what transient development is.
My contention is that we are basically hypnotized by the long standing monopolistic monetary and financial paradigm of Debt/Cost/Burden which enforces systemic austerity and individual monetary scarcity. We also suffer from the fallacious belief that money is the primary factor in “monetary” inflation when it is actually caused by commercial agents not having a better alternative to raising their prices in an austere system when they see more money coming into the system.
Transient Development is the title of my paper in RWER-81. Development relates to the development of manufacturing by the introduction of tools to increase productivity and thereby increasing output from the application of the same amount of effort. Transient relates how the productivity increases over time.
With increasing productivity prices can be reduced. For example, this can be seen in the pricing of computers, TV sets etc. I would attribute inflation to prices being unnecessarily increased.
Absolutely, Craig !!!
What we have in mainstream economics is a set of Gatekeepers for a form of theory that began with ‘utility’ no longer being a benefit from use but “a benefit or pleasure” –mixing the two as if one could not derive a benefit without deriving pleasure, like George H.W. Bush got nutritional benefits from broccoli despite gagging on it. Or, in Pareto and Hick’s neoclassical world as if there were no drawbacks that might make consumption :: say of proteins– over-consumption because what’s outright beneficial in a some quantity could turn, if consumed too much relative to basic physiological needs, out to lead to diseases like gout or even early death. In a world where benefits matter, then we could say “Actual Period Consumption minus Needed Consumption in the period ” all divided by Needed Consumption in the Period would show the degree to which ‘beneficial utility’ was negative if less than what was needed in terms of measured benefits was being ‘consumed’ whereas the negative of (Needed Period Consumption minus Actual Needed Consumption, all over Needed Period Consumption) would show the negative utility of increases in protein (or other) Consumption over what was needed. {Clearly, there might very well be a Range of Overconsumption without detrimental effects on the ‘Consumer’, just as there is normally some ideal range of ‘input’ inventories for producers (as consumers).
Note that this does not conform whatever to ANY of the assumptions of all orthodox schools of economics, especially in its abandonment of utility as a benefit OR satisfaction, or in the notion of notion of the always diminishing marginal utility of goods so vital to the construction of demand schedules in all of neoclassical economics.
So, yes, Craig. One cannot fix what I call the Gatekeeping Economics of the Neoclassical or, worse, the Austrian schools.
Another element that has led to the very poor economics of the gatekeepers is the notion of insatiability as it now exists in neoclassical economics. It mistakes the reality that, in monetary systems, goods are saleable given the operation of the price system, and, given that no one turns down more money, this predilection for more does not operate for goods-consumption also. It doesn’t — and NOT because there would be search and other costs of reselling but because whereas having more money is always better than having less (because all market goods can be purchased if you have the money to purchase them), but because goods are both less liquid than money and satiation in goods is always a very real possibility, especially in terms of their non-monetary benefits to their users.
That last line is my way of saying that values-in-use cannot reasonably be conflated with values-in-exchange (as a benefit), since exchange itself does not exhaust the actual uses goods are put to.
Larry, I’ve enjoyed your comments! Following up Robert’s complaints about us Anglo’s not knowing our European literature, I looked up a reference to Proudhon in Polanyi (p26) and found this concept of money very interesting:
https://anarchism.pageabode.com/anarcho/proudhon-constituted-value-myth-labour-notes#system
I prefer distinguishing between a BIOLOGICAL system (each human) & a SOCIAL system (from the nuclear family in any direction you wish to take it including governments & religious organizations). My students & business clients have no problem at all comprehending this. Just avoid the unnecessary math, they say. For many math kills intuition & visualization.
Appropriate mathematics and the visualisation should correspond with reality. The problem is when they do NOT.
Yes, Prof. Beckman.
We are bio-pyscho-social, and so are our needs. The psycho-social ones are not readily described by algorithms. This said, the algorithm of the ‘consumer’ in modern economics does not even relate to a life form of any kind, and since, especially at the biological level, all life forms have essential needs –and often very measurable also– needs which must be met, the construction of consumer theory in neoclassical economics (the ‘consumer’ being a form without life) cannot answer any of the issues facing life forms, much less human beings, in market economies.
Given also that, in my view, economics is about how we provide for both our needs and our wants, with our rationality measured by the degree of foresight we use to provide for those, then the ‘rationality’ of the ‘consumer’ in modern theory –based as it largely is on ‘satisfaction’ at a time of ‘purchase’ rather than providing for ourselves– leaves a great deal to be desired of any scientia claiming to be about either ‘rationality’ or ‘human behavior’.
As I’ve said elsewhere, all users of goods are consumers. What’s important is what goods are USED FOR, for that very much shapes the benefits the use brings. If I buy food to eat, my benefits received are nutritional units. If I buy food to sell at a profit, my benefits are those profits.
The “Law of Demand” cannot be established if the ‘consumer’, in response to a price change, reformulates his, her, or its budget decision, and especially so with respect to ‘necessities’ or necessary inputs into production. Further, it rests not on any empirical evidence, but on the presumed existence of ‘the diminishing marginal utility of goods’ and on the axiom that prices are identical to the rate of change in diminishing marginal utility.
Neither Marshall nor later proponents of ‘indifference analysis’ can escape the reality that budget formation decisions are subject to change if prices change. [Firms do not continue on with the same budget in the face of price changes for inputs, so why should individual consumers? No do firms operate with the presumed constraint of diminishing marginal utility.]
The subjective casting of ‘utility’ makes it impossible to view firms as consumers which use goods to obtain direct and indirect benefits from their use of goods. Drop that assumption and a new theoretical framework will appear.
I’m going to add a simple example here. Let’s say a good like milk is subsidized so its price is now lower than before.
Will more be purchased?
Sometimes, yes. There may have been a population either underserved or simply not served at all at the prior market prices of milk. These, to the extent they need to, will buy more milk, adding to the consumption of milk by this subset of the population previously underserved or not served at all. These will now budget for more milk if they can afford to. [Naturally, those on fixed disposable incomes, would alter their existing budget formation decisions to include more milk. At some point, they will reach a desired level of milk consumption appropriate for themselves.)
Sometimes, no. The part of the population already well served by the market may or may not increase its consumption of milk. It may if it expands how it uses milk in its diets (e.g., more baking with milk products). Or it may not, if it is already be consuming as much milk as it wants to. If so, it will now reformulate its budgets so as to include more of other goods, including perhaps, goods it couldn’t afford to buy in desired quantities before milk was subsidized.
Neoclassical economics can address neither of the above properly.
Compromising the intellect for personal gain. Nothing new about that. All experience in the material world will show you that you advance and gain by promoting and advancing the interests of the people you serve – the wealthy and the powerful. The greater your service – the greater your reward. The cost is critical judgement and truth. Look at the Maestro. Critical thought looking up is expunged. The problem with truth and the greater good is there is no one to reward you. That’s why Gods’ judgement is imposed. And why people like Christ are murdered. When the truth runs against the interests of the wealthy and the powerful, the wealthy and the powerful step on the truth.
What you criticize mainstream economics for is normal operating procedure for physical science. Physicists have assumed for years that physical laws used by physicists on or near Earth are the same everywhere in the universe. A few years ago, the physicists got some confirmation of their assumption. Research conducted by an international team of astronomers shows that one of the most important numbers in physics theory, the proton-electron mass ratio, is almost the same in a galaxy 6 billion light-years away as it is in Earth’s laboratories, approximately 1836.15. Now this is speculative, at best. Measurement error for 6 billion light-years is unknown, and it is just one physical relationship. Plus, we don’t know if ours is the only universe. So, the assumption is a long way from confirmation, or even wide support, empirically. But physicists still use the assumption. Their work would be pointless if they did not. I believe economists are doing the same. However, I’ve seen no evidence of economists attempting to confirm their assumption empirically. They can, of course continue to use the assumption. But it should be marked with an asterisk and message to note there is so far no empirical confirmation for it.
Forgot to check the boxes.
In my earlier answer to you today, I wrote “owing to the diminishing marginal utility of increments to utility”. This should have read ‘owing to the diminishing marginal utility associated with each incremental unit of good or service.” (Haste makes waste!)
Sorry about that.
Hi Ken,
I am fighting strong bronchitis and unable to respond your additional comment cogently. As soon as I’m over this, I shall address yours and some of the points made by others. Suffice it for now to say to you and others that even at a micro level, uncertainty rules the day. At best ‘rationality’ (in terms of avoiding ‘bad’ outcomes like disease, or death, or bankruptcy) eliminates some ‘decisions’ (i.e., some ranges for purchase and use), leaving a large set of feasible choices for individuals/firms. ‘Rationality’ is, in short, non-deterministic in and of itself. It sets boundary conditions for ‘rational’ decisions, with all choices within those
boundaries being ‘rational’ because of ‘suitable’ outcomes. In terms of aggregate effects, I would agree with Dave Taylor (as I understand him) that the use of information theory is more likely to provide a better guide to likely economic ‘events’ (very broadly defined and following from choices about suitable outcomes) than any deterministic models now used in economics.
I agree with your comments, Larry. But I need to point out two cautions. First, rationality is one of those groups of data that need to be explained. You have provided a definition. Now the question is what are the definitions used by those involved in the situations the social scientist wants to explain? Second, you define rationality as chaotic, or complex. That certainly leads to considering rationality indeterminate as you propose. How would that change for observed actors using it as linear and simple? Also, how does historicity affect the notion of rationality?
I jump in here to note that German culture allows for such “simple” application of rules, although if you are a Kurfürst a lot of Germans will let you follow your own rules, including lower courts. You know, rank has its privileges.
Thanks, James. Excellent example of what seems familiar sometimes isn’t. Also, should prompt every economist to question every assumption made about a situation or actor being observed by the economist.
Larry, I agree with everything you have said. I am particularly impressed by your awareness that people’s economic circumstance strongly affect their willingness to find/accept job & purchase offers. (“satisficing”, if you will). I am not as close to these folks in the US, but here in Europe we are surrounded by refugees.as you know.
From an evolutionary perspective Sapiens evolved to grasp the thoughts and feelings of others Sapiens’ member from such things as eye contact, bodily gestures, and simple non-word expressions like grunts, facial configurations, screams, etc. Today we call this empathy. Humans who lack it are not only physically malformed, but often suffer from loss of full contact with other humans.
Thanks. I’m still down with this bronchitis, but as is said, “If you treat it properly, eat properly, and sleep properly, you’ll get over it in a week and a half. If not, it takes about 10 days.”
I’m now on my eighth day.
For whatever it is worth, computer scientists at the University of Manchester are building an Artificial Intelligence capacity based on human neural networks, meaning “fuzzy logic” inputs but concrete decisions. In other words, the Spinnaker computer acts like us, meaning definitions are context dependent, as I have suggested before.
James, AI is a topic those of us who work in the social studies of knowledge talk about endlessly. The scenario you describe draws a lot of interest from SSK. One of the puzzles about the scenario is this question: When it comes to choosing among alternative explanations for empirical data, how do AI researchers create AI (fuzzy imagination, etc.) that makes such choices, since humans don’t really understand how they themselves perform that task? Trial and error is the most common answer. But that’s not adequate because there’s no way to tie it back to what we know of how humans do it. If you have anything to add, we welcome it.
Ken, of course you are correct. But for those of us who teach business to those with tech training, it seems to be a combination of empiricism & what passes for a notion of causality. We always go to data, correlating this or that variable, to first see how the resultant prediction fits the actual occurrence of the independent variable (so defined). Close correspondence matters, but so too the second step of seeing if there is any sense there: if my right big toe aches the night before a local earthquake, that is incidental. If it occurs three or four times in a few months, as for those who live in California, we might investigate the biochemistry. Etc.
We always have data, but as you know data is very messy.
James, I like your comment. Shows some understanding of what people must cope with in concrete situations. This is how I see making the choice among possible explanations for data groups. There are several decisions involved. First, we must reach consensus on data groups, then on what the groups signify, and finally consensus of how to explain each group. It all revolves around storytelling. Someone tells a story to explain the data. Others hear the story and react to it based on their experiences. Over time a consensus emerges if support for the first or a subsequent story is created, or new data supports one explanation over another. Otherwise, no explanation is accepted, at this time. As other stories are told over time, a consensus may be created. Or, maybe not. It’s a reversible process, including moving backwards. Of course, it is assumed to have a physical base. But any such base can never alone explain any decision.
Ken, marketers love the term “storytelling”, as you are aware. It is clever of you to use the term in this context, as indeed it seems to me we develop explanations which are acceptable to us & at least some of our scientific colleagues. A famous example is the Einstein-Planck discussion of the quantum effect: multiple simultaneous locations for a particle as fact/probability or just plain “spooky” (magic thinking?) as Einstein declared. IBM may be introducing such a “spooky” computer now at the Las Vegas’ Consumer Electronics Show.
James, much of what humans perform under the rubric of creativity is imagination in the implicit life we seldom experience explicitly. Entire worlds are created sort of “behind the scenes” and then explode outward with little explicit knowledge of the history behind them. Anything they can’t control or have someone else control frightens economists. That explains their lack of empathy.
Hi Ken,
Am still felled by bronchitis here so I can’t ‘explain’ much. ‘Rationality’ is complex but not chaotic. Life forms are always concerned about outcomes, but outcomes are multiplex dimensionally, with some being more primary/important-to-realize than others. Aesop’s Ants expect to realize ‘survival’ through foreseeable ‘hard times’ –in the tale, the coming winter. The expect this because they plan to have sufficient stores of food to get by.
They are not ‘maximizing’. Being ‘rational’ does not imply ‘maximizing’ behavior. It implies behavior which leads to a ‘realistic’ expectation of avoiding the worst possible outcomes in the worst imaginable scenarios (based on prior experience) while also based on what can be harvested given how beneficent this year’s harvest has been. [Which, only in part, depends on prior ‘rational’ decisions about possible outcomes.]
Now, moving away from the ant colony to people as individuals (or families), what’s a ‘good enough’ outcome will vary not only because of their circumstances but also because of their ‘preferences’ (where their circumstances permit them to choose in some accord with their preferences), not to mention their talents as managers and a host of other factors. Aggregating amongst these, the set of ‘good enoughs’ cannot plausibly bring us to a fully determined, unique OUTCOME like that of ‘orthodox’ macro economic models.
And, when we introduce money as the medium of exchange, with prices as exchange-values, we are introducing yet another level of complexity into our decision-making. I’ll get into how that complexity changes in my next comment. Suffice it to say, for now, that both nominal income and nominal prices seriously impact upon choices because they affect the choice framework for decision-making.
(Too tired to continue right now due to illness.)
Larry, thanks for the reply. I think I understand what you believe rationality to be. My point is that rationality is not a thing, or a definition, it is a process. The process varies from culture to culture, and over time. So, of course rationality varies from culture to culture and time to time. It’s important that economists and other social scientists understand rationality in this way. Otherwise, they might make the error of explaining actions of “rationality” in a culture and/or time with the rationality of a different culture/time. Economists make this error frequently as actions of any actor or situation are explained according to the rationality of marginal economics, macro or micro.
YES, rationality is a process. In economics, rationality must be tied to how we provide for ourselves through markets (and, frankly, through activities that are non-market and, er, politic.
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Demand and supply are sorely misunderstood by the religious fervor that surrounds the beliefs of economists.
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Mike, I like your book. Almost every time I testify with or against an economist, I’m forced to spend half my time on the stand reconciling and correcting “economist’s” math vs accounting math. My testimony is framed around the latter. The economist’s around something else, such as the cost accounting vs. marginal cost example you describe. I agree with your answer about why economists do it the way they do. They’re trying to make the math fit their theories. Which, for me negates any value the economist’s testimony might have.
Thanks Ken… Economists should focus on real issues instead of the bs of free markets and ceteris paribus. As an example – why is Payless filing for bankruptcy again. The answer is mergers and acquisitions and the difference between capital investing and financial investing. Capital investing is buying a product and putting it to use in making products. Buying a lathe to manufacture machined goods. Financial investing is buying out a competing firm. I call this financial investing as the price is based upon the future profit stream of the firm being purchased not based upon the assets the firm owns. Usually by taking on debt. In order to remain profitable the firm must raise prices – see drug market. If they can’t raise prices as they don’t control the market – they will go under. i.e. Payless shoes. Who profits from all this mess – investment bankers. Who loses – employees and consumers. Drug companies run amok as they have patent protection and do control the market.
Here’s the ironic part – through the supreme court and passing laws – Goodwill/Intangible assets are now subsidized by the federal government through depreciation. And not a single economist says a dam thing. (see Newark Morning Ledger vs IRS. This was closely followed by Clinton’s Omnibus budget act which granted the rights to depreciate intangibles for tax purposes.)
Mike, if economists focused on “real” issues as you say, two things would happen. First, that’s hard work. Something many economists are not accustomed to doing. Second, the economist’s education would be of little value in such work. After all, employers who haven’t been properly indoctrinated into “economic’ thinking expect results when analysts deal with problem issues. I don’t believe they see much of that with economists as analyst. You can level many criticisms at 19th and early 20th century capitalists like Rockefeller and Carnegie, but they did operate production businesses – steel, oil, gas, railroads, etc. Making money solely from investing money and then from manipulating money and money-like instruments did not become a large part of capitalism until after World War II. After 1970, the sky became the limit in such financial manipulation. And with ever faster computers, the sky reached higher and higher. During the 1980s and 1990s, the overall size and profitability of financial arrangements grew as deregulation unleashed financial innovation and reorganization. Global shifts toward capital market integration and liberalization created greater global interdependence. Households in the years before the crisis also altered their relationship to the financial system, increasing debt loads and overall exposure to the stock market. Research reveals the importance of politics for many financial market developments, various implications for corporate governance, the continuing significance of social factors within finance, and the role of theoretical and material devices in shaping financial practices. Economists invented many of the new theories to explain and justify the expanding financial system, and its expanding investments and “profits.” Economists’ theory of the “rational” investor and the predictable financial market sucked in smaller investors and help get the ball rolling on many “questionable” practices to make real-time financial markets, such as credit default swaps. The story goes that none of this is illegal or even immoral. Since there are no laws that prohibit it and no moral codes that condemn it. But take my word, it’s destroying our and many other societies.
“Mike, if economists focused on “real” issues as you say, two things would happen. First, that’s hard work. Something many economists are not accustomed to doing. Second, the economist’s education would be of little value in such work. After all, employers who haven’t been properly indoctrinated into “economic’ thinking expect results when analysts deal with problem issues.”
Who decides what are problem issues. If not economists, then it must be people in the real world, firm centric people, that is building an economics and education about economics on the problem issues that people in firms, including investors, employees, and managers, and the government entities that must deal with these issues politically and socially. In order to reveal these issues is hard work, investigative work, and careful thinking about them. So, when historians actually look for problem issues that beset a generation (you have identified ours, Ken, as arising recently from globalized finance-investor capitalism), they never start with economists, but with the people experiencing them in their daily lives and how they are coping with them. In all our “discussions,” in this blog, I find people looking at “scientific method” as a central problem issue, and market economics, without much regard for a firm-centric locus of analysis and the cultures in which they are embedded.
Robert, you are correct. Areas of concern for “real” people in “real” situations include subsistence, fairness, love, legal troubles, etc. Financial capitalism explains each of these. The spokespersons for financial capitalism attempt to bring persons outside finance into these explanations. To recruit them you might say. All sorts of inducements are used. Including threats and bullying. If the recruitment is successful, these persons become part of a financialized network. Sometimes so much so that connections to other networks are broken. But financial economics is not the only network looking to recruit these persons. So, the situation is confused and messy. But of all the networks seeking to capture people financial economics is one of the more successful. Eighteen-year-old high school students and lawn care workers speak at least some financialeez, some a great deal. Financial economics creates a long list of problems, some of which I’ve listed. Ordinary persons swept into the financial economics network confront many of these, most of which each of them alone cannot solve. How each person is affected by these problems depends on the person’s history of involvements and commitment to financial economics over time. Each person’s concerns and answers for these concerns emerges from these involvements.
The extent to which financial networking is successful in our communities is one yardstick for measuring our inability to deal with nonfinancial social and economic problems, which is one reason we are trashing about trying to find systems that have resisted financialization, e.g. Canada, the German and Nordic cultures. We need more experts to bear witness on this blog about resistance to financialization and how it is expressed and achieved. Because of the attempt to be “scientific” the blog sweeps critical educational, governmental, legal, etc. distinctions necessary to analysis away.
Amen, Robert. There were dozens of economists at this year’s Davos meeting. But it was an historian, a Dutch historian named Rutger Bregman who set the millionaires and billionaires, and economists at Davos on their ears. A discussion panel at the Davos World Economic Forum became a sensation after a Dutch historian took billionaires to task for not paying enough taxes. Bregman, author of the book Utopia for Realists, laments the failure of attendees at Davos to address the key issue in the battle for greater equality: the failure of rich people to pay their fair share of taxes. Noting that 1,500 people had travelled to Davos by private jet to hear David Attenborough talk about climate change, Bregman said he was bewildered that no one was talking about raising taxes on the rich. “I hear people talking the language of participation, justice, equality and transparency but almost no one raises the real issue of tax avoidance, right? And of the rich just not paying their fair share. It feels like I’m at a firefighters conference and no one’s allowed to speak about water Bregman told the Time magazine panel on inequality.” Bregman emphasized the rich must “stop talking about philanthropy and start talking about taxes,” and cited the high tax regime of 1950s America as an example to disprove arguments by business people at Davos such as Michael Dell that economies with high personal taxation could not succeed. “That’s it,” Bregman said.” Taxes, taxes, taxes. All the rest is bullshit in my opinion.” A member of the audience, former Yahoo chief financial officer Ken Goldman, challenged his comments and said it was a “one-sided panel”. He argued the fiscal settings across the global economy had been successful and had created record employment. But another panel member, Winnie Byanyima, an Oxfam executive director, took up the fight and said high employment alone was not a good thing because many people found themselves in exploitative work. She cited the example of poultry workers in the US who had to wear nappies (diapers) because they were not allowed toilet breaks.
Bregman brought to the ears of the very rich a kill-or-be-killed fight that is now finally underway to change not just America but the world in terms of production, welfare, and economics. American Democrats and Republicans yell at one another a lot on these issues. But they agree on the basic structure of economics and society. Politicians from the left to the right preach to us that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have “made it”. By the go-getters oozing talent and entrepreneurialism that are helping to advance the whole world. Left and right may disagree about the extent to which success deserves to be rewarded – the philosophy of the left is that the strongest shoulders should bear the heaviest burden, while the right fears high taxes will blunt enterprise – but across the spectrum virtually all agree that wealth is created primarily at the top. So ingrained is this belief that it’s embedded in our language. When economists talk about “productivity”, what they really mean is the size of your paycheck. And when we use terms like “welfare state”, “redistribution” and “solidarity”, we’re implicitly subscribing to the view that there are two strata: the makers and the takers, the producers and the couch potatoes, the hardworking citizens – and everybody else. This is, as they say “backwards.” Observations show us again and again that it is the nurses, garbage collectors, truck drivers, maids, house cleaners, etc. that provide the foundation supporting the top of the pyramid. They provide the social cohesion and all the building blocks for our economies. Not just ignored, those they support receive most of the accolades and most of the wealth. Adding insult to injury, a growing share of those hailed as “successful” and “innovative” earn their wealth at the expense of others. The biggest share of handouts isn’t going to those near the bottom but rather those at the very top. Yet the risky dependence of those at the top on all others goes unseen. Almost no one talks about it. Even for politicians on the left, it’s a non-issue.
When these become topics of mainstream economists then perhaps economics will be moving toward relevance and toward becoming a science.
It’s a while since we heard from Larry Motuz (see January 11, 2019 at 12:58 am). I do hope he’s still with us, being “a good ‘un”.
Hi Dave and everyone:
My illness and recovery largely underlie my silence. I felt also that at wanted to re-acquaint myself with the Physiocrats and later classical liberal economists, just to get a better idea of why later marginalist school developments in economics had taken a wrong turn, one detrimental to the evolution of a useful economics.
Here’s a part of what I’ve been thinking.
The ‘laiisez-faire’ advocated by the Physiocrats and the liberal economists who extended their thought was the freedom to enter and exit markets as producers, buyers, and sellers. This is what they meant by ‘free markets’ and ‘market freedoms. Such freedom had been long denied most people, partly due to remnants of the feudal era, but also many due to royally favored Monopolies which acted also as Monopsonistic buyers at prices they largely controlled or set.
Farmers, for instance, could not choose what crop to grow, whom they could sell to, nor the prices they could sell at. They lacked the freedom to plan and choose which underlies economic agency. [Farmers in France, for example, were being ordered to grow mulIberry trees to support the domestic production of silk.]
It was, not regulation by government as such but those regulations which prevented such market freedoms for all that gave birth to ‘laissez-faire’. People having agency by becoming free to choose to make responsible decisions for themselves was the central core of what was meant by ‘free markets’.
The Physiocrats, Adam Smith, and all later liberal classical economists, including Karl Marx and John Stuart Mill, all advocated for this freedom to act as responsible agents as producers, buyers, and sellers, for this they correctly believed would foster efficiencies in the use of people’s resources, in the use of innovative technologies, and in incentives to innovate and invent for markets, all which would enhance wealth creation.
They also, however, knew the limits of markets.
There is a scene in Doestoyevski’s The Idiot where Lebedeyev (a drunken buffoon) recounts that a defender of commerce once replied to a complaint that ‘mankind has grown too busy and commercial’ with the retort: “[T]he rumble of wagons bringing bread to starving humanity is better, maybe, than spiritual peace.” Lebedyev –here standing for Doestoyevski himself, disclaims, “But vile as I am, I don’t believe that the wagons bring bread to humanity. For the wagons that bring bread to humanity without any moral basis for conduct, may coldly exclude a considerable part of humanity from enjoying what is brought.”
If we substitute the word “markets” for “the rumble of wagons” we can appreciate that markets bringing goods and services collectively to everyone is not the goal of markets, Collective well-being is not their goal, for they bring what they bring only to those willing and ABLE to pay for what they bring: namely, consumers.
Ability to pay is not within the means of everyone.
This underlies why all of the classical liberal economists were concerned about the distribution of incomes and wealth and also upon whom the burdens of taxation should fall. Mill’s exemption of the first 50£.s of annual income, for instance, was based on the observation that this was what was needed to provide the essentials of life. His flat tax on incomes after that, on the comforts of life, was based on the idea that keeping burdens equal could not be based on a flat tax on all income, for the burden of giving up necessities was greater than the burden of giving up comforts.
When being free to choose means having the money to choose, then laissez-faire is, as all liberal classical liberal economists believed, a necessary but not sufficient condition for human freedom. It was necessary as a means to improve the material means of much of the population; but it was insufficient 1) in that markets are not (and cannot themselves be) designed to serve everyone equally; and 2) in that the egalitarian human freedom of the Enlightenment philosophers implied also political, social and ethical agency–not merely an agency exercised in markets wherein the same rules applied to everyone.
(Ah, yes, there are enforceable rules. It is our egalitarian human freedom, and self-government, that means we get to make such rules!)
When ‘consumer sovereignty’ is mistaken for the sovereignty of the people. or is taken as a measure of human freedom within a state, or as a measure of the welfare of populations, then it directs attention away from what has indefinite value both in nature and in human society to favor the definite money values of those with the ability to pay for ‘what the wagons bring’. {I will refrain from detailing the horror I experienced when first encountering Marshall’s idea of consumer surplus and how economists had run away with it as a measure of welfare of populations rather than merely of those willing and able to pay for what the wagons brought.}
I am saying all of the above because the classical liberal economists were well aware of ‘what the wagons bring’ and to ‘whom’. Not a one would have bought into the idea of consumer sovereignty being ‘all right’ and leading to, er, all’s-well. Markets alone could not lead to such things, and especially so in the provision of necessities to all needing necessities. The State had a major role to play not only in setting rules for markets but also in ensuring that market production for profit to consumers did not lead to excessive claims about what markets could or could not do, claims which might tether government if believed to be true.
Larry, all so very correct. But difficult to convince the people in charge – those with lots of money and those they buy – about any of this. I’m an ex-Marine. When I have conversations about gun ownership and control, as I did yesterday with a man wanting me to sign his petition, I hear this often – you’re a Marine so you know how important unrestricted gun rights are?? When I say no, usually angry words follow. When I let the conversation go further, which mostly I don’t I remind these “weekend” warriors that the first action Wyatt Earp and the other famous frontier marshals took in a new town was to stop guns from coming into town. Gun control is as old as America, older than the 2nd Amendment. They of course just become angrier at me for lying to them, which I am not. I have this same argument, with maybe a little more intensity when “free markets” is the subject. And for the same reasons. Few know the history or the impacts of markets on government and accountability. Like guns markets have, at least till the last 50 years been tightly monitored and controlled by government actors. Until those with whom we’re disagreeing about gun control and market control are better educated, if that’s possible, I’m not sure either discussion will produce anything more than anger and conflict.
Please pardon my typos above.
Hi Ken. I agree.
One of the reasons I first came to this website was to clarify for economists the problems that I saw (as one myself) with all of current orthodox economic theory. My focus has been on calling all ‘use’ consumption to obtain benefits, with those benefits –usually measurable– dependent on the characteristics of goods-in-themselves and on their uses. (In a money system, one of those uses is making money by selling goods.)
I’ve felt, overall, that one cannot have a theory of macro-economic activity without some foundation in micro-economic activities. And I’ve stressed, as classical liberals well knew, that the distribution of income and wealth sets the actual and potential paths for all market growth, albeit I am, like you, not solely concerned with ‘markets’ when non-market mechanisms are essential to providing for whole populations: not merely part of them.
Thanks for your comments.
WEA author:
Rob, all quite correct. But how does knowing all this help those of us under assault by financialization survive and defend ourselves? Obviously, those getting rich and richer from financialized economics don’t object to any of its flaws you list. Moreover, economists still express not just support but enthusiastic support for its future. Alan Greenspan said this in October of 2008 in testimony before Congress.
GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to — to exist, you need an ideology. The question is whether it is accurate or not. And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact.
REP. HENRY WAXMAN: You found a flaw in the reality…
GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
REP. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working?
GREENSPAN: That is — precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.
The “model” had been working “exceptionally” well for 40 years, according to Greenspan. One problem here. Any sociologist, anthropologist, or historian studying this model and its relationships to people and American society over that 40-year period could have verified that the model was not just dysfunctional but doing great harm to American society and its people. That’s an uphill battle for any ordinary citizen. For any social scientist as well, for that matter.
Great question Ken. First, I want to say I have been enjoying the dialogue between yourself, Robert, and others as there are so many great insights therein. I can’t keep up with all of them as at the moment we are setting up our new house in Japan.
I guess such knowledge helps one become more aware of the size and scope of the problem. On the other hand, as an individual it seems this issue requires a collective response, for alone I feel powerless to change much but my own behaviour.
We (I and my wife) fight back against the predatory financiers on the personal level by first being financially educated. For example, we chose not to purchase luxury items even though we had the means to do so and directed those resources to paying off student loans, house mortgage, and our daughters education. We refuse to become mindless consumers. We pay cash rather than finance purchases. We only use credit strategically. We are by and large debt free.
But to be honest, I don’t think our individual fiscal conservatism will have much of any impact on the harms caused by predatory global finance.
When I look at the US and the rise of Trumpism, I don’t hold out much hope that there the predatory banks and Wall Street hedge fund managers will be reigned in. I hate to be a pessimist, but I believe more terrible destruction is to come. In fact, we are directing our resources to the plan of assisting our daughter’s immigration out of the US as I type these words. One is already in Canada, we are in Japan, and as soon as our oldest completes medical school she too will be emigrating. When 30% of a population supports someone like Trump I think you have a failing society.
American culture is sick to its core. Its Founders in some respects would roll over in their graves. Note I am aware there never really was a “golden age” so-to-speak, but this post-truth post-fact reality show performed from the highest office in the land is causing lasting harm to American society from which it may not recover from for a generation. Let us hope Trump and his sycophants don’t provoke another world war.
Beyond serving my brothers and sisters closest to me on a daily basis, I feel helpless to change the course America has chosen which to me is like standing on the pier watching the Titanic head out to its watery grave.
Spellchecker sneekily is changing my choice of words, so please read between the wrong words.
I remember when I was in business school and the professor teaching tax accounting actually told the class how to evade the IRS regarding tax evasion yet not expose oneself to liability directly due to a client’s tax evasion. My wife and, when she was getting her MBA, had many a times we sarcastically laughed at the stupid teacher parroting mainstream economic’s claptrap.
Or while working as a corporate accountant for a firm observing how they gamed the outside auditors, and then how the same tactics where used by Enron. Accountants, lawyers, ratings agencies, and republican politicians (think ilk like Newt Gingrich) all colluding to evade, hide, and conceal outright market manipulation for profit at the expense of the many under the propaganda of efficient markets & deregulation.
I hold Greenspan in great contempt. May he someday be held accountable for the human devastation he and his ilk have caused.
Rob, I was pleased to see your reference to Clausewitz, about whose “economics” I wrote in the rwer, 2012, #61. Whereas Smith and the classical economists talked about economics in terms of individuals competing in free markets, Clausewitz talked about economics in terms of nation-state rivalries, which in fact has been the principal concern of everybody since the French Revolution, except anglo-US economists.
The individual-market emphasis of the critics of orthodox economists leads them astray, as the continual reference to Polanyi proves. Madi, in “Polyani and social justice,” writes that he “described the desolation, dehumanization, and degraduation of human lives as necessary steps for the emergence and expansion of the labor market in a market economy,” if we adopt the nation-state rivalry point of view we clearly see that those steps have not been taken. No nation-state could prevail in a market economy with a population so devastated. Polany, if you look at the history of public health, public education, etc. over the past two centuries is clearly wrong. Why cling to such a misguided view of economics”
I also wrote in the article, “Admirers of Clausewitz assert that his strategic vision, conceived over 200 years ago, adds explanatory power to the discipline because his assumptions about economic actors differ
from those of orthodox economists. His state oriented strategic management thinking is
expressed in books and papers such as Clausewitz Strategie denken, Henning If
Clausewitz had been an economist: Economics as an instrument of Power in Clausewitz’s
Strategic Management Model (that borrowed heavily from Rasmus Beckmann’s analysis of
Clausewitz’s strategic model in a contemporary context (Schildgen, 2010, Beckmann, 2008),
and in courses and executives seminars taught at the Harvard Business School and other
management education venues….
Consequently, although he addressed simple problems with Newtonian concepts, Christopher
Bassford claims that Clausewitz unlike British, French, and American economists also used
new tools of mathematical probability calculations to deal with problems of disorganized
complexity (Bassford, 2008). His belief that reality is fraught with the unknowable
(Ungewissheit), resulted in methods of analysis that were very different from those of
orthodox economists. He was careful about simplified model building. As he put it, “The
scientific character of [my theory] consists in an attempt to investigate the essence of the
phenomenon of war and to indicate the links among the phenomenon and the nature of the
component parts. No logical conclusion has been avoided, but whenever the thread becomes
too thin I have preferred to break it off and to go back to the relevant phenomena of
experience.” (Quoted in Bassford).
“Madi, in Polyani and social justice,” writes that he “described the desolation, dehumanization, and degraduation of human lives as necessary steps for the emergence and expansion of the labor market in a market economy.”
We are talking about the emergence of a cheaper form of labour market from a slave market where the degradation was overt, not the development of better conditions over 200 years in response to pressure from workers and the kindlier intelligent observers. The slave trade was appalling, but as I’ve pointed out before, so were poor law conditions in industrial Lancashire.
Dave, I’m surprised that you are not aware of the late Victorian Crisis about entrepreneurship and competitiveness Britain experienced during the Second Industrial Revolution because of the deficiences in new industries in which Germans and Americans excelled.It was thoroughly discussed at the time and by historians since. Do you know Corelli Barnett’s The Audit of War.
I think the “individuals competing in free markets” is propaganda to keep the masses busy competing with their neighbor while the fox rules the roost and robs the henhouse. Clausewitz is right I think.
I have always believed that:
Lars days the same essentially:
War is economic conquest by other means. At least that is were I see it heading.
I really despair about the inability of people on this blog to understand that an economics based on nation-state rivalries, as Clausewitz understood, does not lead to the results for the general population that Polany’s analysis of individuals operating in a market economy predicts. Historians who actually study the development of nation-states in the 19th-20th centuries know the difference. Clausewitz in On War, had a problem, that the British protected by their ocean-dominating fleet did not have, the survival of the nation. French Revolutionary armies and Napoleon’s legions destroyed 18th century German states in the epic battles known to history, 1807, Austerlitz, 1807, Jena-Auerstadt; Clausewitz and others studied their enemies to learn how to restore-create a thriving, powerful,. Prussia-Germany that could prevail in these struggles, as has every threatened state-entity ever since. Britain economists might get away with an improvished working class, but that has not been an option for nation-states, which Prussian=German reformers understood in their despair under French dominance. The solution lay in building a prosperous patriotric citizenry out of counties dominated by serfdom. In Prussia=Germany they did this in a multiude of ways, through educational reforms, Humboldt;s Gymnasien, the introduction of technical and commercial education at all levels of society, which is the strength of Germany today and its prosperity, in the form of Technische Hochschulen, and Handelshochschulen, incorporated into middle schools and apprenticeship programs. Reading Polany one would think that the world of nation-state rivalries was sunk in sloth and ignorance, when it has not been case. Every nation-state that did not want to succomb to dominant neighbors understood that they had to improve the lot of their populations if they were to assert their independence, not through granting those citizens democracy or parliamentary government, which was a myth, but the wherewithal to compete successfully economically, and militarily. What do we think all this noise about China’s rivalry with America is about. Or Japans, or America’s up to and including WWII. What was the GI bill about, other than to enhance the wherewithall of the American people. A lot of very stupid people have followed neoliberalism in US politics, but those following the Clausewizian way of thinking, see this as a road to ruin. Nation-state rivalry has been the focus not Polany’s misguided analysis.
Polanyi sought to distinguish primitive, archaic ‘reciprocal obligation’ distributive economies from modern monetary economies wherein ‘markets’ are shaped by a single medium of exchange and by the money prices of goods. His analysis and conclusions were accurate. He found a Great Transformation in all cultures, one marked by forms of individualism totally uncharacteristic of reciprocal-redistributive economic systems before monetization.
The goals of states competing with other states, yes, require healthy and patriotic populations, and, certainly Bismarck shaped ‘welfare’ policies with that in mind. {Mind you, the promise of state pensions for those 65 and over, given how few lived to that age, based on a tomorrow that would never come for most, so it was very good PR.}
Clausewitz was not an economist. Polanyi was. Economics is not about populations having the wherewithal to soldier, but about how we provide for ourselves.
I am sorry Larry, but state-rivalry involves economic competitiveness. Did you read my rwer article, “Reassessment of the Basis of Economics: From Adam Smith to Karl von Causewitz, rwer 61 2012. Have you ever read ON WAR. Show some imagination, the entire world is besotted with state-rivalry, and states have reformed themselves economically in order to keep up with their neighbors. My book, The End of the Practical Man: Entrepreneur and High Education in Germany, France, and Great Britain, 1880-1940 (1984) is about the decline of British Entrepreneurship and French during the Second Industrial Revolution and the Rise of German. It isn’t about Bismarck’s social policies but Germany’s creation of a society of Technik, which Sombart, Veblen, and others described. Economic is about how nation states provide for themselves and their peoples, Polanyi isn’t.
Larry, Do you know Corelli Barnett’s the Audit of War (1986), which takes up a Clausewitzian view about Britain’s industrial decline. One reviewer of the book wrote;
“I had not heard of Barnett before reading this book, which I stumbled onto after reading books about the British campaigns in the desert in the Second World War. I found this book to be fascinating because it is a) well researched and b) provides an explanation for the decline of the UK as an industrial power after 1945. I think, however that the book’s larger point is that the seeds of decline were sown from early on in the Industrial Revolution as a result of the way the mill and mine workers were created and treated by those who created their workplaces and dictated their living conditions. And the eleventh chapter of the book on education is especially good given that it shows the consequences of educational philosophy on the economy of a nation, and demonstrates that decisions taken generations ago have ongoing consequences. While my politics and those of the author are different (I think there was a need for the UK to have put in some kind of welfare state after the war), I think his analysis of the state of British educational and industrial decay in the 1940s and on until the present quite accurate.”
I’m with Larry on this. Robert, economics didn’t start with Adam Smith, and the rise of Prussian (protestant) Germany was at the expense of the long-standing (catholic) Austrian administration. What your account particularly omits is the Bank of Amsterdam creating money out of thin air to finance wars, the the Bank of England blowing South Sea bubbles and in France Laws’ bank blowing the Mississippi bubble which destabilised French colonisation of North America. Not that there weren’t wars in Europe before then, but in Britain we are very conscious of invasion by pre-Christian Norman ideas. Yesterday I took my granddaughter to see Hartlebury Castle, home of the Bishops of Worcester since William the Conqueror, when (it said) 25% percent of the population were slaves and sold in slave markets. I’ve also just read Donald Macrea’s “Weber”, in which the Prussian background of the sociologist is described in some detail, shedding light not only on what you have been telling us but also on G K Chesterton’s antipathy to Prussia and Bismarkian technical training during the First World War.
This is perhaps why your criticism of Polanyi is unfair. He was writing during the Second World War when Bismarkian technical cooperation on a National scale had let in Hitler, and you are writing in light of Germany’s family-of-nations inspired technical recovery. (Please excuse the over-summarisation: this is after all just a blog response)! Anyway, I’ve been looking at the summary ending of Polanyi’s book to see what he’s actually been saying.
“In its international methods … 19th century society was constricted by economics. … The balance of power was a vehicle of peace … constraining anarchistic sovereignty and “justified intervention” in the affairs of other nations. … Actually, only countries which possessed a monetary system controlled by a central bank were reckoned sovereign states”. (P.260/1).
“We invoked what we believed to be the three constitutive facts in the consciousness of Western man: knowledge of death, knowlledge of freedom, knowledge of society. … The fascist answer to the recognition of the reality of society is the rejection of the postulate of freedom. The Christian discovery of the uniqueness of the individual is negated in fascism. … Robert Owen was the first to recognise that that the Gospels ignored the reality of society”.
The Gospels surely didn’t need to relate the sort of Romanised society which was evident in their time. Where Owen should have looked was for Christan practice in the Acts of the Apostles: small self-supporting groups “salting” even Empires.
PS. Second Polanyi quotes from pp.267/8. The problem with “small self-supporting groups” is as always it depends on who is in them and how localised the support. Are we not discussing the “teaching-of-economics-captured-by-a-small-and-dangerous-sect”? That is, an international one whose mistakes have endangered the whole world.
Robert, et al, Polanyi writes the history of an economic transition in Europe, mostly in the UK during the latter half of the 19th and into the 20th century. And even here his description is limited to the replacement of “traditional” economic arrangements with what he calls market economics. This is all part of the industrial revolution which included commercialization, commodification of goods, land, and labor, market-driven growth, and the “forced” adjustment of households of both fertility and labor allocation to satisfy the needs of the economy. Terms like specialization of labor, division of labor, and labor market became common and enforced by government edicts. The longer-term history goes like this. Hunter-gatherer economics prevails till humans settled into villages/towns and domestic farming. By 1800 the several varieties of agricultural economics, including mercantilism had all failed. They all reached the limit of the population they could support and the daily work they required from the population to continue. Marketization, of which Polanyi writes is an attempt to replace the traditional agricultural subsistence economy. It’s an improvement over the latter but, as Polanyi points out creates new problems. The market economy is a network (defined as different items put together to create something). In this sense it is not primarily about individual actors but about the creation of a new economic model for Europe to replace the traditional model that had failed. But the model is not enough to explain the economic arrangements that are created in any place or time. These changes involve many factors besides a new economic model (markets or otherwise). These factors include, geography, local and long-distance resources, the attitudes and history of the local populations, the form of government in place, foreign relations, education, wars and the results of wars, religious doctrines, etc. This is the beginning of capitalism. It is the ground on which the several versions of capitalism of the 20th century, including financial capitalism are constructed. Economic development is complex. After all, in terms of some of the main elements that explain the industrial revolution in Europe, parts of Japan and China had developed these as well but had not yet created an industrial revolution. But they may have been on the cusp when Japan and China fully opened themselves to Europe. But let’s not forget that industrialization and marketization as constructed in Europe was sometimes rejected elsewhere because of long-standing cultural opposition to market incentives (e.g., China). Rebuilding cultures from the ground-up is both more complex and more difficult. So, we see a very different version of marketization in China even today.
Round about 1800 there were only two active models for economic arrangements available in Europe. The British model and the French (Napoleonic). By the end of the Napoleonic wars, Britain was the most industrialized nation in Europe. The French continued with the Napoleonic model, while most of the other nations of Europe and the USA attempted to mimic the UK. They all made economic development a priority. To attempt parity with the UK these nations created one standard economic policy. This policy consisted of 1) elimination of internal tariffs and building transportation infrastructure to create a unified national market, 2) creation of an external tariff to protect their industries from British competition, 3) chartering of banks to stabilize the currency and finance industrial investment, 4) creation of mass education to upgrade the labor force. It is these policies that led to the creation of the “club of rich nations,” most of whom are still around today and still giving the orders.
None of this, of course, was always “According to Hoyle.” Each nation in many ways followed a different path from its fellows in industrializing. America was a new nation, with a large frontier and many new immigrants. These made its industrialization a bit more hap-hazard and messy, and often more violent than the others. The export and import of cotton shaped development in many countries. The US had cotton, the UK did not. The case was similar for sugar. The democratic revolutions of the latter part of the 19th century in Europe changed development patterns, particularly in the nations changed most by these revolutions, (e.g., Germany and the Scandinavian nations). Just a few examples to show that a model is just a model. Whether in politics or economics, no model ever plays out in “real” life as the model builders intended.
Dave, I studied 19th Century French and Germany history, and have written quite a bit about their interaction with each other. If you live on a couple islands off the coast of Europe that are fortunate enough to build a world trading Empire, your situation creates a different economics from your neighbors on the European continent. Friedrich List, who was writing at the same time as classical economists, realized this, i.e., that the economics Smith and others created was really an instrument through which UK dominated its neighbors. That’s nation-state rivalry. List is ignored in Anglo-Saxonian, but not everywhere; people write dissertations about him in Germany (See Arno Mong Daastol dissertation (1212), which is just about as thoroughly documented a work on the Listian tradition as can be), People in Germany write about their own traditions in economic analysis. Those traditions had a great following in U.S economics up to c.1900, but lost out in the 20th, not because of their intellectual deficiencies, which is how Anglo-Saxonians tell the story, but of Great Power politics, Germany lost 2 world wars, and the economics of the victor took over the world. If I had been trained in Anglo-saxonian economics, I would be like most of the people on this blog, ignorant of alternative view of economics, especially those that grew out of great-power rivalries. Ignorance is not bliss
Well, yes, Robert, and our comments show how you’ve provoked a great deal of interest in your side of the story. But you seemed to be attacking Polanyi’s side of the story, not trying to learn from him in return. My own point was that both your histories start too late to see where all the wars really came from: an easy way of financing them. “The war between heaven and hell ignored the money issue, leaving capitalists and socialists miraculously united”. (Polanyi, p.26).
“And even here his description is limited to the replacement of “traditional” economic arrangements with what he calls market economics”
Ken, you are enough of an historian to know Polanyi’s view as you state it isn’t true. Traditional ecconomics was not replaced by market economics. Up to 1940 it was an era of great protectionism, everywhere. Even the kartelization of economies was admired, by member of the American Economics Association. It is very frustrating to talk with people when they are such poor historians.
Dave, please don’t confuse Bismarck with Hitler. There are no streets named Hitler in my German town, but there is a Bismarckstrasse. When I discussed the Nazi power grab in my course on Germany, I did it within the political-economics context of the time, 1929-34.
Robert, I believe Polanyi shared the concerns many had at the time about what would happen as traditional economies died off. He saw the industrial revolution, including markets as a threat to the life and well-being of a nation (specifically Britain). Social conditions in the industrial revolution were a “veritable abyss of human degradation.” “Before the process had advanced very far, the laboring people had been crowded together in new places of desolation, the so-called industrial towns of England; the country folk had been dehumanized into slum dwellers; the family was on the road to perdition; and large parts of the country were rapidly disappearing under the slack and scrap heaps vomited forth from the ‘satanic mills.’” This is not up for debate. Dozens of other writers, journalists, missionaries, etc., including Charles Dickens provide similar descriptions industrializing Britain. Of all the possible culprits, Polanyi zeroed in on “self-regulating” (free) markets. He expected, I believe that traditional economics would be dead early in the 20th century. He was wrong on this. But he was not, in my view wrong on many of the other claims in his book.
Ken, Polanyi was certainly right about the Dickenian Victorians. Moreover, the leadership classes of Britain were taking few steps to make Brits capable of fulfilling the competitive demands of science driven industrialization after 1870. In the first industrial revolution, 30,000 English craftsmen, trained on the job, worked on the continent to transfer the new processes there. After 1870, the Brits, like the French, the Americans, and the Japanese, were increasingly looking to the Germans for guidance in the training and education required That is Corelli Barnett’s point in the Audit of War. If Britain turned itself into a Dickensian nightmare, through stupid economic policies and theories; other’s did not. I’ve spent 45 years studying the subject.
Robert, the British class system in action. Rigid and unforgiving the system kept Britain from maturing into the developments of the later industrial revolution. It began to breakdown only after WWII. The British, particularly the patrician class always believed that proper class-actions were more important than any education for industrialization. But Britain failed in more than industrialization. Its education and housing policies broke down completely after 1970, and policing became erratic about the same time. But the final nail in the coffin was British welfare policy, which destroyed the British middle-class. And then it got worse with Thatcher and Britain’s final descent into financial capitalism.
“Dave, please don’t confuse Bismarck with Hitler.”
Robert, I didn’t. The connection anyway would be WWI obedience to the Kaiser. Bear in mind I’m a product of apprenticed technical education myself.
The problem may be an ambiguity in what I wrote. “… G K Chesterton’s antipathy to Prussia and Bismarkian technical training during the First World War”. Chesterton’s antipathy during the First World War to Prussia and Bismarkian technical training. Wnat I hadn’t understood, not my antipathy.
Everyone, the US and much of the rest of the world (excepting Asia) have become, been made into, to borrow Monty Python’s phrase, “wink, wink, nudge, nudge” societies. In other words, there are two stories being told simultaneously. The first is democracy and capitalism saves the world, raising millions out of poverty, etc. The second is the “wink, wink, nudge, nudge” of out groups and in groups, blatant and hateful discrimination, and planned and government supported efforts to destroy (up to and including death) particularly hated out groups. Both are supported by laws and moral codes, although those for the latter culture rest on interpretations and expectation shared only tacitly and then only among groups with the proper political, racial, and class pedigrees. Historically, most societies involved multiple cultures working through their cooperation, competition, and dislikes for one another. Today the balance of distrust, control, and fear of one another among these cultural players shows a level of inequity and loathing not seen since the French Revolution. Inequity and loathing that even the American middle-class cannot escape. This is a breeding ground for plots and counter plots, for private armies and counter armies, and for the use of political/class assassination. Current example – a Coast Guard officer plotting to kill just about every person on earth (who isn’t white) and a President who takes little note of either the plot or the officer’s arrest. “Wink, wink, nudge, nudge.”
Of course, in an ideal world economics would have nothing to do with war. But then, we do not live in a perfect world, but one with imperfect economists victims of their own hubris and myopic view of the history of their field, to wit:
My apologies for not being clear (and no edit button; I am referring to Friedman and such that argued economics is a science. No doubt Gary Becker could calculate the optimum and most efficient amount of war ;-)
Rob, if Becker can accomplish this feat, we need to call him by his “true” name, God.
Robert, you are correct, war (and preparing for war) may have served a useful purpose in the past building leadership and employing masses of men. No doubt soldiering is one way of “provisioning” for as a veteran myself, having served my entire military time on the DMZ in South Korea, I paid my way through college on a guaranteed education funds.
But with scientific progress wars are no longer able to serve such a role (and what is soldiering if not preparing for war). The next global conflict is unlikely to be anything like WW II or past global conflicts or be pareto optimal (another economic delusion), but rather globally suicidal.
We don’t live on a perfect world, and soldiering is an honorable career that most certainly keeps many men and women provisioned. But if economic inequality and predatory capitalism continues to push the world closer and closer to global conflict the price may well be to high for humanity to pay.
Rob, soldiering is part of how we provided for ourselves. During WWII we had 12 million people under arms fighting fascism and Japanese militarism, during the Korean war we brought a lot of people under arms again (these are policy decisions our governments make.) People going to war make heavy sacrifices, delays in careers, lives, disabilities. Our government provided programs for returning veterans that helped replenish and develop the the talents of our former service me and women.. I am son of a working man; in our family nobody even went to college; after 3 years, five months, and sixteen days in the Air Force, using government grants I educated myself right up through the PhD; millions of others did so. That was sensible policy; which conservative economic theory has abandoned.
We profited as a people of plenty under the postwar system; if we continue to burden ourselves with contracted armies and a debt ridden youth unable to pay for an education, etc. you fill in the blanks. Both my children went to the university in Europe, where full scholarships were available. I couldn’t have sent them to American universities on a professor’s salary after the Reagan years.
I screwed up and posted the reply wrong, so it is above instead of below. Sorry fellows.
That’s a really interesting paper by Affner and Soderberg.
Dave, in my studies of education during the 19th century I distinguish between the first and second industrial revolutions. The governing classes of England (as opposed to Scotland) were not active participants in the 1st industrial rev (passive in that iron ores and coal deposits were found on their properties), public schools and oxbridge were involved in”character building” not teaching business and engineering. The people who carried the 1st ind rev were practically trained, in shops and local factories. When I studied the transfer of industrialization from England to France, I found these practically trained Brits everywhere.
But the educational and skill demands of the science driven industries changed during 2nd industrial revolution and they could no longer be fulfilled just by practical men (See my book, the End of the Practical Man), and Germany became the innovator in this respect, because it created a civilization of Technik, which had within it, in an intergrated network, apprenticeship programs, subuniversity trade and commercial schools, and university level Technische and Handelshochschulen that stressed the science component in the arch of a technical and commercial universe. That is what so impressed lots of people circa 1900.
Excellent earlier points, Rob Reno!
Now re: Arrow and neoclassical economists generally, when all one sees is “market production” for “consumers’, that is a BOX essentially based on the notion that markets provide ‘fairly’ to everyone with respect to actually meeting their needs and wants. Even the definition of a shortage within this BOX is that, at current market prices, more consumers are willing and able to pay than what the market is producing. [If production does not rise, then prices will until there’s a balance between ‘demand for’ and ‘supply of’ in the short run– and over a longer period this rise in prices will stimulate more entrants as producers and long-term production growth.]
A problem arises, however, in that what people like you or I generally mean by a ‘shortage’ of housing is that people overall –not just consumers willing and ABLE to pay for it –need more housing than the market supplies both for profit and for consumers. When we step outside the BOX, then we face the issue that the market simply CANNOT, in itself, provide for everyone, especially if the distribution of income is itself established by markets. Outside of the BOX, in short, there are roles for government. Some of these may take the form of market interventions, but some may take the form of non-market production by government or non-profit actors assisted by government [which is, of course, anathema to market producers for profit.]
And, replying to you, Robert Locke, I hardly disagree that state policy, including imperialistic ones, has a major impact on how market economies (or even pre-market economies) function. But that is incidental to my views about Polanyi’s contributions to thinking about how economies are structured and his views about the transformations market economies have wrought. I am in complete agreement with Dave Taylor’s and Ken Zimmerman’s comments.
I’ll stick with my view that the subject matter of economics is how we provide for ourselves using the foresight that our experience of patterns shaping our realities bring to us. That some of this ‘rational provision’ is markedly affected by foreign policy, war and diplomacy is not something I doubt at all, but it is not the subject matter of economics per se.
Another way of saying this is to say that these interweave with economic activity and affect economic activity despite not being the subject matter of economic activity.
And, yes, I’ll get round to reading your paper, and I’ll try to comment back to you about it. My health right now is relatively poor, so I have to pace myself in terms of both what and how I comment.
“I’ll stick with my view that the subject matter of economics is how we provide for ourselves using the foresight that our experience of patterns shaping our realities bring to us.”
That view Larry reduces economics to individalism, and no man is an island. Please do read my paper, rwer, 61, 2012. And please try to learn that a great many people were thinking about how to organize life in Central Europe, who were not dumb. When Smith, Ricardo, etc. were running around.
Take Wilhelm von Humbolt for example, who reformed secondary education in Germany and founded the University of Berlin in 1810. He was concerned about the education of the leadership classes in a society. He would never have put financiers and businessmen in charge of the government, armed with the idea that greed was good. They would just promote themselves. Nor a boss Tweed in City Hall. He was a civil servant, who believed his was a general class, to be educated to look after the general interest. The Germans call it Bildung (education) as opposed to Ausbildung (training), which is what higher education in US business schools is. Humboldt believed that knowledge was not the principal need in the leadership classes, but character. And he established the humanistic Gymnasien’s classical education (which included mathematics , but primarily languages) to achieve that end. Humboldt is one of the heros of German history, along with his brother, Alexandre, the naturalist.
I once attended the annual meeting of the association of German business economist, where the rector of the University where it was being held, opened the meeting in Latin, to a massive ovation by the business economists attending. They were applauding Bildung.
People who are advocates of free market economics do not forget the social dimension. The Ordoeconomist, Wilhelm Roepke, thought that free markets could not succeed in places where there was a big gap between a super=rich and masses of poor; to function well, we need societies with large middle classes with free markets, and policies to attain them.
I don’t expect you to understand any of this, so good luck with your vision of economics.
Robert, there is a social (community, caring for one another) dimension in human societies and economies because early in its life on Earth Sapiens found that dimension useful to survive and prosper as a species. Individuals are also useful in Sapiens societies, but only as a part of the social dimension. Lesson: humans survive and prosper as a species. When the species fails this test, each human life ends with the species. So, individualism, and individualistic society is not only inefficient for human prosperity, but also puts species survival at risk. Therefore, capitalism always fails Sapiens. As you note, Roepke claims societies function well when they are more equal in terms of wealth. Roepke merely restates the first and primary importance of community for the future survival of our species. Since Sapiens created sociality for practical reasons, it can certainly replace sociality with some other creation, so long as the replacement better serves the needs of Sapiens survival.
When I say, as I do, that the subject matter of economics is how we, using our foresight and experience, provide for ourselves, that ‘we’ is ourselves altogether. That does not reduce to individualism, nor to merely Crusoe type decision-making based on use-values and focused on ‘good’ for-me as they were, there being no community wherein the counterbalance of a ‘good’ for-us needed to be taken into account by him.
In the absence of community, good ‘for me’ underlies how one ‘rationally’ provides for oneself given the objectively assessed ‘use-values’ of what is available to be used for one’s own good: this being the good ‘for-me’. Also, and not to put too fine a point on this, in the absence of exchange within the community there is no ‘value-in-exchange’ and no medium to express ‘value-in-exchange’.
Neoclassical economics is built upon the notion that the sum of subjectively assessed goods ‘for-me’ within a set of individual consumers within a community provides for the well-being of the community and that it does so even in the absence of any counterbalancing good ‘for-us’ of the community as a whole. This boils down to the view that the good ‘for us’ of communities is merely an aggregate of individual good ‘for me.s’ none of which needs to take into account the good ‘for-us’. Thus, the neoclassical economists effectively substitute the self-directed and subjective interests of individuals in their own individual good for all of the interests of the community: namely, the limits that communities have always in all cultures placed upon individuals acting solely for their own good irrespective of its impacts and effects on the well-being of all members of the community.
Neoclassical economics, in short, removes ethical behavior with economics by its practical claim that only the pursuit of the good ‘for me’ ethically provides for the well-being of communities. It does so by removing all ethical considerations and limits we place on individuals, limits we set in our common interests as persons living peaceably together within communities.
So, Robert, please don’t accuse me of what I don’t do. When I say that the subject matter of economics is how WE provide for OURSELVES, I am not saying how a sum of I.s motivated solely by their personal good ‘for-me.s’ provide for themselves and no one else.
Our ethical behavior as human beings is mediated by both the good ‘for-me’ and the good ‘for-us’ within ourselves as persons within communities. Outside of community, there exists no good ‘for-us’ as such. However, within community, there is. Any economics of human behavior that fails to acknowledge that the good ‘for me’ might also be the good ‘for-us’ at times, or that the good ‘for-me’ may be bad ‘for-us’ at times, or that a pursuit of the good ‘for us’ unbalanced by considerations of good ‘for-me’ can also be destructive …well, those are simply bad ‘for us’ both as individuals and persons living within communities.
‘Nuff said for now.
Robert, in Britain we have long had the same idea, hence the traditional ‘public school’ and Oxbridge tradition of formation for the ‘higher’ posts in government. Unfortuantely this looked down on technical education as ‘trade’ and focussed on how the Romans managed ‘divide and rule’. An interesting contrast is to be found in Cardinal J H Newman’s “Idea of a University”, which made the same distinction between education and training but included technical training in education.
“That view, Larry [of economics as how we provide for ourselves] reduces economics to individalism, and no man is an island. Please do read my paper, rwer, 61, 2012”.
So I have, Robert, and your paper is excellent. Maybe it is because I’m a Catholic I was brought up to understand Civil Service as serving the Public (including the Crown), and I’ve previously mentioned how in 1967 Lord Fulton tried to get our Civil Service to respect the status of technical understanding.
https://en.wikipedia.org/wiki/Civil_Service_(United_Kingdom).
There is a helpful historical survey of the English educational system (including public schools and apprenticeships) at
https://en.wikipedia.org/wiki/History_of_education_in_England#National_schools_and_British_Schools
Where this comment on Larry’s comment is misguided is that you yourself lack our [or certainly my] technical understanding that a system is composed not of an individual but of at least three different types of individual [and for sustainability four], interacting as they do in a family, an auction, a productive firm or the debt-exploiting shadow economy of fraudulent banking, insurance, debt shareholding and ‘bundled’ derivatives.
Thank you for your kind words Larry. I appreciate your comment/reply. The mainstream economic story you open with above I am well familiar with. But I no longer buy it. I have seen enough with my own eyes over these 60 years to know market fundamentalism (FM) when I see it (not saying you personally subscribe to FM, I don’t know):
I used to believe FM BS. No longer can I pretend it is anything but a secular religious ideology. It is not a science, but a pseudo-science. I do not deny that it has created vast wealth and improved many lives, but one has to be blind to not see the other side of the coin (the harm FM has and is causing on many levels). Mainstream economics is in my view, in deep doo doo.
I firmly believe FM capitalism must either transform or perish as something new replaces it. Personally, I favor evolution, rather than revolution. I don’t believe that economic striving must necessarily be founded upon self-interest alone.
If mainstream economics is a religion, then it is only appropriate to study among other religions and see which one offers a more human view of economic striving.
Mainstream orthodox economics is axiomatic-deductive like theology, so if you wish to say it’s a religion with the Chicago school its Rome, that’s fine by me. I am anything but an economic ‘fundamentalist’, having rejected all of microeconomic theory as it stands and just about all of macroeconomic ‘analysis’. As for the financial crisis, I’m with you.
Regarding mainstream economics use of the term ‘fair’ as in however the market allocates housing, I again believe that the use of the term ‘fair’ in this context is ludicrous. It Orwellian double speak distorting the true meaning if the term fair.
I will give a specific example. I live in an HOA. The history of HOAs is one of racial segregation and discrimination. They were private interest communities built upon corporate private government aimed at keeping undesirables (people of color) out. At some point the government stepped in and made overt racial segration in HOAs illegal. This fits your story above to a tee, minus the ‘fair’ distribution claim.
My wife is a women of color (Korean born in Japan) and our HOA’s board targeted her (there are many ways to discriminate) and attempted to intimidate her. They did not realize who she was or that she was married to me. We hired a lawyer and they are now facing the consequences of their ignorant behavior (I.e., Trump’s trickle down racism).
In the process of discovery I write some software (an app) that automated the downloading of public data for each property parcel in our HOA. I discovered some interesting facts about home ownership in our surrounding HOA neighborhoods. During the GFC I observed many homes around us falling into foreclosure as people lost their jobs. What was not so visible was the extent to which Wall Street (the cause of the GFC) was cashing in (never let a good crisis go to waste!) by becoming a landlord on main street (rentier class cashing in). Over time these predatory Wall Street investors raise rents to the maximum the so-called market can bear. People who rented these houses were forced out because they no longer could afford the rent. Personally, I don’t think we can afford the rich much longer:
Node in Dataset:
132830-0490
IH3 PROPERTY BORROWER LP
17810 160TH AVE SE 98058
CANDLEWOOD RIDGE DIV 1
ttps://www.invitationhomes.com/
1328300490;1328300650;1328300700;1328301050;1328301250;1402640500
604-184-095
2017-2 IH BORROWER GP LLC
Invitation Homes (IHH) is a home leasing company (see OwnerUrl) that opperates under many corporate names (See SECUrl).
Within Candlewood Ridge and Carriage Wood IHH owns collectively six parcels.
As you say, “It’s not that competitive markets are necessarily immoral, rather that they are amoral; they simply don’t operate on the basis of moral ideas about what is fair or just or ethical, unless they are regulated to make them so, for example, through minimum wage legislation. Sometimes they may produce outcomes that seem fair, but if so, it’s by accident rather than design.”
If you’ve looked at my other comments on this long thread, especially of the past week, you’ll see that I not only agree with you about this but also explain why this is so, Rob.
Larry must disagree. Nothing humans do is amoral. If morality is about proper behavior, then for many people in the USA and elsewhere markets are proper behavior. This is part of the debate going on constantly about “proper” human behavior. If your wish is to end markets in economics, this is where you need to begin. Change the rules to make markets “improper” behavior for humans.
Ken, please re-read my comment of February 22 and the one re: Arrow, BOX, neoclassical economics, especially re: good ‘for me’, good ‘for us’. The Market is not a human being. It is neither moral nor immoral. The interactions we have within markets can be boundaried by moral/ethical considerations that we insist upon through our politics. They cannot arise within transactions based solely on good ‘for me’ thinking. They arise only when the good ‘for us’ is imposed as a constraint over market behaviors.
Larry, the distinctions you make aren’t made in real situations, in my view. Human creations, whether some sort of tool such as markets or actions such as selling and buying are just that, human creations. Every such creation is either proper or improper, based on the codes (rules) of the time and place the work is done. Thus, each creation is moral or immoral. In my view.
Larry, the distinctions you make aren’t made in real situations, in my view. Human creations, whether some sort of tool such as markets or actions such as selling and buying are just that, human creations. Every such creation is either proper or improper, based on the codes (rules) of the time and place the work is done. Thus, each creation is moral or immoral. In my view. But market results are like most human creations, uncertain. So, even if a market is immoral in design, one or more of its results can be moral.
Thank you Larry, I find your description of the need for regulation spot on. It seems to me the there is a positive role for government in preventing the tendency of corporatism (especially US Managerialism as Robert describes) to verge into destructive greed and profiteering extremes. Balance needs to restored, and only government can do that.
Rob, I agree. Only government can restore the balance. The question is does government have the will or courage to do so. The strongest government regulators in the US are in California. Yet even in California regulators often fail to commit themselves to the job. At the California Public Utilities Commission, two Chairpersons have been removed for cause. For the same cause, colluding with one or more regulated utilities. Often the most difficult part of life for regulators is keeping those they regulate at arm’s length and resisting the temptations that lawyers and lobbyists for the regulated offer. European regulators haven’t lost these skills. American regulators have, unfortunately.
I guess it depends on which government (country) you are speaking about Ken. I agree 100% with your assessment of Europe vs the US. The US is sick culturally speaking in my view. I know that sounds moralistic, and I guess it is. Our family has lived in Nederland and I loved it there. So-called American conservatism has become a form of unprincipled conservatism that threatens the very foundations of American democracy in my view. Trump is an abomination and twisted fruits of unrestrained egotism, greed, and predatory capitalism — the consequences of the amoral economics of Market Fundamentalist. Like a snake eating it’s own tail it will eventually consume the very institutions it depends upon to survive ripping asunder the social fabric that binds civil society together. Let us hope the next generation wakes up before it is too late.
Rob, I agree with your comments in full. Adam Smith, some say the inventor of modern capitalism warned us all about the many dangers of capitalism. In the Wealth of Nations, Smith writes, “…the oppression of the poor must establish the monopoly of the rich, who, by engrossing the whole trade to themselves, will be able to make very large profits..” And this, “But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin.” And one more nail in capitalism’s coffin, “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.” I’ve never understood why modern capitalists claim Smith. He certainly would never ally himself with them. Smith was an 18th century libertarian, not a capitalist. Capitalism’s roots are more in piracy and 18th century authoritarian trading companies. These trading companies weren’t admired or considered good moral examples, but they were feared by anyone who might happen to interfere with their plans.
Thanks Ken for sharing those quotes. I have Smith’s book on my economics bookshelf, but must confess I have not yet read it. The pile of economics book grows daily!
It all boils down to politics: who decides who gets what. And in the US proprietary corporation, employees are voiceless in these matters. The constitution of firms in other cultures give employees a voice in decisions about who gets what, and in national legal systems employees rights are frequently spelled out in great detail. All this hand wringing about the immorality of neoclasscal economics could be easily dismissed; give employees a say in the running of the corporations in which they work.
Robert, Americans have always been equivocal about democracy. And it is democracy which demands that all citizens have an effective say in how companies are operated and the actions they take. This equivocation about democracy led to America becoming a cesspool of corruption and bribery. So said Upton Sinclair many times over. It finally got so corrupt and so dysfunctional that ordinary Americans staged a coup. It was called the Progressive Era. But it wasn’t permanent. After WWII the capitalists (pirates) began to gradually blackmail, bribe, and threaten their way back into control. The election of Ronald Reagan in 1980 sealed American democracy’s fate. America would be capitalist, not democratic. I hope we are now seeing the reversal of that history. Hopefully it will not be violent. But no promises.
KEN – Reading an interesting book – The Cultural Cold War. Discusses the US propaganda war against communism after ww2. Interesting part is the role of US non profit groups -most notably the Ford Foundation and the Rockefeller Foundation.
The Rockefeller foundation also funded stateside research into mind control – most notably the studies conducted by Dr Murray at Harvard university where Ted Kaczynsky, the Unabomber, was a “subject” in the MKULTRA program designed to break political will.
Here is an interesting tie – the Rockefeller Foundation basically founded the the University of Chicago in 1890 and saved it from financial failure in 1933. Why is it so many Nobel laureates in Economics come from the University of Chicago? Including Paul Samuelson who wrote the first high school economics text books. These textbooks are nothing more than propaganda that makes business decisions free from any moral judgement. “The markets made me do it”. The textbooks are specifically written to follow the rules of optimized propaganda.
“the subject moves in the direction you desire for reasons which he believes to be his own”
Once a student “learns” economic principles, they are steered away from any moral assessment of business practices. They are steered away from understanding what investment banks are actually doing – sucking fortunes out of going concerns via a leveraged buyouts. They no longer look at balance sheets or income statements. They live in a fantasy world driven by imaginary markets for money, labor, goods, interest rates etc..
Economics is now a religion that protects the sacred texts that came out of the University of Chicago and other Universities sponsored by Rockefeller including London School of Economics, Harvard and others. You can only believe in this stuff if you abandon rational thought and follow your faith. The saints are recipients of the Nobel Prize in Economics, the priesthood/bishops are the professors in all the universities across the world.
The list of Econ laureates associated with University of Chicago is impressive. They all preach nonsense to distract people away from the real issues in Economics. Money and how to make more money at someone else’s expense. Best way to make more money – cheat on your taxes. But the cheating is done by changing the laws. See supreme court case Newark Morning Ledger Co. v. U.S. This ruling was followed by a bill secretly packaged in Clinton’s omnibus budget reconciliation act of 1993. Thanks to this – the IRS subsidizes leverage buyouts by allowing depreciation of intangible assets.
Economics is a Religion with strings pulled by the wealthy elite running this country.
Mike, I call the period from 1945 till 1975 in the USA, the era of friendly capitalism. Companies were attentive to the employees, to the communities they operated in and served, to the customers, and (mostly out of self-interest) keeping the American public on their side and Communism (read as any major threat the profits) out of the USA. Some goals of this work are straight forward and public. First, demonize socialism. No repeats of those calls to destroy capitalism in the USA before WWII and replace it with some form of socialism. In this effort, institutions and groups such as the Foundations you mention and many others, the Chambers of Commerce, Business Roundtable, and many local business”men’s” groups coordinated to produce and distribute every variety of educational material to local schools and colleges, youth groups, local governments, etc. that focused on the deadly nature of socialism. Usually through a “reverse psychology” approach. Don’t show the misery of socialism, show the spender of capitalist life in America. Second, the supporters and particularly the donors of the groups and institutions above made investments to ensure a bright future for capitalism in America. They invested in up and coming graduate and law students, entrepreneurs working in new areas and new companies, politicians of every stripe and persuasion, and colleges and universities across the nation. They wanted not just the experts and technicians these investments would provide but also the right to have influential input into ALL the actions and opinions of those in whom they invested. For the business groups these were not “community improvement” investments. Rather, the business groups expected significant and long-term positive returns from these investments.
A mistake we’ve made in America for a long time is not controlling the rich. We let them keep believing they owned the country and could run it as they pleased. Even today some Democratic members of Congress are reluctant to take strong actions to reign in Bill Gates, Mark Zuckerberg, etc. Part of it is fear of the rich. But mostly it is the economic delusion shared by Democrats and Republicans alike that the rich are the engine of the economy. It’s a delusion the economics graduate schools and their graduates (“invested in” by the rich for over 50 years) imprinted on American society for over 40 years. Looks like those investments from the 30s, 40s, and 50s are paying big dividends. But not for the nation or most Americans. “Economics is a Religion with strings pulled by the wealthy elite running this country.” And this is how they do it. “The Cultural Cold War” is an excellent, one of the oldest investigations of the CIA’s work to use the arts, letters, and music to accomplish the goals listed above. Believe it or not, the CIA’s work was amazingly effective, e.g., the case of Leonard Bernstein.
Sounds like unfriendly capitalism is “managerialism”:
I agree completely with Ken on this great comment. Akerlof notes:
Just the other day while setting up a new phone here in Japan we ran into a phisher trying to phool us. As the Japanese salesman was running us through a list of features he added to our plan an we were one by one declining (i.e., expensive insurance, and other useless add-ons) we came to the feature of an extra microSD card; $300 for 128 Gig. We noted that was very expensive for a microSD card and asked if we could just buy one, to which he replied, “No guarantee it will work.” Of course, he knew full well it would work. He was simply phishing hoping we would be phools and pat for a microSD card at a 300% markup!
Rob, the mental or physical illness, or evilness of the individual is irrelevant. It is the culture that the individual inhabits that is almost always the major factor in what the individual believes and the actions the individual takes. Individuals can be treated for mental illness by psychiatrists. People with “evil souls” can work with clergy. Ignorant people can be educated. But no individual alone can change the culture or cultures into which they are born. Most are not even aware of the culture or cultures that shape them and their actions. Managerialism is a cultural object. Spokespersons may imagine it and suggest its use in a culture. But it becomes a direction for persons to follow only after it is assimilated into those persons’ culture. If we wish to stop or redirect “friendly” or “evil” capitalism, then we must change culture to do it. This is the most difficult task to accomplish in any society. It involves changing the fundamental basics of not just lives, work, and actions, but the meaning we give these and how we justify them. Social scientists claim success here. Don’t you believe it. If that were the case, drug abuse, financial crimes, and immigration would no longer be societal problems. Social scientists have researched and tinkered with these problems for more that half a century, with no real change.
Ken, don’t be such a cultural determinist. Managerialism is part of the cult of the modern business schools after they were reform by the management scientists, described in Khurana’s book (2007). And managerialism downfall is the result of its failure as a management system against US competitors. Japan and Germany never had any us style business schools and did very well without them, because they kept the locus of decision making in educational matters in the firm, not some jumped up system of management education. Culture is a culture does.
Rob’s wife should be able to tell us a lot about this, since she is of Korean birth, raised in Japan, and works for Toyota.
Ken, let me follow up a bit on my complaint about cultural determinism. Don’t confuse culture with the uniqueness of historical events.
The changes that brought about the creation of management science in business schools after World War Two came from outside. They stemmed from the cataclysmic historical events – the Great Depression, World War Two, and the Cold War – that overtook everyone. Government, stepping to the fore at these times, was more the agent of change than either business schools or businessmen. The government also helped bring many immigrants to the US, and their impact was huge. An example is the Manhattan Project, which brought people from scientific communities all over Europe to work on the US government’s atomic bomb. The atomic boom was not the result of US physics.
These events similarly disrupted the lives of the generation involved in management knowledge-creation and its transfer into business schools. An equivalent gathering of talent led to the development of a new science of management. The Cowles Commission, founded in 1932 by the Chicago businessman Alfred Cowles, which effected important contributions to mathematical economics, consisted to a large extent of immigrants. Jacob Marshak and Tjalling Koopmans, who directed the commission, were respectively Russian and Dutch. Abraham Wald, the gifted statistician who had a strong influence on the commission’s work, was Rumanian by birth and partly by education (he was also educated in Vienna). Other contributors to
the introduction management science also came from abroad. Trygve Maavelmo, who studied in Oslo and worked in New York during World War Two, was Norwegian. Both Oskar Morgenstern and John von Neumann, who devised game theory (published in 1944 by Princeton University Press), were Austrians. Neumann also contributed to the development of computers and worked with the Cowles Commission on mathematical statistics.
Robert, you are correct, “culture is as culture does.” Sapiens evolved. That process is about species survival. But Sapiens invented additions to evolution, intended to help with survival and daily well-being. Those additions together are called culture. But no culture is static. Culture is adaptive, so each culture changes with new interactions, new concerns, and new failures of existing cultures. Sapiens calls these subsequent changes to a culture, history. From the first, Sapiens’ cultures and history have always been intimately interconnected. So, when I place Sapiens’ cultures at the center of Sapiens actions and beliefs, that places Sapiens history in that same position. Sapiens differs from the other Homo species because at some point (we don’t exactly know when) Sapiens separated its history (its invention and reinvention of cultures) from biology. Sapiens made its cultures real outside of evolution. A force unto themselves. I contend that culturally speaking Sapiens is the sum results of all previous interactions with any and all things encountered. In that sense, I am for sure a cultural determinist. However, these are interactions, not reactions. Sapiens encounters things and may imagine and create responses that change the interactions or the things interacting.
I don’t believe I’ve in any way challenged the uniqueness of historical events. But in the words often credited to Mark Twain, ““History doesn’t repeat itself but it often rhymes.” Consequently, events and statements within a culture often are similar because they are part of the same culture. But other times they don’t even rhyme. The history you cite of the Cowles Commission is spot on. As is your history of the cultural diaspora following WWII. There is no better example of the disorder of cultures after WWII than American culture in the 1950’s. That culture ranged from paranoia to rock and roll, from Senator Joe McCarthy to a polio vaccine that was given away at no cost to all Americans.
You are such a smart guy, Ken, because you don’t just argue a point on which you are being challenged, but pick up on a theme and elaborate, to our profit. America was an exciting place to live in the post WWII era, but it was also a dangerous place, for those with unorthodox ideas; it is almost laughable to think that I was fired from a job for being a “Soviet Sympathizer,” and told one time, at the state university of Missouri,Springfield, to my utter astonishment, while being interviewed for a job in the History department (whihc they offered me), by the dean for academic affair, “if you are ever asked if you are a communist, don’t try to deny it.” We don’t want this kind of fright in the land but fascists thinkers are not fair-,minded, they are sadists. Fright is the operative word, I remember a young man, in despair, crying in our friend’s house, who was fired from the State Department in the early 1950s during the MdCarthy witchhunt, for being a “communist” = a broken life.
Robert, you support my points well. A Navy friend of my father’s (awarded the Navy Cross in WWII) was fired from the Pentagon in 1954 for arguing to include communists in the new government of Japan. Had to fight 10 years but finally got an apology, back pay, and full retirement. During the 1950s my dad was a training officer for the Navy. Each week he invited recruits over to our house for dinner. Being a 9-year old I liked to eavesdrop on the conversations. Lots of frightened, sometimes panicked recruits.
Yes, Robert. So some people are fascists and some of these sadists; but why? Had I not been introduced to the personality typology of Jung and Myers-Briggs, and found the explanation of it in Chesterton, I wouldn’t have had a clue and might have despaired. Children are literal-minded and in that respect most people never grow up. Some of these are abused as children and accept that what they have seen is how the world is: there is nothing wrong with them! McCarthy probably got his anti-Communism from Pope Pius XI. Thank God for Good Pope John, but that has made the current Catholic crisis doubly sad.
Hugh Kenner offers a Chesterton paradox: “The Word an infant? The Word, and not able to speak a word? How evil agreeth this!”
If I haven’t despaired it is because I have a different kind of mind – like Chesterton’s – “especially conscious of intrinsic things – that is, of ultimate things”. In one sense the ideal, yes, but in another an ideal embracing everything which can be realised for better as well as worse. There is therefore reason for hope as well as despair. What Kenner says of Chesterton readers of my contributions here may realise could as well have been said of me:
“There is a penultimate stage of disillusion in the study of Chesterton wherein he seems merely to be saying the same thing over and over again; the ultimate stage is to realise that he says it so often because it can never really be said; in fact, because there is nothing else to say”. It can be visualised; but either you see it or you don’t, and when blogs only talk one has to use one’s imagination to see anything outside one’s own box.
Dave, when I read Christabel Bielenberg’s The Past Is Myself, I understood the difference between standing up to Fascists in a Free Country to standing up to it where the Fascists were running things. Its one very good reason to fight for the retention of freedom before the fascists takeover, because it is a whole different ballgame after they do.
Well said! Agree completely!
Ken, You brought a smile to my face and a chuckle to my heart :-) I suspect Becker already assumes the title of deity! For after all, have not a certain school of economists in a windy city already updated the old scriptures with the new, revising. “I said, ‘You are “gods”; you are all sons [and daughters] of the Most High.’ (Psalm 82.6),” to “We are Gods,” who know the end from the beginning sitting on the circle of infinite models with perfect ergotic knowledge (http://a.co/37CcsN6) and infinite rational expectations.
Dave Taylor,
Thanks for referencing the Proudhon paper. I am reading it.
Larry, the dishonesty of Marx in respect of Proudhon seems about as bad as that of Hayek in respect of Belloc. In case you are not familiar with this, “The Road to Serfdom” takes its theme from Belloc’s “The Servile State” (1913), quoting out of context a late edition of this in a note on p.10. Having defined [State] Socialist as Collectivists wanting to put the means of production into the hands of politicians, Belloc says “the very heart of my thesis is that we are not, as a fact, approaching Socialism at all, but a very different state of society; to wit, a society in which the Capitalist class shall be more powerful and far more secure than it is at the present: a society in which the proletarian mass shall not suffer from particular regulations, oppressive or benificent, but shall change their status, lose their present legal freedom, and be subject to compulsory labour”. Prophetic of Hitler indeed! What Belloc makes of this is that if one takes either Capitalism or Socialism to extremes, one ends up with the same thing: tyrrany. What Hayek makes of it is that Capitalism is the answer, not the problem.
Catching up on “Chester-Belloc” Distributism, I found our old friend Paul Grignon popping up in this interesting paper, seeing credit much in the way I do.
https://distributistreview.com/money-as-debt/#comment-183146
Going right back to Econoclast’s proposed way forward:
“We need a plain-language heterodoxy that includes the History of Economic Thought, Ecological Economics, and People Economics and we need to offer it early, at 5th-grade Civics level, high school Social Studies, and Community College/Freshman levels to help change the thinking of the future. We need to do this urgently, as it takes time to penetrate”,
I’m reminded of Belloc’s “Economics for Helen”, which attempted just about that, if not very successfully. My reaction to it was it hadn’t begun to understand money. It is back in print, but apparently it came out about a month after Douglas’s book on Social Credit, making the following review very interesting:
Click to access BellocsEconomics.pdf
I’ve also just been reading around the blog on “MMT vs IS-LM”, discovering a wikipedia article I’d never met before, from which it seems my interpretation of it twenty years ago as IS/LM [= 1 to denote an equilibrium mathematical product] was also ridiculously wrong (though it threw up a useful “Wheatstone Bridge” interpretation of real equilibrium requiring the Maintenence rather than Monetisation of the wealth we have).
https://en.wikipedia.org/wiki/IS-LM_model
Someone commented here recently that engineers didn’t understand maths. That certainly doesn’t apply to all engineers, but it does suggest a difference between those who simply use and those who understand mathematical language: seeingly a difference in type of minds. There is however, a difference between the old mathematics and what is called the new one. The old one involved defining terms and sticking to conventions about the representation of operations, as when IS/LM is interpreted quantitatively as I multiplied by S and this product divided by the product L multiplied by M. The new one is not numerical mathematics but logic, whereby IS-LM is no more than a suggestive title for what turns out to be an ill-defined but quite complex model made up of complicated (so not quantitative) entities.
I’m going to argue that the old quantitative mathematics was scientific whereas the new one now being used by economists is making full use of poetic licence. This takes me back to a curious little book I picked up around the time I read Keynes. Held one way up it is about Logic, held the other way up it is about Semantics. The gist of it is that logic requires defined terms, but Chinese Whispers and unnoticed changes of context change their meanings.
Reading the wiki on IS-LM has been a humbling experience, and I apologise if being mistaken has anywhere made me unjust. We learn from our mistakes. Technical invention, however, is very like fiction in that what one writes even mistakenly can take on a life of its own. There is certainly a lot of mileage left in the dynamics of Wheatstone’s Bridge and PID analogue logic, which provide much simpler frameworks on which to hang real economics than IS-LM.
Dave, I suspect that but for the political power economists wield, most ordinary people don’t give a damn about what economists believe or think about economics or anything else. Economics, markets, and money as intellectual constructs remain confined primarily to the economists’ domain-a world in which unfettered individuals behave as “rational” participants in market transactions, making distinctions only of price, a dispassionate sphere where all monies are alike. In America Thorstein Veblen alerted us to the social meaning of markets and of money. More recently, a new literature on the culture of consumption boldly reverses our understanding of modern commodities. The new revisionist approach uncovers the symbolic meanings of commercial goods, but, curiously, leaves the cultural independence and power of money and markets unquestioned. So much for academics!
Ironically, popular conceptions of money seem to be cleverer than academic social science, including economics. In their everyday existence, people understand that money is not fungible, that despite the anonymity of dollar bills, not all dollars are equal or interchangeable. We routinely assign different meanings and separate uses to certain monies. Sometimes the earmarking is quite concrete; for example, the “tin-can” accounting of American working-class housewives: monies for separate expenses are kept apart, in tin cans or labeled envelopes-one for the mortgage, another for utilities, for entertainment money, and the like. Today there are dozens of computer applications for keeping track of one’s money. Virtually none are used for household budgets in the way prescribed by the software makers. Most have been modified to pigeon hole money for various projects and expenses of the home and its members. All with the intent of assigning who gets money and how much and the order of purposes to be given money.
As these concrete variations suggest, we face a serious question: how does money really work? How do people make these sorts of distinctions among monies, when, and for what? But first, why have theorists held so stubbornly to such mistaken views of money?
Deeply worried about an ever-expanding market relentlessly invading and desiccating all social spaces, classical social thinkers assumed that money, which Max Weber called the “most abstract and ‘impersonal’ element that exists in human life,” was spearheading the process of rationalization. It was the perverse magical wand that disenchanted modern life. Money turned the world, observed Simmel, into an “arithmetic problem.” On purely technical grounds, monetary accounting certainly promoted impersonal rational economic markets. But traditional social thinkers argued that the effects of money transcended the market: more significantly, money became the catalyst for the pervasive instrumentalism of modern social life. In his Philosophy of Money, Georg Simmel summed up this nineteenth-century view in his observation that “the complete heartlessness of money is reflected in our social culture, which is itself determined by money.” This “power of money” was presumed to stem from money’s total indifference to values. Money was said to be “uncompromisingly objective,” allowing it to function as a “technically perfect” medium of modern economic exchange. Free from subjective restrictions, indifferent to “particular interests, origins, or relations,” money’s liquidity and divisibility were infinite. Literally, everything would become exchangeable via the use of money. For many social scientists, however, money was a rationalizing agent, but not necessarily a corrupting one. Economists latched onto this view and ran with it. Economists Alfred Marshal and Wesley C. Mitchell stressed the use of money as one of society’s “great rationalizing habits,” shaping not only people’s objective economic behavior, but their “subjective life.” When it came to the intimate world of households, however, Marshal and Mitchell wavered. Whereas in business “nothing but the pecuniary values of things . . . need be considered, and pecuniary values can always be balanced, compared, and adjusted in an orderly and systematic fashion,” domestic accounting was of a different, more “backward” sort: “gains are not reducible to dollars, as are the profits of a business enterprise.” How, therefore, could a housewife effectively compare her “costs and gains”? Family values necessarily distorted the rationality and efficiency of the market by introducing unmeasurable matters of subjective value. This debate continues in economics today. Eventually, a sort of truce was reached. Economists accepted that there was “market” money (primary) and “non-market” (subordinate) money. This compromise rests on five assumptions.
1. The functions and characteristics of money are defined strictly in economic terms. As an entirely homogeneous, infinitely divisible, liquid object, lacking in quality, money is a matchless tool for market exchange. Even when the symbolic meaning of money is recognized, it either remains restricted to the economic sphere or is treated as a largely inconsequential feature.
2. All monies are the same in modern society. What Simmel called money’s “qualitatively communistic character” denies any distinction between types of money. Only differences in quantity are possible. Thus, there is only one kind of money — market money.
3. A sharp dichotomy is established between money and nonpecuniary values. Money in modern society is defined as essentially profane and utilitarian in contrast to noninstrumental values. Money is qualitatively neutral; personal, social, and sacred values are qualitatively distinct, unexchangeable, and indivisible.
4. Monetary concerns are viewed as constantly enlarging, quantifying, and often corrupting all areas of life. As an abstract medium of exchange, money has not only the freedom but also the power to draw an increasing number of goods and services into the web of the market. Money is thus the vehicle for an inevitable commodification of society.
5. There is no question about the power of money to transform nonpecuniary values, whereas the reciprocal transformation of money by values or social relations is seldom conceptualized or else explicitly rejected.
It is these assumptions social scientists and even some economists are challenging today. And perhaps even more so in the future. The teaching of social sciences already includes these concerns. That is, except for economics. That needs to change!