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Five Books on the Classical Economists || Five Books Expert Recommendations

Classical economists

Five Books Expert Recommendations: Books on the Classical Economists https://fivebooks.com/best-books/classical-economists-brad-delong/: Recommended by Brad DeLong. They were an eclectic bunch, including, among others, a stock market speculator, a moral philosopher, a cleric, a lawyer and a journalist. From the late-18th to the mid-19th century, they provided the first systematic explanations of how economies work, where they fail and how they might be made to work better. Here, Brad DeLong, a professor of economics at UC Berkeley, introduces the classical economists, and suggests books to read to learn more about them and what they were trying to achieve.

Interview by Benedict King:

Q: Before we get into the books, could you just set the scene by telling us who the classical economists were, individually speaking. There was Adam Smith, Thomas Malthus, David Ricardo, and Jean-Baptiste Say in France. Are there other obvious ones that you would include in that list?

I would say that Smith, Malthus and Ricardo are the big three, although you can argue about whether Smith was a classical economist or rather a pre-economist. Smith viewed himself very much as a moral philosopher. He always had a much broader range and scope than Malthus or Ricardo in terms of the business that he thought he was in.

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Question to Self: Are These Sam Bowles's Five Greatest Works?

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Josiah Ober: The Greeks, the Rational, & Other Topics...

Josiah Ober: The Greeks & the Rational: The Discovery of Practical Reason http://www.classics.berkeley.edu/people/sather/josiah-ober https://www.dropbox.com/sh/jiqa9d9x3brvogu/AACQs2icHAN5_qMbS7cCvw8xa?dl=0:

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What Parts of Marx's Capital Sing?: Twitter

Twitter: I got my last three lectures https://threadreaderapp.com/thread/1258024765509349377.html to give in the next 31 hours, so goodbye! But first... With the exception of Chapter 10, The Working Day, Parts I- VI of Capital do not sing for me. Confused, and where not confused usually wrong… https://github.com/braddelong/public-files/blob/master/twitter/marx-does-capital-sing.pdf

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Keynes as Liberal: Twitter

Twitter: Keynes is, I think, better than Hobsbawm on this https://threadreaderapp.com/thread/1262819618860613632.html: ‘Whilst... the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a mentions contemporary American financier to be a terrific encroachment on individualism. I defend it… https://github.com/braddelong/public-files/blob/master/twitter/keynes-as-liberal-2020-05-19.pdf

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"There Speaks the Nineteenth Century!": For the Weekend

stacks and stacks of books

For the weekend: One powerful and very common presumption among the thinkers of the nineteenth century was that if the problems of overpopulation could be solved, and if that coupled with better technology solved the problem of inadequate resources to provide necessities, then the distribution of conveniences and luxuries would take care of itself, and the distribution of necessities would be unproblematic as an immediate consequence of common humanity in an age of abundance. They were wrong:

Edward Bellamy: Looking Backward 2000-1887 https://delong.typepad.com/files/bellamy-backward.pdf: '“Who is capable of self-support?” he demanded. “There is no such thing in a civilized society as self-support. In a state of society so barbarous as not even to know family coöperation, each individual may possibly support himself, though even then for a part of his life only; but from the moment that men begin to live together, and constitute even the rudest sort of society, self-support becomes impossible. As men grow more civilized, and the subdivision of occupations and services is carried out, a complex mutual dependence becomes the universal rule. Every man, however solitary may seem his occupation, is a member of a vast industrial partnership, as large as the nation, as large as humanity. The necessity of mutual dependence should imply the duty and guarantee of mutual support; and that it did not in your day constituted the essential cruelty and unreason of your system”...

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Eternal September: How Trolls Overran the Public Square: Project Syndicate

How_Trolls_Overran_the_Public_Square_by_J__Bradford_DeLong_-_Project_Syndicate

Project Syndicate: How Trolls Overran the Public Square https://www.project-syndicate.org/commentary/trolls-win-control-of-the-public-square-by-j-bradford-delong-2019-12: Since the invention of writing, human innovation has transformed how we formulate new ideas, organize our societies, and communicate with one another. But in an age of rapid-fire social media and nonstop algorithm-generated outrage, technology is no longer helping to expand or enrich the public sphere: Every year since 1900 we have had change in human technology and organization at a blistering pace: human productivity, organization, and technological capabilities now change at a rate that packs into one year what would have been 50 years of change back before 1500. It used to be that culture, war, the rise and fall of individuals' statuses, and politics were the meat of human history, with technology and organization much of an unchanging background, and productivity growing only very slowly on average. But that is not the world we live in today.

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Marx's Capital: “Freedom” Inverted: It’s Really Powerlessness

4.4.2) “Freedom” Inverted: It’s Really Powerlessness: Capitalists and their ideologists write about how everybody is “free” in a capitalist economy: slavery and serfdom have both been abolished, so that workers can go where they want, take the jobs they want, and so raise society’s productivity. Marx reacts with very heavy-handed snark.

The serf was not free: he was tied to the land, and had to stay there and present his lord with the customary feudal rents specified under that form of land tenure. The coming of capitalism frees the serf: he is no longer required to stay on his inherited piece of land, and farm it.

But the coming of capitalism “frees” the serf in another sense as well: he is “freed” from his connection with the land, which now belongs to the landlord. And he can do what he used to do—farm the land—only if he can strike a bargain and rent it from the landlord. He is, in the words of Milton and Rose Director Friedman, “free to choose”. But he is also free to lose. And—if he cannot strike a bargain to rent the land and then cannot strike a bargain to work as an employee—free to starve.

Yes, he is no longer constrained by the web of obligations that constrained him under the feudal or the petty-bourgeois mode of production. But by the same token that freedom from social position and social ties may well reduce his bargaining power when he goes to the labor market. Constraints can keep you from doing better, but they can also keep you fro being forced to do worse.

Moreover, that bargaining-power reduction is essential for the system’s operation, at least in Marx’s view. Capitalism can only form if there are a lot of workers who have lost their feudal status as serfs who are both owned by and own the land, and lost their petty-bourgeois status as artisans or merchants who own their tools and their businesses. Only if there is a proletariat—a large group of workers who must find a capitalist employer, and must do so under conditions in which workers have very little bargaining power:

The starting point of the development that gave rise to the wage labourer as well as to the capitalist, was the servitude of the labourer. The advance consisted in a change of form of this servitude, in the transformation of feudal exploitation into capitalist exploitation.… Revolutions are epoch-making that act as levers for the capital class in course of formation; but, above all, those moments when great masses of men are suddenly and forcibly torn from their means of subsistence, and hurled as free and “unattached” proletarians on the labour-market…

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Marx's Capital: The Capitalist System Worsens Over Time

4.3.3) The Capitalist System Worsens Over Time: Remember, always, to Marx, capitalism is a system. It works, in the sense that it carries itself forward into the future:

Therefore, the worker himself constantly produces objective wealth, in the form of capital, an alien power that dominates and exploits him; and the capitalist just as constantly produces labour-power, in the form of a subjective source of wealth which is abstract, exists merely in the physical body of the worker, and is separated from its own means of objectification and realization; in short, the capitalist produces the worker as a wage-labourer. This incessant reproduction, this perpetuation of the worker, is the absolutely necessary condition for capitalist production…. The capitalist process of production, therefore, seen as a total, connected process, i.e. a process of reproduction, produces not only commodities, not only surplus-value, but it also produces and reproduces the capital-relation itself; on the one hand the capitalist, on the other the wage-labourer...

As the system carries itself forward into the future, it changes. It, Marx argues, becomes even worse and more destructive. The gap between what society could be given the magical productivity of human labor augmented by science and technology and what society is grows beyond measure.

Accumulation of capital leads to innovation and the invention of new kinds of more productive machines. The capital intensity of production rises. And as the capital intensity of production rises, downward pressure on workers’ wages rises as well.

Marx thinks he has an airtight argument that this will be so:

Since the demand for labour is determined not by the extent of the total capital but by its variable constituent alone, that demand falls progressively with the growth of the total capital, instead of rising in proportion to it, as was previously assumed. It falls relatively to the magnitude of the total capital, and at an accelerated rate, as this magnitude increases. With the growth of the total capital, its variable constituent, the labour incorporated in it, does admittedly increase, but in a constantly diminishing proportion... constantly produces, and produces indeed in direct relation with its own energy and extent, a relatively redundant working population, i.e. a population which is superfluous to capital’s average requirements for its own valorization, and is therefore a surplus population…

Marx believes that machinery is not a complement to but a substitute for labor. Here, once again, Marx has been betrayed by the labor theory of value. The century and a half after his writing of Capital has seen wages rise fifteen fold. It has seen inequality rise, fall, and more recently rise again. But even now, at our current inequality peak, it is only back to the level it was in mid-nineteenth century Britain here in the United States, and is lower elsewhere in the global north.

Not a Human Logic, But Its Own Mad Logic: Why does the system work as it carries itself into the future—as it “reproduces itself”, as Marx likes to say? The rapid advances of science and technology on the one hand in the scope of the collective social division of labor mediated by the market on the other greatly increase the productive power of humanity. Why are these increased productive powers turned not to the greater good but to making greater evils? Marx has an answer: His answer is that the wishes and wills of humans have no purchase once the capitalist machine has started rolling. People must fit into their slots, and do what their slot in the system requires that they do. Workers who do not sacrifice their essential humanity to a hard, dehumanizing, and low-paying job find themselves and their families at deaths door. Capitalists who do not devote every moment to raising productivity, pushing down wages, and reinvesting their larger profits to increase their scale of operations faster find themselves outcompeted. They wind up going bankrupt–and then their children join the working class proletariat. Thus, according to the principle that the purpose of a system is what it does, the purpose of the capitalist system is maximum investment and capital accumulation:

Accumulation for the sake of accumulation, production for the sake of production: this was the formula in which classical economics expressed the historical mission of the bourgeoisie in the period of its domination. Not for one instant did it deceive itself over the nature of wealth’s birth-pangs. But what use is it to lament a historical necessity? If, in the eyes of classical economics, the proletarian is merely a machine for the production of surplus-value, the capitalist too is merely a machine for the transformation of this surplus-value into surplus capital…

Mark thinks he has an iron and water-tight argument that this process of investment in capital accumulation greatly raises the stock of instruments of production that workers use—no, in capitalist factories as Marx sees them workers do not utilize machines, instead, machines use up workers—while reducing the funds available to be spent paying the wages of the workers:

The law of the progressive growth of the constant part of capital in comparison with the variable part is confirmed at every step … by the comparative analysis of the prices of commodities, whether we compare different economic epochs or different nations in the same epoch. The relative magnitude of the part of the price which represents the value of the means of production, or the constant part of the capital, is in direct proportion to the progress of accumulation, whereas the relative magnitude of the other part of the price, which represents the variable part of the capital, or the payment made for labour, is in inverse proportion to the progress of accumulation…

Thus, for Marx, it is inconceivable that there might be a permanent, durable increase in the average wage level as the process of capital accumulation proceeds and as capitalism-the-sytem carries itself forward into the future. Supply-and-demand could not, and marks his analysis, lead to such an outcome, for supply-and-demand work in the context of a ever-growing surplus population that makes up an industrial reserve army of unemployed and hungry-for-jobs workers:

The industrial reserve army, during the periods of stagnation and average prosperity, weighs down the active army of workers; during the periods of over-production and feverish activity, it puts a curb on their pretensions. The relative surplus population is therefore the background against which the law of the demand and supply of labour does its work. It confines the field of action of this law to the limits absolutely convenient to capital’s drive to exploit and dominate the workers…

In fact, for Marx, it is inconceivable the average wage level will manage to stay above bare subsistence:

The most diverse machines are now applied to the manufacture of the machines themselves…. The labourers employed in machine factories can but play the role of very stupid machines alongside of the highly ingenious machines…. To sum up: the more productive capital grows, the more it extends the division of labour and the application of machinery; the more the division of labour and the application of machinery extend, the more does competition extend among the workers, the more do their wages shrink together…. A mass of small business men and of people living upon the interest of their capitals is precipitated into the ranks of the working class…. Thus the forest of outstretched arms, begging for work, grows ever thicker, while the arms themselves grow every leaner…

Thus, as Mark sees it, the more powerful and productive new workers become, the more dominated and exploited workers become. :Workers become not men but fragments of men: hands, no more than appendages to the machine. And working to make things becomes not a source of joy at accomplishment but into an alienated torment:

We saw in Part IV, when analysing the production of relative surplus-value, that within the capitalist system all methods for raising the social productivity of labour are put into effect at the cost of the individual worker; that all means for the development of production undergo a dialectical inversion so that they become means of domination and exploitation of the producers; they distort the worker into a fragment of a man, they degrade him to the level of an appendage of a machine, they destroy the actual content of his labour by turning it into a torment; they alienate…

In Marx’s analytical framework, wealth, productivity, and misery all grow together. Greater productivity produces greater wealth. And then greater wealth produces greater misery, because under capitalism wealth is used to dominate and, if the capitalist is going to survive, he must use his power to dominate to push down wages and worsen working conditions so that he can not consume but invest his profits to produce an even greater scale of production and even greater productivity:

In proportion as capital accumulates, the situation of the worker, be his payment high or low, must grow worse. Finally, the law which always holds the relative surplus population or industrial reserve army in equilibrium with the extent and energy of accumulation rivets the worker to capital more firmly than the wedges of Hephaestus held Prometheus to the rock. It makes an accumulation of misery a necessary condition, corresponding to the accumulation of wealth. Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, the torment of labour, slavery, ignorance, brutalization and moral degradation at the opposite pole, i.e. on the side of the class that produces its own product as capital...

What is going to bring an end to this mad process?

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Marx's Capital: Part VII: The Accumulation of Capital

4.3) Part VII: The Accumulation of Capital: 4.3.1. The Bourgeoisie Is the Ruling Class: This is where the book starts to sing (to me, at least).

The first important thing I get out of Part VII is that, to quote from the Communist Manifesto, “the executive of the modern state is a committee for managing the affairs of the _business class”. Wealth speaks loudly, and influences the government to arrange things for the convenience of wealth—to keep wages low, and workers available.

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Marx's Capital: Parts V-VI

*4.2.5) Part V: Absolute & Relative Surplus-Value *: Here Marx is indeed repeating himself. You are trapped in some Groundhog Day-like scenario. This time through reading these chapters, my major thought was: Wouldn’t Engels pay for an editor? It goes over ground Marx has already gone over. And it loses itself in byways that seem pointless to me.

For example, what is the usefulness of this?:

From one standpoint, any distinction between absolute and relative surplus-value appears illusory. Relative surplus-value is absolute, since it compels the absolute prolongation of the working-day beyond the labour-time necessary to the existence of the labourer himself. Absolute surplus-value is relative, since it makes necessary such a development of the productiveness of labour, as will allow of the necessary labour-time being confined to a portion of the working-day. But if we keep in mind the behaviour of surplus-value, this appearance of identity vanishes. Once the capitalist mode of production is established and become general, the difference between absolute and relative surplus-value makes itself felt, whenever there is a question of raising the rate of surplus-value. Assuming that labour-power is paid for at its value, we are confronted by this alternative: given the productiveness of labour and its normal intensity, the rate of surplus-value can be raised only by the actual prolongation of the working-day; on the other hand, given the length of the working-day, that rise can be effected only by a change in the relative magnitudes of the components of the working-day, viz., necessary labour and surplus-labour; a change which, if the wages are not to fall below the value of labour-power, presupposes a change either in the productiveness or in the intensity of the labour…

Why is it not better to say that the rate of profit (or of surplus-value extraction) depends on five things; the length of the working day, the productiveness of labor, the intensity of labor, the cost of worker subsistence, and the deviation of the wage level from the cost of subsistence? What is gained by calling some of these ‘relative’ and the others ‘absolute’ as it is indeed true that, as Marx says: ‘relative surplus-value is absolute… [and] absolute surplus-value is relative’?

Perhaps there is a new nugget in Chapter 16 of this Part V. Marx wishes to establish that David Ricardo and John Stuart Mill have blinded themselves by confusing things that are present only under the capitalist mode of production with things that are always true of the human division of labor, and so confuse themselves. But Ricardo and Mill—and I—would respond: Yes, these things are only apparent and obvious under the capitalist mode of production, but they are always true in the sense that they are constraints on and opportunities arising from the construction of a societal division of labor under conditions of scarcity; it is just that under other systems of arranging the societal division of labor these constraints and opportunities are masked by how they are embedded in the networks of obligation and control that make up non-market societies.

This is an argument Marx ought to have wrestled with. But he did not.

And much of Part V is simply confused: Marx disappears into the swamp that is the labor theory of value, and criticizes other economists for not getting lost in the swamp in the same place he does.

4.2.6) Part VI: Wages: Once again, I find Marx in need of an editor: little said in a substantial space. However, chapter 22, on differences across nations in the level of wages, seemed to me to be of interest. Marx says that looking across countries there are those with:

more intense national labour… more productive nation[s]…. In proportion as capitalist production is developed in a country, in the same proportion do the national intensity and productivity of labour there rise above the international level…. It will be found, frequently, that the daily or weekly, &tc., wage in the first nation is higher than in the second, whilst the relative price of labour, i.e., the price of labour as compared both with surplus-value and with the value of the product, stands higher in the second than in the first…

So that a higher rate of exploitation, a higher rate of productivity, and a higher value of real wages in terms of the commodities they can buy go together. Comparing Russia to England, Marx finds:

Despite all over-work, continued day and night, despite the most shameful under-payment of the workpeople, Russian manufacture manages to vegetate only by prohibition of foreign competition…

English cotton mills pay their workers more and extract more profits and surplus value out of them. Russian cotton mills pay their workers less, over-work them more, and yet would fail to extract any profits or surplus value if not for government subsidies via tariffs. The more exploited are workers in Marx’s extraction-of-surplus-value sense, the better off there workers are.

This should have given Marx pause: if it is true looking from less-capitalistic to more-capitalistic nations that higher rates of exploitation and better-fed and better-housed workers go together, might it not also be true looking over time from less-capitalistic to more-capitalistic eras that we see the same? This should have led Marx to rethink. It did not.

4.2.7) Summing Up Parts I-VI: In summary, with the exception of Chapter 10, The Working Day, Parts I-VI of Capital do not sing for me. Confused, and where not confused usually wrong, is my judgment.

Part I makes Hegelian philosophical intellectual moves to construct an argument for the labor theory of value, an argument which I do not see as valid and which leads to a false conclusion. Part II makes the important point that capital is not a thing but rather a set of relationships or processes that generate a certain kind of economy with its patterns of production, distribution, and dynamic evolution. But this seems obvious to me: it is something I know in my bones. Marx presents it with what seems to me to be a lot of fluff and mystification.

Parts III-VI develop and use his analytical framework and, with the exception of chapter 10 on the working day, I find the framework creaky, inadequate, and often misleading: labor theory of value, rates of surplus value, organic composition of capital, and hidden behind the curtain the unsolved and unsolvable analytical problems of reduction and transformation.

It is only in Part VII that the book begins to sing to me.

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I do confess that I am sad that §7.6 of my "Smith, Marx, Keynes" lecture notes https://www.icloud.com/keynote/0osOOsPvSrTaiK4__D5MghPVA is still just huge honking quotes from Paul Krugman's Mr. Keynes and the Moderns https://delong.typepad.com/files/keynes-moderns.pdf. I kinda want to say "just read the whole thing". But here are the passages I chose:

Chapter 12 is, of course, the wonderful, brilliant chapter on long-term expectations, with its acute observations on investor psychology, its analogies to beauty contests, and more. Its essential message is that investment decisions must be made in the face of radical uncertainty to which there is no rational answer, and that the conventions men use to pretend that they know what they are doing are subject to occasional drastic revisions, giving rise to economic instability. What Chapter 12ers insist is that this is the real message of Keynes, that all those who have invoked the great man’s name on behalf of quasi-equilibrium models that push this insight into the background, from John Hicks to Paul Samuelson to Mike Woodford, have violated his true legacy...

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Marx's Capital: Parts III-IV

4.2.3) Part III: Production of Absolute Surplus-Value: Formal Equality Masking Substantive Inequality and Oppression: Here Marx tries to peel back the mask that conventional liberal ideology places over the face of the capitalist market economy. The market economy pretends that it is a realm of freedom: everyone is independent, everyone is unbound by ties of slavery and serfdom, everyone owns what he or she owns, everyone produces, buys, and sells, everyone does so an an equal legal footing…

And yet..., and yet..., and yet...

Marx tries to lay out how such a formally-equal form of social organization like the market economy nevertheless produces massive and mammoth inequality. He does so by diving into the working day and the labor process: How is it that the value of labor-power is less than the value of the commodities that that labor-power the capitalist purchases then creates? Why doesn't the worker just work for themself and so reap the full value of the commodities they produce as the wage for their labor power?

However, Marx gets lost here in the swamp of the labor theory of value. And so the analytical apparatus he builds creaks. It is, I think, simply not up to the task.

Sources of Capitalist Social Power: I think, however, that it is easy to rescue Marx's argument by throwing his labor theory of value overboard and simply looking at average or market equilibrium prices. It is a fact that those without money have little social power. It is a fact that those without money have little ability to delay their purchases or sales in the hope that a better bargain will be. It is a fact that those who are desperate to buy or sell get a bad bargain. And it is a fact that workers are desperate to sell their labor, and then desperate to buy commodities now: they and their families have to eat.

But why can't workers just work for themselves? Why can't they be independent contractors, and so capture for themselves the surplus the capitalist exacts from the fact that workers are desperate to work and so will work for less than the value of what they will produce because they need money now? They can—if they have enough of a stake to tied themselves over. But as time passes and as production becomes more and more capital-intensive and value chains become longer and longer, the size of the stake needed to remain independent grows. Some succeed in maintaining the needed stake, and even enlarging it: they maintain a precarious independence or become capitalists themselves, respectively. Most, from bad luck, imprudence, or a failure to keep pace with increasing scale, fall into the proletariat, and so have to strike bad bargains with employers in which they capture little of the surplus created in the process of production.

That, at least, would be a coherent theoretical argument.

Marx Wrote at the End of an Era of Wage Stagnation: It would run into the empirical problem that the wages of labor today in the Global North are 15 times higher than they were two centuries ago, and that in the world as a whole only 9% of people earn too little in the global market to escape from extreme poverty while 80% were in extreme poverty 200 years ago. But it would be a coherent argument. And it would accurately describe the world of an Industrial Revolution with little or no increase in real wages that Marx had seen in his life up to 1867. (Albeit that phase of the world economy was about to end: wages, worldwide, were then about to start rocketing upward.)

Nassau Senior’s “Last Hour”: Please, I ask you, do not miss the last part of chapter 9: Section 3: Senior's "Last Hour". Marx’s evisceration of the argument in support of the cotton manufacturers of Britain by British classical economist Nassau Senior is a thing of beauty. And it was the source for the first economics article I ever wrote that would up published.

The Length of the Working Day: And read carefully and reread chapter 10. In chapter 10 the book descends from German Hegelian-philosophical and British classical-economic abstractions and theory into the condition fo the working class in England in the middle of the nineteenth century, and the book becomes great.

Creaky Abstractions Return: But in chapter 11 the abstractions and the creaky analytical apparatus are back.

Marx then finds himself on the defensive. The profits that different manufacturers realize have nothing to do with the amounts of surplus value that Marx calculates different manufacturers extract from their workers. Why are the profits of one manufacturer who has few workers and so can extract no surplus value from them just as high as the profits of another manufacturer sweating surplus value out of tens of thousands? How I this consistent with Marx’s claim that profits in some sense are, or are the surface manifestation of the deep reality that is surplus value?

This is a natural question to ask. Asking it very much puts Marx very much on the defensive. So we find passages like:

The law... of surplus-value produced... clearly contradicts all experience based on appearance.... A cotton spinner, who... employs... little variable capital, does not, on account of this, pocket less profit or surplus-value than a baker... [with] much variable... capital. For the solution of this apparent contradiction, many intermediate terms are as yet wanted, as from the standpoint of elementary algebra many intermediate terms are wanted to understand that 0/0 may represent an actual magnitude.... It will be seen later how the school of Ricardo has come to grief over this stumbling block. Vulgar economy which, indeed, “has really learnt nothing,” here as everywhere sticks to appearances in opposition to the law which regulates and explains them. In opposition to Spinoza, it believes that “ignorance is a sufficient reason”...

To paraphrase, Marx is here saying: My theory says the sun rises in the west, but you say it rises in the east. You are confused by the surface appearance of things. I have a deeper understanding, and I will present my answer later.

He never did present an explanation.

As I said, the analytical apparatus creaks, and is not up to the task.

4.2.4) Part IV: The Production of Relative Surplus-Value: No, you are not caught in some Groundhog Day-like time loop. If this sounds to you like he is starting to repeat himself, you are right. And if you ask what makes some surplus value “relative” and other surplus value “absolute”, you will not get a clear answer.

I think that when the working day is expanded or the standard of living is lowered, that is an increase in absolute surplus value. I think that when productivity rises, that is an increase in relative surplus value. I would have called Part III “The Working Day and Surplus Value” and Part IV “Worker Productivity and Surplus Value”.

Deskilling: But do not skip or skim—too much. The analytical core of this part is an important insight: The market economy produces enormous incentives to innovate in technology and to then invest in labor-saving machinery in order to raise productivity:

A most furious combat rages between the capitalists for their individual share in the market... proportional to the cheapness of the product.... This struggle gives rise to in the use of improved machinery for replacing labour-power... the introduction of new methods of production... [and] a forcible reduction of wages beneath the value of labour-power is attempted...

And this pressure has a powerful impact in potentially "deskilling" workers. Marx quotes Adam Smith here:

The understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations … has no occasion to exert his understanding … He generally becomes as stupid and ignorant as it is possible for a human creature to become.... The uniformity of his stationary life naturally corrupts the courage of his mind … It corrupts even the activity of his body and renders him incapable of exerting his strength with vigour and perseverance in any other employments than that to which he has been bred. His dexterity at his own particular trade seems in this manner to be acquired at the expense of his intellectual, social, and martial virtues. But in every improved and civilized society, this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall...

Hence Adam Smith calls for a major deviation from laissez faire in favor of publicly-funded and mandatory public education:

The common people... have little time to spare for education. Their parents can scarce afford to maintain them.... As soon as they are able to work they must apply to some trade by which they can earn their subsistence.... But though the common people cannot, in any civilised society, be so well instructed as people of some rank and fortune, the most essential parts of education, however, to read, write, and account, can be acquired at so early a period of life that the greater part even of those who are to be bred to the lowest occupations have time to acquire them before they can be employed in those occupations. For a very small expense the public can facilitate, can encourage, and can even impose upon almost the whole body of the people the necessity of acquiring those most essential parts of education... by establishing in every parish or district a little school, where children may be taught for a reward so moderate that even a common labourer may afford it; the master being partly, but not wholly, paid by the public.... It was in this manner, by facilitating the acquisition of their military and gymnastic exercises, by encouraging it, and even by imposing upon the whole body of the people the necessity of learning those exercises, that the Greek and Roman republics maintained the martial spirit of their respective citizens....

The gross ignorance and stupidity which, in a civilised society, seem so frequently to benumb the understandings of all the inferior ranks of people... [leaves them] mutilated and deformed in... [an] essential part of the character of human nature. Though the state was to derive no advantage from the instruction of the inferior ranks of people, it would still deserve its attention that they should not be altogether uninstructed. The state, however, derives no inconsiderable advantage from their instruction. The more they are instructed the less liable they are to the delusions of enthusiasm and superstition.... An instructed and intelligent people, besides, are always more decent and orderly.... They feel themselves, each individually, more respectable and more likely to obtain the respect of their lawful superiors.... They are more disposed to examine, and more capable of seeing through, the interested complaints of faction and sedition.... In free countries, where the safety of government depends very much upon the favourable judgment which the people may form of its conduct, it must surely be of the highest importance that they should not be disposed to judge rashly or capriciously...

I dare say you might well be able to convince Adam Smith, were he here with us today, to ban cable news, and Facebook.

But to return to Marx and to the cause of “deskilling”, rather than attempts to counteract its effects, we have Marx:

Along with the tool, the skill of the worker in handling it passes over to the machine. The capabilities of the tool are emancipated from the restraints inseparable from human labour-power. This destroys the technical foundation on which the division of labour in manufacture was based.… In so far as the division of labour reappears in the factory, it takes the form primarily of a distribution of workers among the specialized machines.... In handicrafts and manufacture, the worker makes use of a tool; in the factory, the machine makes use of him. There the movements of the instrument of labour proceed from him, here it is the movements of the machine that he must follow.... In the factory we have a lifeless mechanism... independent of the workers... incorporated into it as its living appendages.… The machine... deprives the work itself of all content … [The] conditions of work employ the worker...

Capitalism as a Vampire: And so innovation further diminishes workers' power to strike a good wage bargain, in chief a reasonable working day. Dead Labor—capital—or rather Undead Labor—fastens upon Living Labor like a vampire sucking his or her blood:

Partly by placing at the capitalists’ disposal new strata of the working class previously inaccessible to him, partly by setting free the workers it supplants, machinery produces a surplus working population... compelled to submit to the dictates of capital.... Machinery sweeps away every moral and natural restriction on the length of the working day.... The most powerful instrument for reducing labour-time suffers a dialectical inversion and becomes the most unfailing means for turning the whole lifetime of the worker and his family into labour-time at capital’s disposal for its own valorization.... Dead labour... dominates and soaks up living labour-power...

There is even, Marx claims, a large downside to laws to protect workers, to raise minimum wages, and to shorten the maximum working day. Such laws relatively disadvantage small-scale producers, and drive them into bankruptcy:

If the general extension of factory legislation to all trades for the purpose of protecting the working class both in mind and body has become inevitable, on the other hand, as we have already pointed out, that extension hastens on the general conversion of numerous isolated small industries into a few combined industries carried on upon a large scale; it therefore accelerates the concentration of capital and the exclusive predominance of the factory system. It destroys both the ancient and the transitional forms behind which the dominion of capital is still partially hidden, and replaces them with a dominion which is direct and unconcealed...

What is worse:

The immense impetus given to technical improvement by the limitation and regulation of the working day is to increase the anarchy and the proneness to catastrophe of capitalist production as a whole, the intensity of labour, and the competition of machinery with the worker. By the destruction of small-scale and domestic industries it destroys the last resorts of the ‘redundant population’, thereby removing what was previously a safety-valve for the whole social mechanism...

“The Worse, the Better”: But there is a "the worse, the better" apocalyptic silver lining here:

By maturing the material conditions and the social combination of the process of production, it matures the contradictions and antagonisms of the capitalist form of that process, and thereby ripens both the elements for forming a new society and the forces tending towards the overthrow of the old one...

I tend to be very very suspicious of “the worse, the better” arguments.

Karl Marx’s Theory of History: Note also that it is in this Part IV of Capital that we get Karl Marx's big-picture theory of history and political economy:

My view is that each particular mode of production, and the relations of production corresponding to it at each given moment, in short ‘the economic structure of society’, is ‘the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness’ [mental conceptions, if you like], and that ‘the mode of production of material life conditions the general process of social, political, and intellectual life...

And it is in this part of Capital that we have get a very brief glimpse into Marx's speculations about the business cycle:

The factory system’s tremendous capacity for expanding with sudden immense leaps, and its dependence on the world market, necessarily give rise to the following cycle: feverish production, a consequent glut on the market, then a contraction of the market, which causes production to be crippled. The life of industry becomes a series of periods of moderate activity, prosperity, over-production, crisis and stagnation. The uncertainty and instability to which machinery subjects the employment, and consequently the living conditions, of the workers becomes a normal state of affairs...

Continue reading "Marx's Capital: Parts III-IV" »


Karl Marx: The Philosophical, Activist, Economist Layers Overlap. They Always Overlap

3.4.4) The Layers Overlap: Marx’s First Published Essay: You can see all three of these layers in Marx’s first published essay, On the Jewish Question. There is the German-philosophical layer: interrogating the concept of what it means to be free. There is the French-activist layer: how to organize and legislate to attain freedom. And there is the British-economist layer: the real problems lie in the economy, and how the workings of the economy drive people to be cruel to each other in spite of society’s overall prosperity. In On the Jewish Question Marx is pro-freedom. Jews are seeking equal rights. Many (including Marx’s about to be ex-friend Bruno Bauer) claimed that Germany was a Christian country in which Jews had no standing to ask for equal rights until they joined it—that is, became Christian—and then work for separation of state from church. Marx disagreed, stating that Jews’ status as Jews ought not to in any way be a bar to political emancipation.

But, Marx went on to write, political emancipation is not full human emancipation. In order to accomplish that, we need to transform the economy so that it no longer oppresses people.

Marx’s Antisemitism: And then Marx’s argument becomes unfortunate, because the way that the economy oppresses people, Marx says, is that it leads them to behave like he says Jews behave:

Let us consider the actual, worldly Jew–not the [observant] Sabbath Jew, as Bauer does, but the everyday Jew.

Let us not look for the secret of the Jew in his religion, but let us look for the secret of his religion in the real Jew.

What is the secular basis of Judaism? Practical need, self-interest. What is the worldly religion of the Jew? Huckstering. What is his worldly God? Money.

Very well then! Emancipation from huckstering and money, consequently from practical, real Judaism, would be the self-emancipation of our time.

An organization of society which would abolish the preconditions for huckstering, and therefore the possibility of huckstering, would make the Jew impossible. His religious consciousness would be dissipated like a thin haze in the real, vital air of society. On the other hand, if the Jew recognizes that this practical nature of his is futile and works to abolish it, he extricates himself from his previous development and works for human emancipation as such and turns against the supreme practical expression of human self-estrangement…

This was not a phrase Marx outgrew. A decade and a half later, in the mid 1850s, we find him writing things like:

Thus we find every tyrant backed by a Jew, as is every pope by a Jesuit. In truth, the cravings of oppressors would be hopeless, and the practicability of war out of the question, if there were not an army of Jesuits to smother thought and a handful of Jews to ransack pockets…

Yet by far the majority of the big bankers of mid-nineteenth century Europe were Christians. If he were around today, Marx would be one of those people who, when he wants to say something negative about bankers, will always say “Goldman Sachs” and never say “Bank of America” or “J.P. Morgan” or “Credit Suisse”. And the correspondence between Marx and Engels in which they express their envy of fellow German socialist Ferdinand Lassalle is just… weird. Simon Sebag Montefiore summarizes:

Both… were wildly jealous of Lasslle, who was in many ways what they wished to be: a political star, bon vivant… showman… lover… supported financially by his mistress, Countess von Hatzfeld…. Lassalle recognized Marx’s talent… helping him… get his work published…. Marx and Engles… repaid the favor with an endless stream of racist epithets… “stupid Yid”… “Jewboy”… “n——r”…. Lassalle… affair with a young woman engaged to a Wallachian prince whom he foolishly challenged to a duel. Lassalle was killed. Marx and Engels were astonished by the rise and fall of this flamboyant meteor…. Engels’s reflections on Lassalle’s intellectual and sexual power are particularly striking: “she didn’t want his beautiful mind but his Jewish cock”.

Marx was soon going to change his language away from On the Jewish Question’s claim that the big problem was that in market society all human beings acted like Jews: true human freedom would be thought of as the freedom of humanity from domination by the bourgeoisie, domination by the business class, rather than freedom from what Marx called “Jewishness”, and from an economic system that pushed people to act in what Marx called a “Jewish” way.

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Marx's Capital : Parts I-II

4.2) Capital, Parts I-II: Let me provide you with a brief guide in the form of my reactions on my last reading through Capital. And, truth by told, if I had made up the syllabus I would have assigned Parts VII and all but the last chapter of Part VIII, and dipped into Parts I-VI only for chapter 10, The Working Day, and a few selected passages. In place of the bulk of Parts I-VI, I would have substituted Marx’s 1847 essay Wage Labor and Capital; Marx and Engels’s 1848 The Communist Manifesto; Marx’s early 1850s study of French politics and political economy, The Eighteenth Brumaire of Louis Bonaparte; and his late-in-life Critique of the Gotha Program.

So here I am going to rush through Parts I through VI of Capital. I do not have time now to do more. Plus, with the exception of Chapter 10, The Working Day, which is great and which is by itself worth the price of the book, these pieces of the book do not sing to me.

4.2.1) Part I: Commodities and Money: The start of the book is, at bottom, a Hegelian German-philosophical argument for the truth of something called the labor theory of value: that the value of a commodity is the human labor that it took, directly and indirectly, to produce it. If you were a Hegelian German philosopher you might well find that argument somewhat convincing. But you are not. And in fact there are no Hegelian German philosophers at all: the consensus of philosophers is that Hegel is an important figure in the history of philosophy, but that his concepts and frameworks have little worthwhile bite.

Moreover, the labor theory of value is wrong, or at least profoundly unhelpful for Marx.

It involved him in spending years of his life trying to resolve all kinds of problems—the reduction problem, the transformation problem, how to characterize the capital-intensity of the economy—that were at best time-wasting sinks of energy and at worst led to what were in retrospect obvious analytical errors.

I get little out of Part I. But maybe I have not remade myself into the right kind of reader?

4.2.2) Part II: Transformation of Money into Capital “Capital” as Not Things But a Process: As the book moves out of Marx’s Hegelian German-philosopher mode it becomes, I think, much more promising. People typically think of “capital” as stuff: machines, buildings, inventories, and so on. But, Marx argues—I think correctly—that capital is better thought of as a particular form of social power: wealth directing human activity by being itself directed toward acquiring more wealth. Capital is money that is in the business of making more money by being used to buy and thus be transformed into commodities, and then back into more money. And, Marx argues, the most important commodity that capital is transformed into in its every-amplifying circular flow is labor-power, because the only reason that the system can produce profits on average—that the amount of capital can grow in general—is that the value of labor-power is less than the value of the commodities that that labor-power the capitalist purchases then creates.

But it takes Marx three chapters to say that.

Antisemitism Again: There is one piece of Part II that I should not pass over. It is:

The capitalist knows that all commodities, however tattered they may look, or however badly they may smell, are in faith and in truth money, are by nature circumcised Jews, and, what is more, a wonderful means for making still more money out of money…

What are “the Jews" doing here? Yep. This is a leftover from 1842, from the days when Marx and his soon to be ex-friends Moses Hess and Heinrich Heine were attacking “Jewishness” as the source of evil—cf. Heinrich Heine’s denunciation of his own city of Hamburg a:

a city of hagglers populated entirely by Jews, some baptized (I call all Hamburg’s inhabitants Jews)…

It’s people who behave like how Heine has been taught to think Jews behave who are the subject of his ire. Still, not at all a good look.

Continue reading "Marx's Capital : Parts I-II" »


Karl Marx’s Analytical System

4) Karl Marx’s Analytical System: 4.1. On Reading Capital: 4.1.1. Why Are We Making You Do This?: Marx spent the next 20 years of his life after writing On the Jewish Question trying to figure out the economics, and then write it down. And in 1867 he published Capital: A Critique of Political Economy. (Or, at least, he published volume I. He died before he finished volumes II and III to his satisfaction.) Capital is a big and difficult book. And we have set you to read it in order to gain a sense of what answers Marx arrived at: what he concluded and why, and whether his conclusions are correct.

Why have we set you to read it? We could, after all, digest it into twenty bullet points and say “these will be on the exam”.

4.1.2) The Skill of Reading Difficult Books: One answer is that the skill of reading difficult books is something we have to teach. The labor economists tell us that going to Berkeley, or to other elite American universities, is very good for you not just in terms of making you a more knowledgeable, thoughtful, and well-rounded person, but also in terms of inculcating you a lot of skills that give you many, many extra life choices. Chief among these skills are: presenting yourself in English in person; presenting yourself in English on paper; and figuring out how to get information out of all the written English words that appear before your eyes. Thus one thing we are here to do is to teach the valuable skill of reading hard and difficult but valuable books. And reading hard and difficult but valuable books with us on the teaching staff coaching you through the process is the best way to do that.

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Adam Smith & Inequality: Inequality Generated Outside the Market

2.5) Adam Smith & Inequality: 2.5.1. Inequality Generated Outside the Market: Smith’s first way of minimizing the importance of inequality—or at least minimizing the responsibility of the market and of the economy for fighting inequality—is to argue that inequality springs from politics and sociology rather than from market economics. Inequality arises from the role that hierarchy and command-and-control play in the mixed-up processes that are human society. The society of England becomes more unequal because William the Bastard from Normandy and his thugs with spears—300 families, plus their retainers—kill King Harold Godwinson, and declare that everyone in England owes him and his retainers 1/3 of their crop. The society of England becomes more unequal because Queen Elizabeth I Tudor grants a monopoly over trade with America to Sir Walter Raleigh. Why? Because he had successfully flirted with her. These are not economic processes. These are not closely connected with the “system of natural liberty” than is the market economy.

Indeed, the system of natural liberty is only one way you can organize society. Societies can be organized as ones of feudal lords and peasants, as priests and worshippers, robbers bands and their victims. But these ways of organizing society are impoverishing and, Smith claims in his very naming of his system the “System of Natural Liberty”—unnatural. Dugald Stewart quotes from one of Smith’s lectures that, at least in the lecture hall at Glasgow in 1749, Smith was blunt:

Little else is required to carry a state to the highest degree of affluence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things…

I believe that the later Adam Smith would note that “tolerable administration of justice” covers a lot of ground: the later books of An Inquiry into the Nature and Causes of the Wealth of Nations are very long indeed: Book III on how the historical development of Europe has let it to deviate from the System of Natural Liberty is 43 pages, Book IV on errors being made in 1776 by the governments of Europe is 273 pages, and Book V on what governments should and should not do is 276 pages—a total of 592 pages on what governments should, should not, and have unfortunately done, with only a total of 346 pages laying out Smith’s analytical system and its conclusions, among them that:

All governments which thwart this natural course, which force things into another channel, or which endeavor to arrest the progress of society at a particular point, are unnatural, and, to support themselves, are obliged to be oppressive and tyrannical…

As Heilbroner puts it:

The great enemy to Adam Smith's system is not so much government per se as monopoly—in any form. “People… meet[ing] together… [and] the conversation ends in… some diversion to raise prices.”… If the working of the market is trusted… anything that interferes… lowers social welfare. If, as in Smith’s time, no master hatter anywhere in England could employ more than two apprentices or no master cutler in Sheffield more than one, the market system cannot possibly yield its full benefits…. If, as in Smith's time, great companies are given monopolies of foreign trade, the public cannot realize the full benefits of cheaper foreign produce. Hence, says Smith, all these impediments must go…

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The Premature Kingdom: Hoisted from the Archives

The Premature Kingdom

The Premature Kingdom: On Twitter: Perhaps the question "should Christians be Christians?" is like the question "should Communists be Communists?".

For in its essence, the problem—the poisoned chalice—that Flavius Valerius Aurelius Constantinus Augustus handed the Christian bishops of his day in the fourth century C.E. was closely analogous to the problem that Lenin's successful coup 100 years less two days ago handed him and his comrades.

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On Inequality, Adam Smith Gets Snarky, Stoic, and Cynical

Smith Gets Snarky, Stoic, and Cynical: Snarkism: Adam Smith’s third way of minimizing the importance of economic inequality is to snark. The aim of wealth is to make you happy. Smith thinks that what wealthy women wish they could buy is beauty, and what wealthy men wish they could buy is strength. But who are the beautiful and strong in England? Adam Smith tells us in an aside on nutrition on the good qualities of the potato:

The chairmen, porters, and coal-heavers in London, and those unfortunate women who live by prostitution, the strongest men and the most beautiful women perhaps in the British dominions, are said to be, the greater part of them, from the lowest rank of people in Ireland, who are generally fed with this root [the potato]…

The rich aren’t doing a terribly good job of using their wealth to promote human flourishing, are they? And there is the implication that the rich are none too happy. We see Smith, and what he is doing here, I think.

Stoicism: Adam Smith’s fourth way of minimizing the importance of economic inequality is to assume the philosophical pose of the stoic. One works hard. One sacrifices one’s peace and leisure in order to get rich. And what does that get you as you age? Adam Smith writes that to the aging, looking back at a life in which they have sacrificed their ease and their happiness in order to gain wealth:

Power and riches appear then to be, what they are, enormous and operose machines contrived to produce a few trifling conveniencies to the body, consisting of springs the most nice and delicate, which must be kept in order with the most anxious attention, and which in spite of all our care are ready every moment to burst into pieces, and to crush in their ruins their unfortunate possessor. They are immense fabrics, which it requires the labour of a life to raise, which threaten every moment to overwhelm the person that dwells in them, and which while they stand, though they may save him from some smaller inconveniencies, can protect him from none of the severer inclemencies of the season. They keep off the summer shower, not the winter storm, but leave him always as much, and sometimes more, exposed than before, to anxiety, to fear, and to sorrow; to diseases, to danger, and to death…

Who then benefits from all the industry and toil of the upwardly-mobile? Adam Smith argues that it was, somewhat paradoxically, the poor. The rich sacrifice their true happiness to set in motion enterprises. And the commodities produced by those enterprises are principally consumed by the poor:

The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants…. The proud and unfeeling landlord…. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of… all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice…

Cynicism: Fifth and last, Adam Smith minimizes the importance of economic inequality by claiming that there is little or nothing to be done about it. Human nature is such that people will seek to create, and then to obey, those whom they will call their superiors. It is the view expressed by Calvera in the movie The Magnificent Seven. Chico asks Calvera:

And the people of the village? What about them?

Calvera responds:

I leave that to you. Can men of our profession worry about that? If God did not want them to be sheared, he would not have made them sheep!

As Adam Smith puts it in his Theory of Moral Sentiments:

A stranger to human nature, who saw the indifference of men about the misery of their inferiors, and the regret and indignation which they feel for the misfortunes and sufferings of those above them, would be apt to imagine, that pain must be more agonizing, and the convulsions of death more terrible to persons of higher rank, than they are to those of meaner stations.

Upon this disposition… is founded the distinction of ranks, and the order of society. Our obsequiousness to our superiors more frequently arises from our admiration for the advantages of their situation, than from any private expectations of benefit from their goodwill…. We desire to serve them for their own sake, without any recompense but the vanity or the honour of obliging them…

To attempt to eliminate inequality is, for Smith in his cynical mode, like trying to bail out the sea: make society equal, and people will find somebody to look up to, and then figure out a way to give their money away to the rich.

So that is Adam Smith: worry about prosperity and wealth, yes; worry about poverty and want, yes; worry about inequality, not so much.

Needless to say, Karl Marx did not agree that income inequality is not worth a great deal of concern. He saw inequality as a necessary product of the market economy, a necessary product that poisoned all of its fruits, and one that made hopes of eliminating or even reducing poverty and dire poverty vain.

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Adam Smith: Wealth Inequality Prevents More Damage

2.5.2) Wealth Inequality Prevents More Damage: Adam Smith’s second way of minimizing the importance of economic inequality is to claim that it is a relatively gentle alternative to other forms of inequality that will emerge if economic inequality is reduced. Smith argues in Book III of the Wealth of Nations that the rise in inequality in market income and consumption went along with reduced inequality in social status and hierarchy—and in reduced societal violence as well. Great landlords who cannot earn and spend their wealth in the city will focus on arming and maintaining retainers, and the result will be that they will “make war according to their own discretion, almost continually upon one another, and very frequently upon the king; and the open country still continued to be a scene of violence, rapine, and disorder”. But once there are luxuries to be purchased by wealth earned by selling produce to the growing cities, “it was impossible that the number of their retainers should not as gradually diminish, till they were at last dismissed altogether”, and so peace came to the countryside.

As John Maynard Keynes was to write a century and a half later: “It is far better for a man to tyrannize over his bank balance than over his fellow citizens…”

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Adam Smith: Society & the “System of Natural Liberty”

2.3) Society & the “System of Natural Liberty”: Adam Smith was a genius because he had a truly game-changing insight into how our societal division of labor should be organized. As far as the production and distribution of our collective material wealth is concerned, you see, most of what we need and want is both excludible and rival.

If something is “excludible”, that means we can assign it an owner—some one of us can be designated to control it, and to decide on its use, or decide to transfer “ownership” of it to something else. If something is excludible, we can push the decisions about how it is to be used out to the periphery of society, to the people on the ground who know what is going on, rather than have the decision made by some centralized bureaucracy clueless because of its inability to reliably judge information conveyed to it at third- or fourth-hand. Having ownership makes sense if information about what is going on is dispersed and hard to assemble: giving control to people on the spot is then a very good idea.

If something is “rival”, that means that one person's use of it forecloses the opportunities of others: if I am using this iPhone, you cannot be using the same iPhone. If a good is rival, that one of us is using it diminishes the opportunities and possibilities available to others. That makes them poorer. Thus it makes sense to charge a price for somebody using a rival commodity. That makes them feel in their gut the effects of their decisions on the opportunities open to others. Charging prices is a way to align individuals’ incentives about whether it is worth it for them to make use of a commodity with the effects of their decision on the overall well-being of the society.

Hence, Adam Smith argued in his Inquiry into the Nature and Causes of the Wealth of Nations, the wealth of nations is most greatly enhanced by following the dictates of what he named the System of Natural Liberty—“liberty” because it leaves people free to do what they wanted with their labor and their possessions, “natural” because it conforms with human nature, "system" because it can be and is extended to the status of a general principle. Let people decide what they want to do with their things and their labor, and they arrange themselves in a large highly-productive societal division of labor. Self-interest focuses people on creating value. Competition curbs any distracting focus of self-interest on accomplishing exploitation.

This “System of Natural Liberty” is, Smith argues, good. As Heilbroner summarizes:

Self-interest… drives men to action…. [But] a community activated only by self-interest would be a community of ruthless profiteers. This regulator is competition, the socially beneficial consequence of the conflicting self-interests of all the members of society. For each man, out to do his best for himself with no thought of social cost, is faced with a flock of similarly motivated individuals who are in exactly the same boat…. A man who permits his self-interest to run away with him will find that competitors have slipped in… will find himself without buyers in the one case and without employees in the other. Thus very much as in the Theory of Moral Sentiments, the selfish motives of men are transmuted by interaction to yield the most unexpected of results: social harmony…. The… market is that it is its own guardian. If output or prices or certain kinds of remuneration stray away from their socially ordained levels, forces are set into motion to bring them back to the fold. It is a curious paradox which thus ensues: the market, which is the acme of individual economic freedom, is the strictest task master of all…

This leads to a fraught question: Is this a theological point? Is the fact that acting “naturally” in the sense of giving market exchange free rein produces good results evidence that there is a benevolent Providence out there? Is this a teleological point? Are, in some sense, money and gift-exchange aimed at creating prosperity? How is it that processes that are not human—that lead to consequences not desired directly by any human—have a mind of their own, and lead to good ends? It is indeed a marvel that, as Smith puts it, in his theory at least:

[While] every individual… endeavours… to direct that industry that its produce may be of the greatest value… labours to render the annual revenue of the society as great as he can…. He… neither intends to promote the public interest, nor knows how much he is promoting it…. He intends only his own security…. He intends only his own gain…. In this, as in many other cases, [he is] led by an invisible hand to promote an end which was no part of his intention…”

It is a marvel. But what kind of a marvel is it?

It is not that Smith is opposed to government. Government is necessary to protect property, and to enforce contracts: people—most people—will respect others’ property and keep their own contracts, most of the time. But for the non-most people and at the non-most times we need the police, hence we need government. We need public works. We need public education. We need national defense. Adam Smith is very clear on all of these. In fact, Book V of the Wealth of Nations on what the government should do and how it should do it is the largest of the five parts of the book. But, Smith is certain, attempts of some centralized bureaucrat to undermine the System of Natural Liberty in its proper sphere—to direct who should do what when and where—were likely to produce not wealth and prosperity but poverty and misery.

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Lecture Notes: Adam Smith

Salon

Adam Smith starts with the observation that humans are largely but not exclusively self-interested creatures: we are, largely but not exclusively greedy. Yet we have a complex and sophisticated societal division of labor. And that division of labor is essential to our prosperity. Indeed, it is essential to our survival: drop one or two of us into the Sierra Nevada, even in summer, and we will quite likely die. Drop 100 of us, and we will quite likely survive, and even flourish. How can animals that are by nature greedy nevertheless cooperate on a large scale? That is the deep moral-philosophical question that we can see in both of Smith’s big books...

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Adam Smith: From Human Nature to Human Society

2.2) From Human Nature to Human Society: Hence the key importance of the human cultural invention of money in forming our large-scale human society: money means that any one of us can make a short-term one-shot exchange relationship with any other one of us, someone who we may well never see again. Money, you see, is manufactured trust, and it allows us to extend our societal division of labor to encompass, indirectly, nearly everybody else in the world.

For example, consider the 30-foot bronze statue of Athene Promakhos—Athena Fighting-in-Front—that the council and people of Athens had cast and installed on the Acropolis around -450. The Greek geographer Pausanias wrote that anyone approaching Athens by sea by day could see her gleaming helmet and the tip of her spear as soon as they had rounded Sounion Head at the southern tip of Attika. 70 tons of bronze supposedly went into the statue, which survived until 1204—63 tons of copper, 7 tons of tin. Copper was abundant. But where in the -5th century were the artisans of Athens to find 7 tons of tin? The historian Herodotos states that he could find nobody in Athens who knew where the tin was coming from: all anyone could say was that the ships had picked up the tin, already mined, in Sicily, and that they thought it came from “tin islands” in the ocean on the other side of Europe. But he could find nobody who would claim to have actually seen these tin islands, or this ocean on the other side of Europe. So he doubted the stories.

The answer, of course, was that the tin was in Cornwall, at the southwestern tip of the island of Britain. The societal division of labor, as governed by the market, was a mechanism that “knew” that 7 tons of tin needed to be mined in Cornwall and then shipped, probably via the English Channel-Seine-portage-Rhone-Mediterranean route, to Athens via Sicily. And so it happened. But, apparently, nobody anywhere in the value chain knew its entire extent. The market knew things that no human individual knew. And this was almost 2.5 millennia ago: the market knows much, much, much more now.

Language, weak dominance, gift exchange, and money have enabled us to progress from perhaps 10,000 of us 70,000 years ago living at a global average living standard of perhaps three 3.5 dollars a day to today’s world-girdling societal division of labor now 7.5 billion strong, with a global average standard of living no about $35 a day. We are now, collectively, on average, at least 10 times as well-off and 750,000 times as numerous as we were 70,000 years ago back in the environment of evolutionary adaptation when we last passed through a Darwinian bottleneck.

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Three Great Books to Have Read—But Not Nefessarily to Read

I have been remiss in posting here because I have had the unexpected load of getting together lectures for the last 40% of: Economics 105: The History of Economic Thought: Smith, Marx, Keynes.

So let me apologize for the dearth of material by stepping through my lecture notes:

1) Smith, Marx, Keynes: The aim of this course it to examine the history of economic thought through the lens of three major economic thinkers: Adam Smith, Karl Marx, and John Maynard Keynes, each of whom wrote one long, difficult, but undeniably great book. Adam Smith in 1776 published his An Inquiry into the Nature and Causes of the Wealth of Nations. Karl Marx in 1867 published his Capital: A Critique of Political Economy (volume 1). John Maynard Keynes in 1936 published his The General Theory of Employment, Interest and Money (note the absence of the Oxford comma from Keynes’s title: Keynes was a British academic but not one from Oxford but rather from the University of Cambridge). In addition, read Robert Heilbroner’s excellent (if old) The Worldly Philosophers, a short survey of the history of economic thought, for context and background.

Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, Marx’s Capital: A Critique of Political Economy, and Keynes’s The General Theory of Employment, Interest and Money are great books to have read, if not easy books to read. They are, in fact, downright painful. (Heilbroner’s The Worldly Philosophers is, by contrast, painless, easy, and still great.) Learning how to read great but difficult books and make sense of them on your own is a very valuable skill to learn, but a difficult one to teach in any way but by doing it. Moreover, a great book is a great book only if the reader is ready and prepared to read it—and so learning to figure out how to become the kind of reader to appreciate a particular great book is another important skill to learn as well.

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Lecture Notes: Smith, Marx, Keynes: A View of the History of Economic Thought (UNFINISHED)

Well, I have wound up, by surprise, giving the last third of the lectures in Economics 105: The History of Economic Thought: Smith, Marx, Keynes. I admit I was not as averse to being imposed on by the Department as I might have been because I thought it might push me to get my head and my thoughts together.

Here they are—unfinished. But I should give the students an opportunity to see how I think about these thinkers and their works: https://www.icloud.com/pages/0howtV7CndvjkSCCLmtjmq_SA

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Note to Self: Polanyi's problem is he writes badly. Hyman Minsky had next-to-no footprint until Charlie Kindleberger took Minsky's view of the world and turned it into a readable history. There's definitely space to do something like that with Polanyi—fictitious commodities, the market wants to treat your community, your occupation, your security of employment as market commodities, but people believe they have rights beyond market rights when the market gives rights only to those who control resources useful for making things for which rich people have serious Joneses...

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Hoisted from the Archives: David Glasner Says That I Am More of a Hayekian than I Think I Am...

stacks and stacks of books

David Glasner: Wherein Hayek Agrees with DeLong that Just Because You’re Rich, It Doesn’t Mean You Deserve to Be | Uneasy Money: "Recently Brad DeLong expounded on the extent to which the earnings that accrue to individuals do not correspond to the contributions total output that can be ascribed to the personal efforts of those individuals or the contributions made by resources owned by thoe people. Here’s DeLong: 'Pascal Lamy: “When the wise man points at the moon, the fool looks at the finger…”

...Perhaps in the end the problem is that people want to pretend that they are filling a valuable role in the societal division of labor, and are receiving no more than they earn–than they contribute. But that is not the case. The value–the societal dividend–is in the accumulated knowledge of humanity and in the painfully constructed networks that make up our value chains. A “contribution” theory of what a proper distribution of income might be can only be made coherent if there are constant returns to scale in the scarce, priced, owned factors of production. Only then can you divide the pile of resources by giving to each the marginal societal product of their work and of the resources that they own. That, however, is not the world we live in.

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Grand Narrative: An Intake from Slouching Towards Utopia?: An Economic History of the Twentieth Century, 1870-2016

Il Quarto Stato

Slouching Towards Utopia?: An Economic History of the Twentieth Century, 1870-2016

I. Grand Narrative

J. Bradford DeLong :: U.C. Berkeley, NBER, WCEG https://www.icloud.com/pages/0TzensY9YyNvqcY8elYagLUnQ https://www.icloud.com/keynote/0_nA1dc3XLgFa_2rEVsk3nuWQ

1.1: The Long 20th Century in Human History

The Long 20th Century began around 1870 and ended in 2016.

Before 1870 humanity was poor, and life was typically nasty, brutish, and short. Before 1870, over and over again, technology lost its race with human fecundity, and greater numbers coupled with resource scarcity to produce a humanity where most people most of the time could not be confident that they and their families would have their 2000 calories, plus essential nutrients, plus a roof over their head in a year. Before 1870 those on the make overwhelmingly focused on how to take from others or keep what they had while maintaining order, rather on how to make more for everyone. It is true that between 1800 and 1870 technology and organization gained a step or two in their race with fecundity. But only a step. Any post-1870 slackening of the pace of technological or organizational progress, or any major redivision of society’s dividends devoting less to the sinews or peace and more to the sinews of war, and “nasty, brutish, and short” would reassert itself.

But starting in 1870 all that changed. Science reached critical mass and gave birth to engineering. A liberal political order gave birth to a market economy. Engineering and the market produced an explosion of economic growth: these days one single year sees as much proportional technological and organizational advance and change in the human economy as a typical fifty years did back before 1800.

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Introducing Partha Dasgupta: Economics: A Very Short Introduction

479 Social Capital and Natural Resources Sir Partha Dasgupta YouTube

Introducing Partha Dasgupta: Economics: A Very Short Introduction

http://amzn.to/2gR2jH3

Back in 1800, nearly the entire world lived in dire poverty—what we today see as the dire poverty line of $1.90 a day, a level at which you are spending more than half your income on bare calories and essential nutrients, the minimum of heat and shelter, and the minimum of clothing. Below that line, certainly your health and perhaps your life is impacted: women become too skinny to reliably ovulate, and children become too malnourished to have healthy and effective immune systems. Back in 1800, there were only a few economies where the median household had a standard of living of more than $3 a day: Germany, France, Austria, Denmark, Belgium, Holland, Switzerland, the U.K., the U.S., and that was it.

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HOLY TOLEDO, BATMAN!!: This could end tomorrow, simply, easily, if Pence would invoke or McConnell call for the invocation of Amendment XXV: Betty Cracker: Holy Toledo: "This is just…well, watch for yourselves if you didn’t see it live:

VoteVets: Donald Trump cares so little about mass shootings that he says it happened in the wrong city ("Toledo"). What's worse, he seemingly read it off the teleprompter, meaning the entire White House didn't care enough to get it right, either....

Fellow citizens, we either kick the Republicans out of power at every level, or their insanity will engulf this country completely. We’re more than half way there right now. It really is as simple as that...

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Note to Self: "Consider Alasdair Macintyre... In the beginning: boring naive and jejune Marxisant socialist... Today: boring, naive, and jejune neo-Thomist... But in the middle, along the trajectory, Herbert Marcuse: An Exposition and a Polemic through Against the Self-Images of the Age to Hegel and After Virtue... what a thinker! what a powerful awareness of the attractiveness of different positions! what deep insights generated by position and opposition—even if he never gets to aufhebung—composition!...

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John Maynard Keynes (1926): From "The End of Laissez-Faire": Weekend Reading

School of Athens

John Maynard Keynes (1926): from The end of Laissez-Faire: "The early nineteenth century... harmonised the conservative individualism of Locke, Hume, Johnson, and Burke with the socialism and democratic egalitarianism of Rousseau, Paley, Bentham, and Godwin.... The idea of a divine harmony between private advantage and the public good is already apparent in Paley. But it was the economists who gave the notion a good scientific basis.... To the philosophical doctrine that the government has no right to interfere, and the divine that it has no need to interfere, there is added a scientific proof that its interference is inexpedient.... The principle of laissez-faire had arrived to harmonise individualism and socialism.... The political philosopher could retire in favour of the business man.... Thus the ground was fertile for a doctrine that, whether on divine, natural, or scientific grounds, state action should be narrowly confined and economic life left, unregulated so far as may be, to the skill and good sense of individual citizens actuated by the admirable motive of trying to get on in the world.... By the time that the influence of Paley and his like was waning, the innovations of Darwin were shaking the foundations of belief..... Survival of the fittest could be regarded as a vast generalisation of the Ricardian economics. Socialist interferences became, in the light of this grander synthesis, not merely inexpedient, but impious, as calculated to retard the onward movement of the mighty process by which we ourselves had risen like Aphrodite out of the primeval slime of ocean...

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John Maynard Keynes (1926): The End of His ""The End of Laissez-Faire": Weekend Reading

Il Quarto Stato

Weekend Reading: John Maynard Keynes (1926): The end of his "The End of Laissez-Faire": "These reflections have been directed towards possible improvements in the technique of modern capitalism.... There is nothing in them which is seriously incompatible with... the essential characteristic... the dependence upon an intense appeal to... money-making and money-loving instincts.... I may do well to remind you... that the fiercest contests and the most deeply felt divisions of opinion are likely to be waged in the coming years... round... questions... psychological or, perhaps, moral...

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Yes, Societal Well-Being Depends on a Very Strong Distributional Bias Along the Lines of "To Each According to Their Need". Why Do You Ask?

Il Quarto Stato

At least half of our wealth comes from the ideas and investments of those who are now dead. And as we grow richer, that proportion grows as well. None of the living have any just exclusive claim on any portion of this cornucopian storehouse of technologies. The dead have no just claim on it either: respect for their legacy does not entail honoring their wishes as to its use, if that honoring upsets the principle of equal opportunity. Thus the most bedrock moral-philosophical principal is that more than half of our wealth is held in common for the human community to distribute as it decides is good.

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Samuel Brittan (1980): Hayek, the New Right, and the Crisis of Social Democracy: Weekend Reading

This—written forty years ago—is still the best short summary of left-neoliberalism I have every seen. Indeed, I think meditating on it, while walking up Drury Lane between the LSE and Bloomsbury in the summer of 1982, was how I became a card-carrying left-neoliberal in the first place:

School of Athens

Samuel Brittan (1980): Hayek, the New Right, and the Crisis of Social Democracy: "SINCE THE PUBLICATION of his Road to Serfdom in 1944, Friedrich Hayek has been cursed by sneerers, who dismiss everything he has to say without giving it a hearing, and even more by admirers, who agree with it before they have studied it, and regard it mainly as a highbrow stick with which to beat the Left. Yet there are many reasons for trying to come to terms with what he has been saying. The completion of The Political Order of a Free People, the third and last volume of his Law, Legislation and Liberty, provides a suitable opportunity for an interim assessment...

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It is interesting to note that Adam Smith's one explicit use of the phrase "Invisible Hand" in his Wealth of Nations is not a situation in which the competitive market equilibrium is Pareto-optimal. It is of a situation with two market failures—a home bias psychological failure among the merchants of Amsterdam, and agglomeration economies for mercantile activity in Amsterdam. And the two offset each other: if merchants were rational, the free-market equilibrium would ternate an inefficient sacrifice the agglomeration economies. If the agglomeration economies were absent, psychological home bias would lead to an inefficient concentration of activity:

Glory Liu: How the Chicago School Changed the Meaning of Adam Smith’s ‘Invisible Hand’: "For Friedman and Stigler, economics’ scientific power came from its ability to predict outcomes based on two central insights... in The Wealth of Nations... self-interest... [and,] of course, the invisible hand.... Few economists were as successful as Friedman in spreading this interpretation of Smith’s ideas to the public... populariz[ing] this interpretation of Smith’s invisible hand for an overtly conservative political agenda.... What makes the Smith of Milton Friedman and George Stigler so... problematic... is that they 'economized' Smith in a way that obscured if not precluded the relevance of his moral philosophy and political theory.... Whether his political value stems from the idea that he is an economist or moral philosopher or something else, however, is something that we—Smith’s readers—get to decide...

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Hoisted from the Archiyes: Why We Hate Chickenhawks: Selections from SFF Author David Drake

Hammers slammers Google Search

David Drake, a good chunk of whose work is best classified as horror and is really about his experiences as an interrogator in the 11th Armored Cavalry Regiment, the "Blackhorse", when it went through the Cambodian market town of Snuol:

I [now] had much more vivid horrors than Lovecraft's nameless ickinesses to write about.... I wrote about troopers doing their jobs the best they could with tanks that broke down, guns that jammed—and no clue about the Big Picture.... I kept the tone unemotional: I didn't tell the reader that something was horrible, because nobody told me.... Those stories... were different. They didn't fit either of the available molds: "Soldiers are spotless heroes," or... "Soldiers are evil monsters"... [...] The... stories were written with a flat affect, describing cruelty and horror with the detachment of a soldier who's shut down his emotional responses completely in a war zone... as soldiers always do, because otherwise they wouldn't be able to survive. Showing soldiers behaving and thinking as they really do in war was... extremely disquieting to the civilians who were editing magazines...

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The very sharp Jeet Heer traces David Brooks's intellectual panic back to the John Birch Society: Jeet Heer: A Few Thoughts on "Cultural Marxism," Marcuse, John Wayne, the John Birch Society, and Anti-Semitism: "Goobers in the Trump administration are worried about 'Cultural Marxism' in the 'Deep State' opposing Trump.... 'Cultural Marxism' is a big boogeyman on the alt-right: it's the people who are supposedly responsible for creating PC, feminism, etc. The actual historical 'cultural Marxists' (or 'Western Marxists') were the Frankfurt School: Adorno, Benjamin, Marcuse etc... sought to supplant and update Marx's economic system with recognition of cultural forces...

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A Lazy New Year's Eve Morn on Twitter...

School of Athens

Brad DeLong: Gee, I Have Argued Myself From Half-Agreeing With @EconMarshall To 90% Agreeing With Him, Haven’t I?_:

Suresh Naidu: Sorry that came out wrong, deleted. Straightforward: a substantial amount of economic power and inefficiency is not eliminated by deconcentration/free entry. Not clear, lots of problems are made worse by free entry/competition. Low margins mean harder to unionize. Innovation is done by big firms. On simple efficiency grounds things can get worse in market with advantageous selection (eg loans) or with any negative ext. It depends!

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Mike Konczal: If we are worried about margins being too low, boy do I have exciting news for you:

Sure, but between that, Tobin's Q, "profit share", consistent rate of return under declining real rates, and the break of investment and profitability, something is broken. One can contest any of the individual methods, but together they paint a clear picture.

Suresh Naidu: The " always more competition" fix implies we want to expand output but it is not clear we do in every market (eg airline monopoly might be 10th best emissions regulation).

(((E. Glen Weyl))): 10th best reasoning is fine for policy technocrats, but I think a pretty poor basis for thinking about imaginaries for broad social change and democratic movement building. Imaginaries that move us beyond monopolistic corporate forms, but using market mechanisms, seem promising. I am talking about building coalitions and democratic discourse rather than just being technocratic experts.

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For the Weekend: John Donne

Bridge depicted in Hemingway s For Whom the Bell Tolls Picture of La Ciudad Ronda

John Donne: For Whom the Bell Tolls:

...No man is an island,
Entire of itself.
Each is a piece of the continent,
A part of the main.

If a clod be washed away by the sea,
Europe is the less.
As well as if a promontory were.
As well as if a manor of thine own
Or of thine friend's were.

Each man's death diminishes me,
For I am involved in mankind.
Therefore, send not to know
For whom the bell tolls,
It tolls for thee...

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