Thursday, August 28, 2014

Economists: Lawyers? Shysters? Touts?

"Basically, a lot of economists use the tools of science to accomplish literary-- or lawyerly -- goals." -- Noah Smith, Economics Isn't Science or Literature
If that's the case, what's "the law"? What are the standards of evidence? I've been thinking a lot recently about the extensive reliance on "hearsay" in economics -- that is to say the flippant attitude of economists toward sources -- and about the preponderance of alibi stories (again with scant regard for proving the alibi). Unlike the legal profession, there is no formal professional code of ethics for economists. So, where do we draw the line between "lawyer" and "shyster"?
"...'shyster' lawyers -- a set of turkey-buzzards whose touch is pollution and whose breath is pestilence" -- "The Tombs," New York in Slices (1849)
"In England, although we have not the term 'shyster,' we have the animal thereby designated, and he is said to be particularly rife at the Old Bailey. A shyster is a tout, and touting may be practised either by a barrister, or by his clerk, or by his post or future clients… But in New York the shyster ventures upon proceedings from which the English tout would shrink. He makes his way into the prisons, and informs the prisoners committed for trial that he has great influence, and in some cases 'he goes so far as to say that he controls, aye, even owns the court and district attorney.'" -- The Saturday Review of Politics, Literature, Science and Art (1871)
"The complaint one makes against that anti-social jargon, which so easily passes for economic science, is that it is in ludicrous opposition to the common observation of facts. Political economy professes to be a science based on observation. But the bitter pedantry which often usurps that name usually assumes its facts, after it has rounded off dogmas to suit its clients. In practice this magazine of untruth escapes detection for two reasons. One is that the facts relating to labour are invariably seen through the spectacles of capital.... The second reason which obscures the truth about industry is, that the facts about capital are almost never honestly disclosed." -- Frederic Harrison, Fortnightly Review (1872)
Lest we forget:
"In addition to business and government, Mr. Ferguson aims his critique at academia, suggesting that the discipline of economics and more than a few prominent economists were corrupted by consulting fees, seats on boards of directors and membership in the masters of the universe club. 
"When he challenges some of these professors, in particular those who held positions of responsibility in the White House or in the Federal Reserve, they are reduced to stammering obfuscation — Markets are complicated! Who could have predicted? I don’t see any conflict of interest — and occasionally provoked to testiness."  -- A. O. Scott, New York Times review of "Inside Job" (2010).

Wednesday, August 27, 2014

Graunt Work

"To understand the idea of inherent quantitative regularity which informs Graunt's text, and how he was able to devise a method which demonstrates this regularity in vital phenomena, it has been necessary to consider his synthesis of four period concepts: the method of observation prescribed by Bacon's natural history; the method of keeping accompts, with its several proportional checks and informal attitude to population totals; a mercantile system of natural and intrinsic balances, embracing people and trade; and a general model of society as a set of correspondences uniting man, God and nature." -- Philip Kreager, "New Light on Graunt," Population Studies 42, 1988, pp. 129-140.
What Graunt accomplished with his essay is astonishing. Kreager did a magnificent job of reconstructing the foundations of Graunt's method, rather than anachronistically identifying "aspects of Graunt's essay which anticipate later demographic measures and statistical inferences." But there is another story yet to be told -- of the unconscious survivals in subsequent political economy and economics of Graunt's innovative synthesis of natural history, bookkeeping and theology.

The clue here is that there is indeed at least one conspicuous survival, that it is unconscious and that it is significant resides in the incessant reiteration and unanimous misattribution of the highlighted phrase:
"…if there be but a certain proportion of work to be done; and that the same be already done by the not-Beggars; then to employ the Beggars about it, will but transfer the want from one hand to another…" -- John Graunt, Natural and political observations mentioned in a following index, and made upon the bills of mortality (1662).
So it turns out that the supposition of a fixed amount of work to be done* originates in the "ur-text" of political economy rather than in the half-baked ruminations of fearful Luddites and clueless trade unionists. What are the implications?

William Petty's pioneering estimate of national income relied crucially on his friend Graunt's calculations of population. These were essentially the "number, weight or measure" upon which Petty based his analysis. Alfred Chalk, in "Natural law and the rise of economic individualism in England," (1951) implied a causal link between Newton's Principia and Petty's Political Arithmetick:
"It was not mere chance that Petty chose to call one of his important works Political Arithmetick
"From the point of view of the development of economic theory, the emergence of a scientific philosophy of determinism was possibly the most significant fact of the seventeenth century. The great creative minds in mathematics, biology, physics, etc., gradually came to view the world as an intricate machine in which each part played a role that was rigidly predetermined by inexorable laws. Newton's Principia, published in 1687, provided the basis for a mechanistic outlook which would encompass the universe. In such a climate of opinion, social scientists began to search for a body of laws which would reveal a harmonious social order similar to that which physical scientists had discovered in their researches."
Except Newton's Principia was published in 1687. Graunt's Natural and political observations, on which Petty relied for his empirical information had been published 25 years earlier. The anachronism of seeking out "anticipations" of later thought in earlier texts obscures and misrepresents actual contributions, motives and methods. This leads, it would appear, to endemic confusion about the status and significance of economic "laws," related to the ambiguity of natural law doctrine and laws of nature. (It may be noted that John Locke delivered his Oxford lectures, subsequently published as Essays on the Law of Naturein 1664. Locke owned a copy of Graunt's Observations. According to Ashcraft, "The influence of Graunt is particularly reflected in Locke's recording in his journals the weekly or monthly mortality rates for various cities while he was living on the continent.")

Citing Heckscher, Chalk claimed that "In mercantilist literature the law of nature was simply divested of almost all its religious, and even ethical, overtones." Kreager, however, presented a very different and more compelling argument:
The 'mix' in Graunt’s mixed mathematics owed, as has been said, to his application of an apparently humdrum practical art, bookkeeping. But beneath his 'shop-Arithmetic' lay a more fundamental and familiar set of associations: number, reckoning and death as the idiom of the Last Judgement. Graunt's simple similitude was that each death represents a subtraction from the living, an entry in God's or nature's 'accompts'. And just as death displaces a person or soul to some specific immortal 'population', so each christening incorporates a new person or soul into a mortal one. Graunt's chosen point of entry into this old theme was Bacon's Natural History of Life and Death. Bacon had argued that men should observe nature in order to discern possible reflections of God's laws; whilst such knowledge was bound to be a pale record of these laws, it nonetheless offered possible guidance on improving individual and collective life. Such a phrasing inevitably suggested that longevity was a kind of measure of man's success in this attempt.... Graunt, expressly taking up Bacon's inquiry, likewise adopted Classical images of the symmetry of divine, natural and political order.
It is a far cry from, say, the law of gravity to a "harmonious social order." But not quite so far if one assumes, a priori, the "symmetry of divine, natural and political order." Furthermore, the technology of double-entry bookkeeping superimposed a merchant's perspective on the social order, one implemented, according to Aho, largely to provide evidence for an alibi against suspicions of usury and unscrupulous business practices.

* I am aware of one instance of similar phrasing that occurs between Graunt's "certain proportion of work to be done" in 1662 and Dorning Rasbotham's "certain quantity of labour to be performed" in 1780: the definition of the verb, "task" in Dyche and Pardon's New General English Dictionary (1735) is "to appoint a person a certain quantity of work to be done in a certain time." Update: the distinction between Graunt's "certain proportion" and Rasbotham's "certain quantity" is an important one on which I will have more to say later.

Saturday, August 23, 2014

Autor's Alibi and the Lump of Jackson Hole

According to M. I. T. economics professor David Autor, in a paper presented yesterday at Jackson Hole:
"Economists have historically rejected the concerns of the Luddites as an example of the 'lump of labor' fallacy, the supposition that an increase in labor productivity inevitably reduces employment because there is only a finite amount of work to do."
Autor's paper, "Polanyi’s Paradox and the Shape of Employment Growth," was also featured in articles in the Wall Street Journal and the New York Times.

Professor Autor made a slight amendment to the textbook explanation of the lump of labor. Instead of a "fixed amount of work to be done," he referred to the fallacy of supposing "there is only a finite amount of work to do." Hypothetically, there may be an "infinite" amount of work to do in the universe in an eternity. But there is most certainly a finite amount of human labor that can be performed during any given period of time and only a fraction of that can be paid employment.

Aside from the grandiose delusion of an infinite amount of work to do, the bland boilerplate Autor recited is certified nonsense-on-stilts. The textbook version of the lump of labor is a sardonic restatement of the old wages-fund doctrine of classical political economic. Alfred Marshall used the phrase "fixed Work-fund" to emphasize the equivalence. The fallacy of a fixed amount of work is customarily refuted by the adage "technology creates more jobs than it destroys," a 20th century version of the "supply creates its own demand" interpretation of Say's Law. Finally, Say's Law is predicated on the truth of the wages-fund doctrine. Summing up, then, A = not A: Liar's Paradox.

But something is going on here besides mere paradox or glib foolishness. Autor is not alone in his rote recitals of the archaic fallacy myth. The fraternity of economists will, I'm sure, nod inattentively to Autor's lumpish refrain without raising an objection to either its logical contradiction or its irrelevance.

The fallacy claim is not part of an analysis. It is an alibi. Capital -- or "the competitive market system" -- is in the dock.

Where to begin? Or, rather, elsewhere to begin. In criminal law, an alibi is a defense based on the claim that the defendant was in some other place when the crime was committed and therefore physically could not have done it. Alibi is Latin for elsewhere. In common usage, alibi has come to signify any kind of excuse, often with the connotation of being a lame one.

The distinctive feature of an alibi story is that it revolves around an absence. What actually occurs at the other place is insignificant. What matters is the crime. The only significance of the alibi story is that it renders the action of committing the crime impossible for the accused.

Economics makes extensive use of alibi narratives. Private property entails the right to exclude others from access to and to alienate, or dispose of, the things owned. Alienate shares the Latin root alius with alibi. Unemployment highlights the displacement of workers from the usual condition of being employed. The enclosures of the commons in pre-industrial Britain excluded commoners from their former, collectively-cultivated fields, making those fields into an elsewhere for them. In "The Political Economy of the Sign," Jean Baudrillard identified "the strategic logic of the commodity" to be the treatment of use value as "a satellite of and an alibi for" exchange value.

The crown jewel of economic alibi, though, is equilibrium, the supposed tendency (or disposition) of demand and supply to move toward balance, guided by changes in price. Autor invoked this presumed inclination toward equilibrium as "theory" when he observed in his conclusion that "the long-run effects of these developments should in theory be positive..." In his conclusion, Autor confused static and dynamic analysis. Equilibrium, John Maurice Clark explained (87 years ago):
" an abstraction based on observation of the relative stability of economic values, and of oscillations whose behavior suggests a normal level toward which the economic forces of gravity exert their pull. The key to dynamics is a different problem: that of processes which do not visibly tend to any complete and definable static equilibrium." -- J. M. Clark, "The Relation Between Statics and Dynamics"
So Autor's "in theory" may best be understood as a colloquialism, rather than an allusion to actual economic theory, in the same way that alibi may refer loosely to any lame excuse rather than to the technical legal defense of being somewhere else. In his essay on static and dynamic economic analyses, Clark also raised the issue of the paradoxical character of reason,
"when it takes the form of 'rationalizing' or evolving ostensible motives for actions, where the real motive is one which civilized standards deem less respectable, or one which might even have to be suppressed unless it could be successfully disguised."
In his critique of "The Theory of Compensation as regards the Workpeople Displaced by Machinery," Marx satirized the disingenuous rationalizing of the "bourgeois economist" who "implicitly declares his  [Luddite] opponent to be stupid enough to contend against, not the capitalistic employment of machinery, but machinery itself." Marx's satire shanghaied the Dickens villain from Oliver Twist, Bill Sikes, and scripted for him an imaginary plea to the jury:
"Gentlemen of the jury, no doubt the throat of this commercial traveler has been cut. But that is not my fault; it is the fault of the knife! Must we, for such a temporary inconvenience, abolish the use of the knife? Only consider! Where would agriculture and trade be without the knife? Is it not as beneficial in surgery as it is in anatomy? And in addition a willing help at the festive table? If you abolish the knife -- you hurl us back into the depths of barbarism."
"Alibi Ike" is a short story by Ring Lardner, first published in the Saturday Evening Post in 1915. Ike is a baseball player. "His right name was Frank X. Farrell, and I guess the X stood for "Excuse me." Because he never pulled a play, good or bad, on or off the field, without apologizin' for it." Ike's habit of making up excuses for everything leads him inexorably into incriminating self-contradiction and ultimately into romantic troubles when he can't resist the urge to disown his true feelings during a conversation with his teammates.

The lesson that two alibis are not better than one is also illustrated by an anecdote in the American Bar Association Journal from March 1951:
"As court and council gathered in the robing room after an acquittal... the judge said to the successful lawyer, 'That was the most convincing alibi that I have ever had proved before me.' 
"'Thank you, sir', replied the lawyer, 'it is particularly gratifying to hear you say that. I value your judgment most highly and I am pleased to find that in this case it coincides with mine. I chose that alibi as the best of three that the defendant had.'"
What makes an alibi believable has, apparently, only recently come to be a focus of systematic research. The proliferation of discrepant alibi stories is one indicator that something may not be quite right. Other factors include, coherence, consistency, the presence or absence of physical evidence or witness testimony and the ease or difficulty of fabricating such evidence. In a future post, I hope to discuss some of the recent literature on alibi evaluation and consider its relevance to economic discourse.

Saturday, August 16, 2014

Common Pools and Wage Funds -- A Reply to Simon Wren-Lewis

Simon Wren-Lewis raises an extremely important issue regarding Inequality and the common pool problem: "there is a clear connection between the rise in incomes at the very top and lower real wages for everyone else."

Wren-Lewis explains the common-pool problem as being "about how the impact of just one fisherman extracting more fish on the amount of fish in the lake is small, but if there are lots of fishermen doing the same we have a problem." This needs a bit more explanation. The problem has to do with the difficulty of excluding fishermen (or limiting the catch of any particular fisherman) and with the limitation on the amount of fish in the lake. The essential reference on this is Elinor Ostrom's discussion of common-pool resources.

Two caveats: difficult does not mean impossible and limited doesn't mean non-renewable or fixed in quantity.

When it comes to income, it is easy to get lost in a money illusion. Yes, incomes are measured and paid in money amounts. But what they provide are rights of access to material things -- goods and services, "the power of purchasing; a certain command over all the labour, or over all the produce of labour, which is then in the market" (Smith).

Nominally, the amount of income can increase without limit. But in real terms, increases in income are constrained by the amount of goods and services available in the market. That last qualification, the amount of goods and services available in the market, has led to a prodigious amount of confusion in economic thought. The classical wages-fund doctrine assumed that the amount of wage goods available at any given time was fixed. Accordingly, if one group of workers formed a union to enforce a wage increase, their gain would be at the expense of other workers.

The amount of goods and services in the market at any given time is not fixed. But the key to the confusion is not the stipulated quantity but the imaginary temporal dimension of a "given time." Zeno's paradox of the arrow involves the same logical conundrum of dividing time into points.

In 1869, W. T. Thornton argued persuasively that the wages-fund doctrine was erroneous and John Stuart Mill concurred and "recanted" the wages-fund doctrine. Exactly what Mill recanted may be in dispute but that is beside the point -- the classical doctrine was consigned to the dustbin of history of political economy. Or so we are told...

By virtue of one of the most miraculous metamorphoses imaginable, the old wages-fund doctrine, used by polemicists as a club against unions demanding higher wages was transformed into the theory of the lump-of-labor, allegedly assumed by trade unionists, whose fallacy was used by economists as a club against unions demanding higher wages. "Heads I win" seamlessly became "tails you lose."

But, getting back to Wren-Lewis, isn't his contention that higher executive pay "has to come from somewhere [that is, from the other 99%]" a reversion to the wages-fund -- or lump of labor -- doctrine/fallacy? No, it isn't. But this requires more explanation. There are not one, but two illusions at work here. One is the money illusion. The other is the point-in-time illusion. Combined, these two illusions constitute a powerful temptation to cognitive dissonance.

To dispel those two illusions, let's first go back to Adam Smith's definition of wealth: "a certain command over all the labour, or over all the produce of labour, which is then in the market." 'Labor' appears to refer to a definite quantity and 'then' appears to refer to a definite point in time. Labor is not, however, a discrete distinction and a "point" in time is strictly conceptual. The amount of work to be done at any point in time is not only "not fixed" it is also not "an amount."

Just as with Zeno's arrow, no labor is performed in a "point in time." Labor can only be performed over a duration, be it an hour, a day, a week, a year or a lifetime. Furthermore, the amount of labor performed by one person during any interval of time is variable. It is not infinitely variable but it is flexible within certain definite limits. The expression labor-power indicates this characteristic of labor as potentially equivalent to a given quantity of production.

So, we can now amend Smith's definition as follows: income represents command over a portion of the labor-power in the market during a given extension of time. This definition could be further refined but the point that I want to get to is that it is the labor-power that constitutes the common-pool resource. The amount of goods and services that corresponds to this amount of labor-power is not fixed -- but neither is it "infinitely" variable.

The extent to which real GDP may vary depends on people's capacity to work, on their motivation and on their opportunities for employment, all of which may be affected by the distribution of income. In other words, great inequalities of income may well diminish the common pool of goods and services -- and ultimately of labor-power itself -- from which incomes are derived.

That is, executive pay may be taking a bigger slice of a pie that is smaller than it would be if executives weren't taking such a big slice of it. Or to put it bluntly, they may be being richly rewarded for a negative contribution to social production that results from their excessive incomes!

There is much more that can said (and has been said) about both the implications and the background of the analysis of labor-power as a common-pool resource. I will pause for now to see how the conversation unfolds.

Elsewhere and Nowhere: Alibi and Utopia

Such is the strategic logic of the commodity which makes [use value] a satellite of and an alibi for [exchange value]. -- Jean Baudrillard, The Political Economy of the Sign.

As court and council gathered in the robing room after an acquittal... the judge said to the successful lawyer, "That was the most convincing alibi that I have ever had proved before me." 
"Thank you, sir", replied the lawyer. "it is particularly gratifying to hear you say that. I value your judgment most highly and I am pleased to find that in this case it coincides with mine. I chose that alibi as the best of three that the defendant had." -- "No Alibi," ABA Journal, March 1951.

...alongside the eighteenth-century emergence of the realistic, but fictional, narrative form later called the novel, the word alibi also entered into ordinary English discourse. Technically the legal plea of 'elsewhere,' culturally speaking, an alibi indicated the mounting of a realistic story narrated in a law court. (This initial, specific sense of alibi as a story told in court contrasts with its use since the beginning of the twentieth century, when it began also to refer to a story that keeps one out of court or to any form of excuse tale.) -- Jonathan Grossman, The Art of Alibi: English Law Courts and the Novel.

If the elasticity of substitution is not constant, what is crucial is what happens to the elasticity asymptotically as resource input goes to zero. In these cases the produced input is sufficiently substitutable for the natural resource that the decrease in supply of the natural resource can be compensated for by an increased supply of capital. Of the two cases, the Cobb-Douglas case is clearly the most interesting for there natural resources are essential in the sense that some input of the natural resource is required for production (the isoquants never do hit the axes). But a small input of natural resource can be compensated for by a sufficiently large input of capital, and whether that is feasible for the economy depends simply on the relative shares of the two. -- Joseph Stiglitz, "Neoclassical Analysis of Resource Economics." 

"...this is not the only force driving men to thievery. There is another that, as I see it, applies more specially to you Englishmen." 
"What is that?" said the Cardinal. 
"Your sheep", I said, "that commonly are so meek and eat so little; now, as I hear, they have become so greedy and fierce that they devour human beings themselves. They devastate and depopulate fields, houses and towns. For in whatever parts of the land sheep yield the finest and thus the most expensive wool, there the nobility and gentry, yes, and even a good many abbots -- holy men -- are not content with the old rents that the land yielded to their predecessors. Living in idleness and luxury without doing society any good no longer satisfies them; they have to do positive harm." -- Sir Thomas More, Utopia, Book 1.

An escapist fiction, Book 2 allows the negotiator of wool contracts an alibi for being "elsewhere" just as it affords England the luxury of being purified as myth. As Richard Marius points out in his biography of More, there was a distinct need for the writer of Utopia to have available just such an alibi, so much are the circumstances of Utopia's composition at odds with its idealistic pretensions:
It has usually gone unnoticed that More's embassy on which he began writing Utopia was intended to increase commerce, especially in wool, and that while he penned these immortal lines, he was working hard to add to the wealth of those classes in English society whom Raphael castigates for their heartless greed.
At this stage in the composition of Utopia, the hedging off of the island from historical contingencies reflects More's own personal situation. -- John Freeman, "Discourse in More's Utopia: Alibi/Pretext/Postscript"

Another offender of this class [of overworked words] is "alibi." Alibi is a legal term, meaning a plea on the part of the accused that he was somewhere else when the alleged act was committed.. I imagine that somebody came out of a court house one day after hearing this term used, and since it was new to him, and he fancied the sound of it, he began making use of it himself in a pedantic sort of way whenever opportunity offered. Finally his friends and admirers took it up, and now eight people out of ten think it quite the thing to do, when denying any sort of innocent accusation, to say, "I can prove an alibi." But a mere denial is not an alibi. -- M. V. P. Yeaman, "Speech Degeneracy."

In a legal context to be elsewhere necessitates the supporting details and corroboration provided by a narrative account of being elsewhere. Here—reversing the cliché—it is deeds without words that are empty. Alibi is thus especially well suited for narrative, for there is always a story or relevant sequence of events that depicts being elsewhere. 
…narrative alibis draw on the special significance of an absence. Beyond the legal context, an alibi is thus something we can give whenever we are called to account for ourselves. When we speak of whether someone "has" an alibi or not, we implicitly allude to the importance that having a story, being able to tell the story of oneself, holds for modern identity (even if it is the possession of a kind of absence). 
An alibi is an unusual form of narrative precisely because it is generated by absence, and thus alibi is a small, well-defined instance of the philosophical concept of negativity. Though a negative concept, an alibi does real work; it functions in a system of legally binding processes and confers a status upon those who employ it rhetorically. An alibi is a speech act rendering the real act, the crime, impossible, at least for the accused. The narrative opposite of a confession, it exculpates rather than implicates. An alibi is an account of not being there. So, an alibi is a kind of anticonfessional narrative. -- Justin Weir, Leo Tolstoy and the Alibi of Narrative.

Anatomically homologous to the two largest bones found in the human finger, the pastern was famously mis-defined by Samuel Johnson in his dictionary as "the knee of a horse". When a lady asked Johnson how he came to do so, he gave the much-quoted reply: "Ignorance, madam, pure ignorance." -- Wikipedia, "Pastern."

Tuesday, August 12, 2014

Thornton Hatches a "Who?"

William Thomas Thornton's essay, "On Labour, its Wrongful Claims and Rightful Dues; its Actual Present and Possible Future," was the occasion for John Stuart Mill's famous recantation of the wages-fund doctrine. In the course of his discussion, Thornton inadvertently invoked the very doctrine that he was debunking, a discrepancy noted by a reviewer in July 1869 The Edinburgh Review:
As he had attacked the doctrine of supply and demand in reference to price, Mr. Thornton assails, with even greater impetuosity, that monstrous figment, as he regards it, of the economists, the wages fund. The book is written, on the whole, in a good humoured spirit; but if ever an irritation of temper is betrayed, it is when the writer is brought into contact with this bête noire of his social philosophy. That the rate of wages is governed, as Adam Smith and his followers have conceived, by the proportion between the capital disposable for the payment of labour and the number of the recipients of that capital, is a notion that Mr. Thornton scouts with contempt, and he consigns the chimerical 'wages-fund' to the lowest limbo of unrealities. Yet, while attacking the name, we find him occasionally, under the pressure of facts, using language which virtually admits the thing, as when he says, 'that at any given time the whole quantity of work to be done is a fixed quantity, and the uttermost which employers can afford to pay for having it done is a fixed amount'; and in other places his language recognises the inevitable fact that employment must be limited by the amount of capital which at the time being sets it in motion, that amount being the thing to which Smith, McCulloch, Fawcett, and other writers have assigned the offensive name.

Sunday, August 10, 2014

The Pathos of Aggregate Demand Management

"One way to understand Keynes's General Theory is that Say's Law is false in theory but that we can build the running code for limited, strategic interventions that will make Say's Law roughly true in practice." Brad DeLong, January 14, 2009 
"One way to think about the Federal Reserve’s mission is that it’s job is to try to make sure that spending is matched to production–to make Say’s Law true in practice, even though it is not true in theory."  Brad DeLong, February 24, 2014 
"Why Hayek could not see with everybody else–including Milton Friedman–that the Great Depression proved that Say’s Law was false in theory, and that aggregate demand needed to be properly and delicately managed in order to make Say’s Law true in practice is largely a mystery." Brad DeLong, August 9, 2014 
"The working class is either revolutionary or it is nothing." Karl Marx.
Adam Smith's "obvious and simple system of natural liberty" like Karl Marx's class struggle conception of history, relied on the semi-autonomous (some might say 'mechanical' or 'self-adjusting') action of an institution. In Smith's case it was the market. The individual "intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." Say's Law presumably explained the mechanism by which individuals' production is transformed automatically into demand for the aggregate of what is produced.

Is the economic system 'self-adjusting', as this analysis suggests? Keynes clearly thought not. On a second question, whether the required adjustments could be achieved through government policy, Keynes was more optimistic, although somewhat equivocal. He wrote, for example, a sarcastic allegory about people desiring the moon and having a central bank that produces green cheese, which it tells them is the same thing. He agreed with J. M. Clark's worries about the danger of a Keynesian 'school' growing up, which might indiscriminately apply a single policy formula "to conditions by no means parallel."

There is a deeper theoretical breach in the notion of simulating a self-adjusting economic system through government policy, though. The managed system can no longer be regarded as "obvious and simple" or as "natural." Thus the traditional rationale for the market system loses any legitimacy that it obtained from those claims. This argument deserves to be worked out in detail for Keynes and Keynesianism but a parallel instance was elaborated brilliantly for Marx and Marxism by Harold Rosenberg in "The Pathos of the Proletariat," published in the Autumn 1949 Kenyon Review.

To paraphrase Rosenberg's argument in terms of DeLong's rhetorical figure of making what is false it theory true in practice: "the Party's mission was to make Marx's theory of the proletariat as the revolutionary subject of history true in practice, even though it was (at least provisionally) false in theory."

For the sake of reading flow, I've taken the liberty of condensing key excerpts from Rosenberg's essay, without indicating ellipses. The passages below represent a little over ten percent of the essay. 

Excerpt from "The Pathos of the Proletariat," by Harold Rosenberg"
The hero of history was to be a social class, a special kind of collective person. The German Ideology describes a class in general terms. As distinguished from other unions, "there exists," says Marx, "a materialistic connection of men with one another." Yet, though it is the basic bond among men, the class is not a mere collection of human beings. "The class in its turn achieves an independent existence over against the individuals." Corporeal and combative, the class stands apart from them and impresses them into an adventure of its own. 
History for Marx is the history of just such separated non-human entities. It is neither the history of individuals nor the history of ideas. Precisely because it is the history of the non-human classes must history be brought to an end. And for the same reason, only the class "character" can perform the act that will terminate it. 
Upon closer consideration, however, we note that these "mere personifications" are not, as such, historical actors but metaphors of political economy. They represent what Marx calls in the same passage the "peculiar traits" of capitalist production. They are like those little figures that illustrate statistical charts. Dramatically, they belong to the order of types in melodrama or the morality play. 
But it is the peculiarity of Marx's "political economy" that he sees this class [the proletariat] as destined to alter completely the conditions that created it. 
Within the movement of capitalism Marx might predict the general direction of certain processes -- concentration of capital, accelerated crises, etc. -- but he cannot predict the total historical situation of the masses, which includes the history of their consciousness of themselves in their situation, or their lack of it. Yet nothing less than this total situation can be meant by "existence" in its determination of consciousness.
Marxism must therefore admit that it can predict nothing concerning the consciousness of the proletariat and hence of its action, in which case the proletariat remains an hypothesis and not a certainty; or it must reduce the situation to a given number of external elements, definable in advance, and thus become identical with what is known as "vulgar materialism" or "mechanical Marxism."  
The failure of the situation to give rise to revolutionary consciousness leads Marx and Marxists to a second type of effort to guarantee the revolution: through politics and propaganda. 
For Engels in 1893 the continuity of the revolutionary movement no longer depends upon the reflexes of a proletariat that has been forced into revolt; it is no longer subject to the intermittences of the heart and mind of the working class. 
Instead of learning in action, the working class is put to school by the Party; it marches with its will in the secure custody of the leadership. Marching has indeed replaced revolutionary action, the movement which was to have been the source itself of the "alteration" of the workers. 
Was Engels' conversion of Marx's drama of history from an order assumed to be inherent in events into a didactic fable of socialist politics a betrayal of the master's thought a decade after his death? In no respect. Marx, too, had attempted to overcome by political means the laggardness of existence in producing revolutionary consciousness. 
But having translated class consciousness from tragic self recognition into political tutoring, Marxism is haunted by its philosophical premises. If its analysis is the consciousness of the socialist revolution, whose existence determines this consciousness? The class's? Or the Party's? Or is it undermined by both? So long as Marx could say, "The great social measure of the Commune was its own working existence," it was clear that theory was subordinate to the concrete action of the class and that communism was in truth attempting to be the intelligence of "the real movement that abolishes the present state of things." Once, however, class spontaneity has yielded to steady marching at the heels of the Party, the latter must look to itself as the source of historical consciousness, since it is it that experiences while the masses are undergoing the "long, persistent work" of learning. But if its own existence guides it, the Marxist Party is "an independent being" and its theory a mere ideology. In that case the high claims of socialism for the release of human individuals into unlimited creativity through the "self-activity" of the proletariat are no longer legitimate. Those hopes rested upon the origin of the collective act in history itself, in the reflex of the individuals of the class to their concrete situation, rather than, as formerly, in a separated community or ideal; but now socialism has produced its own illusory community and independently existing creation of the mind.  
Thus in the heart of Marxism a conflict prevails between metaphysics (existence determines consciousness and defeats all preconceptions) and politics ("we can initiate measures"). The "dialectical" overcoming of this conflict through combining its messianism of total liberation with guidance of the masses as an "army" results logically in a politics of hallucination. In Marx's "we can initiate measures which will later appear as spontaneous movements" -- this sentence shows the actual content of the synthesis of spontaneity and control -- a new principle is making its appearance, though dimly. It is neither the materialist principle of the primacy of existence nor the idealist one that action has its source in thought. It suggests that action can release a revealed destiny which both dominates existence and precedes thought. With the affirmation of this power we stand at the verge of 20th Century political irrationalism. 
Primarily, destiny-politics consists of a demonic displacement of the ego of the historical collectivity (class, nation, race) by the party of action, so that the party motivates the community and lays claim to identity with its fate and to its privileges as a creature of history. In What Is To Be Done, Lenin begins by denying that the proletariat can be an independent historical actor; for him it is a collective character with a role but without the revolutionary ego and consciousness necessary to play its part. Its struggles are but reflexes of economic contradictions which can never of themselves result in revolution. The giant figure of the proletariat is doomed to remain a personification of exploitation and misery until it is possessed by an alien subject that will send it hurtling along its predestined path. This conscious and active ego is the Bolshevik Party of "scientific" (destiny-knowing) professional revolutionaries. In the most literal sense the Party's relation to the class is demoniacal; after a series of paroxysms the collective body of the class is inhabited and violently moved by a separate will which is that of another group or even of one man. Lenin uses the word "subjectivity" to mean precisely the Party and its decisions.  
Political Marxism demands for itself the metaphysical privileges of class action. The violence of the "vanguard," having be-come "dialectically" the act of the proletariat, justifies itself by the existence of the workers as victims of the wage system. Any attack upon that system by Marxist intellectuals and wielders of power becomes a liberating movement on the part of the class. Thus the Party need not account for the means it employs -- all the more so since its program is taken to be identical with the reality which is the ground of all future values. It even denies that the form of its organization is a "principled question" -- to be totally authoritarian does not prevent its being totally democratic, since its acts are the acts of the proletariat and the proletariat is, by definition, the demos.  
As a liberating program Marxism founders on the subjectivity of the proletariat. So soon as it declares itself, rather than their common situation, to be the inspiration of men's revolutionary unity and ardor -- how else can it offer itself simultaneously to the French working class and to non-industrial French colonials? -- Marxism becomes an ideology competing with others. When fascism asserted the revolutionary working class to be an invention of Marxism, it was but echoing the Marxist parties themselves. If the class as actor is a physical extension of the Party, fascism was justified in claiming that a magical contest in creating mass-egos could decide which collectivities are to exist and dominate history. Moreover, it proved that heroic pantomime, symbolism, ritual, bribes, appeals to the past, could overwhelm Marxist class consciousness. What choice was there for the workers between the fascist costume drama and a socialism that urged them to regard their own working clothes as a costume? In Germany and Italy the working class was driven off the stage of history by the defeat of the Party -- in Russia it was driven off by its victory.

Friday, August 8, 2014

Making Sense of Brad DeLong's "Making Say's Law True in Practice"

Mark Thoma at Economist's View links to Brad DeLong's post Making Sense of Friedrich A. von Hayek in which DeLong once again reiterates his bizarre notion about "making Say's Law true in practice although it is false in theory." "Say's Law" (which is neither Say's nor a law!) is not even false in theory -- it is self-contradictory nonsense -- a "liar's paradox."

Making Say's Law "true in practice" is not consistent with Keynes's critique of the vulgar classical notion that "supply creates its own demand." As Keynes pointed out in chapter 23 of the General Theory, "Notes on Mercantilism...," the rejection of the wages-fund doctrine undermined one of the foundations of Say's Law: "Mill's successors rejected his wages-fund theory but overlooked the fact that Mill's refutation of Malthus depended on it." Dudley Dillard called Say's Law a corollary of the wages-fund doctrine.

But it gets weirder. As the Sandwichman has explained ad nauseum, the so-called lump-of-labor fallacy is a version of the wages-fund doctrine attributed to unions by their critics. Moreover, a standard refutation of the fallacy invokes the claim that "supply creates its own demand." The following sentence is true. The preceding sentence is false. Liar's paradox.

Brad DeLong knows that the lump-of-labor and the wages-fund doctrine are homologous. He knows that the wages-fund doctrine is a "standard move in the rhetoric of reaction." We discussed it 15 years ago.

This discussion, from January 1999, began with a discussion of a Louis Uchitelle column from the New York Times about Robert Heilbroner and his dissatisfaction with the narrow focus of modern economics. I challenged Mankiw's claim that economists do positive economics without normative judgments, arguing that economists simply disguise their value judgments as "descriptive statements" that they've cherry-picked from the data.  DeLong asked me for an examples. After giving my example. the following exchange ensued:

But, Brad, while we're asking for examples, can you give me an example of any economist who has challenged the sources of Samuelson & Nordhaus's perennial lump-of-labor fallacy? If anthropologists were as accommodating as economists, Piltdown man would still be in our evolutionary family tree.
Brad deLong:
Samuelson and Nordhaus's "lump of labor" fallacy is the Classical doctrine that fiscal and monetary policy cannot affect the total amount of employment--that the number of hours worked is fixed, unchangeable, unresponsive to government policies. And that the best we can do (when confronted with a situation like Europe's 10% unemployment today, or America's 25% unemployment in the Great Depression) is to spread the (limited) amount of work around fairly. 
But what Samuelson and Nordhaus want to argue--I think correctly--is that we know very well how to get to a better outcome in which unemployment is low not because a lot of us are working part-time (when we would rather be working full-time), but because demand for labor is high...
Ah, now we're getting somewhere. Wouldn't that Classical doctrine be what is known as the wages-fund doctrine, Brad?
Brad deLong:
Yep. But it remains alive, a standard move in the rhetoric of reaction to use against demands that the government do something to make the economy behave better... 
You bet the wages-fund doctrine remains alive as a standard move in the rhetoric of reaction. One need only peel back the textbook onion one layer from Samuelson and Nordhaus to the Raymond Bye and William Hewett textbooks of the previous generation (1930s, 1940s, 1950s). There you find the same hoary lump-of-labor fallacy forthrightly likened to the "general overprodution fallacy". Here is Bye's explanation of why the lump-of-labor fallacy is a fallacy:
"Every laborer creates a product which is offered in exchange for the products of other laborers. The demand for labor thereby grows as fast as its supply; the one cannot be greater or less than the other, for they are the same thing." 
According to this explanation, then, any monetary or fiscal action of the government for the purpose of "creating jobs" is futile because all it can do is divert the means for employing labour from its natural course (determined by the identity of supply and demand), "at the expense of the other laborers who would have been employed, and at the expense of society, which has less wealth than might have been." 
I have another question, Brad, at what point in the history of political economy did the workers, trade unions, and social democratic politicians suddenly and inexplicably embrace the reactionary doctrine of the wages-fund? I'm puzzled because all I can ever find is attribution of this theory of the lump of labor to the workers, trade unions etc. On the other hand, I can find quite a bit of repudiation and denunciation of the wages-fund doctrine from socialists, trade unionists etc. Not the least from a certain K. Marx. 
Brad deLong:
that I do not know. Let me hunt around and see if I can find anything... 
I'd be much obliged. 
Brad must not have found anything. He never got back to me on that question. A year and a half later (August 2000), though, the question of the lump of labor arose again in Brad's admiration of some passages in Paul Krugman's book The Accidental Theorist.

Brad deLong:
But my most favorite pieces of the book of all are three passages that go to the heart of Krugman's commitments--both moral and intellectual. The first is a biting denunciation of William Greider for being an "accidental" theorist: someone who does not think issues through, but who just looks at surfaces without peering into depths or thinking coherently and whose thought is thus shaped by implicit, unexamined theories of which he is not conscious:
" ...reducing the number of workers it takes to make [manufactures] reduces the number of jobs in the [manufactures] sector but creates an equal number in the [services] sector, and vice versa. Of course, you would never learn that from talking to [manufacturing] producers, no matter how many countries you visit; you might not even learn it from talking to [services] manufacturers. It is an insight that you can gain only... by engaging in [economic] thought experiments."
Ironically (and ironic is too mild a term for it), the position from which Krugman criticizes Greider is itself based on an implicit, unexamined theory of which he is not conscious. That accidental theory holds that increasing the volume of trade is the only and certain way to expand employment (and, by implication, raise wages).  
BUT WAIT! Krugman's own "accidental theory" has a name. And I'm sure he's heard of it. I know Brad has. It is the wages-fund theory of classical political economy [correction 2014: I should have said "Say's Law, which depends on the wages-fund doctrine"] -- sometimes referred to as the discredited wages-fund doctrine. So Krugman beats Greider over the head with a defunct doctrine and Brad applauds. 
This indeed reminds one of Keynes. To be exact, it reminds one of Brad's "most favorite" Keynes quotes:
 "Practical men, who believe themselves to be quite exempt from any  intellectual influences, are usually the slaves of some defunct  economist. Madmen in authority, who hear voices in the air, are  distilling their frenzy from some academic scribbler of a few  years back..."
Brad and I had a brief exchange about the wages-fund theory a while back and I quote his characterization of it: "Yep. But it remains alive, a standard move in the rhetoric of reaction to use against demands that the government do something to make the economy behave better..." Putting two and two together, then, one of Brad's most favorite pieces of Krugman is when he employs a standard move in the rhetoric of reaction. Hmmmm.  
But just to carp on this theme a few moments longer, I shudder to mention that Krugman's allegation against Greider (and it is only an allegation -- a speculation really about how his thought has been "shaped") is that he, Greider, is making a static assumption, ultimately based on what was once called (Wilson, 1871), a "Unionist reading of the wages-fund theory."
I asked Brad some time ago just when it was that workers, trade unions and social democratic politicians (not to mention populist  muckrakers) enthusiastically but implicitly embraced the reactionary doctrine of the wages-fund theory. He replied: "that I do not know. Let me hunt around and see if I can find anything. . ."  
Brad didn't get back to me on that.

Brad never got back to the Sandwichman on that question. So the Sandwichman had to hunt around and see if he could find anything...

Friday, August 1, 2014

Yawn. Another day, another breakthrough...

O.K. so it looks like I've got the WHOLE lump-of-labor story now. It begins in a book published in 1662.

Not just any old book, mind you, but John Graunt's Natural and Political Observation made upon the Bills of Mortality. Furthermore, the passage in question may have been written by William Petty.

So, the supposition that there is "a certain proportion of work to be done" goes back to a time in which there was more or less... a certain proportion of work to be done. Not exactly, of course, but close enough for horseshoes when you're pioneering the prerequisite political arithmetick and demographic statistical analysis. The latter should count for something.

  • a certain proportion of work to be done...
  • a certain quantity of labour to be performed...
  • a fixed amount of work to be done...
In forensic terms, we now have a prime suspect and documentary evidence that contradicts the unsubstantiated (and fundamentally incoherent) Rasbotham/Schloss/Samuelson allegations. "In Economics," Samuelson once declared, "it takes a theory to kill a theory..." Of course that was in the pre-post-modern days before Monty Python and the parrot sketch.